Following the merger between Access Bank
Plc and Diamond Bank, one of the global rating agencies, Standard and
Poor’s (S&P), Thursday announced that it has discontinued its
‘CCC+/C’ long- and short-term issuer credit ratings and its ‘ngBB/ngB’
Nigeria national scale ratings on
Diamond Bank.
At the same time, it affirmed the ‘B/B’
long- and short-term issuer credit ratings and ‘ngA/ngA-1’ Nigeria
national scale ratings on Access Bank and assigned the bank a stable
outlook.
According to S&P, the affirmation of
its ‘B/B’ ratings on Access Bank was based on its view that short-term
acquisition risks were likely to be offset by the bank’s track record
and orderly approach to mergers and acquisitions.
“Access Bank has demonstrated its
ability to identify and select accretive assets, and it successfully
integrated Intercontinental Bank after acquiring it in 2011. We believe
the Diamond Bank deal will cement Access Bank’s market leading position
in the top-tier of the competitive Nigerian banking sector.
“The combined entity has total assets of
about N6.1 trillion, representing almost a 20 per cent total market
share. The combined entity boasts the largest franchise by customer
base, loans, and customer deposits.
“We believe the deal could expand Access
Bank’s customer and loans base compared with peers, underpinning
stronger revenue stability during an economic downturn in Nigeria
(relying on its non-interest revenues base) and earnings growth as
Access Bank deploys its scalable banking platform effectively,” it
added.
According to the report, over the medium
term, the deal would help Access Bank strengthen its franchise and
revenue generation capabilities.
“Access Bank’s corporate franchise will
also benefit from the bank’s more competitive positioning as well as
Diamond Bank’s deposit franchise, which will likely lower its cost of
funding. Diamond Bank’s retail focus enabled the bank to build a
low-cost (2.7% in 2017 compared with 4.7 per cent on average for peer
banks) and stable retail deposit base. We forecast the net interest
margin to increase significantly toward seven per cent throughout the
2019-2021 forecast period, while fees and commissions will rise by N30
billion.
“Access Bank is planning to close about
80 branches, thus reducing Diamond Bank’s operating base by 30 per cent
in 2019. We forecast the cost-to-income ratio to increase to about
60%-63%, reflecting the integration of Diamond Bank. This ratio compares
less favorably to the best performing banks in the sector,” it added.
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