Interview

Access Bank: A trail blazer

Background

Access Bank Plc ranks among the leading top five banks in Nigeria and it is the largest among the five by assets base. The bank which was licensed by the Central Bank of Nigeria some 26 years ago has evolved from an obscure Nigerian Bank into a world-class African financial institution. Access Bank has built its strength and success in corporate banking and is now applying that expertise to the personal and business banking platforms it acquired from Nigeria’s International Commercial bank in 2012. The next two years were spent integrating the business, investing in infrastructure and strengthening the product offer. As part of its continued growth strategy, Access Bank is focused on mainstreaming sustainable business practices into its operations. The Bank strives to deliver sustainable economic growth that is profitable, environmentally responsible, and socially relevant.

Board/Management

Dr. (Mrs.) Ajoritsedere Awosika, MFR leads the board of Access Bank as Chairman. She is also an Independent Non-Executive Director. The Bank boasts of nine high profiled Nigerians, four of them female, who presides on its affairs. But Herbert Wigwe, who is the Group Managing Director (GMD) runs the daily affairs of the bank. He has been said to be responsible for the high level performance of the ever expanding bank after taking over from his predecessor, Aigboje Aig-Imoukhuede.

Financial performance

Access Bank recorded a moderate growth across all performance parameters in first quarter ended March 31 2021. This is a continuation from the impressive outing it recorded during its full audited financial year ended December 2020. The assets base of the bank remains strong, as it is the highest in the industry with total assets of N9.05trillion as at March 2021. Total assets grew by four percent from N8.68trillion in December 2020. The lender still maintains its position as the largest bank in Nigeria by total assets as at March 31, 2021. A breakdown of the first quarter performance showed that gross earnings rose by 6 percent year on year (y/y) to N222.1billion in Q1 2021 as against N209.8billion in Q1 2020, with interest and non-interest income contributing 65 percent and 35 percent respectively. Profit before Tax (PBT) for the period increased by 30 percent y/y to N60.1billion while Profit after Tax (PAT) also grew by 28 percent y/y to N52.6billion from N40.9billion in Q1 2020 on the support of a 13 percent y/y growth in operating income and a 16 percent y/y reduction in interest expenses which compensates for the rise in impairment charges. s Non-Performing loans (NPL) ratio stood at 4.0 percent as at March 2021 (December 2020: 4.3%), on the back of an intensified recovery drive within the period. Net Loans and Advances totaled N3.64trillions as at March 2021 (December 2020: N3.61trillion). The bank’s capital and liquidity level is well above industry average with a Capital Adequacy Ratio of 22.2 percent and liquidity ratio of 48.3 percent. The bank recently announced its intention to acquire a majority share-holding in African Banking Corporation of Botswana Limited to further strengthen its drive to dominate in the continent.

Full year performance review Financial income

ACCESS reported a 14.7% y/y expansion in gross earnings despite an 8.9%y/y decline in Interest Income to N489.2billion amid pressure on asset yields (which slid to 9.0% from 12.8% in 2019) and increased uncertainties in the macroeconomic environment. Specifically, the increase in gross earnings was driven by Non-interest income (NII) which jumped 112.1% to N275.5billion, essentially boosted by a 743.0% y/y surge in net trading income to N114. 3billion (vs. -N17.8billion in 2019), traceable to Net gain on derivatives, FX and treasury activities. Also, with expansion in its retail banking services, payments, remittance and aggressive customer acquisition, Fees and commission income increased 27.1% to N116.7billion, significantly supported by a upsurge in E-banking charges.

Margin

Net Interest Margin (NIM) declined 170 basis points (bps) to 4.9% despite reduction in funding cost to 3.3% (against 5.0% in 2019) and amid an industry wide decline in interest expense. Expectedly, impairment charges jumped 211.5% to N62.9 billion due to COVID-19 worries, pushing cost of risk to 1.8%. Similarly, operating expenses (OPEX) increased by 26.9% to N326.5billion. As such, Cost to income Ratio ticked northwards to 63.4% (vs. 66.1% in 20-19). An inspection of the OPEX component indicated a jump in regulatory levy – AMCON (up 56.0% to N35.4billion), Outsourcing costs (+50.0% N25.billion) and IT & E-business expenses (+92.0% to 18.7billion), accounted for the pressure on OPEX. Against this backdrop, PBT and PAT growth improved by over 12.0% to N125.billion and N106.0billion respectively, with ROE and net margin settling at 15.6% and 13.9% respectively.

