Moody’s Investors Service has said that Access Bank has high capital levels that boost its resilience in the face of weaker Nigerian economic growth that has led to potential asset quality pressure and weakened liquidity conditions.
The report, entitled “Access Bank Plc: Core Income Is Under Pressure But Strong Capital Provides Resilience”, is available, stressed that “Weaker economic growth in Nigeria and tighter liquidity within its banking system are among the challenges exerting pressure on Access Bank’s core profitability,” said Akintunde Majekodunmi, a Moody’s Vice President — Senior Analyst and co-author of the report.
He noted that “despite this backdrop, we expect Access’ credit profile to remain resilient over the next 12 to 18 months.”
According to the latest Moody’s report, Access Bank has levels of non-performing loans (NPLs) that are low and compare favourably with those of domestic and global peers.
The report noted that the bank’s NPLs fell 0.5 percent to three percent in the first half of 2015 from 3.5 percent in 2014, according to Moody’s adjusted ratio, while reported NPLs fell to 1.8 percent from 2.1 percent over the same period.
“Moody’s expects the bank’s NPLs to rise over the next 12 to 18 months – although staying below five percent – as a result of its unseasoned loan book, high exposure to the oil and gas sector and the challenging operating environment.”
Asset quality deterioration may pose further risks to Access’ profitability, although the rating agency notes that NPLs are well-covered by loan loss reserves.
The bank’s high non-interest income masks weaker earnings quality. Excluding derivatives and trading income, the bank’s core income only just covers its total costs, highlighting weaknesses in its earnings quality.
Over the year the bank’s net interest margins have declined because its funding cost has increased.
Although yields on loans remained resilient at 12 percdent, profitability was hit by increases in the cash reserve requirement (CRR), which increased the interest expense on deposits in the banking system as a whole.
The bank’s rights issue in March this year, which raised $211 million, has strengthened the quality of its capital and increased its loss absorbency capacity, supporting its standalone credit profile.
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