Moody’s: Access, Diamond Deal, Positive for Nigerian Banking System

By Obinna Chima

One of the leading global rating agencies, Moody’s Investors Service, has stated that the recent business combination agreement between Access Bank Plc and Diamond Bank will be “credit positive” for the overall Nigerian banking system.

According to Moody’s, Diamond Bank potentially merging with Access Bank would limit the threat of contagion of the former’s relatively weak credit profile to the Nigeria’s banking system.

The rating agency stated this in a note made available to THISDAY yesterday.

The proposed merger between both banks have gotten a ‘no objection’ approval from the Central Bank of Nigeria (CBN) and is expected to be finalised before June 2019.

Based on the agreement reached by the Boards of the two financial institutions, Diamond Bank shareholders would receive a consideration of N3.13 per share, comprising N1 per share in cash and the allotment of two New Access Bank ordinary shares for every seven Diamond Bank ordinary shares held as at the Implementation Date.

The offer represents a premium of 260 per cent to the closing market price of N0.87 per share of Diamond Bank on the NSE as of December 13, 2018, the date of the final binding offer.

Immediately following completion of the merger, Diamond Bank would be absorbed into Access Bank and it will cease to exist under Nigerian law.

In its review of the deal, Moody’s stated: “We view the potential merger of Access Bank Plc and Diamond Bank Plc, two of Nigeria’s systemically important banks, as credit positive for the Nigerian banking system overall.

“Downgrading Diamond’s ratings to Caa1 from B3 and placing its ratings on review with direction uncertain last month reflected the bank’s weak solvency and liquidity metrics as well as its corporate governance tensions. “Diamond Bank potentially merging with Access, a stronger bank, would help limit the threat of contagion of its relatively weak credit profile to the Nigeria’s banking system.”

In a separate report, Moody’s assigned a long-term local currency deposits ratings of ‘B2/Not Prime’ to Access Bank.

The long-term local currency deposit rating was underpinned by Moody’s baseline credit assessment (BCA) of ‘b2’ for Access Bank.

“We also assign foreign currency deposit ratings of B3/Not Prime, local and foreign currency issuer ratings of B2, local currency national scale deposit ratings of A1.ng/NG-1, foreign currency national scale deposit ratings of A3.ng/NG-2 and a counterparty risk assessment of B1(cr)/NP(cr).

“Access Bank’s b2 standalone profile reflects its strong asset quality metrics and robust loan underwriting standards and risk management processes, large local currency liquidity buffers, and resilient capital buffers.

“These strengths are balanced against Nigeria’s still challenging operating environment which negatively affects banks’ asset quality and revenue growth, and concentration risks in the bank’s loan book, including its exposure to loans denominated in foreign currencies.” The Group Managing Director/Chief Executive Officer of Access Bank, Mr. Herbert Wigwe, Thursday said Diamond Bank would write off its non-performing loans (NPLs) before the deal was finalised.

This, he said, was necessary to protect the health of the new entity.

Wigwe said this when he appeared as a guest on ‘The Morning Show,’ programme of Arise TV, a broadcast arm of THISDAY.

He maintained that the merger would be of great benefit to all stakeholders, saying that concerns about NPLs in the tier II bank were fully considered before they entered into the business combination agreement. He had also reiterated that there won’t be job losses even as he restated Access Bank’s plan to raise $250 million fresh tier II capital