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Access bank lunches ambitious Africa market drive

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Herbert Wigwe, GMD, Access Bank

By JULIUS ALAGBE

Access Bank Group Plc’s push for leadership is taking more continental impetus as the bank’s growth strategy through acquisition is expected to gain momentum in 2020. The management has revealed that as part of its African growth strategy, it will open four Greenfield subsidiaries in African countries next year.

Speaking at the earnings call with analysts, the Group Managing Director/Chief Executive Officer Herbert Wigwe said: “By this time next year, we would have added about four more subsidiaries, most of them Greenfield actually to our list of African subsidiaries”.

While addressing issues with capital given its recent acquisition, he said: “We have a very rigorous and disciplined capital plan. Our existing instrument matures in 2021 and we are careful as to going to the market, in terms of the cost of funds for the institution”.

According to the GMD, right now, the bank is under no pressure. “We are able to meet the material obligations of Diamond Bank, prepaid last maturing Eurobonds and able to meet all foreign currency demands of our clients.”

Capital adequacy ratio stood at about 20.3% on a full impact basis, and considering the regulatory transition arrangements, the capital adequacy ratio is sitting at about 23.9%, the Bank Chief said.

Access Bank earnings release showed that gross earnings grew by 37% to N513.7 billion in the period compared to N375.2 billion in the corresponding period. This comprised 79% of interest income and 21% of non-interest income.

Its interest income was up 48% to N405 billion as it recorded 115% increase in income from investment securities, which was N140.4 billion in the period compared to N65.2 billion in the corresponding period of 2018.

It records showed a 75% increase in interest on cash and cash equivalents to about N8.6 billion; 25% increase in interest on loans and advances to N256 billion compared to N204 billion in the corresponding period of 2018, owing to growth in the loan book as a result of the recent merger.

Interest expense surged 29% to N104.8 billion compared to N151 billion; driven by the share side of the deposit base resulting from the merger and the interest expense on structured funding in both local and foreign currencies.

Wigwe said Access bank is gradually repricing the book, which has started to reflect in cost of funds, evidenced by 40 basis points reduction to 5.2% in the current period, when compared to 5.6% in September 2018.

Access bank recorded 54% increase in commissions and fees to N66.9 billion as of the 9-month 2019 from N43.5 billion in 2018. This came as a result of significant increase in retail and e-business fees.

Wigwe said: “We also saw a significant increase from other operating income, comprising income from financial services as well as a N22.4 billion recovery from resale of bad loans.

“This is one of the key synergies of the merger. We have already surpassed the target that we set for ourselves, and we hope to achieve a lot more in the last quarter of the year”.

In his review, Wigwe stated that on a quarter-on-quarter, there was a growth in trading income due to strategic position they took to take advantage of the yield volatility on fixed income. The FX gain is from the volatility and timing of income recognition of derivatives.

Wigwe noted that operating expenses surged 34% to N194 billion compared to N144 billion in 2018. This is as a result of the expansion and the merger, the increase in cost from personnel, depreciation and other operating costs.

The Group expected credit loss charge rose up by 10.6% from N8.4 billion in the corresponding period last year.

“There is adequate cover for our challenged loans in order to drive NPL ratio down to traditional levels. Cost of risk stood at about 0.7% in the period”, he said.

Due to the merger, loans and advances grew to about N2.9 trillion compared to N2.1 trillion in the corresponding period. NPL ratio settled at 6.3% in the period compared to 6.4% as of half year.

The GMD said: “Key factors responsible for this remain our oil and gas service, which was about 44.3% of the ratio; general commerce, 11.2%; and then oil and gas upstream, 10.6%.

“We will continue to drive down the NPL ratio to our traditional levels, where we used to be prior to the merger. We will achieve through write-offs of sticky local recoveries. Year to date, we have written off a total of N59 billion, having made full provisions for them. We will continue to pursue them”.

Meanwhile, customer deposits closed at N4.2 trillion, up 65% from N2.6 trillion in the corresponding period of last year, jumping 1.3% from June 2019.

The management said the growth is coming from current savings account deposits, from the enhanced retail presence, on the back of a very strong digital platform, and the synergies of the merger.

To support financial inclusion drive, the management said it has deployed resources to reach the other banks and nonbanks by expanding its agency network, leveraging partnership with telcos as well as digital technology.

