Fitch Ratings has upgraded Access Bank’s long-term national ratings to “A” from “A-” with a stable outlook, a milestone that shows the Nigerian lender has overcome the macroeconomic headwinds crimping the growth of businesses in Africa’s largest economy.
The national rating of the bank has been upgraded to ‘A (nga)’/‘F1 (nga)’ from ‘A-(nga)’/’F2 (nga)’ to reflect the improvement in creditworthiness over time, relative to peers and to the best credits in Nigeria.
“Access Bank’s major strengths, which underpin its long- and short-term ratings, include its size and franchise, its strong risk management and the group’s solid capitalisation”, said Fitch in its report.
“The bank’s improved rating further reinforces its resolve to deliver leading innovative and differentiated products and services to its customers, in its quest to become the world’s most respected African bank by 2017,” Fitch added.
Industry experts say the latest ratings conferred on Access Bank is commendable, given the threat to lenders’ assets quality on the back of exposure to the oil and gas sector.
Analysts say the prolonged decline in oil prices leaves the banking sector facing unprecedented risks, including foreign exchange risk, as the Central Bank has restricted how much foreign exchange banks and their customers can buy at the interbank market.
The CBN has imposed trading restrictions; banning importers from using the foreign exchange market for about 41 items. The apex bank said such policies are expedient in order to curb inflation and prevent the reserve from continued depletion.
Industry players posited that such monetary policies are squeezing liquidity and hurting their profits, evidenced by weak interest and non-interest income.
Nigeria, Africa largest economy, that relies on oil for 90 percent of the foreign exchange earnings has been hard hit by a more than 70 percent drop in price of oil to $30 a barrel.
The naira is pegged at N197-N199 since March 2015, while Nigeria’s foreign reserves have dropped 19 percent since the end of June 2014; they further fell to $27.84 billion as at February 2015.
Economic growth slowed to 2.8 percent on an annualised basis in the third quarter from 6.2 percent, a year earlier, and inflation has accelerated to 9.6 percent, according to data from the NBS.
In Fitch’s opinion, banks will continue to face multiple threats in the course of 2016, particularly from tight foreign currency liquidity, worsening asset quality and pressure on regulatory capital ratios.
However, Access’ Viability Rating (VR) is affirmed, as these risks are to a large extent already captured in the ratings. The outlook appears grim and management teams allude to this, but in our view, the banks are not reflecting this sufficiently in their guidance, according to a recent report by Renaissance Capital, an investment house.
Despite slow loan growth and pressured earnings by most banks, as shown in their 2015 financial statement posted on the website of the NSE, Access Bank’s net income increased by 38 percent to N48.09 billion from N34.93 billion; one of the highest among tier 1 lenders.
The Nigeria lender’s loans and advances to customers were up by 15 percent to N1.28 trillion in September 2015, from N1.11 trillion in 2014. Deposits to customers jumped by 7 percent to N1.55 trillion in 2015, as against N1.45 trillion in 2014.
“Our concern is how the loan book, which has more than doubled over the past three years, could perform under current deteriorating economic conditions, said Analysts, at Renaissance Capital.
BALA AUGIE
