Access Bank Credit Rating Profile Downgraded by Moody’s


When Access Bank took over Diamond Bank's liabilities and promised to repay Diamond's $200 million Eurobond on maturity in June 2019, banking sector analysts raised a red flag that the move which was presented to regulators at the Security and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) as a merger between the two banks was actually a hostile takeover and acquisition of Diamond bank by Access bank, that will negatively impact Access bank investors. After all, no Nigerian Bank that acquired a distressed Nigerian bank has ever risen fully from the ashes of the acquired sick bank.


It should therefore come as no surprise that the credit rating profile of Access bank has been downgraded by rating agencies. Moody's Investors Service has confirmed it has downgraded Access Bank's credit profile, saying the outlook on the bank's long-term deposit ratings, long-term issuer ratings and senior unsecured rating was changed to unstable after its latest review. 


At the same time, Moody's has downgraded Access' 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 and Access’ National Scale Rating Long-term Counterparty Risk Ratings, downgraded to from The outlook on Access' long-term deposit and issuer ratings was changed to unstable and Moody’s said the action was driven by the failure of Access Bank to honor its pledge to redeem the $209,000,000 payment to Diamond Bank's 2014 Eurobond holders, comprising the principal amount of $200,000,000 and the interest payment of approximately $9,000,000.


The $209 million is more than the total net interest income (before impairment charges) generated by Diamond Bank for the first three quarters of 2018. That figure is also more than the depreciated value of all Diamond bank’s Plant, Property and Equipment (PP&E) as at September 2018, which stood at N68.2B.   Moody’s noted that these Diamond’s assets, liabilities and undertakings that have now been assumed by Access bank has increased Access’ challenges from asset risks and profitability owing to the high percentage of nonperforming loans inherited from Diamond, that will ultimately threaten the solvency of Access, leaving it with insufficient foreign currency balances to cover short-term liquidity obligations.


Access Bank's weak governance and liquidity sharply increases the risk of default for both its investors and former Diamond creditors. Without even adding Diamond's debt, Access bank had straight debt obligations of N640B; in excess of three times the market value of the New Access Bank. The lights were already blinking red after Access Bank issued a N15 Billion Green Bond to further add to its debt profile.  

The New Access Bank's debt figure of approximately N840B (Access December 2018 + Diamond Bank September 2018) is 25% greater than the cumulative gross earnings of both banks (approx. N672B). 


Access has listed approximately 6.6 billion Diamond shares bringing the total outstanding shares of the New Access Bank to approximately 36 billion.  When shares are listed on the NSE, the owners of the shares including the former Diamond bank shareholders ought to have been granted access to trade those shares in their brokerage accounts latest April 2, 2019. But sources told that Access Bank has complicated the process to create an artificial delay that is robbing erstwhile Diamond shareholders billions of naira since they cannot access and trade their shares. has learnt from NSE sources that former Diamond bank creditors have begun questioning the hostile takeover of Diamond Bank as it is becoming increasingly evident that Access bank with its Mafia-like structured board committees and few independent directors, to ensure board oversight over the bank’s GMD, Herbert Wigwe, will certainly not achieve the merger objectives, including a reduction of its stock of nonperforming loans. 


The outlook for Access bank remains unstable, reflecting vulnerable capital buffers and volatile deposit bases, and high asset risks which will only get worse as the Nigerian economy continues to struggle, Moody's said in the report. Access bank's asset risk and profitability will remain key rating challenges, which are expected to progressively increase in 2020 as Nigeria's real GDP expands by a paltry 0.5% from 2.3% in 2019 and 2.8% in 2020; up from 1.9% in 2018, but well below the level required to improve living standards.


Analyst at Moody's said Access' funding and liquidity profiles will remain unstable thanks to its weak deposit bases. Loan quality pressures will also increase and will remain Access' main weakness. Nonperforming loans (NPLs) will not decline significantly from the current 11.7% - a very high level and lower oil prices will invariably create new NPL formation while high loan-loss reserves will force Access to write off some of their bad debts, and drag down the bank’s share price in the process. These credit negatives will be aggravated by lingering risks from high loan concentrations and high delinquency levels. Moody's expects lending growth will recover in the second half of the year following a contraction in 2018, but it will remain subdued and will not appreciably boost Access bank’s revenue.