Access Bank Controls 19% of Nigerian Banking Assets
With acquisition strategy, Access Bank Plc accounts for 19% of Nigerian Banking system assets, according to a Fitch Ratings note. In the latest rating, the global rating agency affirmed the bank’s Long-Term Issuer Default Rating (IDR) at ‘B’ with a stable outlook.
Access Bank’s Viability Rating (VR) is also affirmed at ‘b’ and National Long-Term Rating at ‘A+ (nga)’, indicating a strong credit profile with no support from the sovereign in case of material risks.
The rating note indicated that Access Bank’s Long-Term IDR is driven by its standalone creditworthiness, while the bank’s VR was supported by healthy loan quality and strong revenue diversification, profitability and liquidity coverage.
Fitch explained further that the Group VR also reflects the constraint of a challenging operating environment, aggressive cross-border growth and moderate capitalisation in the context of its risk profile.
Access Bank’s National Long-Term Rating balances its leading franchise and strong financial profile against weaker capitalisation than higher-rated peers, noting that the downside to operating conditions of the bank includes rising global risks which are projected to weaken domestic operating conditions.
Pressure on the consumer price level is noted to be a downside risk, with the inflation rate rising to 17.71% in May from 16.8% in April 2022. This is expected to remain stubbornly high, posing downside risks to real GDP growth forecasts of 3.1% in 2022 and 3.3% in 2023. READ: Dollar Weakens, Downside Risks Spotted on Euro
However, the global rating agency said 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 the end of the financial year 2021, according to Fitch Rating.
In a mission to become the gateway to the global financial system, Access Bank has acquired several banks in other Sub-Saharan African countries in recent years in line with its African expansion strategy.
Fitch analysts expect such acquisitions to continue, strengthening Access Bank’s franchise and geographical diversification. It said Access Bank has a record of integrating domestic acquisitions but a large number of cross-border acquisitions creates execution risks and may pressure capital.
Credit concentrations however remain significant, posing a downside risk to the corporate profile. Single-obligor credit concentration is high, with the 20-largest loans representing 207% of Fitch Core Capital at the end of 2021.
Oil and gas exposure accounted for 24% of gross loans at the end of the financial year 2021 is seen as material but lower than other domestic systemically important banks (D-SIBs).
Fitch noted that the group sovereign exposure through fixed-income securities and cash reserves at the Central Bank of Nigeria is particularly high relative to FCC; exceeding 450% in 2021.
According to the Ratings, asset quality has improved as Access Bank’s impaired loan ratio declined to 4.3% at the end of the first quarter of 2022 from 6% at the end of 2019, largely reflecting problem loans inherited through the Diamond Bank acquisition in 2019 being addressed through write-offs and restructurings.
Though remaining material, it was noted that Stage 2 loans have similarly declined to 9.8% of gross loans at the end of 2021 from 31% at end of 2019. Specific loan loss allowance coverage of impaired loans which printed at 47% in 2021 is acceptable in view of collateral coverage of impaired loans, Fitch said.
Strong Profitability:
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. Profitability has improved moderately in recent years as a result of greater cost efficiency and increased non-interest income.
Access Bank is considered moderately capitalised, according to the rating note, with a Fitch Core Capital ratio of 14.8% at the end of Q1 2022, lower than most Nigerian D-SIBs’, reflecting higher balance-sheet leverage. Pre-impairment operating profit is healthy, providing a sizeable buffer to absorb loan impairment charges without affecting the group capital.
Group regulatory capital ratios have healthy buffers above impending Basel III requirements but Fitch expects the bank’s unconsolidated common equity capital (CET1) capital ratio to have a tight buffer over the 13% minimum requirement.
Access Bank has a material reliance on term-deposit funding at 43% of customer deposits in the first quarter of 2022, resulting in a higher cost of funding than other systemic important banks.
Depositor concentration is moderate, according to the rating note with the 20-largest depositors representing 19% of customer deposits in 2021. On the positive side, the bank’s liquidity coverage in both local and foreign currencies is noted to be strong, mitigating funding weakness. #Access Bank Controls 19% of Nigerian Banking Assets
