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S & P affirms Access Bank Outlook Stable


S&P Global Ratings has affirmed Access Bank plc rating a stable outlook.

The global rating agency on Thursday also affirmed the lender ‘B/B’ issuer credit ratings.

According to S & P report, “We affirmed our ‘ngA/ngA-1′ Nigeria national scale ratings on the bank.”

The report said, “The affirmation balances the benefits of the Diamond acquisition for Access’ franchise and prospective cost of funding with the bank’s diluted asset quality indicators and integration risks.

“We believe the Diamond acquisition will cement Access’ leading franchise in the competitive Nigerian banking sector. The combined entity has total assets of about N6.4 trillion (approximately USD17 billion), representing nearly one-quarter of the system’s total assets.

“We believe Access’ expanded customer and loans base will underpin stronger revenue generation and stability going forward.

“At the same time, we see slight pressure on the consolidated bank’s asset quality indicators, because the bulk of Diamond’s nonperforming loans (NPLs) were transferred to Access when the merger became effective on March 19, 2019.

“We expect that cost of risk will increase to 1.4per cent-1.5per cent in 2019, since Access will have to take additional provisions.

“We also expect the bank to write off about N120 billion in 2019 and around 0.5per cent-1.0per cent of average customer loans between 2020 and 2021.

“However, we anticipate that Access’ cost of risk will remain below the sector average, based on our estimate of the sector’s credit losses of 2.8per cent in 2019 and 2.5per cent in 2020.

We project Access’ risk-adjusted capital (RAC) ratio will hover around three per cent-four per cent through 2021.

“Although we consider this RAC level to be weak, we expect the Diamond deal to strengthen Access’ earnings capacity, with core earnings climbing to about 2.5per cent of managed assets through 2021.

“We forecast the net interest margin will increase toward seven per cent throughout the 2019-2021, while fees and commissions will rise by N30 billion. Diamond’s retail focus enables the bank to build a low-cost and stable retail deposit base (2.7per cent in 2017 versus 4.7per cent on average for peers).

“In addition, Access plans to close about 80 branches, thereby reducing its operating cost base. Still, we forecast the bank’s cost-to-income ratio to increase to about 60per cent-63per cent, reflecting the integration of Diamond, and this compares unfavorably to the best performing banks in the Nigerian banking sector.”

S & P global rating said,  the post-merger execution risks are generally pervasive for a transactions of this nature, particularly due to the banking environment within which Access operates and the elevated NPL levels.

They said, “However, we believe that Access’s integration of Intercontinental Bank in 2011 was successful, and that it boasts a strong management team.

“We expect that Access–similar to its rated peers in Nigeria–will continue to see funding that is largely contractually short term. This is manageable, in our opinion, given that the bank’s stable funding ratio remains well in excess of 100per cent while its broad liquid assets to short-term wholesale funding ratio amounted to 2.77x in first-quarter 2019.

“Net broad liquid assets covered 47per cent of short-term deposits at the same date. The bank holds a long position in U.S. dollars, stemming from domiciliary accounts and funding raised in dollars in the past four years.

The stable outlook indicates our expectation that the integration of Diamond will likely translate into higher earnings capacity over the next 12 months with manageable operational and integration risks.

“We would lower the ratings, in the next 12 months, if Access fails to successfully integrate Diamond, or if its asset quality deteriorates beyond our expectations.

“We could also lower the ratings if we see a marked deterioration in the bank’s capitalization, with RAC ratio weakening below three per cent for longer than expected. We could also lower the ratings if we were to take a negative rating action on Nigeria (B/Stable/B).”


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