Access Bank 2023 Results: Beating down Cost and Impairment Charges to Boost Value For Money

Access Bank , no doubt , rode the wave of the gains of its acquisition initiatives and core competencies in certain critical segments to outperform its rivals and stash a respectable profit figure.

Access Bank Holdings , the Nigeria’s biggest bank by asset , deposit and gross earnings continued its upward trajectory in the financial year 2023 and wrenched up bottom line in like manner with a deft application of management’s experience beginning from leveraging net interest income and foreign exchange revaluation .
That financial year was ,indeed, a celebration of milestones . Consequently , when you peep hard into the interior workings of this bank some big facts stare you in the face :impressive loan asset quality , adequate bank’s loan to deposit ratio (LDR), decreasing bank’s non-performing loan ratio (NPLR), ability to collaborate with fintech companies to improve the bank’s customer’s service experience and service interface , decreasing cost of funding and cost of risk (CoR); and steadily decreasing cost-to-income ratio.

Whether Access Bank is bench marked with its rivals or the best in class Indices with the abive performance indices in mind what one sees is a highly competitive bank with big a potential for full industry leadership where it matters most ; its financial statements and corporate performances have gone from the phases of haziness to brilliance ,and its shareholders are delighted indeed .

Access Bank ,particularly in the financial year 2023, made some gallant moves to the big time , ramping up returns and taming costs as well as leading in regulatory requirements. The rise can be pinned down to responsible banking

A detailed analysis of its income mix in that financial year confirms this as much. One milestone registered by Access Bank is its whopping profitability that accorded it the second most profitable position after Zenith Bank .Most importantly, the bank is not only profitable but highly resourceful, achieving more with less than before.

The 2023 full year result is the beginning of an attempt to wring good profit to realise its complete leadership of the sector after emerging the biggest bank by asset ,deposit ,revenue and loan

Pre-tax profit of the leading bank, buoyed by 359 percent in the period to to N729 billion from N 167.7 billion. This helped  to shoot up pre-tax profit margin to 28 percent, up from 12 percent. With that rise in pre-tax profit, the bank’s net profit flew 305 percent to N619.3 billion from N153 billion in the period, leading to a rise in net profit margin to 24 percent from 11 percent.

This attempt ito clinch the most profitable laurel by the bank is clearly demostrated by the bank’s improved return on equity (ROE), and return on assets (ROA). Moreover, its cost of risk has been dropping in the recent time. due to the bank’s robust risk management framework .This was achieved through the reduction in impairment charges , re-affirming the bank’s enhanced asset quality. In the same breadth, its coverage ratio has followed the same trend over the same period, an indication of prudent disposition consistent with the bank’s known record of excellent credit risk management.

In its bid to yank up bottom line ,it also tamed its operating costs knowing full well this is an environment where the cost of doing business is in perpetuity; nibbling the fat off hard earned returns

Consequently,as a result of the significant improvement in efficiency, the bank’s cost-to-income ratio settled at 44 per cent from 54 per cent in 2022,the best in the last few years .the
To achieve the above volume of profitability , Access Bank had to leverage its size advantage gained mostly by its spate of acquisition to increase its cash and cash equivalents, loans and advances and investment securities financed its its whooping deposit base among others to boost and generate the largest revenues in the industry ..Its humongous resource base was fully exploited and leveraged to achieve its 2023 supersonic revenue growth particularly with the loan deployed and the gains from currency revaluation to generate better revenu

The weak macroeconomic environment did not stop Nigerian banks from attaining new highs in earnings and profitability. Its total revenue inched up by 87% to hit N26 trillion in 2023 from N14 trillion at the end of 2022. The group had diversified its gross earnings, averaging 16% from non-interest income and 84% from interest income.
.Of course, this is not unexpected .A peep into the bank’s financial position showed that total assets grew by 78 % from N15 trillion to N27 trillion between the FY 2022 and FY 2023 driven by the 58%  growth in loans and advances, +79% growth in investment securities, and +156% bump in cash between 2022 and 2023.

.CORE BANKING .

The bank, it would appear, had to reach deep into its maturity transformation mandate to improve interest income in the period .As indicated above , this bank increased its loan and advances impressively to key into certain advantages and to sustain its competitiveness .

The reason for this is sequel to the importance of lending in banking . Loan is ,for instance , is the highest earning asset in the balance sheet ; it contributes materially to the achievement and fulfillment of certain objectives. One of these is profitability as it provides the higher return than other financial assets ; it also helps the bank management to satisfy the legal and regulatory objectives of the monetary authorities ;‘it is a key element in the creation and maintenance of depositor relationships ,particularly with the business firms ; it is a vehicle through which management attempts to satisfy the credit needs of the community or the credit markets the bank serves or intends to serve .
The bank is not oblivious of the fact that this is the most herculean task in banking .In . fact, when it is said that one is a good or an astute banker ,what ,in fact , is meant is that one is a shrewd lender . –one who lends money safely and profitably .

