Banking
Merger: Fitch Places Diamond Bank, Access Bank on Rating Watch
By Dipo Olowookere
Following the announcement of a proposed merger between Diamond Bank and Access Bank, renowned rating agency, Fitch Ratings, has placed both Nigerian lenders on its rating watch.
In a statement issued by Fitch, it said Diamond Bank’s Long-Term Issuer Default Rating (IDR) has now been downgraded to ‘CC’ from ‘CCC’ and Viability Rating (VR) to ‘cc’ from ‘ccc’ and placed its IDRs and VR on Rating Watch Evolving (RWE).
The agency also simultaneously placed Access Bank Plc on Rating Watch Negative (RWN).
It explained that the downgrade of Diamond Bank’s ratings reflects the deterioration in the bank’s foreign-currency (FC) liquidity position since the last review and an expected deterioration in the bank’s capital position following additional loan impairment charges (LICs) on the announced write-offs of stage 3 loans under IFRS 9, to take place by year-end.
Fitch noted that the Rating Watches (RW) follows a memorandum of agreement between the banks to merge. The merger is expected to be completed by end-June 2019. Although the agreement is subject to regulatory and shareholder approval, Fitch said it believes that the probability of the completion of the merger is sufficiently high to take rating action.
The RWE on Diamond Bank reflects Fitch’s view that its standalone creditworthiness could improve or deteriorate beyond the current ratings, depending on the realisation of the merger and the bank’s ability to meet its upcoming FC obligations prior to it.
The upside aspect of the RWE reflects the view that should Diamond Bank meet its near-term obligations and the merger be completed, it is likely to be positive for the bank’s creditors due to the stronger franchise and financial metrics of the combined entity.
Following completion of the merger, Diamond Bank will cease to exist as a separate legal entity, and Fitch will then withdraw its ratings.
However, the downside aspect of the RWE reflects significant risk with regards to the bank’s near-term FC liquidity position given its large short-term bullet repayments, including a $200 million Eurobond maturing in May 2019, $100 million from Afrexim due in March 2019, and $70 million from the International Finance Corporation due in July 2019.
Fitch said it also understands that some large long-term obligations have recently become current suggesting intensified liquidity pressure.
According to Diamond Bank’s FC liquidity plan, the bank should be able to meet its obligations using existing US dollar liquidity, proceeds from the sale of its UK subsidiary, cash flows from maturing US dollar loans (mainly from oil and gas loans), and by exchanging naira into US dollars through the interbank market.
However, the plan is based on a number of assumptions, including the completion of the sale of the UK subsidiary, which has not yet been approved by the Prudential Regulation Authority in the UK, and therefore liquidity remains tight and highly vulnerable.
Fitch said it also understands that Access Bank may provide some liquidity support to Diamond Bank, although it will not assume a direct liability for Diamond Bank’s debt payments pre-merger.
Fitch point out that Access Bank withdrawing from the deal would most likely be negative for Diamond Bank.
It said the RWN on Access Bank’s Long-Term IDR of ‘B’ and VR reflects the potentially negative impact on its financial metrics from the absorption of a weaker bank and execution risks post-merger.
Upon completion of the merger Fitch will assess the bank’s credit profile. A potential downgrade is likely to be limited to one notch. However, it is also possible that Access Bank’s ratings could be affirmed with a Stable Outlook if the impact from merger appears to be more moderate, given the bank’s currently sound financial metrics and the planned capital raising, and provided there are no additional unforeseen risks emerging from Diamond.
Diamond Bank’s stage 3 loans stood at 37 percent of gross loans at end-1H18. Additionally, the bank’s stage 2 loans stood at 23 percent of gross loans at end-1H18, indicating the extent of its weak asset quality.
Access Bank has better asset quality with stage 3 loans and stage 2 loans accounting for 5 percent and 14 percent of gross loans, respectively, at end-1H18.
Diamond Bank plans to take LICs of between N150 billion-N180 billion before writing off bad loans by end-2018. Diamond Bank’s total equity was N222 billion at end-9M18, meaning that its capital position at end-December 2018 following the write-offs will be materially weaker.
For regulatory capital calculations, Fitch said it understands that as per the central bank’s IFRS 9 transition guidelines, Diamond Bank will be able to phase-in the impact of additional LICs on its total capital adequacy ratio (CAR) over a four-year period, allowing it to remain above its 10 percent minimum regulatory requirement.
Access Bank estimates that its CAR should stand at around 20 percent (above its minimum regulatory capital requirement of 15 percent) post-merger, which will be helped by the expected $250 million Tier 2 capital issuance in January 2019 and strong retained earnings.
Fitch explained that the banks’ National Ratings reflect their creditworthiness relative to Nigeria’s best credit and relative to peers operating in the country. Diamond Bank’s National Long- and Short-Term Ratings have been downgraded to ‘CCC’ and ‘C’, respectively, from ‘B’ and ‘B’, reflecting its weaker credit profile relative to peers, it said.
It noted that Diamond Bank’s National Ratings have also been placed on RWE based on expectation that its assets and liabilities will be transferred to Access Bank’s balance sheet, but also that its credit profile may deteriorate further relative to peers’ in the interim, adding that the RWN on Access Bank’s National Ratings indicates potential downside risks of the merger.
