One of the renowned rating agencies in the world, Moody’s Investors Service, has warned that Access Bank Plc, which it described as being solvent, could get into a serious trouble if the Central Bank of Nigeria (CBN) makes any attempt to devalue to Naira.
In a report titled Access Bank’s first post-merger results show solvency progress, a credit positive, Moody’s said a weaker local currency and declining oil prices at the international market are no way favourable to the tier-one lender because of its exposure to loans in the oil and gas sector.
“Access (Bank’s) asset quality remains vulnerable to an oil price decline or a depreciation of the Naira, the local currency, because of its high exposure to the cyclical oil and gas sector and foreign currency-denominated loans,” the report released on Thursday, September 12, 2019, stated.
Business Post reports that in the report, Moody’s pointed out that 35 percent of Access Bank’s loan book was denominated in foreign currencies, “exposing the bank’s clients that do not earn foreign currency revenue to high risk of default on their foreign currency loans.”
It stressed that from the bank’s recently released half-year results for the period ended June 30, 2019, 30 percent of its gross loan was owned by customers in the energy sector, with these debtors also responsible for more than half of the bank’s Non-Performing Loans (NPLs).
However, the report said it was optimistic that Access Bank was capable of surviving the storm going by its post-merger performance.
In March 2019, Access Bank completed the merger with the defunct Diamond Bank, which had huge bad debts, but in the six-month financial statements, the lender cut its NPLs to 6.4 percent, despite absorbing a huge NPL portfolio of 40.4 percent from Diamond Bank, which were not fully provisioned for.
According to Moody’s the NPL ratio of the newly merged institution dropped from 14.1 percent as of January 2019 to 6.4 percent as of June 30, 2019, with the agency saying that the bank increased its covering for NPLs which would allow it to take out more bad debt in the coming future.
“A lower NPL ratio will provide the bank with room to grow its assets, supporting revenue growth,” the rating company stated.
Also, Moody’s said it observed that Access Bank’s net value reduced from 10 percent to nine percent, implying a one percent reduction in the size of what a shareholder can receive when the commercial lender’s total assets are deducted from its total liabilities – an indication of the bank’s value.
The report noted that the expected net value of shareholder equity to asset ratio of a financial institution of Access Bank’s standing should be a minimum of 13 percent.
It added that the lender’s Net Interest Margin (NIM) improved from 5.6 percent to 7.6 percent between June 2018 and June 2019, indicating an improvement in the investment decisions of the bank when compared to its debt standing.