How Access Bank Holdings Expands Profit Exponentially, Tackles Costs .

Access Bank, in the first nine months of 2024 financial year delivers exponential Profit amidst high interest and inflation rate -induced cost environment.

  Inclement Operating Environment: A Big Industry Challenge

The inclement nature of the operating environment of the banking industry in which the players do their businesses has continued to give them a sleepless night in the last few years; with this ,the competitive space has been paved with critical but hostile and hard policies, setting up the industry for failure; and Access Bank is not immuned from this too .

First , with global markets locked into uncertainty caused by geopolitical tensions, supply chain reconstruction, and economic realignments, banks globally have had difficulties navigating the international and local business environments. Moreover , African banks have equally had to cope with foreign exchange volatility and worsening counter party conditions, while in Nigeria, banks have had to handle restrictive monetary policy as the Central Bank of Nigeria (CBN) tries to tackle raging domestic inflation .

 While the Central Bank of Nigeria, CBN, was trying to keep the policy rate higher to bring down the inflation rate , the exercise continued to stretch the capacity of borrowers to repay debt .Even the excessive inflation rate led to an overheated economy with weak purchasing power and weak saving capability of the entire populace .

But Access Bank , no doubt , has mastered the rope; it frustrated the above potential spoilers , exploited the available opportunities with dexterity and neutralized some threats to emerge one of the most valuable banks in the financial industry .

Well armed with iron teeth to break any macroeconomic the above hard nuts , it raised  its profit after tax  exponentially , gathered the biggest deposit in the industry ,delivered one best asset quality with non performing loan ratio at 2.7, and added maximum value to the operating community amidst severe macroeconomic and competitive challenges . 

Behind this bank’s exploit is the strong strategic capability , huge and unique resources as well as its relevant core competencies , deployed to some critical income generating areas .

The positive impacts are clear enough. Access Bank ,Nigeria’s biggest bank by assets ,deposit and earnings , had gross earnings spiked up phenomenally again .It wrenched up bottom line with a deft application of management’s experience beginning from leveraging interest and non interest incomes to achieve that massive revenue .From every indication,it created better value for money for its stakeholders in the first nine months of 2024 compared to the corresponding period of 2023.

How Access Bank Delivered Five Critical Success Factors of Banking to Generate Better Value

No doubt , banking is coterminous risk managemet thst is inherent in the maturity transformation; it comes up significantly in certain constituencies served by banks including the surplus, deficit ,shareholders ,regulatory authorities and the community at large that are regarded as critical success factors in banking business and where every player must aspire to excel and outperform rivals.

However , while these critical success factors look simple , an important characteristics of the above obligations owed to those five different constituencies is the apparent conflict. Consequently, if a bank leadership must succeed in managing the risks, it is has to satisfy those five main constituencies by overcoming the ardous task of balancing and reconciling them in such a way that they are all kept satisfied.

Access Bank has proved its mastery in the above areas over the years .In fact , one thing that confirmed Access Bank’s impressive performance in the period under review is its capability to navigate the operating environment and exploit the the opportunities in its operating environment , minimise threats as well to deliver the critical success factors in banking industry optimally.

A look into the five constituencies highlighted above and how Access Bank exploited them to emerge an industry leader is a pointer to the pedigree of its leadership.

It has ,indeed, demonstrated its savvy as an industry leader without any controversy in the period under review. Its massive deposits and loans that gave its leadership the capability to satisfy both the depositors and the borrowers in the industry and consequently that led to its profitability and its ability to deliver adquate and inspiring returns in the last nine months of the current financial year is still an industry reference point. A detailed analysis of those critical factors and how they were executed shed more light on its impressive strategic position

Delivering Adequate Returns to its Shareholders.

Access Bank’s capability to satisfy the surplus and the deficit sectors ,indeed helped it to satisfy its shareholders, another critical success factor in banking .The bank’s leadership is not oblivious of the fact that maximum or adequate returns on their investments are imperative in order for them to remain invested in the bank and for the shareholders to be willing to continue to provide additional resources and when needed . In the period under review, its profitability grew exponentially and it rewarded its shareholders adequately.