Fitch said Diamond Bank’s senior unsecured debt rating has been downgraded to ‘CC’/’RR4’ from ‘CCC’/’RR4’, with the lender’s senior unsecured debt rating also placed on RWE, reflecting that on its Long-Term IDR. It stated that the Long-Term Ratings on Access Bank’s senior unsecured and subordinated debt have been placed on RWN, reflecting that on its Long-Term IDR.
By Adedapo Adesanya
Access Bank Plc, the banking subsidiary of Access Holdings Plc, has entered into a binding agreement with South African-based Bidvest Group Limited for the acquisition of 100 per cent equity stake in Bidvest Bank Limited.
The deal for the 24-year-old South African lender is due to be completed in the second half of 2025, upon regulatory approval.
This shows Access Bank’s further expansion plans in line with goals set by its late founder, Mr Herbert Wigwe.
The agreement to acquire 100 percent stake in Bidvest Bank reflects Access Bank’s commitment to strengthening its footprint in South Africa and consolidating on its position as the continent’s gateway to global markets as it seeks to optimise the benefits of recent acquisitions and accelerate its transition towards a greater focus on efficiencies.
Bidvest Bank, founded in 2000 is a niche and profitable South African financial institution providing a diverse range of services, including corporate and business banking solutions and diverse retail banking products.
As of its year ended June 2024, Bidvest Bank reported total assets equivalent of $665million and audited profit before tax of $20million.
Upon conclusion of this acquisition, Bidvest Bank will be merged with the bank’s existing South African subsidiary to create an enlarged platform to anchor the regional growth strategy for the SADC region.
This is coming just as the bank opened a new branch in Malta as part of efforts to focus on international trade finance after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
The Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
By Modupe Gbadeyanka
To strengthen Europe-Africa trade ties, Access Bank has opened a new branch in Malta. It will focus on international trade finance, employing approximately 30 people in its initial phase, with plans for controlled expansion over time.
It was learned that this Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
Access Bank Malta Limited commenced operations after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
Malta, a renowned international financial centre, and a gateway between the two continents, is strategically positioned to play a pivotal role in advancing commerce and fostering economic partnerships.
This strategic expansion into Malta enables The Access Bank UK Limited to leverage growing trade opportunities between Europe and Africa.
It underscores the organisation’s commitment to driving global trade, financial integration, and supporting businesses across these regions.
“By establishing operations in Malta, we will gain a foothold in a market that bridges European and North African economies, moving us one step closer to our goal of becoming Africa’s Gateway to the World.
“It further enhances our bank’s capacity to support clients with innovative solutions tailored to cross-border trade and investment opportunities,” the chief executive of Access Bank, Mr Roosevelt Ogbonna, stated.
“Europe has emerged as Africa’s leading trading partner, driven by initiatives such as the Economic Partnership Agreements between the EU and African regions and the African Continental Free Trade Area (AfCFTA).
“With Europe-Africa economic relations entering a new phase, The Access Bank Malta Limited is ideally positioned to deepen trade and meet the financing and banking needs of our clients in these expanding markets,” the chief executive of Access Bank UK, Mr Jamie Simmonds, commented.
Also speaking, the chief executive of Access Bank Malta, Renald Theuma, said, “Malta is uniquely positioned as a bridge between Europe and Africa, making it an ideal location for our subsidiary. This move allows The Access Bank Malta Limited to engage more closely with customers in Europe and deliver tailored financial solutions that drive growth and connectivity across both continents.”
By Adedapo Adesanya
The International Finance Corporation (IFC) and Goldman Sachs have announced a new partnership with African banks, including Nigeria’s Zenith Bank and Stanbic IBTC Nigeria to support the Goldman Sachs 10,000 Women initiative, a joint programme launched in 2008 to provide access to capital and training for women entrepreneurs globally.
The two Nigerian banks are part of nine financial institutions from across Africa which have agreed to join the 10,000 Women initiative committing to leverage the business education and skills tools the programme provides to create more opportunities for women entrepreneurs across the continent by providing access to business education.
Others banks include Stanbic Bank Kenya, Ecobank Kenya, Ecobank Cote d’Ivoire, Equity Bank Group, Banco Millenium Atlantico – Angola, Baobab Group, and Orange Bank.
Speaking on this, Ms Charlotte Keenan, Managing Director at Goldman Sachs said – “10,000 Women has had a powerful impact to date, but we know that there are more women to reach and more potential to be realized.
“We are delighted to partner with IFC to supercharge the growth of women-owned businesses across Africa, and mainstream lending to female business leaders. We remain committed to supporting entrepreneurs with the access to education and capital that they need to scale.”
Since 2008, the 10,000 Women initiative has provided access to capital and business training to more than 200,000 women in 150 countries.
“This expanded initiative marks a significant step forward in creating equitable economic opportunities for women in Africa, enabling them to build stronger, more resilient businesses and to realize their entrepreneurial goals,” said Ms Nathalie Kouassi Akon, IFC’s Global Director for Gender and Economic Inclusion.
Goldman Sachs’ 10,000 Women initiative complements the Women Entrepreneurs Opportunity Facility (WEOF), launched in 2014 by Goldman Sachs and IFC as the first-of-its-kind global facility dedicated to expanding access to capital for women entrepreneurs in emerging markets.
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