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Herbert Wigwe: Still Battling Less Efficient Profit Engine

  Access Bank’s  Lilliputian net profit compared to its leviathan gross revenues and total assets due to its inability to gain competitive cost advantage ,no doubt , expose its inefficient profit engine .  .

It may be dangerous to tag the Group Managing Director/CEO of Access Bank, now Access Holdings Plc, Mr. Herbert Wigwe  , a desperate  or an overambitious CEO because of the weight of its negative connotations ; however, relative to its closest rivals’ performance which he targets to overtake  and the massive resources at his disposal ,one can safely declare him to be running and presiding over an inefficient bank;or  how else could one  describe a CEO with almost N12trillion balance sheet size ,almost a trillion naira gross revenue and largest customer deposit that could not compete competitively with  a smaller bank ?

 Moreover, under his  watch, Access Bank’s Net impairment charge on financial assets ballooned above N83b from N63b; this had a direct and damaging impact on its net profit in 2021. 

The Group delivered a 27% increase in gross earnings to 971.9bn from N764.7bn in 2020. Despite its relatively bigger and massive revenues its net profit margin ,an indicator of how well the company is doing at controlling costs, stands at 16.5% ;this shows how helpless the management of this bank was in 2021. That is it made less than 17k kobo from every one naira of turnover. It means that the rise in operating costs was too high for the the bank –

In a bid  to re-shape an industry and  to stay ahead of the competition  , he embarked on  aggressive acquisitions ;but his competitors  instead focused  on establishing a wide moat through building brand loyalty, offering high quality  customer service and principally  making resourcefulness as against resource accumulation their top priority .  

How did this play out ? In the  2021 financial year  Access Bank Plc  towered  again above other banks in terms of balance sheet size  . Precisely ,its total assets  hits  N11.7trillion  from N8.7 trillion in 2020  just as its total  equity stands at N 1.1 trillion against  N751 billion in the previous year . Though driven mostly by its chain of acquisitions at home and abroad, the above feat is commendable .   .

 The bank is not only expanding its asset size ,its revenue generating capacity has become very  intimidating too ,and Wigwe will always beat  his chest on this feat .Speaking recently, Wigwe  proudly said the Group delivered a 27% increase in gross earnings to 971.9bn from N764.7bn in 2020, comprising 62% in interest income and 38% in non-interest income despite the challenging market conditions. He added that the net effect on operating income resulted in a strong PBT of N176.7bn against N125.9bn in 2020 . He said the bank earned N160.2bn in net income with improved capital base, growth in customers’ deposits, liquidity and improved capital ratios despite low interest rates and volatility

But some Access Bank’s  closest rivals revealed they could not  by any mean lose sleep or  be intimidated by its massive asset  and customers’ deposit profiles  gathered by acquisitions across the globe; even its intimidating gross earnings are not a source of  their worries because it is not what a bank gets at the top line that matters but what it gets out of it at the bottom line that matters ..

Indeed, it lost out at the bottom line . Despite , its massive  gross earnings , Access Bank’s  profit after tax  stands at N160billion compared to GTCO’s N174billion in spite of the fact that Access Bank’s total asset value and gross earnings are more than  double that of GTCO . GTCO’s gross earnings  is N447.81bn compared to Access’s  ₦971.9bn .Also, Zenith Bank’s  Profit after tax stood at N244.56bn despite Access claims to asset size ,customer base and deposits leadership . By this, Zenith bank profit is N84b bigger . In a nutshell , while , the above critical success factors allowed Access Bank to make more money and get more deposits  than its rivals , unfortunately ,that is where its leadership stops .

 The above scenario has continued to raise  some questions  against Wigwe led management and its acquisition maniac. . From investors  perspective this acquisition strategy is not delivering commensurable returns  ;if  an investor is looking for  a competitive value creating institution will he or she  give his or her money to  Access Bank where there are Zenith or GTCO ?. Definitely no . And what is the justification of accumulating resources that cannot be translated to competitive values ?; how long will he continue to acquire ? This  is a no-brainier strategy by our own opinion . Surely , the   acquisition  drive by  Wigwe led management   has definitely not made it a better value creator  among the leaders of the first tier banks 

  The negative impacts of its management  inefficient handling of its operations are palpably evident in its profitability and investment metrics .

 A better way to confirm the less  inspiring performance  of Access Bank or convince  those who consider the above views to be too harsh  is when its  massive resources are juxtaposed  with its profitability and  investment ratios  ; its Lilliputian net profit compared to its leviathan gross revenues and total assets ,no doubt , expose its inefficient profit engine .  .

First , a good way to determine earnings to the investor is the Earning Per Share (EPS), which is the monetary share value, i.e., what every share issued by the bank will receive from declared earnings. The higher the EPS, the more profitable the bank is. Full Year EPS for Access Bank comes to about N 4.58 per share, as compared to N 6.14  for GT Bank and  Zenith Bank’s  N7.78 . . This means that investors holding shares of Zenith and GTCO  get 3.20 and 1.56k respectively more than Access Bank could deliver . .

