Enhancing Customer Service, Shareholder Value

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Access Bank’s acquisition of Transnational Bank of Kenya is in line with its vision expand its footprints across Africa, enhance customer service and create more value for shareholders, writes Goddy Egene

“The year 2019 has been fraught with challenges as the Central Bank of Nigeria (CBN) has instituted policies aimed at driving credit extension to the private sector, which in our point of view has increased the overall risk in the sector at a precarious time.

“Also, 2020 will herald an evolution of the Nigerian banking sector, as the policy-induced-shift risk asset creation drive will see credit to the real economy increase swiftly, just as the spread between risk-free assets and loans narrows due to competition.

“While the argument for increased credit extension and lower interest rates for driving growth are compelling, in our view, this needs to be at the appropriate time and in an environment that is structurally suitable. Hence, in our opinion, the overall risk to the sector is higher than it has been in recent times.”

The foregoing was how analysts at Cordros Research described the banking sector, indicating the challenges ahead. Hence, boards and management of discerning and visionary banks have been exploring ways to maintain their market share and deliver value for all stakeholders.

One of such banks is Access Bank Plc, led by Mr. Herbert Wigwe as group managing director/CEO. The bank, which last year executed a successful merger with Diamond Bank Plc, to become the largest in Nigeria by customer-size, recently announced the expansion of its footprint across Africa with the approval to acquire 100 per cent of Kenya’s Transnational Bank Plc and its 28 branches.

Giving the approval, the Central Bank of Kenya said: “Access Bank Plc’s business model mainly focuses on corporate and retail banking and its strong group support is expected to drive Transnational Bank Plc’s business growth for the benefit of the Kenyan economy and the banking sector.”

Speaking on the acquisition, Group Managing Director/CEO of Access Bank, Wigwe said: “This acquisition aligns with our strategy to become Africa’s Gateway to the World and we are excited about the potentials that reside in the East African market. We will leverage our presence in key payment corridors, strong partnerships in non-presence countries: robust technology platform as well as world-class risk management to provide cutting edge financial solutions to our clients.

“We will build on TNB’s existing expertise in agricultural financing and deploy our resources to optimise other business segments.
“We are committed to supporting the growth and development of our host community in line with our sustainability ethos and are certain that this acquisition will deliver great value to our stakeholders.”

According to analysts, with this move, Access Bank may be capitalising on Transnational Bank’s interest in the agricultural sector. The acquisition will further cement its pan-African strategise by moving into East Africa’s largest economy.

Sustaining vision
Wigwe had said that Access Bank’s merger with Diamond Bank Plc 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,” he said.

Analysts have said that the decision of Access Bank to acquire Transnational Bank Plc is line with the vision to create Africa’s biggest retail institution and a formidable global powerhouse.

Already, Access Bank Plc has subsidiaries in Gambia, Limited,Sierra Leone, Zambia; Ghana; Rwanda and United Kingdom, while it also operates a Representative office in China, United Arab Emirates(UAE), Lebanon and India.

Partnering DIFC
As part of efforts to boost African business frontiers across the region, Access Bank UK branch has entered into a partnership with Dubai International Financial Centre (DIFC), the leading financial hub in Middle East and South Asia ( MEASA).
According to the bank, as a leading bank the country, it was always striving to provide alternative to customers.

“One of the things you need to understand about financial services and customer want, they want alternatives any customers you go to and say this is the only solutions what you are doing is boxing them in. What the DIFC provides for us is another alternative and is one that is now celebrated. It has been 15 years on and I think they have demonstrated that they are world class and they can compete with the best economical zones anywhere in the world. We are very glad to be partnering with them, we have a business outlook with DIFC, the last four years has been excellent for us. But unlike most Nigerian institutions who enjoys something and keep quite while not we enjoy it and share it with the rest of the world so that others too can take the benefit and enjoy the reward we have been enjoying in DIFC so we thought is important,” deputy managing director, Access Bank, Mr. Roosevelt Ogbonna explained.

According to the Chief Representative, International Markets, DIFC, Vikrant Bhansali, the organisation is a thriving community with unique lifestyle offerings including an outstanding commercial and residential environment that comprise seven residential towers, two 5-star hotels, seven renowned art galleries, 112 retail outlets with another 200 on the way.

“DIFC has built an enabling ecosystem that inspires innovation and encourages technological disruption which includes forward-thinking regulation: innovation testing license; first-of-their-kind accelerator programmes, DIFC financial tech hive and startup boot camp, subsidised licensing options, access to a $100 million fintech fund, and innovative ecosystem of partners and potential investors,” Bhansali said.

He added that DIFC allows zero per cent tax rate on profit, personal income tax, and 100 per cent profit on foreign ownership with no restriction on foreign talent or employees , no restriction on capital repatriation, international regulatory environment, central location for key regional activities.

Impressive financial results
As Access Bank Plc enters its close period, shareholders are already salivating for significantly enhanced full year results ended December 31, 2019. Already, the bank had given an indication of what should be expected at the end of the year, having reported an impressive nine months ended September 30, 2019.

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.

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.
According to Wigwe the group delivered a robust performance in the first six months post merger, despite a challenging and fast-changing macro and banking landscape.

He said: “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.
Wigwe noted that 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.
The GCEO said the 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,” Wigwe assured.