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Access Bank:When Size  Becomes an  Albatross

Miserable net interest margin profile,high volume of loan impairments as well as high cost to income ratio relative to its closest rivals remain the chinks in its armour and setback to its leadership ambition

Herbert Wigwe, CEO,  Access Bank Holdings, no doubt ,  is a strategic leader;  his desire  to go for a spate of acquisitions  for  his bank, an offensive strategy that is usually  used to seek rapid growth, has ,no doubt , paid  off handsomely when compared with its close competitors that prefer to grow organically or  consolidate  their  past performances .Within the shortest frame of time with  this strategic choice  ,his  bank  has acquired enough resources or assets unmatched by its rivals .Consequently ,the massive assets at his disposal have  given the bank the  industry leadership and much needed earnings, deposits and profit ,all which  have  grown astronomically. However , his inability to match those unique resources with unique or core competences in some critical areas has remained a major drawback  to its bank’s  leadership ambition; this makes the bank’s expectation to generate best in class returns for its shareholders a tall ambition .

The asset base of the Access Bank Group is strong and resilient with Total Assets currently at  ₦12.1trn as at March 2022, a growth of 3% ytd from ₦11.7trn as at Q1 2021  while its shareholders’ funds rose by 4% in 2021 to N1.10 trn  from N1.05trn in 2020.By its 2021 financial results ,Access Bank controls 19.8% of the industry total assets , 18.09% of the industry credits and 22.52% of the industry deposits to emerge the highest in the three performance metrics .

But this bank performance is raising questions. Why should Access Bank with the above  unique resources  deliver  lesser profit  after tax to its shareholders  and performed below its closest rivals in  other critical performance metrics  especially when compared with  its closest  competitors with lesser assets ,deposits and revenues ?  

A look into some critical performance metrics confirms Access Bank’s weaker strategical capabilities relative to its closest rivals with lesser resource capabilities . With  the above unique resources , in 2021, its Return on Equity was 17.8% ;Return on assets ,  1.4% ; Net profit margin ,17% and  Earnings  Per Share N4.58k Although these ratios increased on historical basis , when they are benchmarked  with its closest rivals with smaller  assets ,it is crystal clear that Access Bank’s strategic capability failed to outperform as expected relative to its closest rivals with smaller asset base . . For  Zenith Bank and Guaranty Trust Bank, ROE were  20.4% and 20.6 % ;EPS ,N7.78K and N6.14k ; Net profit margins ,32% and 39% ; and ROA,  (ROAA)2.7% and 3.2%  respectively  . When the above unique resources of Access Bank particularly  its massive assets that were deployed to generate massive revenues and deposits highlighted above are compared  with smaller total assets of  N9.45trn  of Zenith Bank which was responsible for the smaller gross earnings of N765.56b but greater Profit after tax  of N244.56b ,the weaker strategic capability of Access Bank becomes clear   .It becomes even clearer when GTCO’s Assets  with total  asset value of N5.44 trn  and  total  revenue of N445.28b but with greater profit after tax of  N174.84b  are positioned against Access Bank’s . Resources are important  particularly  when they are unique  .Sequel to this , the above unique resources  by size transformed  Access Bank to the  biggest bank  in the industry . With this competitive advantage  , Access Bank recorded a giant stride in its revenues .Its  gross earnings inched up from N764.72b   to N971.89b,the biggest  industry ; its customer Deposits totaled ₦7.5trn as at March 2022 (December 2021: ₦7.0trn)   These performance metrics ,no doubt , show the positive impacts of a very impressive strategic capability .

The reason for above may not be farfetched . Resources are not enough to capture leadership in the true sense of it  . The key to good or poor performance is found  in competence  rather than in resource per se  This is because activities and processes may be more difficult to imitate than  the acquisition of resources ; competence is created when resources are deployed into separate activities of the organization and into the processes through which  several business activities are linked together.;     

When resources and competences are combined ,organizations generate  capabilities to deliver values to their stakeholders .However ,the starting point for understanding strategic capability is an understanding of what customers value ; stakeholders  in any market segment will have threshold requirements on all  performance metrics  .If one or more of these are not met a provider will drop out of that part of the market .