Another metric that exposed the relative inefficiency of Access Bank despite its relatively bigger and massive assets and revenues is its net profit margin which stands at 16.5% indicating the bank made less than N17 profit from every N100 revenue made at the top line against GTCO’s  N39 and N32 for Zenith Bank .

Also , its  Return on Average Assets and Equity were    1.6 % and 17.8 % compared to  Zenith’s 2.7 % and  20.4 %  and GTCO’s 3.4%   and 21% respectively  . By the time the relatively higher equity multiplier of Access Bank is considered its ROE will definitely be lower than  it is presently .

The impact of Access Bank’s relative less inspiring profitability in spite of its balance sheet  size  leadership   palpably manifests in its dividend to its shareholders and dividend yield . Access Bank Plc could only  pay shareholders a total dividend of N35. 545 billion out of N160 b  translating to N1 for every share of 50 kobo for the 2021 financial year .However, its poor dividend payout ratio policy could also be attributed to the amount finally paid to its investors because it has capacity to pay more .  This payout ratio is relatively lower than its closest rivals ..

Comparatively Guaranty Trust Holding Co Plc announced  a final dividend payment of N2.70 kobo for every 50 kobo ordinary share for the financial year ended December 2021. This brought its total dividend for the financial year to N3.00 kobo, made up of the interim dividend of N0.30 per share which was paid in October 2021,  This amounts to a total dividend of N88.293 billion

Tier 1 lender Zenith Bank Plc is set to pay shareholders N97. 32 billion total dividend for the financial year 2021, translating to N3. 01 per share, after getting shareholders to agree to a dividend payout of N87. 91 billion for the second half of the year, which translates to N2.

 Investors are not known to be  intimidated by the volume of the resources  of any corporate organization  but its resourcefulness . The perception of  the share investors towards its stock or valuation is, no doubt , driven by those weak profitability and investment metrics ;ultimately  they are reflected in its price and its market capitalization  .Access Bank’s current market capitalization stands at ₦343.9b at its current share price of ₦9.95compared to Zenith’s  current price  ₦26.90 and market capitalization of ₦844.6b ; also GTCO’s  market capitalization   at its  current share price at  ₦23.15  is  ₦493.2b  .The wide gaps between Access Bank and its closest rivals could be linked to its market valuations  .Its PB Ratio  at 0.3x  compared to the industry average  at 0.5x  indicating the stock is trading below premium

  Moreover, the most unfortunate  thing is that  at the above price per share at N9.95, Access Bank is believed to be  trading above   analysts’  estimated  fair value  put at  N7.08 . This is also  indicated by its Price To Earnings Ratio  at  2.2x compared to the  industry average  of 3.4x and the market at 8.5x making  its stock to be relatively cheaper ; however , what  investors are currently paying for its  stock  is a reflection of  its earnings  and its  fundamentals believed to be below their  expectations     .Moreover , its price to earnings growth ratio which factors in  growth into the equation at 4.8x indicates  it’s already trading  above  its value and may not impressively  improve in the future unless there is commensurable improvement in its fundamentals  .

 The poor investors and analysts perception may not be farfetched .Access Bank dividend yield currently stands at 10.1% while  its dividend  payout  ratio is  22%  .At this level of yield , some  investors may  seek a better avenue to invest their funds .In the nutshell , the inability of Access Bank to deliver values commensurable to its  massive resources is simply a factor of its  inability to leverage its resources to gain better values as its rivals are currently doing .These are palpably shown in its fundamentals .



  A good banker   is known by his or her ability to lend profitably and safely .A business  entity  well sought by investors is  known by its ability to gain  competitive cost advantage through  cost leadership  or  through  service or product  differentiation leadership  or  ability to rewrite the rules of the game. .In 2021 , .Access Bank has failed the  litmus test  which places   emphasis on of resourcefulness  rather than  resources .By the magnitude of the bank’s impairment charges , the bank still needs a better hands  in risk management. Not   only that its net interest margins have continued to nosedive in the last few years making nonsense of what comes in as its net interest income despite its absolute figures. 


 Access  bank is at a vantage position to generate the biggest income from the core banking by virtue of the volume of its assets .Although other sources  exist ,the main source of investable   funds remains banks deposits  of which  Access Bank controls  the biggest portion ; its customer deposits hit  N6.96 trillion in 2021  from N5.59trillion in 2020 ,  a  24% increase . Also, going its massive assets , it has the appropriate  sinecure by its asset size to deploy the biggest amount to loans and investments .. Of course, it did; the bank  generated the biggest interest income in the industry in 2021 and deployed the biggest earning assets to capture the biggest income from the core banking segment .  .   

