Banking Reforms: Nigerian Banks Enjoy High Ratings

08 Jul 2012

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080712F1.Lamido-Sanusi.jpg - 080712F1.Lamido-Sanusi.jpg

 CBN Governor, Sanusi Lamido Sanusi

The recent banking sector reform undertaken by the Central Bank of Nigeria (CBN) has continued to impact positively on the sector as some of the banks have continued to attract good ratings based on their enhanced positions, reports Goddy Egene

When the Central Bank of Nigeria (CBN) began the process of reforming the banking industry, reactions were mixed. The process, which started with a stress test, was hailed by some stakeholders and analysts, while others condemned it.  Although the reform is ongoing, its result has become a positive testament in the international financial landscape as some Nigerian banks get rave reviews.

While international rating agency- Moody’s- downgraded the ratings of 15 of the world’s largest banks weakened by the banking crisis, Access Bank Plc, which became stronger due to the reforms, enjoyed an upgrade. The gale of the Moody’s rating downgrade  affected global banks such as Morgan Stanley, Barclays, Bank of America, Credit Suisse, Royal Bank of Scotland, BP Paribas, Goldman Sacs Group, JP Morgan, Deutche Bank and Credit Agricole.  For instance, Barclays, BNP Paribas, Royal Bank of Canada, Citigroup, Goldman Sachs Group, JPMorgan Chase, Credit Agricole and Deutsche Bank were downgraded by two notches while HSBC,
Bank of America, Royal Bank of Scotland and Societe Generale were also cut by one notch. Surprisingly, Credit Suisse suffered the most with a three-notch downgrade. Speaking on this development, Moody’s Global Banking Managing Director Greg Bauer said all the banks affected by the actions had significant exposure to the volatility and risk of outsized losses inherent in capital markets activities.

“Financial markets have been bracing for the downgrades since February, when Moody’s Investors Service said it had launched a review of 17 banks with global capital markets operations. These companies faced diminished profitability and growth prospects due to difficult operating conditions, increased regulation and other factors,” Bauer said.  However, while this is going on,  the Nigerian banking landscape was getting favourable assessment as some of the world’s leading rating agencies, which included Fitch, Standard and Poor’s and Augusto, Nigeria’s foremost rating agency, have upgraded the rating of Access Bank Plc. Banking sector operators said the unanimous upgrade
of the bank’s ratings is a valid testament to its financial strength and the solidity of the Nigerian financial services sector.

Major Upgrades
A look at the bank’s ratings by the agencies revealed major upgrades which are attributable to Access Bank’s improved market position, strong capitalisation, strong liquidity profile, enhanced distribution network and expanded client base. Specifically, Fitch, a United Kingdom-based rating agency, upgraded the bank’s long-term Issuer Default Rating (IDR) to ‘B’ from ‘B-’ while the bank’s National  Long-term rating was upgraded to ‘A-(nga)’ from ‘BBB-(nga)’. The rating agency upgraded Access Bank’s outlook from positive status to stable, showing an impressive three notches up.

Similarly,  S&P   upgraded its long-term Nigeria national-scale rating to ‘ngA’ from ‘ngA-’ with its outlook raised from ‘negative’ to
‘stable’ while Augusto & Co, Nigeria’s leading rating agency, upgraded its ‘BBB’ rating of the Bank to ‘A-’; still maintaining its ‘stable’
rating of the bank’s outlook.

S&P linked its improved rating to the bank’s strong liquidity and funding position, which are clear affirmation of its position as one
of Nigeria’s Tier 1 banks. It added that the enhanced capacity to execute larger transactions as well as access long-term funding from
foreign multilateral agencies and institutions as another reason. On its part, Augusto said: “Access Bank’s funding has been strengthened by an enlarged branch network following consolidation, which has availed the bank a vast pool of low-cost deposit. In the year under review, local currency deposits grew by 114 per cent to N871billion.

Deposits adequately funded the loan book and Access Bank’s liquidity ratio stood at 74 per cent as at December 31, 2011, well above the regulatory minimum of 30 per cent. ” Similar to S&P’s opinion, Access Bank’s improved rating is attributable to its strong liquidity and funding position, which is a clear affirmation of its position as one of Nigeria’s tier 1 banks and corroborated by its enhanced capacity to execute larger transactions as well as access long-term funding from foreign multilateral agencies and institutions.

