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Moody’s expects Access Bank to remain resilient

11 Nov 2015
Financial Nigeria

Summary

Moody’s said Access bank’s high capital levels will boost its resilience in the face of weaker Nigerian economic growth.

Herbert Wigwe, Group Managing Director/CEO, Access Bank Plc

Moody's Investors Service has said the credit profile of Access Bank Plc, one of Nigeria’s biggest commercial banks, to remain strong over the next 12 to 18 months. The credit rating and research company stated this in a report, entitled "Access Bank Plc: Core Income Is Under Pressure But Strong Capital Provides Resilience," made available last week.

Moody’s said Access bank’s high capital levels will boost its resilience in the face of weaker Nigerian economic growth that has led to potential asset quality pressure and weakened liquidity conditions.

"Weaker economic growth in Nigeria and tighter liquidity within its banking system are among the challenges exerting pressure on Access Bank's core profitability," said Akintunde Majekodunmi, Moody's Vice President – Senior Analyst and co-author of the report. "Despite this backdrop, we expect Access' credit profile to remain resilient over the next 12 to 18 months."

Access Bank’s Non-performing Loans (NPLs) fell to 3% in the first half of 2015 from 3.5% in 2014, according to Moody's adjusted ratio, while reported NPLs fell to 1.8% from 2.1% over the same period. The credit rating agency said the bank’s NPLs are low and compare favourably with those of domestic and global lenders.

Moody's, however, expects the bank's NPLs to rise over the next 12 to 18 months - although staying below 5% - as a result of its unseasoned loan book, high exposure to the oil and gas sector and the challenging operating environment.

Asset quality deterioration may pose further risks to Access' profitability, although the rating agency notes that NPLs are well-covered by loan loss reserves.

The bank's high non-interest income masks weaker earnings quality. Excluding derivatives and trading income, the bank's core income only just covers its total costs, highlighting weaknesses in its earnings quality.

In its latest results, Access Bank revealed that its gross revenues rose 42 percent year-on-year between January and September this year to reach N257.6 billion, compared with N181.4 billion the bank had posted for the same period last year. Bad loans provision for the initial nine months of the year rose by 66 percent year-on-year to N11.6 billion, from N7 billion posted for the same period last year. Its after-tax profits increased by 37.7 percent year-on-year to reach N48.1 billion, compared with N34.9 billion posted in the same period last year.

Moody’s said the bank’s profitability was hit by increases in the cash reserve requirement (CRR), which increased the interest expense on deposits in the banking system as a whole. Access Bank's rights issue in March this year raised $211 million. This has helped strengthened the quality of its capital and increased its loss absorbance capacity, supporting its standalone credit profile.


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