As Access Bank Reaps Benefits of Merger

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Goddy Egene writes that the nine months results of Access Bank Plc, which showed an increase in performance indicators, points to the fact the financial institution has started reaping the benefits of its merger with the defunct Diamond Bank

“With the final merger of both banks and the status of the resulting entity as ‘the largest bank in Africa’s largest economy,’ this greatly bolsters the bank’s brand, opening doors of opportunity both in local and international markets. The merger will form a leading Tier-1 Nigerian bank and the largest bank in Africa by number of customers, spanning three continents, 12 countries and 29 million clients.

“It will bring together treasury, risk management and corporate banking expertise with strong retail and digital banking capabilities to create a financial institution operating across the full suite of products for all customer segments.”

The above were the words of the Group Managing Director/CEO, Access Bank Plc, Mr. Herbert Wigwe, on the bank’s merger with Diamond Bank Plc. At the conclusion of the merger, Diamond Bank Plc was delisted from the Nigerian Stock Exchange (NSE) and fused into Access Bank Plc to become a larger entity.

The financial results of Access Bank Plc ended September 30, 2019, showed that the financial institution has started reaping the benefits of the merger.

Financial performance
Access Bank Plc posted gross earnings of N513 billion for the nine months, showing an increase of 37 per cent above the N375.2 billion recorded in the corresponding period of 2018. Interest and non-interest income contributed 79 per cent and 21 per cent respectively to the earnings. Specifically, interest Income grew by 48 per cent to N405 billion, from N274.5 billion, while non-interest increased eight per cent from N100.4 billion to N108.6 billion. Net impairment charges stood at N10.61 billion, up from N8.353 billion in 2018.

Profit before tax (PBT) rose by 47 per cent to N103.1 billion in 2019, from N70.3 billion, while profit after tax (PAT) grew by 44 per cent to N90.7 billion, compared with N62.9 billion in 2018. Return on average equity stood at 21.9 per cent, just as return on asset was 2.1 per cent, which an improvement from 17 per cent and 1.9 per cent in the corresponding period of 2018.

A further analysis of the results showed that asset base remain strong and diversified, growing by 33 per cent to N6.6 trillion a sat September 2019, up from N4.95 trillion as at December 31, 2018. Customers’ deposits soared by 65 per cent to N4.2 trillion from N2.57 trillion.

Capital adequacy ratio(CAR) stood at 20.3 per cent, up from 20.1 per cent in 2018. Liquidity ratio improved from 44.2 per cent to 48.5 per cent, while loan to deposit ratio also improved from 57.6 per cent to 67.4 per cent.

Commenting on the results, Wigwe said the group delivered a robust performance in the first six months post-merger, despite a challenging and fast-changing macro and banking landscape. “The results which reflects the performance of the combined entity post-merger has outstripped those of the combined entities on a standalone basis. This further reinforces the bank’s sustainable business model and brand promise to deliver more to all stakeholders as we work to realise the envisioned synergies of merger,” he said.
According to him, the effective execution of their strategies ensured strong top-line figures of N513.7 billion, a 37 per cent growth from the previous year, on the back of a 48 per cent growth in interest income.

“Customer deposits recorded a 65 per cent gain year-to-date (ytd) to N4.239 trillion with low-cost deposits accounting for 54 per cent of the deposits mix. Pre-tax profits also grew 47 per cent to N103.1 billion, driven largely by a 71 per cent increase in net interest income, evidencing proficient utilisation of the bank’s assets. Customer deposits has grown by 8.1 per cent since the merger from a combined customer deposits of N3.92 trillion in March’ 2019 to N4.24 trillion in September 2019 with strong retail base.

“Similarly, net loans and advances grew by 7.2 per cent post the merger. Deliberate investments in expanding our digital lending portfolio resulted in daily volume disbursement of over N1 billion, putting us in the forefront of digital lending. The strong retail lending contribution demonstrates our commitment to improve access to financial services by leveraging on innovative digital platforms,” he said.
Wigwe explained that asset quality continued to improve as guided, to 6.3 per cent on the back of a strong recoveries and a robust risk management approach.

“This is expected to trend upwards into the future as we strive to surpass the standard we had built in the industry prior to the merger. Also Liquidity Ratio stood at 48.4 per cent, reflecting deliberate steps to ensure the group’s liquidity position remains robust. Going into the last quarter of the year, our focus remains on consolidating our retail momentum and driving financial inclusion. Furthermore, we will remain disciplined in our efforts to deliver enhanced shareholders’ value, with a focus on offering more than banking,” he said.

Analysts’ Assessment
Looking at the numbers, analysts at Cordros Capital said the bank was in line expectation, with the performance recorded so far in 2019.
“In the 9M-19 period, the bank recorded strong growth in both gross earnings and profitability, supported by the growth in funded income. The consolidated entity continues to post strong numbers while improving and strong macro-prudential ratios are also encouraging,” the analysts said.

Breaking down the figures, Cordros Capital said interest income grew by 47.6 per cent to N405.03 billion, driven by good growth in income from both investment securities (+25.3 per cent to N256.04 billion) and loans and advances to customers (+115.3 per cent to N140.40 billion).

“Similarly, interest expense grew by 28.5 per cent to N194.81 billion and was driven by increased expense on deposits from customers (+30.3 per cent to N123.41 billion) and borrowings (+100.2 per cent to N16.32 billion).
“The increase in interest expense represents a 65.4 per cent quarter on quarter(q/q) increase, which is significant and maybe signal to a tight pricing environment. Consequent, on the exponentially larger growth in interest income over expense, net interest income settled 71 per cent higher year-on-year at N210.22 billion.
“Also, non-interest income grew by 3.3 per cent to N97.74 billion, driven by fees and commissions income (+49.5 per cent to N56.01 billion). Consequent, on the increased income from both funded and non-funded sources, operating income settled 42.1 per cent,” they said.

Increased costs relating to the merger led to a jump of 39.8 per cent in operating expenses. According to the analysts, regulatory costs increased significantly due to the expansion in assets from the merger – AMCON levy (+29.5 per cent to N22.66 billion), NDIC premium (+39.9 per cent to N8.99 billion while personnel costs (32 per cent to N54.70 billion), among others, also spiked during the period.

“Nonetheless, given the expansion of operating income relative to operating expenses, the bank’s cost-to-income ratio settled lower at 65.3 per cent relative to 66.4 per cent in the prior year. This was enough to drive a substantial increase in profitability, with profit-before-tax and profit-after-tax growth settling higher by 46.7 per cent and 44.2 per cent respectively,” they said.

In their view, the Access Bank’s macro-prudential ratios are above par, with only the non-performing loans ratio settling above the regulatory limit (6.3 per cent relative to 5.0 per cent statutory limit).

“While NPLs declined from 6.4 per cent as at H1-19, this could be adduced to the 4.0 per cent growth in total loans over the quarter. All other ratios are settled well above regulatory minimums; Liquidity ratio (48.5 per cent relative to 30.0 per cent), Capital Adequacy (20.3 per cent relative to 16 per cent). Also, we note that the bank’s current reported loans to deposit ratio (67.4 per cent) is above the new minimum LDR of 65 per cent,” they said.

The analyst noted that the bank’s performance is strong while improving and strong macro-prudential ratios are also positive.
“However, there remains a long road ahead for driving the synergistic benefits of the collaboration.

For instance, there seems to have been rampant issues with the bank’s internet banking platforms in recent times, which could potentially have led to customer losses. Nonetheless, we remain cautious, even as the bank continues to post strong numbers and take a medium-term outlook to give a prognosis of the healthiness of the consolidated entity,” the analysts said.