Published On: Mon, Jan 29th, 2018

Access Bank: No easy road to the future (Special report)

As far as local deposit money banks go, Access Bank (recent stock price (N11.70) has successfully muscled into the country’s top four money lenders by dint of hard work, clever marketing and deft corporate tactics, whether this will be enough to see the bank through its next half decade of business is yet to be seen, but a slew of analysts express optimism that the bank can pull something brilliant off its new playbook.

In what appears an attempt at fine-tuning its earlier mid-term plan that ran from 2013 to 2017, Access Bank in December last year released its new five year strategic template that, on the face of it, appears tall on revenue growth assumptions but short on loan provisions despite a bigger appetite for continental loans and advances. The fresh corporate framework looks like a mixture of smart guesstimates, cautious assumptions and bold aspirations. Not unexpectedly the playbook has come under some amount of scrutiny with some analysts complaining of a lack of bare-knuckle details.

The best guide to understanding Access banks gambit going forward would be to examine its overall results in the last five years and review newly published assumptions for the next half decade between 2018 and 2022. The easiest place to start would perhaps be the banks revenue and profit history and its assumptions for growth of the profit and loss account in months ahead.

Analysts note that between 2012 and 2016 the bank’s net revenues rose from N134 billion to N273 billion a forward leap of 19.5 per cent on a compound annual basis (CAGR). The bank itself prefers to compare its recent results over a ten year horizon between 2005 and 2016 but this tends to bias its performance upwards as it suffers from the statistician’s curse of a low base effect.   For example comparing the banks net income in 2005 to its income in 2016 shows a compound annual growth of 42 per cent as against the five year calculation of slightly below 20 per cent. In regards to profit before tax the bank grew its profit from N47 billion in 2012 to N90 billion in 2016, a compound annual growth rate of 17.6 per cent as against the far larger 55 per cent between 2005 and 2016. According to Peter Aletor, Group Chairman Apel Assets and Finance,  ‘Access banks revenues and earnings have been quite strong over the last decade, but in the last five years the rate of earnings growth has narrowed a bit as recession blues  punched holes into its leaner pockets’. Analysts note that slower economic growth took a toll on the industry even though revenues and profits still went up modestly. Access Banks earnings and profits are projected to swing a few notches higher in 2018 as oil and gas sector recovery and an energy sector revenue rebound nudge the economy forward by reducing loan default risks associated with companies recovering from previous falling demand.

Considering that 2018 is a pre-election year fiscal spending is expected to grow much quicker with beneficial effects on private domestic consumption, retail sales growth and the quality of short term bank assets. Access bank’s five year financial playbook appears to rest on a favourable outlook for the economy in the course of the year and leans largely on a strategy of strengthening its retail and wholesale banking businesses at a continental level, while equally improving digital technology applications. How this pans out could prove crucial to the banks medium term performance.  Industry analysts are non-committal on the outcome preferring to watch from the sidelines how the first year works out.

Nevertheless, a few of the banks traducers are of the opinion that its revenue and profit figures will grow much less than its business plan projects. Their key observation is that apart from great infographics the plan provides very little in terms of unique service propositions, despite the fact that, according to the banks chief executive officer, Herbert Wigwe, the plan rests on six key growth elements; Global collaboration, Customer-focus, Digital led banking, retail and wholesale banking, Analytics-driven insight/ Robust risk management and Universal Payment Gateway.

The bank’s strategy actually comprises of three basic areas, namely; international banking, retail and wholesale activities and digital banking transactions. Does this represent what management economists call a ‘blue ocean’ strategy or what amounts to knocking the competition dead? Hardly. Access bank’s decision to place emphasis on intra-African trade transactions follows a strategy already adopted by United Bank for Africa (UBA) with mixed success.

UBA began this strategy under its erstwhile Managing Director, Tony Elumelu, in 2008, and consolidated it under Philips Oduoza between 2010 and 2016 at which point the strategy worked like a charm. The banks 2016 audited accounts showed that the bank was able to stump up an impressive 50 per cent growth in dividends from its African affiliates. The bank’s dividend growth was the result of strong operating performances in different African  economies (East and Central African Gross National Product growth rates trumped those of West Africa) and foreign exchange translation gains from a fall in the value of the naira relative to the United States dollar. Over the 2016 fiscal year UBA grew its gross earnings across Africa by a stunning 69 per cent and pushed non -interest income up by a further 17 per cent while its interest income across the continent doubled.

