Despite   the challenges of a rough competitive space,  Access Bank grew its profit before tax  impressively in the first nine months of the current financial year by 100%  while its  share price inched up by 85.29%.

In the last financial year as it was the one before and indeed many more years back in time, the competitive space in the  banking  industry was paved with  many obstacles, setting up the industry for failure.

Although , the high-rate environment led to an elevated lending rates and returns on investment securities, making interest income grow in the current year  ,  the fragile economy which has increased the banks’ default risk and  justified  the need to increase provisions for dodgy loan assets  , high Cash reserve ratio as well as high inflationary pressures  have continued to put  the industry players in a tight corner .

During the period, the players’ incomes  were   suppressed by exorbitant operating expenses , excessive provision for impairment on loan  loss charges  just as  well elevated CRR has hindered adequate funding to real sectors that can grow the economy as banks have whirled to non-interest income operations 

In  spite the above challenges and forces in the operating environment  ,  Access Bank has shown with competitive resources deployed to create core competences in certain  areas of its operations it is possible to squeeze water out of a stone in the business of financial intermediation ;in fact ,  it was, indeed ,  an opportunity for it to turn adversity to success as it maintained a superior values to its stakeholders with its profile taking  an upward turn sharply .I

It delivered better value for money for its major constituencies including the shareholders, that supply the funds for its operations; deficit units ,which borrow from it ;the surplus units from which it borrows; the regulatory authorities and the entire community where it operates.

In the  current  financial year, the banking  giant, Access Holding,  had a strong performance in 9M 2023, as gross earnings rose above N1trn and profits increased by over a hundred per cent (111%). The group’s gross earnings improved by +75.73% to N1,593.74bn in 9M 2023 from N906.93bn in 9M 2022. , its Profit before tax doubled to N294.42bn in 9M 2023 from N147.29bn in 9M 2022; after tax deduction, the group’s profit stood at N250.44bn in 9M 2023 from N136.91bn in 9M    

With the above impressive profitability , Access Bank  has ,no doubt , lived up to  its stakeholders’ expectations.  In the last nine months; with that  profit  Access Bank has created  values to its entire  stakeholders and justified its corporate objectives. The shareholders , the owners of the bank  , that  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 ,got better share of the values created .

 .Beyond the absolute profitability figure, the bank’s better value for money delivered by its    strategic capability for cost optimization and efficiency has continued to attract better  positive value  to its brand equity .

The improvement came from the strong growth in operating income over operating expenses, cushioning the cost-to-income ratio from the previous average of 62.44% in the past four years to 55.53%.

Another confirmation of this feat is demonstrated by its profit margins.  The bank recorded improvements in both pre-tax and post tax margins as the former inched up to 18.5% from 16.2% while the latter   moved up to 15.7% from 15% . Consequently , the bank’s  Earnings per share attributable to ordinary shareholders grew impressively to N6.92k from  N3.87k 

The positive impact of the inspiring performance has become a fulcrum driving its  stock and market value . Within the period under review  .ACCESSCORP  Shareholder Returns at 113.0 % exceeded the  the  industry  average which returned 94% over the past year ; it also exceeded the   Market which returned 69.9% over the past year.

Access Bank  was a strong beneficiary of the equity market rally witnessed in 9M 2023, with the banking index generating a year-to-date return of +60% as of September 30, 2023. The huge revaluation gains realised from the exchange rate consolidation further strengthened investors’ attraction to its  stocks in Q3 2023.

At its last price of N17.25k , its market capitalization stood at N594.1b. Access’s share price broke free from the bearish corridor witnessed in 2022 to a bullish orbit that generated a YTD return of +85% as of September 30, 2023. The share price rose from N8.80k on January 2, 2023, to a resistant price of N18.90k on July 01, 2023, before encountering a slight pullback within a bandwidth of N14.00k and N17.00k, possibly triggered by the Holdco’s acquisition of Standard Chartered Banks businesses in Sub-Sahara Africa and Angolan-based Finibanco.

