London, 29 January 2019 -- Moody's Investors Service ("Moody's") has today
placed on review for downgrade Access Bank Plc's ("Access")
B2 long-term local currency deposit rating, its B3 long-term
foreign currency deposit rating, its b2 Baseline Credit Assessment
(BCA) and Adjusted BCA, its B1 long-term Counterparty Risk
Rating (CRR) and its B1(cr) long-term Counterparty Risk Assessment
(CRA).
At the same time, Moody's has placed Diamond Bank Plc's
("Diamond") Caa1 long-term deposit ratings, its
caa3 BCA and Adjusted BCA, its Caa1 CRR and its Caa1(cr) CRA on
review for upgrade.
The reviews of the banks' ratings follow the approval of their announced
merger by the Securities and Exchange Commission on the 18 January 2019,
after a preliminary approval of the transaction by the Central Bank of
Nigeria in December 2018. Access's ratings are placed on
review for downgrade to reflect the potential negative pressures on its
capital and asset risk metrics as a result of the merger, while
Diamond's review for upgrade reflects the expected convergence of
its creditworthiness and ratings with those of Access upon completion
of the transaction.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
RATIONALE FOR REVIEWS
The primary driver underpinning Moody's decision to initiate a review
for downgrade of Access's ratings is the expected weakening of the
bank's solvency profile, driven by a lower tangible common
equity (TCE) ratio amid higher asset risks. Access will acquire
a large balance sheet (about N1.6 trillion as of September 2018),
mainly consisting of net loans (about N730 billion), which will
increase its risk weighted assets, while Diamond's undercapitalization
will likely strain Access's TCE. Moody's expects Access's
post-merger TCE ratio will decline to around 10%,
reducing the bank's loss absorbance buffers. The TCE would
also decline below the median for global peers with b2 BCA.
In addition, the rating agency expects Access's asset risk
to increase because of the additional risk assets it will acquire from
Diamond. The rating agency views Diamond's risk management
and underwriting procedures as weaker than those of Access and therefore
expects a higher formation of nonperforming loans (NPLs) from Diamond's
loan book that Access will acquire. The rating agency also expects
substantial operational risks to be introduced by this sizeable acquisition.
For Diamond, the review for upgrade is driven by the fact that upon
completion of the merger, Diamond's assets, liabilities
and undertakings will be assumed by Access, a stronger entity,
who will become the obligor of former Diamond's creditors.
THE FOCUS OF THE REVIEW ON ACCESS
The review on both banks will conclude upon the legal completion of the
merger and will take stock of any new relevant information that might
be available at that time.
For Access, the rating agency says that the review for downgrade
will focus on (1) the impact of a successful completion of the merger
on Access's solvency ratios (asset risk and capital metrics),
(2) the extent to which the merger will improve Access's profitability
and funding and liquidity profiles, and (3) any integration challenges
that will arise from onboarding Diamond's assets and liabilities
and staff.
The review will assess how Access will implement measures to increase
its capital buffers to enable it to absorb new credit losses that will
come from Diamond's loan book. The rating agency will assess
any plans by Access to reduce its risk assets and improve its capital
upon completion of the merger. The review will consider the impact
of Diamond's loan book on Access's asset quality, including
the amount of NPLs that Access will inherit from Diamond, and the
level of provisions of the NPLs, although management indicated that
a large portion of Diamond's current NPLs will be written off before
conclusion of the transaction.
Moody's will also assess the positive impact of Diamond's
largely retail deposit book to Access's deposit structure and tenor.
As of September 2018, Access would acquire N1.1 trillion
customer deposits from Diamond, providing it with deposits that
are cheaper than its current cost of funding. The rating agency
will consider the impact of possible revenue enhancements and any long-term
cost savings, viewed against short-term restructuring costs.
The review will also take into consideration material implementation challenges
associated with the acquisition of a large bank such as Diamond.
As of September 2018, Diamond's total assets constituted 34%
of Access's assets and Moody's estimates that Diamond's
total assets will contribute about 23% of merged entity total assets.
Access will need to successfully integrate its newly acquired staff and
IT and processing platforms while ensuring that the business does not
suffer during the integration period. Moody's recognizes
Access's good track record in mergers and acquisitions.