No bank could compromise the shareholders’ request for adequate returns,particularly in a profit making organisation .This is because shareholders 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. Moreover ,one critical indicator that determines the degree of returns delivered to the shareholders is a company’s profitability . The leadership of Access Bank is not oblivious of the above request ; it has remained highly and competitively profitable over the years .

Profitability

Though the year 2024 has been more challenging than 2023 financial year, Access Bank has proved it has what it takes to sustain the high confidence reposed on it by its stakeholders , the inclement operating environment notwithstanding.

In the first nine months of 2024 every player was confronted with three key threats : rising interest and operating expenses , high potential for credit risks potential empowered by high interest rate operating environment and skyrocketing inflation rate and intense competion among the players .

Consequently, during the period under review, Access Bank incurred high interest and operating expenses that moved in faster pace relative to its interest income and operating income, both standing as potential  spoilers . While its interest income grew by 128.8 percent to N2.4trn from N1.05trn , its interest expenses raced faster by 135.8 percent to N1.55trn from N659b .For its interest income, it inched up by 104.9 percent to N1.79 trn from N875b while its operating expenses grew by 110.1 percent to N1trn from N519b

Another potential spoiler was its large provision for loan impairment that moved to clip its profit momentum in the first nine months of the financial year growing by 134.5percent ;its increased to N144.6b from N61.8b .

Despite the above spoilers , Access Bank survived in absolute terms with capability to generate massive revenue that greatly outpaced expenses. Consequently, its bottom line remains highly impressive as those potential spoilers found it very difficult to cage .

The rising revenue numbers robbed off on pretax profits, growing it 89.6% percent to N558.2 billion from the former attainment of N294.4billion.It also helped to fork up net profit 82.8% percent to N 457.8 billion from N 250.4 billion.

Better Profit  Margins

The bank was able to wring better margins from improved profits as per-tax profits rose to 16.3 percent from 11.3 percent while net profit margin grew to 13.4 percent from 9.7 percent.xTo cement its place as the most profitable bank, return on equity (ROE), and return on assets (ROA), stood to 22 per cent and 1.8percent respectively.

Earnings  Per Share

The impressive profit of Access Holdings is equally confirmed by its earnings per share at the end of September, 2024 . 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. Nine months EPS for Access Bank comes to about 4.79 per share, as compared to 3.18 . This means that investors holding shares of Access get better value for their money in 2024 .

Impressive Stock Performance.

Stock investors can confirm this assertion without any controversy .The current share price of Access Holdings Plc (ACCESSCORP) is NGN 24.65. ACCESSCORP closed its last trading day (Friday, November 8, 2024) at 24.65 NGN per share on the Nigerian Stock Exchange (NGX), recording a 1% gain over its previous closing price of 24.40 NGN. It began the year with a share price of 23.15 NGN and has since gained 6.48% on that price valuation, ranking it 85th on the NGX in terms of year-to-date performance. Analysts believed shareholders could be optimistic about ACCESSCORP knowing the stock has accrued 25% over the past four-week period alone—eighth best on NGX . This performance suggests strong investor confidence and positive sentiment towards the stock, primarily based on its financial performance.x At its last price of ₦24.65, its market capitalization stood at ₦848.9b while shareholders return performance was 42.1% in the last one year .

Access Bank’s Stock Valuation

Analysts believed possessing Access Bank stock is highly rewarding with Price-To-Earnings ratio (1.1x) that is below the NG market (7.7x) , with Earnings grew by 203.6% over the past year , with the bank paying a high and reliable dividend of 9.13 and the sock trading at good value compared to peers and industry.

