By JULIUS ALAGBE
Following its celebrated mega-merger with Diamond Bank at the close of Q1 2019, Access Bank is now set on vigorously staking its claim to leadership in Nigeria’s hyper-competitive financial services space.
Evidence of this is to be seen in its recent half year financial reports, which not only demonstrated the bank’s ambition to sit atop its peers in the industry rankings but to also strive for more assuring fundamentals overall.
In one such instance and on the back of a renewed push for a cleaner and more efficient balance sheet that would obviate some of the loose ends that came to the fore after its just-ended merger deal, Access Bank Plc says it has presently restructured some of its clearly more contentious legacy loans.
Accordingly, the bank’s management has revealed that it re-classified and written off parts of its risk assets including its legacy loan to Geometric Power Limited.
On the accompanying question of loan recovery per se, the management said: “If there’s one thing that we are known for, it is the fact that it will recover our loans”.
Speaking at the earnings presentation with analysts, Herbert Wigwe, the Group Managing Director and Chief Executive Officer assured that the bank would continue to clean up its loans stable.
According to Wigwe, the Geometric loans deal is one that had affected Diamond Bank quite significantly.
‘We’ve taken additional provisions and written it off in the first instance,” Wigwe asserts.
But then he also informed that there is also a bit of good news.
“We’ve worked with Geometric and its project is pretty much completed now. Our expectation is that it should start generating in the next quarter, and then we start to see recoveries over time.
“So, in terms of provision, it is clear. Whatever comes out of Geometric now will be income.
“So, we’re signing the final documents with the rest of the syndicate to make sure that we put the appropriate governance framework, to see huge recoveries coming out of Geometric, even though we have fully provisioned and written off the facility”, Wigwe said.
On its restructured book, Gregory Jobome, the Executive Director of Risk Management said: “if you want to compare the situation now to that in full year 2018, that’s Access Bank stand-alone prior to the merger, we had N436 billion in our Stage-2 loans book but we are currently at N632 billion”.
Jobome said this figure was obtained after combining with Diamond Bank which is a move from N436 billion December 2018 to N632 billion June 2019.
‘That’s for our Stage-2 loan movement. As of first quarter, it was N499 billion.’
“For the restructured component of that loan prior to the combination, restructured loans as a share of the loan book was about 8%.
“Currently, it’s at about 11%. Obviously, that reflects the restructurings that we’ve done after the merger with Diamond Bank,” Jobome added.
Further speaking on the bank’s asset quality, Jerome said: “the amount of recoveries we’ve made so far amount to about N14 billion; on a run rate of about N4 billion recoveries on a monthly basis and it just comes from the fact that we are pursuing all of these debtors with everything that we have.
“And I think if there’s one thing that we are known for in the market is the fact that we will recover our loans in spite of the backlash that may come from it.
“But I think protection of depositors’ funds is paramount to us, and we’ll do whatever we need to do within the ambit of the law to make sure that we recover our money. So far, we’ve recovered about N14 billion”, he said.
In terms of post-merger integration, Oluseyi Kumapayi, the Chief Finance Officer said what you see in the current financial is about N6 billion.
However, the bank projected that before the end of the year, it will see another N5 billion. So the integration cost for the year will be around N10 billion to N12 billion, he added.
In the first half of the year, the bank’s gross earnings witnessed a growth of 28% to N324.4 billion in the period compared to N253 billion in the corresponding period of 2018. This consisted of 84% interest income and 16% non-interest income.
Wigwe said interest income was up by 46% year-on-year and 32% quarter-on-quarter with the major contributors being, one, 138% increase in income from investment securities to about N107 billion.
Half year in 2018, it was N45.3 billion. And there was a 14% increase quarter-on-quarter. So second quarter was N57 billion, and the first quarter was N50.8 billion.
“We also saw a 50% increase in interest on loans and advances to customers to N160.2 billion, while that of the corresponding period in 2018 was N139.4 billion.
“That was a 74% increase from the previous quarter, owing to the increase in the bank’s loan portfolio coming from the combination”, he added.
Wigwe said interest expense showed N117.8 billion at the end of the half year, and this was an increase of 16% year-on-year, compare to the corresponding period of last year.
According to him, net interest income grew by 82% year-on-year and 73% quarter-on-quarter to N15.1 billion and N155.1 billion in the half year ended June 2019 compared to the corresponding period in 2018, coming from the merger and the increased balance sheet.