In  the banking industry every player  has to satisfy or create values for five main constituencies ,at least to a threshold level . One is the surplus units from which it borrows  which demand the best possible term in rates of interest and maturity structures and the maximum liquidity to enable them to have the funds back when they want them , or as agreed ;the second is the deficit units which borrow from the banks ;they  want to borrow when they need the funds and as cheaply as  possible .Like the lenders ,the borrowers also impose the obligation of maximum liquidity on the banks to enable them to obtain funds when they need them .The shareholders  are another units and  they require maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed .To this is added the fourth  constituency , the regulatory authorities ,whose interest is to ensure that the bank  does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements  ;  finally the community at large is the fifth constituency . As the provider of the environment within which it operates,. a bank owes an obligation to the community to be a good corporate citizen, capable of maximizing the exploitation of the opportunities available and minimizing the threats in the environment..

The above are important but stakeholders will only be satisfied with mere threshold values in those areas from any provider in business if such a provider’s ambition is only survival . Access Bank’s ambition is beyond mere survival ;the bank is in race to outperform its rivals ,and for this ,it is expected to generate critical values in critical areas that will make it superior to others with equal ambition .

Analysts believe Access Bank has enough resources to outperform the competition .; some stakeholders expected it to outperform competition in certain critical areas to be able to deliver their preferred values . Most importantly , as a profit making organization every bank is expected to satisfy the shareholders,the providers of resources . For the shareholders , the most critical success factor are the returns on their investment; naturally ,Access Bank  is expected to the deliver the best returns to its shareholders  particularly with  its  massive resources delivered to it by shareholders   .

But this depends on the proficiency of the quality and skills of the Wigwe led management .People are the heart of strategy ;the knowledge and experience of people can be the key factors enabling the success of strategies. To achieve competitive advantage and to outperform rivals , every bank  is expected to complement unique resources  with core competences in critical performance areas to generate critical values to its stakeholders . It is not possible to outperform or gain competitive advantage over a competitor with mere unique resources and threshold competences in critical areas .  Though its profit after tax  of N160 billions  in 2021  is commendable, however, that is mere historical performance . The indication of this is that  Access Bank is merely an assets leader  with unique  resources without core competencies to outperform the competition in the critical success metrics; and the signal to the bank is  that it needs  to be a more  resourceful . While Access Bank has done beautifully well for the remaining constituencies , its returns to the shareholders  relative to its massive resources  and its closest rivals  have continued  to raise many questions against Wigwe led management ‘s  proficiency. A prove of this  observation  manifests vividly  when its profit after tax and ultimately  its  net profit margin ,earnings per share , dividends ,returns on equity and assets  which are used to measure profitability and returns to shareholders are benchmarked with its closest rivals with smaller asset profile  .


  For this lacuna , investors are worried that in spite of  asset leadership; as indicated above ,its  relative lower net profit margins, a metric used to calculate the percentage of profit a company produces from its total revenue, its earnings per share  and returns on equity and assets expose the chinks in its armour that lead to its relative lower dividends  to shareholders  as well as its market value .

This is the battle before Wigwe led management ,and it will continue until he   proves his mastery over certain challenges that hinders the bank’s ability to  exploit its full potentials .

To translate its unique resources and gain better value  or to meet the critical success factors ,gain competitive advantage and outperform its competitors, Access Bank needs to complement these unique resources bestowed on its by strategic acquisitions  with unique competences in certain critical segments of its operations .This depends on an organization’s  strategic capability or  how these resources and competences are deployed by the leadership of any organization   to  create competitive advantage.

 Moreover ,this is where boys are separated from the men in management . One of the herculean jobs confronted by any strategic leader is the battle with the challenges posed by the dynamic external environment that create both opportunities and threats . Without a strategic capability to perform at the level that is required for success  or to ensure the company’s strategies continue to fit the environment as well as opportunities and threats that exist , it may be difficult to outperform competitors . Also, to gain a competitive over rivals , some  innovative  strategic leaders  often translate their organizations’ capability to leading edge of strategic developments , creating  new opportunities by stretching and exploiting  their organizations’  strategic capability  .