In its assessment, Fitch Ratings attributed its upgrade of the bank’s ratings to its increased systemic importance and enhanced franchise following its absorption of Intercontinental Bank Plc. Specifically, the bank’s management has remained committed to best practice in the areas of corporate governance and risk management. By this, it intends to extract maximum value from its acquisition of Intercontinental Bank and maintain its industry leadership. Acknowledging the strength of the Nigerian banking system, the rating agencies noted that other Tier 1 banks did not perform too badly, as First Bank, Zenith, Guaranty Trust Bank, and United Bank for Africa maintained ‘stable outlook’. According to the agencies, all the banks were judged using size, solidity and level of compliance with best practice in the areas of risk management and corporate governance, areas the CBN has consistently stressed as assurance for long-term survival of any corporate institution.

With risk weighted Capital Adequacy Ratio (CAR) of 25 per cent, experts expect that Access, GT Bank and Zenith, can comfortably grow
their risk assets by 20 per cent over the next couple of years, just as equity analysts express belief that the capital buffer of the banks
would take them through the downturn in the market.  However, analysts believe the favourable rating Access Bank has enjoyed in the last weeks did not come as a surprise. According to them, the journey actually began when the board and management of the bank decided to acquire one of the rescued banks, Intercontinental Bank Plc. The success of that deal last year lifted Access Bank into the Tier 1 banking cadre. Also, the entry of the bank into the cadre altered the top-10 table in Nigeria’s banking industry, placing Access Bank on number four. It came behind First Bank, Zenith and United Bank for Africa, but ahead of Guaranty Trust Bank Plc among others.

International Recognition
That acquisition got international recognition as The Banker Magazine, awarded it “2012 Mergers and Acquisitions Deal of the Year” for Africa. The award celebrates the most impressive transactions in capital raising, M &A Corporate, bonds, infrastructure and project
finance, loans, structured finance, equities, restructuring, Islamic finance, and this year a newly-added trade finance category. Access
Bank  had achieved the ‘Big Tick’ in 2011 BITC award for contribution to sustainability through innovation and has been reaccredited for its exemplary role which has had significant success in combating HIV/AIDS, tuberculosis and malaria.  Speaking on the award,   Chief Executive, BITC said: “I congratulate Access Bank Plc on achieving a reaccreditation for their combating HIV/AIDS, Tuberculosis and Malaria programme. There has never been a better time to showcase that business can be a force for good – for mutual benefits of both business and communities in which they operate. Our Awards for Excellence are all about celebrating responsible business and Access Bank has demonstrated that they can have a positive impact on society and people without losing focus on their business.”

Financial Performance
In terms of financial performance, Access Bank has also enjoyed positive assessment. A recent analysis by Vetiva Capital Management, an investment bank on the performance of Access Bank, First Bank, GTBank, Zenith Bank, the four leading banks in Nigeria in 2011, put the bank in a favourable position “Access Bank with an estimated asset yield of 11.2 per cent dwarfs GTBank and Zenith which post 10.7 per cent and nine per cent yields on their respective interest earning assets,” the report stressed. According to the report, in 2011, Access Bank earned N11.2 on every N100 interest earning asset bo oked on its balance sheet, which represents a distant gap to GTBank and Zenith Bank’s feat of N10.7 and N9.0 respectively. The report showed that beyond the core income source, Access Bank is renowned for its treasury operations, whilst refocusing its commercial banking business to build a sustainable annuity income base, which is expected to impact its profitability. On the  banks ‘ and future prospects, the analysts submitted that Access Bank’s enlarged balance sheet and increased customer base as a result of its acquisition of Intercontinental Bank would further strengthen its treasury business.
Similarly, in their cross-sectional review of the banking sector and the two rounds of reforms in 2005 and 2009 which resulted in
consolidation and mergers & acquisitions, the three banks – Access, GTBank and Zenith, it was also noted, have demonstrated agility and resilience to shocks.

These banks did not only survive the 2009 financial tsunami but waxed stronger. “Beyond profitability, these banks have dedicated management and innovative employees but the unique edge in this race of the first amongst equals is a sustainable business approach and an operational model that situates stakeholders at the heart of the busin ess strategy,” the report said.  Analysts are
of the opinion that these banks will dwarf regional peers to rank in the top-10 percentile of African banks as they grow their regional
footprints. According to them, the success story of these banks in Ghana may be replicated across other impact economies on the

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