Fitch Ratings has affirmed Access Bank Plc's (ACCESS) Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook. The Viability Rating (VR) is affirmed at 'b'. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, VR, NATIONAL RATINGS AND SENIOR DEBT RATINGS
The IDRs of Access are driven by its intrinsic creditworthiness as defined by its VR. Like all Nigerian banks, Access's VR is constrained by the operating environment in Nigeria (B+/Stable). The fragile economic recovery restrains banks' growth prospects and asset quality. The VR reflects Access's position as one of the country's largest banks with an overall domestic market share of approximately 11%, as well as the bank's sound financial metrics and reasonable capital buffers, which are at the upper end of rated Nigerian banks. The VR also factors in the bank's highly concentrated loan book.
Access has subsidiaries in a further six African countries and in the UK and these represent 25% 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 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.
The VR of Access 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. 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 USD300 million 10.5% Eurobond in October 2016 (issued by Access Finance BV), which partly refinanced a USD350 million 7.25% Eurobond bond maturing in July 2017.
Core capital ratios are lower than those reported by immediate peers, although our assessment is that buffers are adequate. Access absorbed NGN78.4 billion (USD257 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%).
Access's National Ratings are a reflection of the bank's creditworthiness relative to the best credits in Nigeria.
The long- and short-term ratings on Access's senior unsecured programme reflect their status as senior, unsecured, unconditional obligations of the bank etc.
SUBORDINATED DEBT
The subordinated debt issued by Access is rated one notch below its VR. Recoveries on the notes in the event of default are considered to be below average, as evidenced by a 'RR5' Recovery Rating.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that sovereign support to Nigerian banks cannot be relied on given Nigeria's weak ability to provide support, particularly in foreign currencies. In addition, there are no clear messages of support from the authorities regarding their willingness to support the banking system. Therefore, the Support Rating Floor of all Nigerian banks is at 'No Floor' and all Support Ratings are at '5'. This reflects our view that senior creditors cannot rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable.
RATING SENSITIVITIES
IDRS, VR, NATIONAL RATINGS AND SENIOR DEBT
Access's IDRs are sensitive to a rating action on the bank's VR. A material improvement in the bank's funding structure to capture a greater share of stable, low-cost deposits would be positive for the VR. A sharp deterioration in asset quality and erosion of capital adequacy could lead to a downgrade of the bank's VR, but this is not our base case given increasingly stable economic conditions in Nigeria.
Access's National Ratings are sensitive to a change in the bank's creditworthiness relative to other Nigerian issuers.
The long- and short-term ratings on Access's senior unsecured programme are sensitive to a change in the bank's IDRs.
SUBORDINATED DEBT
The long-term rating on subordinated debt issued by Access is sensitive to a change in the bank's VR.
SUPPORT RATING AND SUPPORT RATING FLOOR
The SR is sensitive to a change in assumptions around the propensity or ability of the sovereign to provide timely support to the bank. Given Nigeria's sovereign ratings, this is not our base case.
The rating actions are as follows:
Access Bank Plc
Long-Term IDR affirmed at 'B'; Outlook Stable
Short-Term IDR affirmed at 'B'
Viability Rating affirmed at 'b'
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'No Floor'
National Long-Term Rating affirmed at 'A+(nga)'
National Short-Term Rating affirmed at 'F1(nga)'
Senior unsecured long-term rating affirmed at 'B'/'RR4'
Senior unsecured short-term Rating affirmed at 'B'
Subordinated long-term rating affirmed at 'B-'/'RR5'