On lower impairment charge on credit losses recorded in the period, Wigwe said there was a proper increase.
He stated that there were few write-backs to the tune of about N4.8 billion coming from some of the things we saw in the course of the quarter and as well as the other assets. That he also says helped to taper down or reduce the net impairment charge.
He was not done: “We also saw a 34% increase in our other operating income to N24.4 billion.
“The primary reason for this increase was largely as a result of the recoveries that we’re doing. So there were increased loan-loss recoveries to the tune of N13.9 billion.
“The net trading income basically comprises of our net gain or loss on investment securities as well as the net foreign exchange income.
“It dropped from N25.8 billion in 2018 to a loss of N14.8 billion in this half year, which basically show a reduction of about N40 billion.
“Total operating expenses increased by 25% to N123.3 billion from N98.2 billion in the corresponding period of last year and showed a 24% quarter-on-quarter increase.
“The simple reason is coming from the full impact of the expanded franchise, branches and staff, et cetera.
“But we anticipate that this will trend downwards in the second half of the year as we begin to see the major synergies kick in.
“Loans and advances to customers stood at N2.6 trillion at the half year of 2019, up by 32% from N1.9 trillion in 2018.
“This comes largely from the merger. Of course, if you took Access Bank on a stand-alone, the growth in the period was not significant at all.
“The group’s asset quality improved during the period following the short-term deterioration in March as a result of the assets acquired”, Wigwe enumerated.
NPL ratio trended down towards to 6.4% with significant improvements from 10% as of March 2019.
The reduction was achieved through a combination of write-offs, recoveries, reclassification and loan restructuring.
“Basically, we’ve had to pursue this loan book with a lot of vigor. There have been significant recoveries that were restructured which are showing improvements and all of that, and there’s also been significant write-off of some of the loans that have been fully provided”, the management stated.
Kumapayi said: “Our expected credit loss charge on loans stood at N9.7 billion in the half year, which is really 42% higher than the corresponding period in the previous year.
“This was on the account of the bank’s risk assets coming from the combination. However, the cost of risk also showed a slight increase to 0.7% in the half year compared to 0.6% in the corresponding period of last year”.
Customer deposits closed at N4.18 trillion, which is a 63% increase from the year ended 2018 when it was N2.56 trillion.
The bank’s capital adequacy stood at 21.5%, which is a 70 basis points increase from the half year in terms of the corresponding period last year. Liquidity ratio was well in the excess of the regulatory minimum at 50.3%.
Also, retail contribution to total income stood at 42% or N64 billion, compared to 18% in the corresponding period last year, which came at N46 billion, with fees of about N12.1 billion compared to N6.3 billion in the corresponding period last year.
Additionally, the deposit mix in the period has improved from N766 billion in December 2018 to N1.9 trillion, with local deposits accounting for 55% of the total.
This improvements show the strength derived from the synergies of the merger as well as the intensified efforts to acquire local deposits, Wigwe said.
Speaking on Access bank’s digital platform, Wigwe said: Today, we are disbursing on the average N200 million to 4,600 different customers through the click of a button.
“We’ve set for ourselves a target of about N400 million daily to at least 20,000 customers, and we’re on the course to achieving this.
“This basically generates very low NPLs, and it’s properly priced because a lot of it goes to customers who have the accelerated accounts with us.
“The value capture potential of this product is significant, and it’s going to lead to significant diversification in terms of our loan portfolio“, he added.
The leader of the management team also said, “on cost of risk on asset quality, cost of risk, the guidance we gave at the beginning of the year was 1.5%. It was going to be less than 1.5%.
“Though we’ve done a lot better than that, right now, we think that at the end of the year, it should not exceed 1.2%.
“The simple reason is that we’re still being extremely careful with respect to what we provide as guidance because of our newly inherited loan book, which was still material.
“We think our NPL ratio, which is currently at about 6.3%, may be maintained but will remain well within the guidance which we have given at the end of the year of 10%. So we will fall within the guidance.
“The whole idea is to be very careful given the nature of the loan book that we’ve inherited and which we are nurturing. Now our traditional NPL ratios have been at 2.5%”, the management stated.
“We believe that as we move into the second half of the year, we should be able to build on that number to ensure that we continue to remain very profitable in spite of the fact that we just concluded a merger”, Wigwe concluded.
Clearly some sure-faced assurance from a sure-footed industry player. And we wait.