…upgrades and will subsequently withdraw Diamond Bank PLC’s ratings
MON, APRIL 01 2019-theG&BJournal- Moody’s Investors Service (“Moody’s”) has today confirmed Access Bank Plc’s (Access) long-term local currency deposit rating of B2, long-term foreign currency deposit rating of B3, long-term issuer ratings of B2, local currency senior unsecured rating of B2, local currency national scale deposit ratings of A1.ng/NG-1, foreign currency national scale deposit ratings of A3.ng/NG-2 and national scale senior unsecured rating of A1.ng. Furthermore, Moody’s has affirmed Access’ short-term bank deposit ratings, issuer ratings and counterparty risk ratings (CRR) at Not-prime and affirmed the short-term counterparty risk assessment (CRA) at Not-prime(cr). The outlook on the bank’s long-term deposit ratings, long-term issuer ratings and senior unsecured rating was changed to stable from ratings under review.
At the same time, Moody’s has downgraded Access’ baseline credit assessment (BCA) to b3 from b2, its long-term CRRs to B2 from B1, long-term CRA to B2(cr) from B1(cr) and national scale CRRs to Aa3.ng from Aa1.ng. Diamond Bank PLC’s (Diamond) BCA was upgraded to b3 from caa3 and all Diamond’s ratings have been aligned with the ratings of Access. The outlook on Diamond’s long-term deposit and issuer ratings was changed to stable from ratings under review. Diamond’s ratings will subsequently be withdrawn.
Today’s actions are driven by the announcement by Access on March 19 that Diamond’s assets, liabilities and undertakings have now been assumed by Access.
Please refer to the Moody’s Investors Service’s Policy for Withdrawals of Credit Ratings, available on its website, www.moodys.com
A full list of affected ratings can be found at the end of this press release.
The rating actions conclude the review for downgrade on Access’ ratings and review for upgrade on Diamond’s ratings, both initiated on 29 January 2019.
The confirmation of Access’ long term deposit ratings with a stable outlook reflects Moody’s view that the deterioration in Access’ standalone credit profile, as a result of the merger, is balanced against our assumption of a high likelihood of Access being supported by the government of Nigeria (B2, stable), if needed.
The downgrade of Access’ BCA to b3 from b2 reflects Moody’s view that there will be a weakening of the bank’s credit profile following the merger with Diamond, despite the immediate improvement to Access’ funding structure and long-term profitability. Following the merger, Access’ capital and asset risk metrics will deteriorate given Diamond’s weaker credit profile (though much smaller than Access, Diamond had a BCA of caa3 before the merger was completed).
Following the BCA downgrade to b3, we now incorporate 1 notch of rating uplift on Access’ BCA to align its local currency deposit ratings of B2 with that of Nigeria’s issuer rating.
Moody’s upgrade of Diamond’s ratings reflects the fact that the rated deposits and liabilities of Diamond are now assumed by Access, a stronger entity and as a result, Diamond’s ratings have been aligned with Access’ ratings.
RATINGS RATIONALE
ACCESS BANK PLC
— Confirmation and stable outlook is driven by standalone and support considerations
The primary driver of the confirmation of Access’ long-term deposit ratings with a stable outlook is Moody’s view that the deterioration in Access’ standalone credit profile, as a result of the merger, is balanced against our assumption of a high likelihood of Access being supported by the government of Nigeria (B2, stable) if needed. Access’ local currency deposit rating and outlook is in line with the issuer rating and stable outlook of the support provider, the government of Nigeria.
Following the merger, Access’ market share increased to 14.8% in deposits from 10.3% (as of September 2018) and, combined with a customer base of 29 million, is now the largest bank in Nigeria. Given the systemic importance of the bank to the economy and Nigeria’s payments system, Moody’s expects that external support from the authorities will be forthcoming if needed.
— Capital and asset quality deterioration offset funding and profitability benefits from the merger
Despite the immediate improvement to Access’ funding structure and the operational synergies that will support long-term profitability, the primary driver of the downgrade on Access’ BCA is Moody’s view that there will be a deterioration of the bank’s capital and asset risk metrics, following the merger with Diamond. Furthermore, the rating action also takes into account implementation and execution risks in managing asset risk and growing profitability of the merged entity.
In the near-term, Access’ tangible common equity (TCE) to risk-weighted assets ratio and nonperforming loans (NPL) ratio are expected to deteriorate from 14% and 5%, respectively as of September-end 2018, following the absorption of Diamond’s undercapitalized balance sheet and weak loan portfolio (Diamond NPLs were 42% as of September 2018). Moody’s, however, expects a gradual recovery in Access’ standalone credit profile over the next 2 years, including the normalization of the bank’s NPL metrics.
Access’ funding profile will benefit from Diamond’s large retail deposit base. As of September 2018, about 75% of Diamond’s deposits were inexpensive retail deposits while Access has a higher reliance on more confidence-sensitive corporate deposits. The rating agency expects the cost of deposits for Access to lower by 100-150 basis points in the next 18 months, which will support the bank’s net interest margins. Additionally, in the long-term, the acquisition will enhance Access’ profitability through a broadened product offering and efficiency savings relating to branch network, workforce, procurement and support and IT services.