Access Bank’s management seemed to have developed sharp and iron teeth to break this hard nut, otherwisely called financial intermediation.
in the core banking segment of its business .. , Its ability to tackle the risk of mismatches between assets and liabilities and between borrowing and lending rates efficiently is not in doubt at the end of its 2023 financial year. .
Analysis of its interest income in the full year 2023 confirms this .
The group posted an interest income of N1.654 trillion in the FY 2023, reflecting a 100% increase from N828billion posted in FY 2022. To gain this fortune in this critical segment of its business , one could see the benefit of its asset size driven by heavy increase in its deposit from its customers. .Since the bank’s total assets climbed by 78% in the period under review , it took an advantage of this to deploy a total Loans and advances of N8 trillion to customers compared N5 trillion in 2022 . This is an increase of +58%) compared to N5.01 trillion in the corresponding period o f 2022 . Although this signifies an increase of risk to the bank , there is no cause for any alarm with deposit rising to N19.8 trillion from N11.3 trillion.
However , while the bank’s interest income for the year could be adjudged to be impressive relative to that of last year , its contribution to the net income depends on its savvy for managing the interest rate and credit risks .
NII is sensitive to market risk ,an essentially interest-rate risk for loans and deposits driven by the maturity structure of the loan book as well as the match (or mismatch) between the maturity of the loans against the maturity of the funding.
To optimize the contribution of interest income to the bottom line, the bank has to contend with credit risk or avoid the potential loss arising from a bank borrower or counterparty failing to meet its obligations in accordance with the agreed terms .

In the period under review Access Bank case became better compared to the previous year . In the financial year 2023 , although the amount made per N100 of interest earned backtracked slightly to N42 from N43.50k in 2022 , an indication of its weaker control of the interest rate risk, its net interest income improved by 93% to N695.4 b from N360b driven by increasein the volume loan deployed. . Moreover, its better control over credit risk became a safety valve for it .
Its situation became better when its credit’s risk management improved with Impairment charge for loan losses coming down by 30% to N139.5b in 2023 from N197 billion in 2022 .
.Consequently , what finally came as the contribution from the core banking to net profit to the bank as Net interest income after impairment charge for losses was N555.8b compared to N161.8b , an increase of 243% .
TRADING INCOME
Aother income segment that usually gives bankers a tough time is trading. Banks generate trading income through trading activity in financial products such as equities (shares), bonds and derivative instruments. However trading income is the most volatile income source for a bank. It also carries relatively high market risk, as well as not inconsiderable credit risk
Access Bank’s performance in the trading segment in its full year 2023 under review displayed the managerial savvy of its treasury desk. . It moved along with the trend of monumental foreign exchange (FX) gains, particularly among banking majors with substantial offshore assets in 2023 and closed the year on the other side of a whooping net FX gain of over N699 billion compared with N336 billion in the previous year, ab increase of 87.9%.

FEE INCOME
, The bank further boosted its profitability as it rolled in impressive income from fee and commission. This advantage is bestowed on it by size and volume of transaction that is ultimately determined by its asset size .
Under the period under review it raked in approximately N207.8 billion compared to N 145.7 billion, a 42% increase as its Net fee and commission income .
OPERATING INCOME VS EXPENSES
The bank’s size advantage has the other side with its humongous operating costs had been dwarfing its operating income and consequently boosting its cost to income ratio. In the period under review as in the last fee years , its cost to income ihas been plummeting with the most impressive at the end of 2023 financial year at 44%
The reason for the above could be pinned down to a leadership with brilliant vision .A smart company like Access Bankb with leadership endowed foresight is known to devote much to creating the future. It knows that the new competitive realities have ruptured industry boundaries, overthrown much of standard management practice, and rendered conventional models of strategy and growth obsolete. It has been making commitments to particular skill areas far ahead or in advance of the emergence of specific end product markets with foresight ;it is capable of imagining products, services and the entire industries that did not yet exist and then give them a birth.
To create a future ,its leadership with the benefit of substantial and sustained intellectual energy has developed a high-quality, robust answers to certain critical questions concerning what new core competencies will we need to build, what new product concepts should we pioneer, what new alliances will we need to form, what nascent development programs should we protect, and what long-term regulatory initiatives should we pursue. It spends less time worrying about how to position the firm in existing competitive space and more time creating fundamentally new competitive space .