Reviews & Outlooks | |
Reviews & Outlooks | |
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Sunday, May
10, 2020 / 10:08 AM / Fitch Ratings / Header Image
Credit: Chevening
Fitch Ratings has maintained Access Bank Plc's
'A+(nga)' National Long-Term Rating and 'F1(nga) National Short-Term Rating on
Rating Watch Negative (RWN).
The rating actions follow a review of Access's
creditworthiness relative to other Nigerian issuers. Fitch has recalibrated the
Nigerian National Ratings scale following the sovereign downgrade on 6 April.
Related Link: Fitch Downgrades
Nigeria to 'B'; Outlook Negative
Resolution of the RWN will depend on the fallout from
the oil price crash and the impact of the coronavirus pandemic on the bank's
credit profile. Fitch will focus on the bank's asset quality and capital
metrics as these have been pressured by the acquisition of troubled Diamond
Bank in April 2019.
Related Link: Access Bank
CEO's Statement on 1 Year Anniversary of Merger With Diamond Bank
Access reported an impaired (Stage 3)/gross loans
ratio of 5.9% and loan loss allowances/impaired loan ratio of 108% at end-1Q20.
While the impaired loan ratio is in line with peers, its Stage 2 loans/gross
loans ratio remains high at 28.0% at end-1Q20 (end-2019: 30.7%).
The majority of Stage 2 loans were inherited from
Diamond and these may not migrate to Stage 3 due to pre-emptive and regular
restructuring which commenced in 2019. As we understand, 67% of the Stage 2
book is in naira, protecting Access from asset quality and devaluation risks to
some extent. Furthermore, Access made some progress in the first three months
of the year in reducing Stage 2 oil and gas loans to 13.8% of the total at
end-1Q20 (end-2019: 16.5%). Of the stage 2 loans, the oil and gas related loans
are the ones we view as potentially risky given the current low oil prices.
Access's Tier 1 and total capital ratios rose to 17.3%
and 20.9% at end-1Q20. Access plans to enhance regulatory capital ratios in
2020 through higher retained earnings, thanks to its solid revenue generating
capacity that has been boosted by the acquisition, notwithstanding the
pandemic. Access will remain profitable in 2020 due to strong margins
(including further improvement in its cost of funding), robust non-interest
income and lower operating expenses post-merger.
Key Rating Drivers
Access's National Ratings reflect its creditworthiness
relative to other issuers in Nigeria and are driven by its standalone strength.
They are lower than the highest -rated Nigerian peers due to its comparatively
weaker profitability and capitalisation metrics.
Access' National Short-Term Rating is the lower of the
two options for a 'A+(nga)' National Long-Term Rating possible under Fitch's
criteria, reflecting potential risks to funding and liquidity from market
instability.
Access' naira-denominated subordinated debt rating is
'A-(nga)', in line with the two-notch base case in our criteria.
The RWN on the bank's National Ratings and debt rating
reflects our expectation that like its Nigerian peers, Access will face
material pressures from a weaker operating environment over the next few months
given the oil price crash, potential further devaluation of the Nigerian naira
and the impact of the coronavirus pandemic on individuals and businesses. It
also reflects the bank's comparatively weaker capital ratios than direct peers.
Rating Sensitivities
Access's National Ratings are sensitive to a change in
its creditworthiness relative to other Nigerian issuers.
Factors that could, individually or collectively, lead
to positive rating action/upgrade:
Access's National Ratings could be downgraded if its
regulatory tier 1 and total capital ratios do not catch up with peers during
2020. A substantial weakening in asset quality metrics compared with peers
could also trigger a downgrade.
Similar to peers, downside risk will also arise from a
weakening in the bank's standalone credit profile. Nigerian banks face very
challenging conditions due to pressures in the domestic operating environment.
Downside risks are heightened by the coronavirus outbreak especially if the
current lockdown, oil price weakness and global economic turmoil extend into
2H20, giving rise to a more severe economic and financial market fallout than
currently expected.
Factors that could, individually or collectively, lead
to negative rating action/downgrade:
Upside to the ratings is unlikely at present but could
come from a sustained improvement in financial metrics from Access's larger
franchise and more-diverse business model.
In accordance with Fitch's policies, the issuer
appealed and provided additional information to Fitch that resulted in a rating
action that is different than the original rating committee outcome
Best/Worst Case Rating
Scenario
International scale credit ratings of Financial
Institutions issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive direction) of
three notches over a three-year rating horizon; and a worst-case rating
downgrade scenario (defined as the 99th percentile of rating transitions,
measured in a negative direction) of four notches over three years. The
complete span of best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings
are based on historical performance.
Rating Actions
Related to Access Bank Plc
1. Access Bank
CEO's Statement on 1 Year Anniversary of Merger With Diamond Bank
2. Access Bank Plc
Q1 2020 Unaudited Results - FX Losses and Operating Expenses Taper Earnings
Growth
3.
ACCESS Declares
N41bn PAT in Q1 2020 Results,(SP:N6.35k)
4.
ACCESS Notifies
Of Board Meeting and Closed Period For Q1 2020...
5. ACCESS To Hold
Its 31st AGM on April 30 2020...
6. ACCESS Publishes
2020 Green Bond Impact Report
7. COVID-19: Access
Bank, Ecobank Bank Leverage Online Channels
8. ACCESS Releases
Update To Key Stakeholders on Coronavirus
9. Access Bank Q4
2019 Results Review: Maintaining Outperform Rating
10. Access Bank Plc
FY'19 Audited Result - FX Losses Stills Earnings Momentum
11. ACCESS Declares
N97.5bn PAT in 2019 Audited Results, Proposes N0.40k Final Div. (SP:N8.50k)
12. Fitch Affirms
Access Bank at 'B'; Stable Outlook
13. Fitch
Rates Access Bank's Tier 2 Subordinated Debt Final 'A(nga)'
14. Access
Bank 'B and B' Ratings Affirmed; Outlook Stable
15. Access-Diamond
Deal Boosts Large Banks' Dominance in Nigeria - Fitch
16. Fitch Places
Diamond and Access on Rating Watch on Merger Announcement
17.
Access Bank
Launches New Five-Year Strategy - to Become Africa's Gateway to the World
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