DIAMOND BANK PLC
–Upgrade reflects the completion of transfer of liabilities and other undertakings
The rating agency upgraded Diamond’s BCA and long-term deposits ratings to align them with those of Access. The upgrade is driven by the fact that Diamond’s assets, liabilities and undertakings have been assumed by Access, a stronger entity with a b3 BCA, which will now become the obligor of former Diamond’s creditors.
–Moody’s withdraw Diamond’s ratings
Moody’s will subsequently withdraw the ratings because Diamond ceases to exist as an operating entity following the merger. All assets and liabilities of Diamond are transferred to Access.
WHAT COULD CHANGE RATINGS — UP/DOWN
An upgrade is not likely given that Access’ long-term local currency ratings are on par with the ratings of the Government of Nigeria. However, an upgrade of Government of Nigeria’s rating will put upward pressure on Access’ ratings.
Access’ ratings could be downgraded if the bank’s credit profile continues to deteriorate materially.
Diamond’s ratings will subsequently be withdrawn.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Moody’s National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody’s global scale credit ratings in that they are not globally comparable with the full universe of Moody’s rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a “.nn” country modifier signifying the relevant country, as in “.za” for South Africa. For further information on Moody’s approach to national scale credit ratings, please refer to Moody’s Credit rating Methodology published in May 2016 entitled “Mapping National Scale Ratings from Global Scale Ratings”. While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
LIST OF ALL AFFECTED RATINGS
Issuer: Access Bank Plc
..Downgrades:
…. Adjusted Baseline Credit Assessment, Downgraded to b3 from b2
…. Baseline Credit Assessment, Downgraded to b3 from b2
…. Long-term Counterparty Risk Assessment, Downgraded to B2(cr) from B1(cr)
…. Long-term Counterparty Risk Ratings, Downgraded to B2 from B1
…. National Scale Rating Long-term Counterparty Risk Ratings, Downgraded to Aa3.ng from Aa1.ng
..Confirmed:
…. National Scale Rating Short-term Counterparty Risk Ratings, Confirmed at NG-1
…. Long-term Issuer Ratings, Confirmed at B2, Outlook Changed To Stable From Rating Under Review
….Senior Unsecured Regular Bond/Debenture (Local Currency), Confirmed at B2, Outlook Changed To Stable From Rating Under Review
…. National Scale Rating Senior Unsecured Regular Bond/Debenture (Local Currency), Confirmed at A1.ng
…. Long-term Bank Deposits (Local Currency), Confirmed at B2, Outlook Changed To Stable From Rating Under Review
…. Long-term Bank Deposits (Foreign Currency), Confirmed at B3, Outlook Changed To Stable From Rating Under Review
…. National Scale Rating Long-term Bank Deposits (Local Currency), Confirmed at A1.ng
…. National Scale Rating Long-term Bank Deposits (Foreign Currency), Confirmed at A3.ng
…. National Scale Rating Short-term Bank Deposits (Local Currency), Confirmed at NG-1
…. National Scale Rating Short-term Bank Deposits (Foreign Currency), Confirmed at NG-2
..Affirmed:
…. Short-term Counterparty Risk Assessment, Affirmed NP(cr)
…. Short-term Counterparty Risk Ratings, Affirmed NP
…. Short-term Issuer Ratings, Affirmed NP
…. Short-term Bank Deposits, Affirmed NP
..Outlook Action:
….Outlook Changed To Stable From Rating Under Review
Issuer: Diamond Bank PLC
..Upgraded and will be withdrawn:
…. Adjusted Baseline Credit Assessment, Upgraded to b3 from caa3
…. Baseline Credit Assessment, Upgraded to b3 from caa3
…. Long-term Counterparty Risk Assessment, Upgraded to B2(cr) from Caa1(cr)
…. Long-term Counterparty Risk Ratings, Upgraded to B2 from Caa1
…. National Scale Rating Long-term Counterparty Risk Ratings, Upgraded to Aa3.ng from Ba2.ng
…. National Scale Rating Short-term Counterparty Risk Ratings, Upgraded to NG-1 from NG-4
…. Long-term Issuer Ratings, Upgraded to B2 from Caa1, Outlook Changed To Stable From Rating Under Review
…. Long-term Bank Deposits (Local Currency), Upgraded to B2 from Caa1, Outlook Changed To Stable From Rating Under Review
…. Long-term Bank Deposits (Foreign Currency), Upgraded to B3 from Caa1, Outlook Changed To Stable From Rating Under Review
…. National Scale Rating Long-term Bank Deposits (Local Currency), Upgraded to A1.ng from Ba2.ng
…. National Scale Rating Long-term Bank Deposits (Foreign Currency), Upgraded to A3.ng from Ba2.ng
…. National Scale Rating Short-term Bank Deposits (Local Currency), Upgraded to NG-1 from NG-4
…. National Scale Rating Short-term Bank Deposits (Foreign Currency), Upgraded to NG-2 from NG-4
..Affirmed and will be withdrawn:
…. Short-term Counterparty Risk Assessment, Affirmed NP(cr)
…. Short-term Counterparty Risk Ratings, Affirmed NP
…. Short-term Issuer Ratings, Affirmed NP
…. Short-term Bank Deposits, Affirmed NP
..Outlook Action:
….Outlook Changed To Stable From Rating Under Review and will be withdrawn.
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