Its Net Loans & Advances  increased 23%   from N3.61trillion  to  N4.45trilion  and its paid off handsomely . Consequently , its  Interest income inched up by 23% to N601.70b  from N489.22b. This feat could be situated against its  high volume of its earnings assets  driven the resources at its disposal .

However , while Access Bank raked in about N602 billion as interest income ,N335b higher than GTB  in 2021  and N174b higher than Zenith Bank in the same period ,both GTB and Zenith Bank got N82.70k and  N75 respectively from every N100 interest earned while Access Bank got almost N50 for every N100  

Moreover , its Net impairment charge on financial assets ballooned above N83b from N63b; this had a direct and damaging impact on its net profit in 2021

The  above scenario further confirms that having  resources as  one’s   critical success factors is not enough to deliver the leadership   without having the necessary core competencies to fight and win the battles of interest and credit rates risks that are needed to gain competitive cost advantage or to  lend profitably and safely .

  In the financial 2021 ,although  this bank made the biggest interest incomes , it failed woefully in the above  battlefields . This is signified by its net interest margins  .The bank attributed its miserable NIM  to the combined effect of the decline in yields and increase in cost of funds . From the above, its NIM  at  4.3 percent  indicates  for every N100 of invested assets (loans to bank customers) the bank made N4.30k of income after all interest expenses had been paid. It could be asserted that  the  bank did not make good investment decisions though its NIM is positive  last year as it used its resources less effectively to generate  a mere 4.3 percent return. Banks that are adjudged to  make a good or an impressive investment decision are known to display better  core competencies  at  combating the risks of mismatches between assets and liabilities and between borrowing and lending rates leading to better NIM. .

In the last three years Access Bank’s  NIM has continued to nosedive  from  6.6% in 2019 to 4.9% in2020 and  4.3% in 2021  .According to the bank  its average Cost of Funds increased marginally by 11bps y/y to 3.4%, resulting from the 35% increase in its funding sources and deliberate efforts to lock in pricing for term deposits to take advantage of flat yield curve.  Furthermore ,its assets yield   declined to 8.6% (-41bps y/y) in the period on the back of the decline in yields on government securities in the period and lending to investment grade names .In the last three years ,  its yield on assets  declined  from 12.8% in 2019 to 9.0% 1n 2020 and  8.6% in 2021 ; however while  its cost of funds  equally declined  it was not  enough to rescue its NIM standing at  5.0% in 2019 and  3.3%  and3.4% between 2020 and 2021 respectively .

Another chink in the amour of  Access Bank is its inability to control its   operations costs effectively  leading to a relatively high cost to income ratio .  Its  operating expense grew  by 14% y/y to ₦371.1bn (FY’20; ₦326.5bn) , a situation the bank said was  driven by the high inflationary environment, exchange rate movement, and the enlarged franchise following the recent acquisition. But the bank appeared to be managing this downward .  Despite the increase in Operating Expenses, its Cost to Income ratio reduced significantly by 454bps y/y to 58.8% (FY’20: 63.4% •

This is not to deemphasize the need for  growth strategy .  Balance sheet size  and composition, no doubt ,  reflects  a bank’s ability to tolerate risk, ability to access to funding sources while the mix of debt and equity in an enterprise  value allows it  to seize new business opportunities .From the above figures it is easy to conclude that Access Bank has a better advantage to take risks and thereby make more money than its rivals .

 Indeed,  Access Bank’s   growth  profile among  the tier 1 banks is already is sending jitters down the spines of some banks . No doubt about it , Access Bank is a bank with a well diversified funding base .The group maintained a strong asset quality with NPL ratio down to 4.0% in Dec’21 (Dec’20: 4.3% ; its liquidity ratio in the period of 51.0% (Dec’20: 46.0%) remained well in excess of the regulatory minimum  just as its Basel II Capital Adequacy Ratio (CAR) stood at 24.5% (Dec’20: 19.6%)and  remained well above regulatory minimum of 15

However , in spite  of this  certain critical chinks in its amours are seriously  threatening  its leadership ambition .  A look into its 2021 book indicates despite its heavy potentials that could allow it to gain the industry leadership  Wigwe still  has so many things to learn from some of its closest rivals . First , it remains an unassailable fact that no  good bank could be intimidated by mere size advantage of balance sheet or  customers deposit   that have only delivered its massive gross earning but failed yield commensurate values at the bottom line or  deliver significant values to its  investors .The reason for this  may not be far to seek.. There are many examples of companies that overcame seemingly insuperable resource handicaps and built positions of global leadership. Moreover ,  it is an undisputed  fact that   bigness without stretch and leverage is obesity, smallness without stretch and leverage is impotence. What continues to drive  strategic choices of sound and value  laden institutions  are foresight, stretch, and leverage which provide the energy and rationale for proactive advantage building and industry re-engineering.

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