In 2014, Access Bank moved to strengthen its position in the industry by developing the retail and SME business sectors. This is part of the strategy to achieve the high goal of attaining the status of “Africa”s Most Respected Bank” by 2017. Setting out its key performance indicators, the Directors and management identified 3 over-riding imperatives and focal points for operations. These include growth through strengthened capital position, delivering of strong financial results and sustainable improvement in the quality of growth.
With conclusion of its acquisition and merger with Intercontinental Bank Plc, Access Bank re-defined it position in the industry and its capacity to lead big ticket deals. In fact the bank believes strongly that this M&A deal played a significant role in the rating upgrade from A to A+ by a leading rating Agency.
With this transaction balance sheet size rose significantly in the last 3 years culminating in a figure of N1.98trillion which placed the bank among the 6 biggest banks in Nigeria. Seven years earlier in 2007, the bank’s total assets plus contingents stood at N329billion and placed outside the top 10 in the industry.
One of the key mandates of the bank in 2014 was growth through a strengthened capital position. To start with, the bank set up a special purpose vehicle named Access Finance BV. In the initial exercise, it did a debt capital raise of USD 400million at 9.25% through the issue of Resettable Subordinated Notes. The bank also executed on a rights issue.
As at 31st December 2014, about 816,787 shareholders own the equity shares of the bank. This is one of the most diverse holdings among banks in Nigeria. It resulted from the business combination that was executed recently. These shareholders own shares with book value of N274billion up from N245billion in 2013.
This amount is enough to cover 17% of risk adjusted assets and considerably provides a reasonable margin of safety for the bank to proceed with further business growth. It was 18% in 2013. However, tier 1 capital to net loans came down from 33% to 25% underlying how rapidly risk asset creation took place during the period.
Credit Risk and Asset Quality
In managing difficult risk inherent in every credit situation, Access Bank takes the issue of rating the credit risk of every counter-party seriously. In fact it takes this as central to the entire chain of credit origination to repayment or recovery. Among others, it adopts the Obligor Risk Rating Model (ORR) and Facility Risk Rating Model (FRR). During the year, it expanded loan portfolio more aggressively from N762billion to N1.09trillion and accordingly migrated into the top 5 of banks in Nigeria that finance the economy.
Interestingly the rapid growth in loans did not appear to dent the quality standard already set by the bank. Non-performing loan ratio remained low at 2% as was the case in the preceding year. It would therefore appear that the strengthened policies and risk models adopted by the bank during the period were effective. It would also appear that the increase in provisions did not amount to deterioration in quality but a logical consequence of more than N333billion growth in gross loans within just one year.
Liquidity Risk and Deposit Mobilization
The bank uses a combination of funding or liquidity plan, Gap Analysis and Ratio analysis to quantitatively and qualitatively manage liquidity risk. In 2014, Access Bank succeeded in generating deposit liabilities of N1.03trillion out of which N616billion was in the form of demand deposit. Obviously the bank could boast of having layers of satisfied customers who are ever loyal. In 2014, it joined the institutions that have realized that the future of financial services rests with today’s retail and small customers.
Due to aggressive expansion of loans in particular, practically all measures of liquidity declined. Liquid assets as a proportion of total assets fell from 31% to 25%, adjusted liquidity ratio also declined from 26% to 16%. All cash ratios also followed accordingly.
Earnings and Profitability Performance
During the year 2014, Access Bank took quality risk and it is not surprising that earning and profit provided corresponding returns as compensation. Gross earning responded by witnessing a significant rise from N180billion in 2013 to N218billion out of which interest component amounted to N160billion. Fee and other types of income declined from 29% to 27%. Impairment charges rose significantly in percentage terms but remained small. Operating expenses was largely unchanged at N89billion, the result being an increase in profit after tax from N26.2billion to N39.9billion.
Return on average equity increased in good measure from 11% to 15% while earnings per share also grew from N1.15 to N1.75. It is to be noted that virtually all the measures of management efficiency moved up giving rise to the above performances. For instance, cost efficiency measure rose from 17% to 21%, just as earning efficiency also moved in the same direction.