THE FOCUS OF THE REVIEW ON DIAMOND
The review for upgrade on Diamond's deposit ratings reflects the
prospects that the rated deposits and liabilities of Diamond will benefit
from Access's stronger risk profile, and the rating agency
will align Diamond's long-term deposit ratings with those
of Access. These are currently B2 on review for downgrade for local
currency, and B3 on review for downgrade for foreign currency.
The rating agency will assess the extent to which Diamond's current
solvency weaknesses that are a result of its high NPLs, low provisions
and low capital will be addressed by the merger. The rating agency
will also consider the implication of the merger to Diamond's foreign
currency liquidity, in light of the significant refinancing needs
in the first half of 2019.
Moody's will withdraw Diamond's ratings upon completion of
the merger because Diamond will cease to exist as a separate legal entity.
WHAT COULD MOVE RATINGS UP/DOWN
Access's ratings could be affirmed if the bank's solvency
and funding metrics are not materially strained by the merger.
Access's ratings will be downgraded if the bank's solvency
indicators deteriorate materially as a result of the merger and the bank
does not improve its capital position in order to support its larger balance
sheet.
An upgrade is not likely given that Access's ratings are on review
for downgrade.
Diamond's ratings could be upgraded to be on par with Access's
deposit ratings should the transfer of its customer deposits to Access
be completed.
A downgrade for Diamond's deposit ratings is not likely at this
point. However, in the event that the transaction is not
successfully completed, its ratings could be downgraded if the bank
fails to meet any of its upcoming obligations.
LIST OF AFFECTED RATINGS
Issuer: Access Bank Plc
..On Review for Possible Downgrade:
.... Adjusted Baseline Credit Assessment,
currently b2
.... Baseline Credit Assessment, currently
b2
.... Counterparty Risk Assessment, currently
B1(cr)
.... Long-term Counterparty Risk Rating,
currently B1
.... Short-term Counterparty Risk Rating,
currently NG-1
.... National Scale Rating Long-term
Counterparty Risk Rating, currently Aa1.ng
.... Long-term Issuer Rating,
currently B2, Outlook changed to Rating Under Review from Stable
.... National Scale Rating Short-term
Bank Deposits (Foreign Currency), currently NG-2
.... National Scale Rating Short-term
Bank Deposits (Local Currency), currently NG-1
....Senior Unsecured Regular Bond/Debenture
(Local Currency), currently (P)B2
.... Long-term Bank Deposits (Foreign
Currency), currently B3, Outlook changed to Rating Under Review
from Stable
.... Long-term Bank Deposits (Local
Currency), currently B2, Outlook changed to Rating Under Review
from Stable
.... National Scale Rating Long-term
Bank Deposits (Foreign Currency), currently A3.ng
.... National Scale Rating Long-term
Bank Deposits (Local Currency), currently A1.ng
..Affirmations:
.... Counterparty Risk Assessment, Affirmed
NP(cr)
.... Short-term Counterparty Risk Rating,
Affirmed NP
.... Short-term Issuer Rating,
Affirmed NP
.... Short-term Bank Deposits,
Affirmed NP
..Outlook Action:
....Outlook Changed To Rating Under Review
From Stable
Issuer: Diamond Bank PLC
..On Review for Possible Upgrade:
.... Adjusted Baseline Credit Assessment,
currently caa3
.... Baseline Credit Assessment, currently
caa3
.... Counterparty Risk Assessment, currently
Caa1(cr)
.... Long-term Counterparty Risk Rating,
currently Caa1
.... Short-term Counterparty Risk Rating,
currently NG-4
.... National Scale Rating Long-term
Counterparty Risk Rating, currently Ba2.ng
.... Long-term Issuer Rating,
currently Caa1, Outlook Remains Rating Under Review
.... Short-term Bank Deposits,
currently NG-4
.... Long-term Bank Deposits,
currently Caa1, Outlook Remains Rating Under Review
.... National Scale Rating Long-term
Bank Deposits, currently Ba2.ng
..Affirmations:
.... Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
.... Short-term Counterparty Risk Rating,
Affirmed NP
.... Short-term Issuer Rating,
Affirmed NP
.... Short-term Bank Deposits,
Affirmed NP
..Outlook Action:
Outlook Remains Rating Under Review
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.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Peter Mushangwe
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
