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Published On: Sun, Nov 25th, 2018

Access Bank takes aim at the top

By OKEY ONYENWEAKU

As rumours swirl of Access bank making another strategic move, financial analysts are betting on heavy odds that the enterprising lender is set to soar to the top cadre of the industry.

This appears to be a justified expectation going by the bank’s strong third quarter (Q3) 2018 performance.

Not only has the bank managed to tough out a very troubled financial environment, it has also found ways of keeping its bottom line healthy.

A reflection of the banks underlying strength was signposted by growth in both its top and bottom line earnings during the course of the year.

The lender achieved top line earnings of ₦375.2 billion for the nine months ended 30 September 2018, up 3% from N365.1 billion recorded in the corresponding period of 2017.

 In the same vein, Profit after Tax (PAT) increased 12% to ₦62.9billion from ₦56.4billion of which subsidiary contribution increased to 32%, from 15% in the corresponding period of the previous year.

Meanwhile, the bank’s asset base grew 11% Year to Date (YTD) with total assets rising to ₦4.55trillion in September 2018 from ₦4.10trillion in December 2017. The bankers Loans and Advances totalled ₦2.08trillion as at September 2018 compared to N2.06 trillion a year ago.

Aggressive marketing has earned Access Bank a larger number of customers which resulted in a deposit increase of 10% to ₦2.48trillion in September 2018, from ₦2.25trillion in December 2017 as the lenders Capital Adequacy of 20.3% and liquidity ratios of 44.2%, stayed well above minimum regulatory requirements.

A deeper dive into the books shows that Non-performing loans (NPLs)stood at 4.7% as at the first nine months of 2018 compared to 4.8% in December 2017, or three times lower than  the industry average  NPL of 12 per cent.

The bank consciously moved to control Cost which slid to 0.5% in September from 0.9% in 2017 on the back of tighter risk management.

The tier 1 lender grew pre-tax profit by 12 per cent on a year-on-year basis with profit before tax rising to N45.84 billion propelled by a 29 per cent drop in impairment provisions to N7.34 billion and a rise in gross earnings which rose three per cent to N253 billion in the first six months of the year.

The bank’s revenue growth was driven by a 15 per cent rise in interest income, despite a decline of non-interest of 22 per cent, which was harmed by a 53 per cent dip in net trading chased by a foreign exchange gain of ₦33.8 billion.

However, the bank’s Net fee & Commission incomes appreciated 21 per cent to₦30.1billion, bolstered by an increase in credit related fees and commissions and E-business earnings, which spiked forward by 53 per cent and 67 per cent respectively. Also, other operating incomes accelerated by 143 per cent to ₦10.3 billion as the bank declared an interim dividend of 25 kobo.

The challenges of 2016 forced the bank’s profits lower, suggesting that recent result represent a sturdy rebound from ghosts of the past. At the end of 2017, the bank’s Profit before tax fell from ₦90 billion in 2016 to ₦80 billion in 2017. While profit after tax dropped from ₦71 billion in 2016 to ₦61 billion in 2017, at a time Gross Earnings rose from ₦381 billion in 2016 to ₦459 billion in 2017

Market observers reckon that the bank had made some slips in earlier acquisitions before succeeding with Intercontinental Bank Plc. They believe that it was a strategic failure and a weakness in planning when it missed Afribank and Union Bank Plc. However, the Intercontinental acquisition is seen as historic.

Interestingly, Access Bank has since achieved a smooth and virtually seamless union and moved on to achieve loftier short term goals.

The bank’s management enthused that the successful outcome of its bond Issue demonstrated the strength, resilience and international endorsement of the bank.

Access Bank currently has Eurobonds in issue of $400 million at a coupon rate of (9.25%) maturing in June 2021 – as part of a US$1 billion global medium-term note program. The bank plans to deploy the bond to rave up its operational activities.The lender emphasized that the process signified a significant moment in the bank’s journey to entrench itself as one of Nigeria’s top three banks by 2017.

With markets still likely to struggle with economic uncertainty and public policy misadventures in 2017, Access Bank may have to distil the key elements of its formula for sustaining profitability in 2018 and project the strategy into the new year. The strong economic winds ahead (with inflation at 11.2% and unemployment at 36% by Bureau of Statistics figures) may require more than an umbrella and rain jacket.

In the last three years, the banking industry has faced serious challenges emanating from lack collective vision for the economy and the country.

The macro-economic environment has not favoured the DMB’s in recent times. Besides in ability to create risk assets, the major plank through which banks make profit, the banks have experienced marginal growth in gross earnings.

Net interest income of DMB’s have also been on the decline since the recession which ended in 2018. Given the weak economy, the banks have operated in a high interest environment which appear to scare away potential clients. Insecurity in the country, especially in the North East has been a source of worry to the banks which exposure to the agric sector is rising by the day.

