Fitch Ratings has placed Access Bank Plc’s Long-Term Issuer Default Rating (IDR) at ‘B’ with a Stable Outlook including the Bank’s Viability Rating (VR) at ‘b’ and National Long-Term Rating at ‘A+’.

The drivers of the rating action include the bank’s standalone creditworthiness, as expressed by its VR. The VR factors in a leading franchise, healthy loan quality and strong revenue diversification, profitability and liquidity coverage.

“The rating also reflects the constraint of a challenging operating environment, aggressive cross-border growth and moderate capitalization in the context of its risk profile.”
Fitch

According to Fitch, rising global risks will weaken domestic operating conditions. Inflation is expected to remain “stubbornly high”, posing downside risks to our real GDP growth forecasts of 3.1% in 2022 and 3.3% in 2023,” Fitch noted.

However, downside risks are somewhat mitigated by strong oil prices, which should also underpin growth in non-oil sectors and banks’ asset quality.

Access Bank is Nigeria’s largest banking group, accounting for 19% of banking system assets at end-2021. Access Bank has acquired several banks in other Sub-Saharan African countries in recent years in line with its African expansion strategy.

Access Bank’s Acquisitions to Strengthen Bank

Fitch expects such acquisitions to continue, strengthening Access Bank’s franchise and geographical diversification. Access Bank has a record of integrating domestic acquisitions but the large number of cross-border acquisitions creates execution risks and may pressure capital.

“Single-obligor credit concentration is high, with the 20-largest loans representing 207% of Fitch Core Capital (FCC) at end-2021. Oil and gas exposure (24% of gross loans at end-2021) is material but lower than other domestic systemically important banks’ (D-SIBs).”
Fitch

The bank’s sovereign exposure through fixed-income securities and cash reserves at the Central Bank of Nigeria is particularly high relative to FCC (exceeding 450% at end-2021).

Access Bank’s impaired loans (Stage 3 loans under IFRS 9) ratio declined to 4.3% at end-1Q22 from 6% at end-2019, largely reflecting problem loans inherited through the Diamond Bank acquisition in 2019 being addressed through write-offs and restructurings.

Though remaining material, Stage 2 loans have similarly declined to 9.8% of gross loans at end-2021 from 31% at end-2019. Specific loan loss allowance coverage of impaired loans (47% at end-2021) is acceptable in view of collateral coverage of impaired loans.

Bank’s Profitability Improved

Access Bank delivers strong profitability, as indicated by operating returns on risk-weighted assets that have averaged 3.5% over the past four years. Strong profitability is supported by a wide net interest margin (NIM), strong non-interest income and moderate loan impairment charges (LICs).

Profitability has improved moderately in recent years as a result of greater cost efficiency and increased non-interest income.

Access Bank’s FCC ratio (14.8% at end Q1 2022) is lower than most Nigerian D-SIBs’, reflecting higher balance-sheet leverage. Pre-impairment operating profit is healthy, providing a sizeable buffer to absorb LICs without affecting capital.

Group regulatory capital ratios have healthy buffers above impending Basel III requirements but Fitch expects the bank’s unconsolidated CET1 capital ratio to have a tight buffer over the 13% minimum requirement.

Access Bank has a material reliance on term-deposit funding (43% of customer deposits at end Q1 2022), resulting in a higher cost of funding than other D-SIBs’. Depositor concentration is moderate, with the 20-largest depositors representing 19% of customer deposits at end-2021. Liquidity coverage in both local and foreign currencies is strong, mitigating funding weakness.

According to Fitch, Government support to commercial banks cannot be relied on given Nigeria’s weak ability to provide support, particularly in foreign currency. The Government Stability Rating (GSR) is therefore ‘no support’, reflecting Fitch’s view that senior creditors cannot rely on receiving full and timely extraordinary support.