However , from all indications, Wigwe  is running   a bank that benefits more from size rather  than core competencies to gain market share  . But no  bank chief should  be oblivious of the fact that  the race to competition is  or should be perceived as a race to build competencies not simply to gain immediate market share

 No doubt ,the size advantage has worked for his bank  with the bank ability to deploy massive loans in the core banking income segment ; it is also given the bank   an edge over smaller banks in the non interest segment driven its massive transactions to generate massive fee and commission . By the benefit of its acquisition spree , Access Bank’s management is armed with the biggest assets and  threshold competencies has  continued  to deliver  or  meet   threshold  returns relative to its rivals  virtually in every area of its operations; however to deliver competitive returns , the bank needs to complement its unique resources with core competencies that underpin meeting critical success factors or  competitive advantage in all its income segments  

To confirm the  above observation about Access Bank  a look into its  income mix expose   a major  hindrance to the strategy adopted by Wigwe to grow the bank  . To outperform competitors , a corporate leader is expected to be a cost leader or differentiation leader ,watching his cost and value handles  with eagle eyes . However ,  Wigwe  appears to driven more by the need to exploit his bank’s size advantage as opposed to  the power of resourcefulness.

In the core bank segment , with the massive assets  bestowed on the bank by acquisitions , he deployed massive loans or earning assets  to generate massive interest income than any of its rivals. Its net loan hit ₦4.5trn as at Dec’21 as against   ₦3.6trn  December ,2020  while  its net Loans and Advances totaled ₦4.6trn as at March 2022  compared to   ₦4.4trn  in December 2021: .These loans deployed by Access Bank is a little less than the total assets of Guaranty Trust Bank  which was N5.4 trn  at the end of 2021 .

  Indeed, Access Bank  achieved massive  interest income  with this massive loans to  customers , a major driver  of  its massive  revenues in 2021 financial year . Gross revenue grew 27% to ₦971.9bn y/y, comprising 62% in interest income and 38% in non- interest income. Interest income grew by +23% y/y to ₦601.7bn ; this interest income  is so massive that some of its rivals could not match it with their total revenues in 2021 .GTCO’s gross earnings which comprises funded and non funded income was N447 2021 

 But Access Bank management must wake from its slumber and  learn a lesson that possession of resources including people does not guarantee success but how these resources are deployed ,managed ,controlled ;and in the case people how they are motivated to create competencies in those activities and business processes needed to run the business is critical success of any organization.; bank management  is coterminous with risk management  ,in other words ,it is no more than managing risks , the risk of mismatches between assets and liabilities and between borrowing and lending rates  and only a strong management with unique competences to manage this superbly will outperform its rivals         

 Inability to learn or  to tap from the above wisdom is the major drawback against its leadership ambition. Despite the massive loan deployed, the  bank’s  net interest margin, a critical success factor that measures how successful a bank’s  investment decisions are confirms that nothing is fantastic about the pedigree of the management led by Wigwe ;Net interest margin is one indicator of a bank’s profitability and growth ;it reveals how much the bank is earning in interest on its loans compared to how much it is paying out in interest on deposits.  In the  first quarter 2021 its NIM stood at  6.4 %   compared to 4.3% in March 2022 ; between 2019 and 2021 it  worsened from 6.6% to 4.9% and 4.3% on a full year basis .The  indication of this is that   Access Bank with a NIM of 4.3 %  in the first quarter 2022  made only N4.30k from every N100 invested assets after all interest expenses had been paid  .  One can say  without any fear of contradiction  that the bank did not make good investment in that quarter  or  did not used its resources effectively for it to have generated merely 4.3% return

 Just as its battle with interest rate risk shows the bank’s  less impressive mastery ,its credit risk battle skill is also  less inspiring .The signal for this comes from its huge impairment cost which hit directly hard on its profitability; its loans  impairment rose marginally to  N13.69b  in the first quarter of 2022   from N12.54b ; at a full year 2021 it was N83.21b  from N62.89b in 2020 .If one compares this with GTCO loan impairment of N8 .53 b in 2021 from N19.5b in 2020 it is easier to conclude that  bankers are different from bankers just as banks are .

To look at this from a different but similar angle  is to see what Access  Bank gets as its net interest income  for every N100 of interest earned .In 2021 Access Bank raked in  N601.70 b  as against N489 .22b in 2020  However .while  it got N50 for every N100 interest earned in 2021, in 2020  it got N56 ;in the first quarter 2022 it  got N50 again against N65   in the first quarter of 2021   When the above figures are compared with  GTCO 2021 figures Access Bank weakness becomes clearer as GT got N87 where Access got N50 ; and in 2020 GTCO got N85 compared to Access Bank’s N56  .Zenith Bank too displayed similar skill to show its superiority over  Access Bank in the heart of banking or lending business. The  message is clear , it is not possible to outperform a competitor with a threshold competence even with  unique resources ;only a management with core competence could do that    