Looking at its performance over the years, Aigboje Imoukhuede and Herbert Wigwe have grown the bank’s total assets 16,328 per cent from N28,959billion 2003 to N4.6trillion in 2018.

Specifically, Imoukhuede who ran its operations for about 10 years advanced the bank’s total assets by 5,943 per cent from N28.9billion in 2003 to N1.75 trillion in 2012. In the same vein, its revenues also jerked up 4,677 percent from N4.36billion to N208.31billion, profit rose 6,801 per cent fromN556.5million to N38.4 billion, dividend also grew 1,600 per cent from 5k in 2003 to 85 kobo in 2012.

So far, Hebert Wigwe who took over the mantle of leadership in the bank in 2013 has grown its total assets by 162 percent in 2018 from N1.75 trillion in 2012 to N4.6 trillion in 2018.Also looking at the banks books in the past four years from 2014 to 2017, BH research reveals Herbert Wigwe has grown the lenders gross earnings by 87 per cent from N245.3billion in 2014 to N459.07billion in 2017. The profit before tax also rose 53.9 per cent from N52.022billion in 2014 to N80.072billion in 2017.

While its profit before tax also leapt 46 per cent from N42.415billion in 2014 to N61.9 billion in 2017, Access Bank has been consistent in the payment of dividends which has also grown in the last four years by 34 per cent from N13.7 billion in 2014 to N18.5 billion in 2017.

“The Bank will remain resilient in the achievement of its strategic imperatives; maximizing our strong market position and solid capital base, while leveraging digital innovation to improve service touch points as we sharpen our retail play with emphasis on cheaper funding sources,”Wigwe said.

He added “Our capital and liquidity position remained adequately above regulatory levels, as we continued to implement a disciplined capital plan, ensuring sufficient levels of profit retention to support our growth.

We remain committed to our cost containment plan, as we strive to balance operational efficiency with earnings growth in a constrained environment.”

The macro-economic environment has not favoured the DMB’s in recent times. Besides in ability to create risk assets, the major plank through which banks make profit, the banks have experienced marginal growth in gross earnings.

Net interest income of DMB’s have also been on the decline since the recession which ended in 2018.

Given the weak economy, the banks have operated in a high interest environment which appear to scare away potential clients. Insecurity in the country, especially in the North East has been a source of worry to the banks as they have been denied a share of their business in that area.The problem of insecurity is also making banks jittery as their exposure to the agric sector is rising by the day.

The banks are in fact, fretting over the new FIRS 17 which focused on the measurement and presentation of insurance contracts and thedevelopment of a comprehensive IFRS Standard for insurance contracts.

”IFRS 17 supersedes IFRS 4 and completes the Board’s project to establish a specific IFRS model for the accounting for insurancecontracts. IFRS 17 is effective from 1 January 2021. A company can choose to apply IFRS 17 before that date but only if it also applies” said the document” said the document on IFIR.

On technology and innovation, the sweeping effect on fintech is another nightmare for the DMB’s which are not fast enough to partner professional entities in that area. Analysts believe that banks are becoming obsolete in their arrogance and ignorance of the needs of customers.

In his speech a few days ago at the launch of GTBank’s new platform ‘Habari’ which is capable of giving a client any given banking services which ever way he wants to enjoy it, said that any bank that insists on its old ways of doing business ‘will die’ . Whereas Access Bank plc is a top lender with qualitative services, but its blend with digital banking will to a great extent determine its future.

With pressure mounting on Nigerian banks to up the ante on the quality of financial service delivery in the country, a growing number of institutions are reinforcing their technology platforms in a race to dominate, efficiency, speed and accuracy in service provision.

Access Bank’s recent meeting with Microsoft big wigs was part of advancing its recently announced five year strategic plan with has adopted technology as a critical lever by which it intends top provide superior financial service to its different African markets.

According to Wigwe, “Africa is currently experiencing a massive growth in wider access to and adoption of technology, especially in improving businesses processes and lifestyle as well as optimum use of resources.

However, we still realise that there are untapped and   immense opportunities to provide essential and well-secured channels for transactions using technology to raise the standard of banking services in Africa, even while understanding the socio-economic dynamics of the countries”.

Besides, these achievements, industry analysts still believe that banks have yet to recover from the investments they made in the oil & Gas and the depression of the capital market during the boom time in 2007/2008.

However, Managing Director of Crane Securities limited, Mike Ezeh believes despite the weak economy resulting in low earnings and profitability, Access bank still has a beautiful future.

With the P/E ratio of 3.o8 Access bank’s stock is a good buy for any investor at the price of N7.40 per share as at November 23, 2018.

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