Efficiency, Cost Containment Pay off for Access Bank

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Cost containment, efficient resource and risk management strategies guaranteed Access Bank impressive half year results, writes Goddy Egene

The headwinds in the nation’s economy affected the performance of many companies during the half year ended June 30, 2016. From the Naira devaluation, scarcity of foreign exchange and rising inflation that hit 11 year high in June. Results released so far by companies reflected the negative impact of challenges.

The banking sub-sector has not been left out of the weak H1 financial results as some of them recorded decline in bottom-line, while the performance of some remained flat. However, two banks, Guaranty Trust Bank Plc and Access Bank Plc announced improved bottom-line last week. The banks also delighted shareholders with the payment of an interim dividend of 25 kobo apiece.

But an analysis of the profitability of the two banks showed that GTBank got a boost from foreign exchange revaluation gains. On the other hand, Access Bank Plc reported improved profitability that was duly earned from its core business that indicates sustainability.

Revenue and Profitability

Access Bank Plc ended the period with a revenue of N174 billion, showing an increase of three per cent, compared with N168.3 billion in the corresponding period of 2015.
Interest income rose by 14 per cent from N98.9 billion to N112.3 billion as a result of steady income growth from steady income growth from the Bank’s core business and a 14 per cent reduction in interest expense.

Also, strong growth in fee and commission income contributed to non-interest income of N61.7 billion which largely off-set the decline in trading income. Operating income grew by 11 per cent from N117.6 billion to N130.2 billion in 2015. Profit before tax rose by 28 per cent to N50 billion in 2016, from N39.1 billion in 2015, while profit after tax stood at N39.4 billion, up by 26 per cent from N31.1 billion in the corresponding period of 2015. The Bank ended the period with a return on average equity (ROAE), which is above the inflation rate of 16… per cent.

Balance sheet

A further analysis of the performance the results show that loans and advances rose by 29 per cent to N1.82 trillion at the end of H1, up from N1.41 trillion in December 2015. The devaluation of the naira accounted for 16 per cent of the loan growth, while core loan growth was 4.5 per cent. The brand, Access Bank was also attractive to customers as reflected in the customer deposits that grew by 17 per cent from N1.68 trillion in December 2015 to N1.97 trillion in June 2016. Total assets improved by 26 per cent to N3.27 trillion in June, up from N2.59 trillion in December 2015. The Bank closed the H1 with a stable capital position as capital adequacy ratio(CAR) stood at 19.6 per cent, weel above the regulatory minimum.

The asset quality of Access Bank was stable in H1, recording percentage of non-performing loans to total gross loans of 1.9 per cent, while coverage ratio(with regulatory risk reserve) stood at 223.6 per cent, up from 216.4 per cent as at December 2015. Impairment charges rose by 15 per cent from N8.9 billion to N10.2 billion, which is comparatively lower than the over 100 per cent recorded by some its peers. Cost of risk improved by 0.1 per cent from 1.2 per cent om H1 of 2015 to 1.1 per cent in 2016.

Management comments

Commenting on the results, Group Managing Director/Chief Executive Officer of Access Bank, Mr. Herbert Wigwe said the bank’s performance continues to be resilient in the face of a challenging macro-economic environment, which has been further exacerbated by double-digit inflation, amidst an untimely devaluation.

“Despite these macro uncertainties, we delivered gross earnings of N174 billion, while pre-tax profits grew 28 per cent to N50 billion in the period. The results underscore our continued ability to grow sustainably whilst effectively adapting to a challenging operating landscape,” he said.
Wigwe explained that the prevalent macro-economic conditions put a strain on business performance across the industry, with increased concerns about asset quality deterioration.

“Despite these challenges, the bank’s asset quality remained stable, as non-performing loans remained below industry average, in line with our guidance. Our capital and liquidity levels were also sustained above regulatory limits. During the period, we grew our retail market share, leveraging innovation and technology to create lifestyle products and enhance customer experience. This growth has led to significant increase in our transaction volumes and fee-related income. In addition, our cost of funds dropped by 170 bps y/y reduction, reflecting the increase in our low cost funding base,” he said.

He added that notwithstanding the high inflation and the impact of the currency devaluation on cost, operating cost remained stable owing to the bank’s cost management initiatives.

“Optimising operational efficiency will remain an imperative for the second half of the year, as we continue to see the benefits of our cost initiatives intensify over the next few months. We believe that macro conditions will remain challenging. Nonetheless, our priority in the coming months will be to strengthen our position in the industry; increasing focus on risk and operational efficiency, with customer-centricity at the heart of our strategy.”

Supporting diversification

The Bank recently affirmed its commitment to support the federal government’s economic diversification programme especially in agriculture and other non-oil sectors.
Access Bank has been in the forefront, partnering key stakeholders that are embarking on series of capital projects that are targeted at diversifying the economy, create employment opportunities.
The Access Bank is currently collaborating with the Lagos, Kebbi States governments and a Mexican farming conglomerate, San Carlos, a company that has the requisite experience and modern technology for processing and milling of rice in commercial quantity.

It is expected that this will boost to the government’s reforms agenda especially in agriculture and save Nigeria as much as $3 billion yearly by way of import substitution. The rice milling project has the capacity to process and mill twenty (20) tons of rice per hour.
Wigwe had said the project would help to boost the diversification of the Nigerian economy especially now that the Federal Government is working hard to develop other sectors of the economy as substitute to oil production.

He said: “We are supporting the rice milling project by Lagos and Kebbi States because of the potential benefits especially in promotion of food sufficiency, import substitution and foreign exchange earnings from exportation of the produce. We need to develop other economic sectors and be less dependent on oil as the sole foreign exchange earner for the country.”

Facilitating digital banking

Determined to make its digital banking application fast, convenient and hassle-free, Access Bank Plc recently refreshed the revolutionary lifestyle solution, PayWithCapture to a more illimitable version.
The latest version, PayWithCapture 5.0, comes with additional features that enable customers to transfer funds from any bank account (one or more) to any bank account or phone number and email addresses.

PayWithCapture 5.0 has also expanded to the web for users to experience the many benefits on larger screens. It also offers a USSD service *901# that allows users to carry out most of the listed functions without the need to access the internet.

The Head of Digital Banking, Access Bank, Adeleke Adekoya said: “We heard about the issues and complaints our customers had on the old app. With this new version, we’ve tried to resolve them all. The latest version has extended beyond simply scanning QR-Codes to pay for transactions to allowing customers experience banking in a way that feels as personal as they want it to be.

PayWithCapture 5.0 users can, still enjoy the success of QR code scanning for payments but with the added ability to make transfers to bank accounts, phone numbers and email addresses. Users can also set up a savings club through PayWithCapture. Savings Clubs, commonly known as Ajo or Esusu enable them save jointly with friends towards a common goal as the funds can be pooled and rotated among all members of the group or pooled and given to one person.”