One of the respected global rating organisations, Fitch Ratings, has expressed confidence that tier-one Nigerian lender, Access Bank Plc, will remain profitable in 2020.
Since the beginning of this year, the world has been battling with a global health pandemic called coronavirus.
The disease has forced many countries to lockdown, causing a global economic crisis and recession, with many businesses losing billions of Dollars.
But in a statement last week, Fitch said it sees Access Bank remaining “profitable in 2020 due to strong margins (including further improvement in its cost of funding), robust non-interest income and lower operating expenses post-merger.”
However, Fitch said Access Bank will face material pressures from a weaker operating environment over the next few months given the oil price crash, potential further devaluation of the Nigerian naira and the impact of the coronavirus pandemic on individuals and businesses.
Last Thursday, the rating agency maintained Access Bank’s ‘A+(nga)’ National Long-Term Rating and ‘F1(nga) National Short-Term Rating on Rating Watch Negative (RWN).
Business Post reports that the action followed a review of the bank’s creditworthiness relative to other Nigerian issuers. Fitch recalibrated the Nigerian National Ratings scale following the sovereign downgrade on April 6.
It noted that resolution of the RWN will depend on the fallout from the oil price crash and the impact of the coronavirus pandemic on the bank’s credit profile.
Fitch said it will focus on Access Bank’s asset quality and capital metrics as these have been pressured by the acquisition of troubled Diamond Bank in April 2019.
In the first quarter of 2020, Access Bank reported an impaired (Stage 3)/gross loans ratio of 5.9 percent and loan loss allowances/impaired loan ratio of 108 percent.
While the impaired loan ratio is in line with peers, its Stage 2 loans/gross loans ratio remains high at 28.0 percent in Q1 2020 compared with 30.7 percent in December 2019.
The majority of Stage 2 loans were inherited from Diamond Bank and these may not migrate to Stage 3 due to pre-emptive and regular restructuring which commenced in 2019.
According to Fitch, 67 percent of the Stage 2 book is in Naira, protecting Access Bank from asset quality and devaluation risks to some extent.
Furthermore, the financial institution made some progress in the first three months of the year in reducing Stage 2 oil and gas loans to 13.8 percent of the total at Q1’20 versus 16.5 percent in FY’19.
“Of the stage 2 loans, the oil and gas related loans are the ones we view as potentially risky given the current low oil prices,” Fitch said in the statement.
It further said Access Bank’s Tier 1 and total capital ratios rose to 17.3 percent and 20.9 percent at end-1Q20.
“Access Bank plans to enhance regulatory capital ratios in 2020 through higher retained earnings, thanks to its solid revenue generating capacity that has been boosted by the acquisition, notwithstanding the pandemic,” the rating firm said.