The above view may not be farfetched. With its 52 Week High ₦30.7 and its 52 Week Low ₦15.95, an investor with knowledge of the market might have gained nothing than 100 percent in just one year .Not only that .Its price earnings ratio at 1.1x and price to book ratio at 0.3x show the bank’s stock is loaded with potential gains for a visionary investor to key into

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Dividend Yield

Furthermore ,its current Dividend Yield at 9.1percent ,dividend payout ratio at 10 % are highly competitive and among the industry best in the current financial year .

Price-to-Earnings Ratio (P/E)

One of the most popular valuation metrics is the price-to-earnings ratio (P/E), which measures the share price of a stock as a multiple of its earnings. The closer this figure is to one or below one, the cheaper the stock. Access Holding ’s current stock has a P/E ratio of 1.1x. This compares to the banking sector average of 2.91x. This lower P/E ratio suggests that the stock is undervalued compared to its peers, indicating that investors are paying less for each unit of earnings relative to other banks. This could be seen as an opportunity for investors if they believe that Access ’s earnings will continue to grow.

Price-to-Earnings Growth (PEG) ratio

Another valuation metric is the price-to-earnings growth (PEG) ratio, which adjusts the P/E ratio by the stock’s earnings growth. Similarly, a PEG below 1x suggests that the stock is undervalued relative to its earnings growth potential and may offer attractive growth at a reasonable price, appealing to growth-oriented investors. Boosted by its recent performance, Access has a PEG ratio of less than one, making it attractive for growth-hungry investors.

Lower Price-to-Book  Ratio

Additionally, the group’s undervalued capital assets appear to be reflected in its lower price-to-book ratio of 0.3x , compared to the banking sector average of 0.63x .The implication of this clear : A price-to-book less than 1 ratio could mean the stock is undervalued and worth buying. A price-to-book ratio greater than 1 indicates that the stock price is trading at a premium to the company’s book value. It also indicates that you could be overpaying for what would be left if the company went immediately bankrupt.

Access ’s valuation metrics, including a low P/E ratio, a reasonable P/B ratio, and a relatively higher P/S ratio, combined with a very low PEG ratio, suggest that it might be an attractive investment, especially for those looking for growth opportunities at a reasonable price.

Besides valuation dynamics, Access is known for its dividend payouts. The stock currently has a dividend yield of 9% based on its current share price, and this could likely increase as we expect the bank to raise its dividend payout ratio. Continuing this trend, the bank is expected to declare an interim dividend for the recently ended half-year, enhancing its appeal as an investment, especially for income-oriented investors.

The Strategic Decisions That Deliver the Results

How Access Bank battled the above threats to exploit available opportunities also confirms the unusual pedigree of its leadership. To effectively compete, Access Bank has a tradition of adjusting its internal strengths to the environmental opportunities. Its managers in the last few years are known to have the capability to identify, combine, re-combine, and manage their resources, competencies and to explore its potential and perform competitively focusng on the customer needs, preferences ,and desires satisfaction.

With the above strategic moves, in the first nine months of 2024, Access Holding has not put any stakeholder in doubt regarding its capability to deliver better value for money for its shareholders, satisfying the depositors and borrowers with maximum liquidity, displaying strong credit quality required by the regulatory authorities as well as living up to the expectations of the operating community at large

The result of the above is very clear in the 2024 financial year : When you peep hard into the interior workings of this bank some big facts stare you in the face :exponential deposit, assets ,equity, profit and gross revenue growth , adequate bank’s loan to deposit ratio (LDR), decreasing bank’s non-performing loan ratio (NPLR), and improved the bank’s customer’s service experience and service interface.

 To achieve the above , the bank’s leadership knows acquiring unique resources and developing core competencies to gain competitive advantages for the shareholders remains the only way to outperforms its competitors. In the last few years , this understanding has been the concern of the bank and one thing that set it apart from the crowd and led to its phenomenal growth within the shortest period of time.

The bank’ s inspiring performance in the last financial year and many years before it could be linked to the above knowledge. The current financial year, analysts believed , is not different despite the fact that it is more challenging.