The market priced in the risk associated with acquisitions, and the stock has remained within the bandwidth, with a 20-day moving average of N16.76k as of September 30, 2023. However, the announced interim dividend of N0.30k  is likely prompt price appreciation, considering that the P/E and book value per share suggest a hidden value  

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BEHIND ITS INSPIRING PERFORMANCE

 The above impressive exploits of Access Bank in the first nine months of the current financial year could be traced to its management ability to respond to the competing pressures and changes in the business environment  ,its strategic capability which include its  resources and competence as well as its ability to  prevail on cultural and political contexts .In other words , how Access Bank delivered the above inspiring earnings and profitability may not be unconnected with creative and visionary leadership

Unique Resource Base

The starting point of its successful strategies is the acquisition, retention and development of resources .   The bank management key priority is to fortify itself with rock solid financial resources . The rationale behind its drive to fortify itself with the biggest assets may not be farfetched .  Size is a source of competitive advantages. Large companies are essential to the wealth creation process for a number of reasons  First, having a capacity to match the resources and global distribution of large competitors brings advantages .Also , large companies also tend to devote a disproportionate share of their resources to training and education   Moreover ,   it opens  the door to many of tomorrow’s mega-opportunities will require significant resources.   Finally ,    the fortunes of large companies include their potential to generate significant employment.  

Access Bank has built the above potentials . Access Bank ,without any argument, has continued to build a competitive and robust balanced sheet with total assets and equity base that is highly strong and diversified The group’s total assets rose significantly by +59.15% to N21.41trn in 9M 2023, and total liabilities grew by +59.20 % to N19.76trn out of which its shareholder fund stands at N1.59trillion from N1.21trillion in 2022  to emerge the biggest bank in Nigeria.

 The size of a bank’s assets serves as a crucial indicator of its capacity to support economic activities. In Nigeria’s dynamic financial landscape where industry asset size reached N73.59 trillion in 2022, a bank’s ability to create loan assets through capital-intensive sectors like oil and gas, manufacturing, and infrastructure development proves crucial. A larger asset base allows banks to offer a wider range of financial products and services, fuelling economic growth and stability. As banks continue to grow their assets, they contribute significantly to the overall strength of the nation’s financial system.

Moreover , with the advent of technology and digitisation, digital income has become a critical metric for banks to assess their competitiveness and adaptability. The Industry’s consistent growth in earnings over the years, supported by digital income, showcases the banks’ competitiveness and ability to explore alternative revenue streams in the digitized era. This also requires huge resources.

ACCESS BANK’S CORE COMPETENCES IN CRITICAL AREAS  

 However, while the above volume of resources is critical and inevitable for an organization’s success and survival , a mere possession of resources is not enough  until they are deployed to generate competences . 

The management of Access Bank is not oblivious of the imperative of building competences to be able to deploy its resources  to create better  values for money and outperform competitors . The bank has continued to  engage on strategies fit , identifying opportunities in the business environment  and adopting resources and competences to take advantage of them ; it is equally embarking strategic stretch , by leveraging its resources and competences to provide competitive advantage and or yield new opportunities .  

 CORE BANKING OPERATIONS

 A detailed analysis of  its core banking operations confirms this view as much  with its  impressive gross earnings and profitability  indicated above .

The question now is which resources were deployed and what competences were generated to achieve earnings in its various income segments. Its overall revenues were generated from both interest and non interest income segments. The growth in its gross earnings came from interest   respectively.

  A further breakdown showed that interest income had the highest contribution at 66%, followed by fair value and foreign exchange gain at 20%, fee and commission income accounted for 13%, and other operating income at 1% of gross earnings

To achieve that much in its interest income segment  required high level dexterity in the art of maturity  intermediation ,the bank’s loan advances inched up by 45%to N6.62trn in third quarter of 2023 from N4.62trn in the corresponding period of  2022

 The drive to boost its loan portfolio may not be farfetched .Loan is  the highest earning asset in the balance sheet ; it contributes materially to the achievement and fulfillment of the objectives  of profitability by providing higher return  than other financial assets ; it 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 .

 In the period under review its Interest income hit N1.05trn  from N571.74b ,an increase of 83.4% .

 The boost in its loan advances, high-rate environment elevated lending rates and returns on investment securities are believed to be responsible for the increase in its interest income .

