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Access Bank: Riding through the flames with helmet on

The News Bearer by The News Bearer
March 14, 2022
in Business, Featured
Reading Time: 4 mins read
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Access Bank is on a mission to become one of the largest financial services providers continent-wide. Over the past few months, Access Bank, like many of its peers has set forth on an expansionary course with the objective of building a stronger brand capable of taking on a larger market share of a continent striving for financial inclusion.

Its expansionary drive could not have come at a better time with Tier-1 banks moving to HoldCo structures, FinTech standing as the next big thing, and the African economy desperately in need of strengthened financial systems. To this end, from Zambia to Botswana, and even Mozambique, the bank has announced various mergers and acquisitions with its subsidiaries Africa-wide, all set to transform into a high-value Holding Company.

Needless to say, the group has also had its fair share of challenges – including but not limited to issues around its initial merger with Diamond Bank and its pending liability obligations. However, its recent financials reveal that they are not just on a quest to gain a larger share of the market compared to the rest of the FUGAZ banks, they’re betting everything on it.

What its numbers reveal

Based on their recent financials, it’s clear that Access Bank has been seeking to correct some of the limitations borne out of a volatile economy. At the end of FY 2021, Access Bank further revealed why its leaders are bullish on its future prospects. The group witnessed a 14.6% increase in Net Interest income from N263 billion in 2020 to N301 billion in 2021, bolstered by an increase across all its core revenue lines. Deposits from customers also increased by 24.47% to N6.95 trillion.

Profit for the year witnessed a 51.13% increase from N106 billion to N160 billion albeit on the back of some accounting provisions, owing to the same expansionary measures carried out over the period, the group’s total assets grew to a whopping N11.73 trillion from N8.7 trillion in 2020, one of the reasons why it consummated one of the largest mergers in Nigeria’s banking history.

But of course, it was not without its challenges especially keeping cost low. This year the bank pushed its cost to income ratio below 60% (58%) for the first time since 2016. This is one area where the bank has often struggled in recent years and only got worse after the merger with Diamond Bank. Compared to its peers, GTB and Zenith Bank, it still has a long way to go.

It also generated a total of N166.10 billion in trading income on securities revealing an impressive 423.35% increase year on year. Fitch Ratings had also revised the outlook on their Long-Term Issuer Default Rating (IDR) recently from Negative to Stable, confirming its rating at ‘B’ showing that the risks to their credit profile have reduced, and this is synonymous with its growth trajectory.

Access Bank has managed to post stellar profits in a very difficult 2021. However, it still needs to figure out what to do to sweat its humongous balance sheet size of N11.7 trillion, the highest in the industry. Its return on average asset of 1.6% is a testament to just how steep this challenge is.

Shareholders will also wonder why the bank’s dividend payout ratios continue to fall every year despite increased profits. This year, it is paying out about 19% or dividend compared to 22% last year. Again, Zenith and GTB paid out 45% and 41% respectively.

This begs the question “how much cash/cash equivalents” is too much? While these balances serve as a measure of safety to mitigate the potential risks of a volatile business economy, excess cash poses the risks of reducing returns on assets, eroding business value, and ultimately leading to management being over-confident.

Access Bank Plc’s current share price is N9.95 per share; year-to-date, it has also witnessed a 9.34% growth. The bank’s Board of Directors has proposed a final dividend per share of N0.70 per share to its shareholders. While its price to book ratio still stands at 0.33 revealing that the stock certainly still has more value to offer its investors, Access bank certainly needs to ensure that it maintains the right balance of asset acquisition, liquidity management, and revenue generation to further assure its investors of its growth potential.

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