Gross earnings

The first potential that shows Access Holding’s capability to deliver impressive value for money to its shareholders is its ability to build unique resources and deploy them to create core competencies where it matters most . And consequently, this helped it to generate the biggest revenue in the industry.

In the nine months under review, Access Holdings, which is the parent company of Nigeria’s largest bank by asset, revealed that its gross revenue rose by 114.5 per cent year-on-year from N1.6tn in 2023 to N3.4tn in 2024, the biggest among its peers in the last nine months.

By geographic segment, Nigeria led with a contribution of N2.47 trillion to gross earnings, followed by N752.9 billion from the rest of Africa and N38.8 billion from Europe.
Despite Europe’s lower earnings, its pre-tax profits of N185.29 billion exceeded those from Africa (N143.7 billion), with Nigeria leading at N377.3 b

By this potential, Access Bank has been able to navigate the banking terrain to get the results because it has been able to exploit massive opportunities within the environment and minimize certain threats standing to hinder the exploitation of the available opportunities with the bigger size of its resources relative to its peers .

The second constituency considered to be a critical success factor where Access Bank performed impressively is the deficit units which borrow from the banks . Achieving this goal is equally very demanding .The units under this constituency want to borrow when they need the funds and as cheaply as possible .Like the lenders ,the borrowers also impose the obligation of maximum on the banks to enable them to obtain funds when they need them . Access Bank’s leadership with the understanding that a bank’s biggest revenue comes from this constituency deployed the biggest loans to meet diverse requests from these units ; it leveraged its massive liquidity and asset base as the biggest bank in this regard.

To deliver the above revenue in the period under review , it deployed massive and the biggest earnings asset from its asset base to the tune of N13.9trn from N8.9trn in the corresponding period of 2023 ,indicating an increase of 56 percent. Deploying its assets massively to earning assets may not spring any surprise. While other sources exist ,the main source of income and profitability of banking remains the spread or the difference between the rates at which the funds are borrowed and the rate at which they are invested or loaned out.

The bank above decisions ,indeed, paid off . In the period interest income increased by 123.7 percent to N 2.40trn from N1.045trn .Of the N2.39 trillion in interest income reported for this period, loans and advances to customers accounted for N1.2 trillion, while investment securities contributed N838.1 billion

However, the bank’s interest expense appeared to be a potential spoiler . It skyrocketed by 135.9 percent to N1.55trn from N659b .Out of the interest expense totalling N1.5 trillion, N707.9 billion attributed to deposits from financial institutions and N646.6 billion to customer deposits.

Despite the above threat, the bank still succeeded in hauling up its net interest income by 116.8 % at the end of the ninth of 2024 to N844.84 billion from N389.74 billion. The bank was able to achieve this as its earnings yield grew to 15.1 percent from 12.1 percent while its cost of funds inched up to 7.1 percent from 5.6 percent. By this ,ACCESS Bank demonstrated that it could squeeze water out of a stone .

The feat reflected the massive of its interest income over its expenses enhanced by the massive earnings asset deployed .While in percentage term the its interest expenses raced faster than its interest income , in absolute term the interest income was massive enough to withstand the faster pace of its interest expenses without much damaging impact on its net interest income, the live wire of banking business.

This is evident in its net interest margin that consequently increased to 5.3 percent from 4.5 percent.

The strength of the Access Holdings interest income over its interest expenses is also confirmed by its to withstand the damaging effect of its large provision of its loan impairment that rose by 134 percent . The bank’s net interest income after impairment not only retain its positive outlook but rose by110 percent.

However , what enhanced its bottom line was not limited to the absolute size of its interest income over its interest expenses but the management ability to rev up its non interest income items of its balance sheet because they hold the key to stabilize earnings when interest rates volatility is a factor.

