By Dipo Olowookere
The Long-Term Issuer Default Rating (IDR) assigned to Access Bank by Fitch Ratings has been affirmed with a Stable Outlook. Also, the Viability Rating (VR) is affirmed at ‘b’.
A statement issued by the rating agency disclosed that the IDRs of Access Bank are driven by its intrinsic creditworthiness as defined by its VR. Like all Nigerian banks, Access Bank’s VR is constrained by the operating environment in Nigeria (B+/Stable).
The fragile economic recovery restrains banks’ growth prospects and asset quality, with the VR reflecting the lender’s position as one of the country’s largest banks with an overall domestic market share of approximately 11 percent, as well as the bank’s sound financial metrics and reasonable capital buffers, which are at the upper end of rated Nigerian banks. Fitch noted that the VR also factors in the bank’s highly concentrated loan book.
Access Bank has subsidiaries in a further six African countries and in the UK and these represent 25 percent of consolidated assets and generated 30% of group pre-tax profit in 1H18.
Operating conditions in Nigeria are recovering given improving oil prices, which support a modest return to economic growth, and US dollar liquidity in the banking system has eased. However, the operating environment for banks is difficult with minimal sector loan growth and pressure on margins and capital.
Access Bank has fairly robust risk controls and systems and its impaired loans/gross loans ratio (5% at end-June 2018) is sound by Nigerian standards and broadly in line with the 5.7% average for its closest Nigerian peers.
Loan loss cover reached slightly above 100% following implementation of IFRS 9 in January 2018. Restructured loans are lower than at other Nigerian banks at approximately 5% of gross loans but Stage 2 loans classified in line with IFRS 9 are, at around 13% of gross loans, broadly in line with peers’.
The top 20 loans at end-June 2018 represented around 40% of total loans, high by international standards but in line with Nigerian peers’. Exposure to the oil sector, 25% of loans at end-June 2018, is lower than the 30% sector average.
According to Fitch, Access Bank’s VR also reflects adequate profitability although this is weaker than at most other immediate peers. Relative earnings weakness reflects a higher cost structure and a modest retail franchise, resulting in higher cost of funding than peers’. Efforts to attract new retail depositors, particularly through digital channels, continue.
It said liquidity ratios are sound, with cash holdings and government securities representing around 40% of total assets. Foreign currency refinancing risks have eased with the bank issuing a five-year $300 million 10.5% Eurobond in October 2016 (issued by Access Finance BV), which partly refinanced a $350 million 7.25% Eurobond bond maturing in July 2017.
Fitch noted that core capital ratios are lower than those reported by immediate peers, although its assessment is that buffers are adequate.
Access Bank absorbed N78.4 billion ($257 million), equivalent to approximately 15% of consolidated end-2017 equity, of additional expected credit loss provisions required in line with IFRS 9. Following this, its Fitch Core Capital (FCC)/risk-weighted assets (RWAs) ratio stood at 18% at end-June 2018 (peers: 22%).
