Overcoming the Headwinds

Goddy Egene writes that Access Bank overcame the rigours of merging with Diamond Bank, survived the headwinds in 2020, to record an improved bottom-line and declared higher dividend

Last year when the Covid-19 pandemic was ravaging the world, investors in Nigeria were highly apprehensive over what would become of their investments at the end of the year. The lockdown that brought economic activities to halt further raised the anxiety among many. It was expected that the performance of companies would be impacted negatively and thus, returns on investments would equally be affected. However, most of the companies, including banks, have shown resilience and delivered improved results despite the challenging operating environment.

Last week, Access Bank Plc released its audited results, delivering solid and resilient top-line figures despite a challenging economic and regulatory landscape. The bank did not only post improved profit but also rewarded shareholders with higher dividend. Access Bank Plc posted gross earnings of N764.7 billion, showing a growth of 15 per cent from N666.8 billion in 2019. Interest and non-interest income contributing 64 per cent and 36 per cent respectively.

Profit before tax (PBT) grew by 13 per cent to N125.9 billion, from N111.9 billion in 2019, while profit after tax (PAT) rose from N94.1 billion to N106 billion on the back of on the back of a 32 per cent growth in operating income which offset the rise in impairment charges and operating expenses. Impairment chargers stood at N62.893 billion, compared with N20.189 billion in 2019. According to the bank, net impairment charge of near N43 billion arose principally from a Structured Trade Finance (STF) portfolio in the Access Bank UK. It explained that the STF impairment is one-off/COVID related and recoverable over the next 12-18 months against insurance cover from world class insurers. Given the improved bottom-line, the board has recommended a final dividend of 55 kobo per share bringing the total dividend to 80 kobo per share for the year.

Commenting on the results, the Group Managing Director/ CEO of Access Bank Plc, Mr. Herbert Wigwe, said the institution’s resilient performance was testament to the effectiveness of their our strategy and capacity to generate sustainable revenue.

“The strategic actions that the bank has taken over the past 12 months evidence a strong focus on retail banking and financial inclusion, an African expansion strategy and a drive for scale for sustainable value creation. In 2020, Access Bank proudly opened its doors for business in Kenya and Mozambique, further increasing our footprints across the African Continent. Access Bank Zambia also concluded the acquisition of Cavmont Bank Limited in January 2021 and the group recently announced the approval by relevant regulatory authorities for the acquisition of Grobank Limited, creating an inroad into the South African market in realisation of the group’s strategic ambitions,” he said.

According to him, in view of the opportunities that exist in the market, Access Bank would be transitioning to a HoldCo structure.

“The bank has received the Approval-In-Principle from the Central Bank of Nigeria(CBN) for the restructuring and the HoldCo will consist of four subsidiaries in order to tap into the market opportunities that are available in the consumer lending market, electronic payments industry and retail insurance market,” he said.
Wigwe added that the HoldCo structure would enable it to further accelerate its objectives around business diversification, improved operational efficiencies, talent retention as well as robust governance.
“Going into the fourth year of our 5-year cyclical strategy, our focus remains on consolidating our retail momentum and expanding our African footprint in a sustainable manner,” he said.

The CEO explained that Acccess Bank Plc recorded a consistent growth in its retail banking business, reporting a 5.8 million growth in customer sign-on during the year through its financial inclusion efforts.
“This increase in customer base led to a retail revenue of N177.2 billion, a 64.4 per cent increase from its 2019 figures of N107.8 billion. The bank’s customer deposits also grew by 31 per cent to N5.59 trillion in December 2020 with savings account deposits standing at N1.31trillion. Similarly, net loans and advances grew by 18 per cent to N3.61 trillion in comparison to 2019 figures of N3.06 trillion,” Wigwe said.

He disclosed that as the bank intensified recovery efforts, undertook significant write off and leveraged its robust risk management practices, its asset quality improved to 4.3 per cent compared to its 2019 report of 5.8 per cent, noting that this is expected to continue to trend downwards as it strives to surpass the standard it had built in the industry prior to the merger with Diamond Bank.

