THE Caribbean Information and Credit Rating Services Limited (Caricris) has given Access Financial Services Limited a credit rating just a day after its second quarter results were published on the Jamaica Stock Exchange (JSE).

The microcredit firm was assigned a stable outlook with a rating of jmBBB+ (local currency rating) and jmBBB (foreign currency rating) on the Jamaica national scale. It was also assigned a rating of CariBBB- (local currency rating) and CariBB+ (foreign currency rating) on the regional rating scale. BBB on the Caricris scale equates to adequate/average while BB corresponds to below average.

This was an initial rating given to Access which is possibly indicative of a debt raise from the capital markets or as a barometer for possible businesses to work with later on. Access had raised a $2-billion bond during its second quarter (July to September) to provide working capital, refinance any existing debt facilities and to pay fees related to the bond raise. Access directors’ statement mentioned that the company raised $2.05 billion to replace existing debt, provide financing for loan disbursements and IT capital expenditures.

Access had $1.29 billion over two bonds due in 2025 and 2026 plus other loans with different maturities. Access’ six months cash flow from operating activities shows an increase of $776.15 million for loans payable with the quarterly change being $510.50 million. Its loans payables balance stands at $2.89 billion as of September.

When asked by the Jamaica Observer at its September annual general meeting on raising additional funds inclusive of debt and equity options, Access Chief Executive Officer Frederick Williams said, “We do have a number of options that we’re looking at in terms of funding and over time, we’ll execute. Generally, we’re looking at all our funding options because we’re positioned for growth.”

Williams will be leaving Access on December 9 after resigning. No interim or acting CEO has been named as yet.

Caricris mentioned that diversity in revenue streams through the successful launch of new products, an improvement in the credit risk profile of the Government of Jamaica or improving business conditions over the next 12-15 months leading to asset base growth greater than 18 per cent and/or sustained earnings growth above 10 per cent over the next two years could lead to an improvement in the ratings or outlook.

However, Access’ second quarter net profit fell by 39 per cent to $55.46 million due to a 12 per cent rise in total expenses to $425.35 million. The company’s notes mentioned that increases in staff costs, non-recurring debt finance expenses and loans being written off were the main drivers for an increase in expenses. Loans written off fall under Access’ other operating expenses which increased by 45 per cent to $158.07 million.

Access’ interest income grew by nine per cent to $880.51 million for the six months period when its consolidated loan book rose six per cent from $4.51 billion to $4.76 billion. Operating income rose eight per cent to $964.72 million due to higher fees and commissions and loans. However, the company’s net profit shrunk 26 per cent to $133.02 million with earnings per share moving down from $0.65 to $0.48 per share. Access earned $1.84 billion in operating income and $437.89 million in net profit for its 2022 financial year.

While the company will be paying $27.45 million in dividends on November 25 to shareholders on record as of November 11, it had cash and cash equivalents of $728.20 million at the end of September. Williams had mentioned that the company would be opening a second location for its subsidiary Embassy Loans in Florida within the coming weeks and that it would be focusing more on the small and medium-sized enterprises (SMEs) going forward as it targets more business loans. Access’s loan book in March composed of 93.7 per cent of the $4.97 billion gross loans while the remaining loans were business loans to agriculture, services, manufacturing and trading firms.

“So, we are very aggressively looking at growing our business loan portfolio with our small business centre in Cross Roads. Coming out of a pandemic, you have a number of small businesses and micro-entrepreneurs who would have been impacted and we have new entrants in that space as well,” Williams added.

Access’s total asset base was $6.31 billion with shareholders equity at $2.81 billion at the end of September. Access’ stock price closed last week at $24.45 which leaves it up 20 per cent year to date.

Access was the first microcredit firm to be given a license by the Bank of Jamaica (BOJ) under the Microcredit Act in July with another four firms approved recently. BOJ Governor Richard Byles recently said that at least half of the industry should be licensed by the end of 2022. While Access has been approached with acquisition opportunities, Williams noted that the quality did not meet their standard.

The factors that supported Caricris’s rating of Access included its favourable market position and long history with brand equity, growth in earning asset base underpinned by good asset quality, a history of profitability with healthy net interest spreads, adequate capitalisation and liquidity needs and an adequate governance structure and risk management practices.

However, the rating strength was tempered by the small size and high-risk business model with little diversity in revenue streams may hamper growth potential and overall profitability and downside risks associated with high sovereign risk exposure to Jamaica could impact Access earnings.

“Going forward, as restrictions are mostly lifted and Jamaica continues to benefit from an uptick in tourism, Caricris anticipates continued growth of AFS’s loan portfolio supported by a gradual improvement in economic activity in 2022 and the rolling out of its technological initiatives. Further, if interest rates remain elevated for an extended period, this could adversely impact the demand for credit. These circumstances in turn can dampen AFS’ asset quality and the growth of its loan portfolio which could temper revenue and overall profitability growth in the year ahead,” the Caricris report said.