This view may  not be farfetched. In the face of higher interest rate environment,  the tendency for  loan and capital growth is usually the case

 However ,   higher   funding cost, poor asset quality, higher  provisioning  remain the threat ;, only a bank that can achieve higher   non-interest revenue (NIR)   benign funding cost, asset quality improvement, lower provisioning  will exploit that opportunities and outperform competition 

True to this belief in the last nine months ,cost of funds swiftly moved northward . For Access Bank, interest expenses wihch reflect its cost of funds skyrocketed by 126%  to N658.51b from N291.45b

 By this , the bank  only gained  N37 from every N100 interest income earned in 2023  unlike N49 it gained in the corresponding period of 2022 .

Sequel to this , its net interest income , generated from lending activity and interest-bearing assets, or the “net” return , which is the 9interest income minus the cost of funding  the loans, hit N389.96b  compared to N280.29b .

NII is sensitive to both credit risk and market risk. The above expectations represent,the market risk that is 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. This is known as the interest-rate gap.What a bank gets depends on the gap between yield on its interest assets and the cost of funds .

Access Bank operating within a high interest rate environment was also confronted with serious credit risk that battled the bottom line of many banks in the period under review. Its Net impairment charge on financial assets rose by by 16.8% to hit N61.83b from N52.95b   leaving with N328 b   compared to N227.34b in 2022 as its Net interest income after impairment charge.

In a nutshell, the bank is left with N31.00 from every N100 earned as interest income compared to N40.00 in the third quarter of 2022 .

Despite the above challenges of the prevailing interest and credit rate risks that confronted every player in this industry during the period under review , Access Bbank’s management displayed its unmatched strategic capability to  turn adversity to success as it maintained a  heavy growth profile at its bottom line.It tapped on its non interest income segment to boost its bottom line exponentially.

The  banking  giant was able to achieve this advantage for its stakeholders through the configuration of resources within the changing environment and fulfilled stakeholders expectations with competitive profitability .

.How did it achieve this? To tackle the above threats which could only be tamed by  a skilful handling of its internal fund pricing and management of the risk of mismatches between assets and liabilities and between borrowing and lending rates  its management embarked on some strategic fit initiatives and leverage certain potential opportunities .

 As deposits grew, although the bank could not restrict the comparatively faster pace of loans and advances, a key component of a bank’s maturity transformation tool, it minimized the credit risk by reducing its loan to deposit ratio though in an absolute term it grew the loan .

We note though that the bigger its loans  on the balance sheet, the higher the interest income item on the income statement  but  the lower  the credit risk.

How did these three items play out ? Interest and similar income grew by  83.4 percent from N571.74 billion to N1.05trillion but credit risk as read from the loan to deposit ratio  dropped.  Although the   bank could take  a risk bristling from the confidence of a healthy balance sheet due to its   assets and shareholder funds which could cover for any slips , it decided to reduce the credit risk. The Corporation loan-to-deposit ratio (LDR) dipped below a minimum of 65% to 53%, though it exposed   the money lender to additional cash reserve (CRR) debits.

 However , the game changer came from the non interest income segment .The bank  exploited  exorbitant revaluation gains from the exchange rate depreciation with its large holdings of foreign assets.   This opportunity kept it  on the positive side of the naira depreciation . Its Fair value and foreign exchange gain rose by 71%  to N314.60b  from N184.13b 

Also ,its Fees and Commissions improved by +55.9% to N208.18bn, and E-banking income increased by +42.4% to N70.35bn in 9M 2023. 

Consequently , the lender  made a tidy bundle from FX revaluation gains. The significant holding of foreign assets in the face of naira depreciation unlocked a major income line item for many banks in 2023, cushioning the effect of rising operating costs and fee-based income.

The above initiatives led to a strong growth in operating income over operating expenses, cushioning the cost-to-income ratio from the previous average of 62.44% in the past four years to 55.53%. This shows better cost optimization and efficiency and delivery of better value for money

All the above skill sets were deployed to   other constituencies   not only to generate values for  its shareholders in the operating environment but to .create better value for money for entire stakeholders.

 Other main  stakeholders include the  surplus units from which it borrows , deficit units which borrow from the banks ,the regulatory authorities and the entire . community where it operates   who are expected to be satisfied by it were impressed by capability to deliver better values for money in the period under review .. 

