Access Bank is a tier-one lender and Nigeria’s biggest bank by asset and customer base. The lender has in the last three decades evolved from obscurity to becoming a leader in the Nigerian banking industry and across the continent.
The lender was issued a banking license on December 19, 1988, was incorporated as a privately owned commercial bank about two months after. In May of 1989, Access Bank commenced operations at its Burma Road, Apapa Head Office.
Access Bank became a Public Limited Liability Company and listed on the Nigerian Stock Exchange (NSE) in 1998 while it obtained a Universal Banking License from the Central Bank of Nigeria in 2001.
In 2002, a core of new management led by Aigboje AigImoukhuede and Herbert Onyewumbu Wigwe took over affairs at the then-small commercial bank and through decisive leadership grew the bank to greater heights. Notably, Access Bank acquired Marina Bank and Capital Bank (formerly commercial bank Crédit Lyonnais Nigeria) by a merger in 2005, bought stakes in other lenders across Africa in 2008 and Intercontinental Bank in 2012.
Herbert Onyewumbu Wigwe is the bank’s Managing Director/ CEO and Oluseyi Kumapayi is Chief Financial Officer.
The fusion of leading wholesale banking business and a leading retail banking franchise in Nigeria created much excitement in the first half of 2019; Access Bank, a tier-one lender, and Diamond Bank a tiertwo bank jointly announced plans to consolidate and create new value for shareholders, customers and other stakeholders.
“Following the signing of the Memorandum of Agreement and announcement of headline terms, which valued Diamond Bank at approximately NGN72.5 billion (~$200m),” the banks said in a note dated 19 December 2018. The document explained that Diamond Bank shareholders would receive NGN3.13 per share in cash and shares, 2 Access shares for every 7 of Diamond’s shares held.
The deal promised to rattle dynamics in the banking industry with the new entity leapfrogging sector leaders to take charge on some fronts; the media, stock analysts, brokers, investment bankers and even the average Nigerian customer with interest in either bank paid keen attention to developments.
Estimations showed Access– Diamond Bank merger would lead to N150.3 billion in synergies with expectations of creating Africa’s largest bank by customers, spanning three continents, 12 countries and 29 million clients.
Key Pro-forma metrics based on 9 months 2018 data showed Access Bank with N4.56 trillion asset and Diamond Bank with N1.56 trillion. Net Customer loans for Access Bank was N1.98 trillion while Diamond Bank had N730 billion. The tier-one lender had a customer deposit book of N2.48 trillion while the mid-tier bank had N1.1trillion.
Also, Gross earnings of Access Bank was N375 billion and Diamond Bank was N143 billion, Net Income was N63 billion and N2 billion respectively.
Diamond Bank had a customer base of 19 million with 10 million online customers and Access Bank had 10 million customers with 3 million online customers. Also, Access Bank had 400 branches and 1,881 ATMS while Diamond Bank had 277 branches and 1,218 ATMS.
In a conference call held in January, Businessday gathered that the merger would have its synergies span from 2019 through 2021.
Cost synergies were estimated at N88.1 billion comprising of consolidation of procurement and management facility with an estimate of N40.1 billion, representing 46 percent share; cost of funds reduction through lower deposit pricing and improved mix projected at N21 billion; IT integration and consolidation, N12.6 billion; branch consolidation, N13.5 billion; while the synergy value of integration of support functions was projected at N500 million.
In addition, the deal promised revenue collaborations projected at N62.2 billion, of which N40.9 billion, accounting for more than 65 percent, was expected to come from enhanced product offering and cross-selling; expanded digital channels was put at N8.4 billion; improved corporate and commercial share, N6.7 billion; while treasury sales and digital market expansion was expected to take N6.2 billion.
On Non- performing loans (NPLS) concerns, both banks highlighted that Diamond Bank’s Q3’18 numbers were adjusted to reflect additional impairment of N150 billion, placing its current NPL ratio at 40.4 percent.
For the combined entity, this translated to a pre-merger NPL ratio of 14.1 percent based on 9M’18 numbers.
The hurdles to cross were important; a court-ordered meeting of shareholders, approval from the Securities and Exchange Commission (SEC) and the Central Bank of Nigeria (CBN), and then a court sanction. The deal was completed on 1 April 2019.