Asset Quality

Access Bank total assets stood at N8.68trillion as of FYE 2020, up 21.5% from N7.1trillion in December 2019. Loans and advances represented N3.6trillion, up 18.8%, while Investment Assets surged by 61.3% to N1.7trillion. Cash balances, however, stood flattish at 0.1% to N723.9billion, a sharp contrast to peers. Also, deposits expanded by 21.5% to 6.5%. Also worthy of note, derivative assets expanded 75.0% to N251.1billion, buttressing the jump in non-interest income. Loan to funding ratio stood at 50.7%. Despite asset quality issues across the market, ACCESS’ NPL ratio improved to 4.3% (previously 5.8%), thanks to a well-diversified loan book, though the loan to funding ratio came in at 50.7% (from 62.9% in 2019). Access Bank’s shareholders’ equity strengthened by 19% to N751 billion as at December 2020, following the combination with the erstwhile Diamond Bank Plc Overall, Capital Adequacy Ratio (CAR) was flattish at 20.6% while liquidity ratio settled at 46.0% for the period. Analysts are of the opinion that the Bank needs to shore up capital to create sufficient buffer for unforeseen risks..

Acquisitions and Business Reorganization

In a string of acquisitions/expansion across the African continent – including Cameroon (operating license), Kenya (Transnational Bank), Zambia (Cavmont Bank) and the latest being South Africa’s Grobank – management hinted that the group intends to leverage the African Continental Free Trade Area agreement to expand its footprint to 20 countries across Africa. As such, in addition to the already concluded acquisitions, plans are currently in place to enter Morocco, Algeria, Egypt, Ivory Coast, Senegal, Angola, Namibia and Ethiopia. A sum of $60.0mn was paid to acquire south Africa’s Grobank, a major milestone in the Bank’s foray into the south African market and a critical factor in driving intra-African trade by widening its trade finance operations. On the proposed reorganization into a HoldCo, management noted that the bank would also accomplish an expansion plan outside Africa by setting up representative offices in China, India and Lebanon, using its London operation as an “anchor for growth.”. Furthermore, the Group will be organized into Access Bank Group (divided into Nigeria, Rest of Africa and international), Payment Business, Consumer Lending/ Agency Banking and Insurance Brokerage. The overall objective of the structure will be to create new revenue lines at minimal risk, diversify earnings, and support international expansion.

Outlook

Access Bank Plc has grown markedly over the last few years, adopting both organic and inorganic means to achieve its medium-term growth plan. The business combination with Diamond Bank, though still unveiling has positioned the Bank as Nigeria’s largest in terms of total assets as at 31 December 2020. Business analysts expect this stance to be upheld by a good management team, a stronger retail presence and good brand equity. The Bank is also expected to sustain top and bottom-line expansion in 2021. While non-interest income growth should taper going forward, as the economy stabilizes, we imagine that rebounding asset yields, supported by massive balance sheet size and gains from expansion activities, should spur interest income growth. Again, the well-diversified nature of the loan book is expected to sustain asset quality and thus keep NPL and COR within prudential limits. Accordingly, analysts expect PBT and PAT to remain broadly stable in FY-2021. By valuation, ACCESS’s PB and PE ratio currently stands at 0.36x and 2.5x, below peer averages at 3.1x and 0.6x. However, analysts reverse its target price (TP) for ACCESS from prior N10.5/share to N8.6/ share, amid retracement in the yield environment which has resulted in a significant spike in our risk-free rate assumption thus reducing the appetite for riskier assets such as equities. Accordingly, this translates to a 13.9% upside compared to market price of N7.6 as of April 16th 2021, thus we maintain a BUY rating on ACCESS.

 

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