Access Bank: Fitch affirms ratings with stable outlook, recognizing resilience amidst challenges
Fitch has affirmed Access Bank Plc’s Long-Term Issuer Default Rating (IDR) at ‘B-‘ with a Stable Outlook, underlining the bank’s resilience in the face of a challenging operating environment. Additionally, Fitch has upheld the bank’s National Long-Term Rating at ‘A+(nga)’ with a Stable Outlook, recognizing Access Bank’s leading franchise while acknowledging certain areas of concern, such as core capitalization and profitability in comparison to higher-rated peers.
Access Bank, Nigeria’s largest bank group, has demonstrated its commitment to growth and expansion through its strategic acquisitions of small banks across various Sub-Saharan African countries. Fitch recognizes these efforts, as they contribute to Access Bank’s robust franchise and geographical diversification. However, Fitch also cautions that while Access Bank has proven its ability to integrate domestic acquisitions effectively, the extensive number of cross-border acquisitions introduces execution risks and potential capital pressure.
Undeniably, Access Bank’s position in the Nigerian banking landscape is notable, accounting for a substantial 16% of banking system assets as of the close of 2022. This significant market share highlights the bank’s strong footing in the industry, which has been further reinforced by its expansion strategy into other African markets. As Access Bank continues its acquisitions, Fitch predicts the bank’s franchise will strengthen, bolstering its presence and diversification across the continent.
Nevertheless, Fitch points out areas of concern that warrant attention. Access Bank’s concentration of credit exposure to a single obligor is remarkably high, with the 20 largest loans representing 193% of Fitch Core Capital (FCC) at the end of 2022. While the bank’s exposure to the oil and gas sector is material, it remains lower than that of its domestic systemically important counterparts. Additionally, Access Bank’s significant sovereign exposure through securities and Central Bank of Nigeria (CBN) cash reserves surpasses 600% relative to its FCC, highlighting a potential vulnerability.
Operating in Nigeria’s challenging business landscape, Access Bank, like its peers, grapples with US dollar shortages and the Central Bank of Nigeria’s (CBN) onerous cash reserve requirement. Fitch expects that the new administration’s reform initiatives, including the gradual elimination of fuel subsidies and the liberalization of the naira, will positively impact the operating environment. However, there remains a risk of sharp currency depreciation due to the substantial disparity between the official and parallel exchange rates, which could impact Access Bank’s stability.
Access Bank’s affirmation by Fitch amid a turbulent operating environment emphasizes its ability to navigate challenges while maintaining its creditworthiness. The Stable Outlook further underscores the bank’s resilience and strategic positioning. As Nigeria’s banking sector undergoes transformation and reform, Access Bank’s proactive approach to acquisitions and its leading franchise provide a solid foundation for continued growth. Nevertheless, the bank must remain vigilant in managing risks associated with credit concentration, sovereign exposure, and potential currency volatility.
Access Bank’s ability to weather the storm and maintain a robust financial position in the face of challenges highlights the bank’s prudent risk management and strategic vision. The affirmation by Fitch serves as a testament to the bank’s resilience and its unwavering commitment to delivering sustainable performance in a dynamic market landscape. As the Nigerian banking sector evolves, Access Bank’s proactive strategies and focus on maintaining a diversified portfolio position it well to capitalize on emerging opportunities and solidify its position as a leading player in the region.
