As the acquisition of Bidvest Bank by Access Bank Plc progresses through the regulatory approval process, all eyes are on the outcome of Moody’s rating review. This decision could offer a critical insight into the future of Bidvest Bank and has broader implications for South Africa’s banking sector.
Moody’s Ratings placed Bidvest Bank under review for a potential downgrade following the Bidvest Group’s announcement that it will sell its 100% stake in Bidvest Bank Holdings to Access Bank.
The R2.8-billion deal, announced on 12 December last year, is pending regulatory approvals, which are expected to take about six months. The transaction is likely to be finalised before the end of the current financial year.
This sale is part of Bidvest Group’s strategy to streamline its portfolio following a review of investments in July. The disposal of Bidvest Bank is a key element of the group’s restructuring efforts within its Financial Services division, which has also led to agreements for selling its FinGlobal and Bidvest Life businesses.
FinGlobal offers financial migration services. Bidvest Life specialises in income protection, disability, critical illness, and life cover.
On the same day as the Bidvest Bank announcement, the group confirmed the sale of 100% of FinGlobal to Momentum Group, with the deal pending regulatory approvals. All FinGlobal employees will remain part of the business post-sale.
In addition, the group shared that Bidvest Life is in advanced discussions with life insurers for the sale of 100% of the business, with binding offers under review. One of these offers is expected to progress to an agreement “in the coming weeks”.
While awaiting regulatory approval for the Bidvest Bank deal, the group has committed to ensuring that the bank remains financially sound and operationally stable throughout the transition period until the sale is complete.
Bidvest Group’s chief executive, Mpumi Madisa, expressed confidence in Access Bank’s ability to ensure Bidvest Bank’s future, stating: “As a well-respected, experienced, and prominent financial services entity, I am pleased that Access Bank meets our objectives and provides reassurance for the continued sustainability and prosperity of the bank. It will enable the bank to advance, scale, and sustainably grow in today’s fast-changing, technology-driven, and highly competitive sector.”
However, Moody’s remains cautious, warning that it may downgrade Bidvest Bank if Access Bank’s ability to provide support is seen as weaker than that of Bidvest Group.
The ratings agency noted that a successful acquisition could lead to a multi-notch downgrade for Bidvest Bank, largely because of the loss of the parental support from Bidvest Group. This would represent a material shift in the bank’s credit profile during or after the disposal process, casting a shadow over its future trajectory in an increasingly competitive financial landscape.
Ratings under review
Following the announcement, the ratings agency placed several of Bidvest Bank’s ratings under review, including the Ba2 domestic-currency long-term issuer rating. This rating indicates a higher level of risk compared to higher-rated institutions but still falls within an investable range.
The Aa2.za national scale domestic-currency long-term issuer rating reflects Bidvest Bank’s strong position within South Africa’s financial landscape, signifying low credit risk relative to local peers.
Additionally, the P-1.za national scale short-term issuer rating suggests the bank’s ability to meet short-term obligations, while the ba3 Adjusted Baseline Credit Assessment (BCA) shows its capacity to withstand economic pressures.
Last, the b2 BCA points to a higher-than-average risk of default compared to other banks.
Despite the negative outlook, Moody’s has affirmed Bidvest Bank’s Not Prime short-term issuer rating, signalling that the bank can still meet its short-term obligations, although with a caution.
Focus of review
Moody’s has clarified that its review of Bidvest Bank will primarily focus on the progress of the acquisition, including regulatory approvals and the likelihood of the deal’s completion.
Currently, Bidvest Bank’s Ba2 domestic-currency long-term issuer rating benefits from two notches of uplift, based on the high likelihood of affiliate support from Bidvest Group. However, as the divestment progresses, this support is expected to diminish, which could lead to a downgrade.
The review will also consider potential changes to Bidvest Bank’s liability structure after the acquisition, with possible implications for Moody’s Advanced LGF analysis. As a South African-based institution, Bidvest Bank is subject to the Financial Services Laws Amendment Act (FSLAA), which Moody’s treats as an operational resolution regime. According to their analysis, the bank’s current Ba2 domestic-currency long-term issuer rating reflects a moderate loss given failure, resulting in one notch of rating uplift from the bank’s ba3 Adjusted BCA.
Moody’s also stated that the review will look into the uncertainties surrounding Bidvest Bank’s strategic direction after the divestment, potential disruptions during the transition, and the bank’s financial stability post-acquisition, especially in terms of how it integrates with Access Bank’s South African operations.
The review will assess whether Bidvest Bank’s current b2 standalone BCA, which is two notches above Access Bank’s caa1 standalone BCA, remains appropriate following the acquisition.
Ratings could be downgraded if the new shareholder proves less willing or able to provide support to Bidvest Bank than Bidvest Group, or if there is a significant weakening in the bank’s standalone credit profile during or after the disposal process.
Access Bank to merge Bidvest Bank with South African operations
Bidvest Bank, a niche financial institution specialising in foreign exchange services for individuals, businesses, and corporations, has carved out a strong position in South Africa. Originally established in 2000 as Rennies Bank, it rebranded to Bidvest Bank in 2007 and now operates more than 140 retail outlets across the country.
In the financial year to the end of June 2024, the bank reported total assets of about US$665 million and an audited profit before tax of US$20m.
The Bidvest Group has stated that proceeds from the disposal of Bidvest Bank will be used to settle Bidvest debt.
Access Bank has confirmed that following the acquisition of Bidvest Bank, it intends to merge the latter with its South African operations, Access Bank South Africa, to create a larger platform aimed at driving its regional growth strategy across the Southern African Development Community region.
It also intends to introduce broad-based black economic empowerment ownership, including an employee stock ownership plan.
Access Bank first ventured into the South African market in 2021 with the acquisition of a controlling stake in Grobank. After receiving regulatory approval, it rebranded Grobank to Access Bank South Africa, transforming it into a retail commercial bank that officially opened under the new name in June 2021.
Globally, Access Bank serves more than 60 million customers through a network of 700-plus branches across 23 countries. It operates subsidiaries in 16 African countries, as well as the United Kingdom, and maintains representative offices in China, Hong Kong, the United Arab Emirates, India, and France.
With a workforce of more than 8 400 employees, the bank is a significant player in the global financial landscape. As of December 2023, Access Bank reported shareholders’ equity of more than US$1.7bn, with customer loans totalling US$6bn and deposits of US$12.5bn.
Roosevelt Ogbonna, the managing director and chief executive of Access Bank, said the acquisition is a key part of the group’s strategy to expand its footprint across Africa, with South Africa being a top priority.
“It underscores our commitment to establishing a more resilient, diversified, and sustainable business model that leverages technology to meet evolving customer needs,” said Ogbonna. “Bidvest Bank provides a unique opportunity to blend its strong local expertise with Access Bank’s robust trade and retail banking capabilities, creating a platform for long-term growth and value creation.”