Wigwe said agency banking network has increased to about 15,000 compared to about 8,000 in 2018.

“In the next couple of months, we’ll start rolling out some practical, cheaper and eco-friendly outlets in specific neighborhoods, where you have limited banking penetration, but with demographics and economic requirements that can basically ensure that those outlets break even and make money”, he revealed.

Retail loan portfolios have grown significantly as Access bank is doing an average of about N1 billion a day in loan disbursements through PayDay Loan and other products such as Salary Advance, Small Ticket Personal Loans and Device Financing.

Wigwe said: “It’s being done in a risk-managed manner to ensure that we don’t see significant increase as far as our NPL ratio is concerned. Of course, our very strong analytics is going towards ensuring that behaviours are monitored, collections are monitored on a daily basis, not just on a portfolio basis”.

“We’ll continue to concentrate on the added gains of the merger. We have realized so far about N58 billion from the synergies, which includes N22 billion from recoveries, N4.7 billion from sale of assets, and a bit more from IT integration and data consolidation.

“We’re extremely proud to have completed our integration process with respect to IT. So what that means is that all systems, Access and what used to be Diamond, have been fully and completely integrated”, the GMD added.

Speaking on Kenyan acquisition, he said: “We’re very clear that we wanted to create what would be Africa’s gateway to the world. With respect to Kenya specifically, the country represents one of the major trade corridors in the continent”.

“This specific entity is not of significant skill, but does have a reasonable network of 58 branches. It will return to profitability very quickly because we’ve looked through the books, did due diligence.

“Our major clients exist there. Kenya is one of the excellent markets in East Africa, and all the large corporates are there. The Kenya bank has very limited market share. Well, that is the beginning of the story, like all institutions in any market, and this is where we’re going to”.

“We have significant retail offerings, which we can push into that market. I saw that a lot of the transfers and payments that happen outside of that market can go through our own channels”, Wigwe said optimistically.

“Our subsidiary in the U.K. provides correspondent banking services even to those institutions that are considered to be doing exceedingly well. There is no reason this will not supports Access Bank in Kenya.

“Let us start to gain market share over and above some of the existing small banks that exist there. We’re very confident that the story has started. You’ll continue to see improvements”, the bank chief said.

He said the 14 million digital accounts of Diamond inherited are mobile wallets. On that, Access Bank has started to engage each and every one of them having on boarded them into it system.

Wigwe added that there are 2 million that are transacting right now while the bank is activating 20,000 every day.

He added that by the end of the year, or next year, they should have gotten to a situation where they can see something like about 80% activity as far as the 14 million accounts are concerned.

We have more sign-outs every day with respect to this. We expect that, by year 2023, we must find ourselves banking 1 out of every 2 Nigerians on our platform.

Speaking on funding cost and margin trend, Mr. Roosevelt Ogbonna, the Group Deputy Managing Director said: “Looking at our numbers from 2018 to 2019, even with increase in fixed deposit side, we have actually reduced our cost of funds and our NIMs expanded.

We’ve seen a margin expansion of about 160 to 180 basis points, caused by an increase in yields as well as a reduction in overall cost of funds, he said.

Ogbonna said: “5.2% in the earning release is the average cost of funds, actual is about 4.7%. So, between first quarter of 2019 when we started the year, post-merger and now, we’ve actually seen further reduction in our overall cost structure.

“We had to reprice our term deposits, from a cost perspective; the average cost of that book has reduced. On the dollar side, we’ve seen about 40 basis point reductions in our FX cost of funds.

“Projection is that we still expect the NIM to expand before the end of this year to about 7%. So there’s additional 20 basis point expansion we expect to see on our NIM. Guidance is 6%, and we are 6.8%”.

On adoption of Basel III, Gregory Jobome, the Executive Director of Risk Management said the Central Bank has been encouraging banks for a number of years to begin to adopt the elements of Basel III into their systems and infrastructure.

Several of us have been doing that, he noted.

Jobome said that includes things like liquidity coverage ratio, net stable funding ratio, et cetera, which are meant to guide for the liquidity and quality of funding aspects of the bank’s operations.

“Some provisional guide was provided a couple of years ago, and more specific guidelines are still expected. I reckon, we’ll have to look out for CBN to formalize this. But on our part, we’ve already invested in this for a good number of years now on all those key Basel III aspects, who have been internally operating them”, Jobome said.