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.