Apart from the big volume of the earnings generated from its massive earnings asset deployed what equally rescued the bank from the two potential spoilers is the massive revenue from its non interest segment .Fee and Commission Income inched up to N401.53 billion, up by 93percent from N208.18b while its fee and commission expense increased merely by 20 percent to N71.63b from N59.63b . Consequently, its net fee and commission income hit N329.90b ,an increase of 98.3 percent from N 148.55b. Also , its fair value and foreign exchange gain jumped by 74.3percent to N548.38b from N314.60b

The above advantages from both the core banking or non interest segment of its business together with its strong treasury desk that delivered inspiring income from the trading segment combined to frustrate the third potential spoilers which could be seen from the interplay of forces between the operating income and operating expenses. In first nine months of 2024 , the bank operating income hit N1.793 trn , an increase of 104.9 percent from N875b while its total operating expenses increased 110 percent to N1.090trn from N519 b .Despite those three potential spoilers , one thing is that its profitability as indicated above remains very impressive .

Analysts expect the MPC’s hawkish stance and naira volatility to sustain the group’s gross earnings growth trajectory.

BALANCE SHEET OUTLOOK

Even the regulatory authorities , another critical success , whose interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements were not less satisfied with Access Bank’s leadership. With adquate capital adquacy ratio, liquidity ratio and sound credit quality that not only met the minimum requirements but rose above them , Access Bank is regarded as a model in the industry.

Commercial banks are not only rated for their bottom-line performances. Cash holdings and bank balances rose significantly from N2.0 trillion to N4.2 trillion.
Customer loans saw considerable growth, with overdrafts forming a large part: N772.9 billion from individual customers and N5.1 trillion from corporate entities.
Treasury bills constituted a significant portion of investment securities, standing at N2.1 trillion at fair value, while total debt securities, including Treasury bills, federal government bonds, and euro bonds at amortized cost, reached N6.8 trillion.
Total liabilities also climbed to N3.7 trillion, largely due to an increase in deposits from customers and financial institutions.

Deposits from financial institutions included substantial trade obligations to foreign banks, while customer deposits were made up of N9.0 trillion in term deposits and N9.3 trillion in demand deposits.

Overall ,the bank grew assets by 56.2 percent in the period from N8.9trn to N13.9trn while shareholders’ fund grew by 51 per cent, from N2.2trn in 2023 to N3.3 trn in 2024 . For such weighty shareholders’ fund, it is natural to pull in heft deposits as total deposits grew 45.4 percent to N22.3 trillion from N15.3 trillion.

From a regulatory standpoint,the interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements. One of the most important regulatory prudential ratios is the capital adequacy ratio (CAR), which the central bank set at 15%.

Access Bank’s balance sheet was robust, posting a CAR of 20.42 %. The bank has set a target of greater than 20 % in 2024, indicating a proactive strategy to strengthen its financial stability and resilience against potential losses ;its liquidity ratio was 52.2 per cent , all well above the regulatory threshold. Its loan to deposit ratio at 62.3 is considered highly competitive in the industry

The bank’s numbers indicate while the bank is extending more loans and taking on more credit risks, it is equally attracting more deposits but at a slower rate . Customers deposit increased by 45.4 percent to N22.3trn while its loans and advances jumped by 56.2% to N13.9 trn. By this , its loan to deposit ratio stood at 62.3percent . Despite the increase in risk taking as indicated by the increment in the bank’s loan and loan to deposit ratio, the bank still displayed a high level risk management savvy with its non performing loan ratio at 2.7 percent .

The economy is a major beneficiary of the bank’s decision, but the bank gained higher revenue that frustrated the aggressive interestexpenses and the growing credit risk .The bank supported businesses by growing Loans and advances 56.2 percent from N8.9trn to N13.9 trn; it means the banks contributed more to economic development this period than in the previous period by giving out more to the economy .

But there is nothing to fret about as the bank had garnered more than enough assets to cover its loans position, hitting a loan to assets position of 33.9 percent compared to 33.5 achieved earlier.

CUSTOMER DEPOSITS

One of these constituencies is the surplus units from which it borrows . These units 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 . Access Bank did not only live up to the above challenges, its outperformed competitors in this regard and the reward was its ability to rake in the biggest deposit in the period under review .