One of the clearest signs that Nigeria’s biggest lender by assets has started reaping the benefits of a merger with Diamond Bank is the significant growth in bottom-line, the highest recorded in the industry. Post-tax profit surged 59 percent to N63 billion in the first half of 2019, from N39.6 billion a year earlier.
Amid the current low-interest environment which saw some lenders record declines in their interest income, Access Bank grew nearly by half to N272.9 billion half-year 2019 from N186.7 billion in the previous comparable period. The bank attributed the surge in interest income to the increased volume of investment securities in the period.
The bank paid N117.8 billion as interest expense, about 16 percent more than N101.4 billion posted a year before, on account of growth in deposit volume and increasing trade-related transactions, making net interest income almost doubled to N155 billion in the review period to N85 billion.
Access Bank had earlier expected net interest margin (NIM) to print at 6 percent. NIM, which measures the profit a bank makes on its investing activities as a ratio of total investing assets, kicked in at 7.6 percent, buoyed by an increase in yields and reduction in the cost of funds.
The lender’s asset quality improved in the period after a sharp deterioration in March as results of the assets acquired. Non-performing loan ratio trended downwards from 10 percent to 6.4 percent, which the bank attributed to prudent provisioning, risk management practices, a combination of write-offs, recoveries, reclassification and restructuring. A closer look at the NPL ratio numbers showed that the bank has more exposure to oil & gas and agriculture sectors.
“We have had to pursue this loan book with vigour and there have been significant recoveries. There have been restructuring which have shown improvements. And there have also been significant writebacks of some of the loans that have been fully provided,” said Herbert Wigwe, the bank’s chief executive officer at a recent conference call with investors and analysts.
Capital adequacy ratio (CAR) printed at 21 percent in June 2019, from 16.9 percent a year before, reflecting an improvement in tier-1 capital. Taking into consideration IFRS 9 transitional adjustment on capital CAR improved by 4.9 percent points to 24.9 percent, while liquidity ratio in the period stood at 49.7 percent.
The bank received N4.18 trillion in customer deposits as of June 30, 2019, which is 7 percent more than N3.92 trillion three months earlier. According to Wigwe, the growth in customer deposits was driven by a surge in current and savings account, reflecting enhanced retail value proposition on account of strong and innovative digital platform.
Access Bank improved on operational efficiency as cost-to-income ratio declined 399 basis points year-on-year to 61 percent from 65 percent last year on account of continued adoption of cost-reduction strategies and stronger earnings.
Access Bank continues to make strides in the retail business. In its presentation notes to investors and analysts, the lender stated that its focus to bank with the unbanked through agency banking and collaboration with telecom companies has helped reach 1.3 million customers and facilitated transactions valued at N99 billion within three months.
The bank noted that it invested in digital and analytics. Through these, the bank disbursed an average of N200 million to 4, 600 customers daily at the click of a few buttons, leading to diversification and derisking of the loan portfolio.
Here’s what the group’s chief executive said about its retail strategy. “During the reporting period, we made some strategic decisions to push our retail strategy in line with the next phase of our transformation. We invested in analytics to be able to discern our customers’ increasingly complicated needs, and therefore structure products and services towards meeting or achieving optimal satisfaction.”
As a result of various initiatives deployed to grow the retail business, the contribution of the segment to total income grew more than double at 42 percent compared with 18 percent a year ago.
Outlook for 2019 second half The bank forecasts improvement in asset quality. It expected NPL ratio to further trend downwards to its traditional 2.5 percent this year and next year. To achieve this, the bank will maintain an aggressive recovery drive and continue to pay attention to the loan book.
The bank says it will ensure cost to-income ratio further fall below 60 percent as it would optimise operational efficiency through enhancing productivity across branches and also by aggressively executing strategic cost-saving initiatives.
On ways to increase transactional banking income, the bank says it will migrate customers to alternative channels and create strong awareness of flagship retail products. The bank unveils intention to intensify low-cost deposit drive to reduce funding costs, to boost liquidity, margins and retail business.
The bank also expects to ramp up the delivery of its merger synergies. “As at half-year, we have generated cost synergies worth N32 billion. 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 profitable in spite of the fact we had a merger.” Wigwe assured.
