Fitch Ratings has affirmed Access Bank Plc's Long-Term Issuer Default Rating (IDR) at 'B-' with a Stable Outlook. Fitch has also affirmed the bank's National Long-Term Rating at 'A+(nga)' and assigned a Stable Outlook.

Key Rating Drivers

Access Bank's IDRs are driven by its standalone creditworthiness, as expressed by its 'b-' Viability Rating (VR). The VR is constrained by Nigeria's 'B-' Long-Term IDRs due to the bank's high sovereign exposure relative to capital and the concentration of its operations in Nigeria. Access Bank's National Long-Term Rating balances its leading franchise against weaker core capitalisation and profitability than higher-rated peers.

Challenging Operating Environment: Banks continue to contend with US dollar shortages and the Central Bank of Nigeria's (CBN) highly burdensome cash reserve requirement. Fitch expects reform progress under the new administration, including elimination of fuel subsidies and gradual liberalisation of the naira. However, there is a risk of a sharp naira depreciation due to the large disparity between the official and parallel exchange rates. The CBN has increased its policy rate by 700bp since April 2022 (currently 18.5%) due to rising inflation (22% in 4M23).

Leading Franchise: Access Bank is Nigeria's largest bank group, accounting for 16% of banking system assets at end-2022. Access Bank has acquired several small banks in other Sub-Saharan Africa countries in recent years, in line with its African expansion strategy. Fitch expects acquisitions to continue, strengthening Access Bank's franchise and geographical diversification. Access Bank has a record of integrating domestic acquisitions but the large number of cross-border acquisitions creates execution risks and may pressure capital.

High Sovereign Exposure: Single-obligor credit concentration is high, with the 20 largest loans representing 193% of Fitch Core Capital (FCC) at end-2022. Oil and gas exposure (23% of gross loans at end-2022) is material but lower than at other domestic systemically important banks (D-SIB). Nigeria sovereign exposure through securities and CBN cash reserves is very high relative to FCC (over 600% at end-2022).

Improved Loan Quality: Access Bank's impaired loans (Stage 3 loans under IFRS 9) ratio declined to 3.4% at end-2022 from 6.0% at end-2019, largely reflecting problem loans inherited through the Diamond Bank Plc acquisition in 2019 being addressed through write-offs and restructurings. Stage 2 loans similarly declined to 8.3% of gross loans at end-2022 from 30.7% at end-2019. Specific loan loss allowance coverage of impaired loans (30% at end-2022) is low. Fitch forecasts the impaired loans ratio to increase moderately in the near term.

Sound Profitability: Access Bank delivers sound profitability, as indicated by operating returns on risk-weighted assets averaging 3.1% over the past four years. Strong profitability is supported by a sound net interest margin (NIM), strong non-interest income and moderate loan-impairment charges (LICs). Profitability declined in 2022 due to a weaker NIM, driven by higher funding costs, and losses stemming from Ghana's domestic debt exchange programme.

Moderate Core Capitalisation: Access Bank's FCC ratio (14.0% at end-2022) is lower than that of other Nigerian D-SIBs. Pre-impairment operating profit is strong, providing a large buffer to absorb LICs without affecting capital. Access Bank's total capital adequacy ratio (CAR) and Tier 1 Capital ratio have large buffers above impending Basel III requirements but the CET1 capital ratio is close to the requirement.

Comfortable Liquidity Coverage: Access Bank has a material reliance on term-deposit funding (37% of customer deposits at end-2022), resulting in a higher cost of funding than other D-SIBs. Depositor concentration is moderate, with the 20 largest depositors representing 15% of customer deposits at end-2022. Liquidity coverage in local and foreign currencies is comfortable.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A sovereign downgrade could result in a downgrade of the Long-Term IDR and VR if Fitch believes that the direct and indirect effects of a sovereign default would be likely to have a sufficiently large effect on capitalisation and foreign-currency liquidity to undermine the bank's viability.

Absent a sovereign downgrade, a downgrade could result from the combination of a sharp naira depreciation and a marked increase in the impaired loans ratio, resulting in a breach of minimum capital requirements without near-term prospects for recovery. It could also result from a severe tightening of foreign-currency liquidity.

A downgrade of the bank's National Ratings would result from a weakening of its creditworthiness relative to other Nigerian issuers.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An upgrade of the Long-Term IDR and VR would require a sovereign upgrade and for the bank to maintain a strong financial profile.

An upgrade of the bank's National Ratings would result from a strengthening of its creditworthiness relative to other Nigerian issuers.

Other Debt and Issuer Ratings: Key Rating Drivers

Access Bank's senior unsecured debt is rated in line with its IDRs as the likelihood of default on these obligations reflects that of the bank. The Recovery Rating is 'RR4', reflecting average recovery prospects in the event of default.

Access Bank's subordinated debt is rated two notches below its National Long-Term Rating for loss severity, reflecting poor recovery prospects in the event of non-performance.

The government's ability to provide full and timely support to commercial banks is weak due to its constrained foreign-currency resources and high debt servicing metrics. The Government Support Rating (GSR) is therefore 'ns', reflecting our view of no reasonable assumption of support for senior creditors being forthcoming should a bank become non-viable.

Other Debt and Issuer Ratings: Rating Sensitivities

Access Bank's senior unsecured debt rating would move in tandem with its Long-Term IDR. Access Bank's subordinated debt rating would move in tandem with its National Long-Term Rating.

An upgrade of the GSR would require an improvement in the government's ability to provide support, which would most likely be indicated by an increase in international reserves and an improvement in debt servicing metrics.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. 

References for Substantially Material Source Cited as Key Driver Of Rating

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.