However in 2017 the transcontinental earnings boost seems to have lost steam as incomes from UBA’s other African operations have slowed considerably in recent years (down from about 28 per cent in 2015 to 17 per cent in 2016). This is why a number of analysts see Access Bank’s new foray into the continent as a strategic misstep as a number of economies on the continent show signs of slow economic growth. Indeed several countries (besides Ghana) are expected to grow at average annual rates below 5 per cent in 2018, only Ghana is expected to grow at a rate of 8 per cent in the course of the year. Admittedly Access Banks plan is a medium term outlook, but if oil prices begin to stumble and other commodities begin to experience adverse shocks such as lower than predicted demand and falling prices, then the bank’s plan could get blown out of the waters leading to a massive problem of lower than desired return on investments and a load call for staggering provisions against non-performing continental loans.  Exchange rate risks could swiftly knock the stuffing from the bank’s balance sheet as falling naira to dollar rates amplify bad foreign credit.

‘The prospects of financial trading across Africa may seem gratifying on the face of it but profitability of these ventures may turn out to be duds’, says Rotimi Ayanwale, head of Microeconomic policy analysis and market schematics at Capital Plus Research. According to Ayanwale, ‘ice cream on an empty stomach is dangerous thing. Access Bank should, in my opinion, consolidate its Nigerian perch and then add the African flavour later; this would appear to be a more guarded market penetration approach or a Dangotesque market play’ he says. But apart from the decision to spread payment and settlement solutions across Africa, Access Banks five year plan tries to cleverly work around digital solutions to meet emerging customer demands in different market segments. This is brilliant on paper but throws up a few concerns.

The first worry is the underlying profitability of the service area. So far, banks in Nigeria have seen their incomes from digital operations dry up like soft leaves in a Harmattan haze.  According to erstwhile managing director of African Continental Bank (ACB), Emma Nwosu, ‘going digital is inevitable. Working with big data is the way to go for banks, but the initial costs could be quite prohibitive. But going forward economies of scale and scope should drag down per capita cost of service delivery and improve bank bottom lines’. Nwosu argues that, ‘No bank can reasonably afford to lag behind in the technology race. Access Bank’s strategic thrust is at once sensible and inevitable’. Maybe so, but the fall in incomes from electronic banking activities is still a major problem.

Data obtained from the Central Bank of Nigeria (CBN) show that the volume of transactions carried out through devices such as Point of Sales (PoS) machines alone has grown 86.28 per cent from a modest 2.59 million in 2012 to a staggering 48.2 million (or twenty folds) in May 2017, internet banking and mobile payment volumes also rose by a whopping 325.96 per cent from 2.28 million in 2012 to 9.7 million in 2017 for internet banking and 778.44 per cent from 2.02 million to 20.18 million for mobile payment in the last five years.

Equally true however is that fact that the number of Automated Teller Machine (ATM) transactions have declined by a fifth (-18.39 per cent) over the last five years to 306,462 in May 2017, the value of these transactions, nevertheless, went up by 27.78 per cent to NGN2.54 billion in May 2017 from NGN1.98 billion in 2012. This is while the total value of electronic payment transactions soared 1,372.11 per cent from N138.65 billion in 2012 to NGN2.04 trillion in May 2017. According to Nwosu, ’this proves the point that electronic banking is a business area with a lot of head room, especially given the country’s relatively low banking sector participation rate and low retail market penetration’. Nwosu argues that the fact that one banks digital play has not worked too well does not mean that another bank cannot pull off a coup, he insists that if a bank uses big data properly it could gain a niche advantage that could turn into an operational goldmine, ‘the fact that one twin is a dunderhead doesn’t mean the other must be a moron’ he says.

Access Banks road ahead will be tough, but digital analytics and big data management could help it wriggle past competitors if it can quickly acquire the 30 million customers it targets. A recent McKinsey consulting report titled, ‘The case for digital reinvention’ by Jacques Bughin. Laura LaBerge and Anette Mellbye  underlines the disruption smart firms can achieve by leveraging data as a basis for providing services that even buyers themselves are yet to demand but which will emerge from the dynamics of the interface between consumer expectation and the state of service delivery infrastructure (see charts). The authors note that, ‘digital technology, despite its seeming ubiquity, has only begun to penetrate industries. As it continues its advance, the implications for revenues, profits, and opportunities will be dramatic’. For Access bank to disrupt domestic service delivery through its digital platform it must quickly scale up deposit size and seize the advantage of economies of scale, otherwise costs could squeeze profitability and deal harshly with the banks bottom line.

Access banks new five year plan is a sketchy attempt at playing where others have already made a foray. The plan clearly does not attempt anything novel, but simply shifts the banks operational weight of emphasis with the hope that it can squeeze out more economic value than its competitors from standard businesses. For the moment the difference appears to be the extent to which the bank will go in harnessing ‘big data’ analytics to drive its business model. The management hopes it will get it right, but as US Army General, Gordon Sullivan, once wrote, ‘Hope is not a method’.  Apparently Access bank knows this.


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