Access Holdings reported N9.7 trillion in deposits from financial institutions and a substantial N22.8 trillion in deposits from customers.The bank’s customer deposits grew by 45 4 per cent from N15.3 trn to N22.3trn led by 42 percent increase in demand deposits , followed by 40.8 percent in term deposits and 17.2 percent in savings deposits .However , while the demand deposits increased by 37 percent to N9.4 trn from. N6 8trn , term deposits increased by 59.6 percent to N9trn from N5.7trn and savings deposits increased by36.7 percent to N3 8trn from N2.8trn , providing the bank with a platform to rebalance its deposits mix and reduce the cost of funds whch inreaded by1.5 percent to 7.1percent from 5.6percent This is expected to culminate in the reduction of its cost of funds and consequently its cost to incomeratio .The results were a testament of the bank’s efforts to deepen its roots in the retail segment. This has led, in the main, to a remarkable increase in the volume of transactions across various electronic platforms as well as significant customer acquisitions. The expected growth in transactions on the bank’s digital channels is expected to support the bank’s retail push as fees from e-products increased with retail deposit balances also growing . The bank had stated that it would continue its investment in the retail end of the market to consolidate its leadership in both the corporate and retail segments. “Access Bank continued its strong performance, with both interest and non-interest income contributing significantly to gross earnings.

Last but not the least , the bank’s socio responsibility to the community at large has remained unmatched. As the provider of the environment within which it operates ,the bank knows it owes an obligation to the community to be a good corporate citizen and it is living up to them . This may not be farfetched. Access Bank’s capababilty for maximizinvouchers ba wedploitation of the opportunities available and minimizing the threats in the environment has never been in doubt .

Subsidiaries

Subsidiaries in the United Kingdom and across Africa performed particularly well, delivering 54.8 per cent of the Banking Group’s profit before tax, an increase of 185.8 per cent year-on-year. The group remains committed to expanding its footprint by offering tailored banking solutions in each region, enhancing customer experience, and advancing cross-border banking capabilities,” part of the statement read

In the period under review, the non-banking subsidiaries of Access Holdings, Access ARM Pensions, following a merger with ARM Pensions, now oversees N3.1tn in assets under management. Hydrogen Payments processed N27.5tn in transactions, growing its operating profit by 516 per cent year-on-year to N5.7 billion. Access Insurance Brokers, still in its first year of operations, posted a gross written premium of N8.3bn and a profit before tax of N641m. New entrant Oxygen X Finance, the group’s digital lending subsidiary, reported N2.1bn in operating income and a profit before tax of N412m

CONCLUSION

Acces Corp’s inorganic expansion model fast-tracked its growth, becoming the Nigerian banking industry’s asset size, deposits, and loan book leader. Beyond the domestic market, Access Corp’s penetration across Africa improved continental visibility, lifting it into the top 20 class of African Banks by tier 1 Capital and asset size. Alongside these gains have come risks, such as high costs, regulatory hurdles, and strategy realignment. Although the Holdco has shown skill in mitigating risks, its high operating cost has remained a headache. Inflationary pressure in Nigeria and other African countries has seen an upward climb in operating expenses, cutting bottom-line earnings at the knees. Analysts observe that the group’s pre-tax profit margin has fallen steadily since H1 2021, from 22% to 16% in H1 2024, hinting at an inefficient cost structure. The Holdco’s H1 2024 financial numbers further confirmed this narrative as gross earnings climbed to N2.19trn versus N348.92bn PBT in H1 2024. 

In line with its five-year strategic plan, Access Corp made some strategic acquisitions, such as the National Bank of Kenya in May 2024 and ARM Pension in October 2024. The acquisitions will deepen the group’s banking operations in Kenya and raise the Access pension assets under management (AUM) to around N3trn. This could entice investors and improve corporate indicators. Analysts expect the group’s grey-field acquisitions to slow down, given the CEO’s statement that ‘’Access Corp is undergoing a transition from an investing phase to a consolidating phase’’ (see Table 1 below).

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