Apart from capacity to deploy massive loans from its massive asset base to generate interest income ,Access Bank is benefiting from its size advantage  of 45mn+ Customers in 17 markets as at 2021 is boosting its gross earnings growth with the  transactions led revenues or  non interest income. In the financial year ended 2021 it gathered  N159.18b 4  as against   N116.70b  in 2020 ;in the first quarter  of 2022  its fee based  income was  N74.12 b compared to  N53.18b 9,802    The implication of this   in 2021 is  that it used approximately N26  to secure N100  fee based income  as against  N20  in 2020; in the first quarter 2022 ,it was N24  compared to N21 in the corresponding period of 2020 . No doubt ,Access Bank was able control its cost in this segment . But  this may not be farfetched  Fee revenue is generated from the sale and provision of financial services to customers of 45mn+ Customers in 17 markets   . The challenge here is not that hard for banks This is because the   level of fees and commissions in this segment  will be communicated in advance to customers. Fee income, separate from trading income and known as non-interest income, is desirable for banks because it represents a stable source of revenue that is not exposed to market risk. It is also attractive because it provides an opportunity for the bank to cross-sell new products and services to existing customers, and the provision of these services does not expose the bank to additional credit or market risk. Fee income represents diversification in a bank’s revenue base

Compared to   GTCO in 2021 ,it took it N11 to generate N100 fee income as compared to N12 in 2020   This indicates GTCO as a cost leader did it better than Access Bank .  The reason behind this may not be far to seek .  Although fee-based business may not expose the bank to market risk directly,   an ability to provide fee-based financial services may require significant investment in infrastructure and human resources. This is where  GTCO shows its  capability to control better its cost than  Access Bank  

Another  chink in its armour is  weak   operating  cost  control .Though the bank has been  improving its cost control  recently ,Access Bank cost to income ratio still stays above its closest rivals . . Though  it increased from 55.8 % in quarter 1 ,2021 to 59.8% in quarter 1 ,2022 , in full year the bank improved on this in 2021 .Despite the increase in Operating Expenses, its  Cost to Income ratio reduced significantly by 454bps y/y to 58.8% in 2021 from  63.4% in 2020  

 The challenges faced by banks in Nigeria including Access   could be situated on challenging business environment as well as policy summersault from the regulatory authorities. However , the   survival and success of any organization are usually influenced by its ability to respond to  the competing pressures particularly changes in the business environment ,its strategic capability  including its resources and competences as well as expectations and purposes of its stakeholders .  External environment in which an organization is operating creates both opportunities and threats . A major threat confronting banking sector performance remains a low interest  rate environment and this has become a hard nut for many players; this is responsible for such a less impressive performance of Access Bank  in  some  critical  segments   .

 In the face of lower interest rate environment, analysts believe benign funding cost, asset quality improvement, lower provisioning, and resilience in non-interest revenue (NIR) will be central to earnings  . Also, in a low-growth revenue environment and faced with digital disruption, cost discipline and efficiency improvements will be key drivers of earnings growth and profitability longer term  for the banks, .

 However , many of the players in this industry could not  implement their strategies successfully or perform at the level that is required for success for lack of strategic capability that fit the environment in which they are operating and opportunities and threats that exist  .Not only that, absence of strategic capability that could serve as a leading edge to tap new opportunities by stretching and exploiting  that capability either in a way which competitors find difficult to match or  in genuinely new directions  is another handicap .

Only few banks are proving their worth  over  the above challenges  Access Bank has found it difficult to come up with a business model that is  difficult for  its competitors  to replicate.  The issue is that it finds it difficult to operate  a low cost, revenue efficient model that relies less on manpower but more on prudent risk asset allocation while attracting cheap deposits       

The lesson for its management is that the   starting point for understanding strategic capability of any organization is an understanding of what shareholders value and this helps to distinguish capability of different players in an industry .;   what  the shareholders require are  maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed.  For any organization   to live to the above expectations , they must ensure that the external environment in which they are operating is put under control to exploit  the opportunities and tame the prevailing threats

  For  Access Bank  to become a profit leader  it s Net interest margins or management skill  and operating costs must improve competitively .Banking   management is  coterminous with risk management; it is no more than managing risks—the risk of mismatches between assets and liabilities and between borrowing and lending rates   .Only a bank that is armed with world class  skills to control risks  and costs   could lend safely and profitably .Access Bank  has gotten the resources than its closest rivals but it must it realize that  core competences not threshold competences are the weapons to outperform competitors to generate critical success factors that deliver leadership in a true sense of it .  

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