“Finally, I would like to thank our people, shareholders, and other stakeholders as we could not have achieved these results without their dedication, commitment, and support,” he said.

.Assessing the numbers, analysts at Cordros Securities, said the bank recorded an interest income decline of 8.9 per cent to N489.22 billion in the period, pressured by the decline in income from investment securities (-20.1 per cent to N154.64 billion). According to them, the decline in income from investment securities was expected given increased capital allocation to risk asset creation given the CBN’s LDR policy and the precipitous decline in yields on assets during the year.

“Similarly, the bank recorded a decline in income from loans and advances to customers (-5.8 per cent to N309.54 billion. These declines were steep enough to offset growth in other contributory lines – cash and balances with banks (+29.8 per cent to N11.96 billion) and loans and advances to financial institutions (+134.8 per cent to N13.09 billion),” they said.

Cordros Securities added that interest expense declined over the period by 12.8 per cent to 226.27 billion, as the bank recorded declines in expenses on deposits from customers (-29.7 per cent to N118.44 billion) and debt securities (-15.7 per cent to N19.31 billion), which may be tied to the bank’s improved CASA (64.6 per cent . 2019FY: 58.1 per cent) as well as lower net debt outstanding after repayment of a portion of debt in 2019.
However, non-interest income grew by 125.8 per cent to N253.17 billion, supported by strong income growth from investment securities (85.6 per cent to N122.69 billion), primarily driven by derivative instruments, which offset the substantial FX revaluation loss recorded (N52.23 billion vs. N19.05 billion of 2019). This growth in non-funded income was strong enough to offset the decline in funded income, leading to a 22.8 per cent expansion in operating income.

Operating expenses increased during the period by 29 per cent to N327.30 billion, as all major contributory lines recorded spikes, save for personnel expenses – AMCON levy (+56.3 per cent to N35.44 billion) and NDIC premium (+18.3 per cent to N15.48 billion). On the other hand, personnel expenses declined by 4.9 per cent to N73.17 billion..

Consequent to the growth in income relative to expenses, the bank recorded a profit before tax growth of 9.1 per cent to N125.92 billion. However, PAT settled 8.7 per cent higher at N106.01 billion, given the higher income tax expense (+11.4 per cent).

“The bank’s performance was generally in line with our expectations. The deterioration in core income growth was expected given the slowdown in economic activities due to the pandemic as well as regulatory pressure,” they said.

Meanwhile, Access Bank is working towards the realisation of its target to become the key financial services aggregator in the region and take advantage of the Africa Continental Free Trade Agreement (AfCFTA).

According to Wigwe, the bank’s approach and strategy would be to enhance its product offerings, strengthen its settlements infrastructure, as it supports continental financial flows (the intra-Africa trade potential could rise by +54 per cent).
He said Access Bank hoped to leverage the markets in eight of the countries on its expansion line-up to explore the opportunities of AfCTA.

He noted that the lender would utilise the fewer trade restrictions, removal of a couple of regulatory bottlenecks and other trade liberalisation features that the AfCTA offers in tapping value from some economies of high potential on the continent.

Having consummated a string of acquisitions across the continent last year in Cameroon, Kenya and Zambia, the bank said it was targeting nine markets, comprising South Africa Egypt, Ivory Coast, Senegal, Morocco, Angola, Namibia, Algeria and Ethiopia.

And recently, Access Bank announced that it received approval from South African and Nigerian regulatory authorities to acquire South African-based Grobank Limited.

According to the announcement, the approvals constitute a significant milestone in achieving completion of the transaction by the second quarter of 2021. This milestone further solidifies Access Bank Plc’s outside revenue plan especially after the announcement that its Zambian subsidiary (Access Bank Zambia) has finalized the acquisition of Cavmont Bank Limited.

Wigwe said the announcement represented significant progress in delivering on their strategic intent of becoming Africa’s Gateway to the World in pursuit of their vision to be the world’s most respected African Bank.