In the last nine months of 2023  ,Access Bank has been able to deliver the above values to its shareholders partially because of its capabilities to satisfy  other   constituencies critical to its value creation.  

 One of these is the surplus units from which it borrows .These units demand the best possible term in rates of interest and maturity structures  as well as  the maximum liquidity to enable them to have the funds back when they want them , or as agreed . In the period under review, the marketing machine of the bank, it would seem is working overtime, growing deposits; that section of the bank’s balance sheet swung up  . Its customer deposits increased by +55.6% to N12.75trn in 9M 2023 from N8.19trn in 9M 2022. This was to be expected from a bank which ‘focuses and channels its resources only on its core corporate and retail banking activities’, activities which require steep marketing capabilities, and in a world where IT is ubiquitous, a firm understanding of delivering tech based services.

  As for the lenders ,the bank was equally  able to satisfy the  borrowers or the deficit units when they need the funds and as cheaply as  possible  with large volume of loans driven by its adequate liquidity that enable its borrowers  to obtain funds when they needed  them  The bank shelled the economy heavy of loans during the period under review Its loan advances inched up by +45.0% to N6.702trn in 9M 2023 from N4.62trn in 9M 2022. .This could be traced to the bank’s strategic direction that delivered high demand and low cost  funds that created a stable base of less expensive loanable funds. This has been supported by extensive nationwide branch network complimented by technology driven alternative delivery service channels.

  In addition to  the above constituencies are the regulatory authorities ,whose interest are  to ensure that the bank  does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirement . Access Bank’s balance sheet  remains robust as the loan to deposit ratio, liquidity ratio and capital adequacy ratios  are all well above the regulatory threshold.

CAPITAL ADEQUACY Access Bank increased its shareholder funds by 31.6% to N1.6trillion from N1.21trillion.The increased capitalization of the Bank also resulted to improvement of other related ratios such as equity to total loans indicating the Bank capacity to finance its loan portfolio. Its  ratio of Equity/Total assets and Fixed assets/Equity also improved during the review period  .

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 LIQUIDITY RATIO

.Access Bank has continued to maintain strong liquidity position well above the statutory requirement of 30% that make it well positioned to meet the obligations and take advantage of emerging opportunities.

  This shows the Bank’s ability to repay its obligations as and  when due.  

The Bank has consistently held  high level  of its deposits as liquid assets to ensure that it is well positioned to meet obligations and take advantages of emerging opportunities.  

 However , from the third quarter of 2020 (9M), the group’s LDR has stayed lower than the statutory minimum of 65%, backstopping at 53% in 9M 2023. The fast rise in customer deposits from N5.26trn in 9M 2020 to N12.75trn in 9M 2023 has been faster than the growth in loans and advances, which rose from N3.09trn in 9M 2020 to N6.70trn in 9M 2023. The growth reflects the fact that only half of the group’s total deposits are used for lending due to the increasing CBN cash restrictions .The Bank’s strategic direction is towards achieving demand and low cost funds to create a stable base of less expensive loanable funds. This is been supported by an extensive nationwide branch network which is complemented by technology driven alternative service delivery channels. The growth in loan portfolio as earlier mentioned was propelled by increased capitalization and deposit base during review period.

 The Cash reserve ratio increased to 32.5% in 2022, implying that N30 is restricted for every N100 deposited among other discretionary CRR debits. Many analysts have argued that the elevated CRR has hindered adequate funding to real sectors that can grow the economy as banks have whirled to non-interest income operations

 Asset Quality-  

The fragile economy has increased the banks’ default risk, justifying the need to increase provisions for dodgy loan assets. In 9M 2023, Access Holding’s impairment charge rose by +17% to N61.83bn from N52.95bn in 9M 2022. The growth could be attributed to its investment in tradeable securities and loans & advances, which grew 880% and 13%, respectively. In addition, the group recovered N6.94m bad debts in 9M 2023, slightly higher than N6.85m in 9M 2022. Analysts expect the credit-impaired charges to remain elevated due to ambiguity surrounding monetary policy, disposable income squeeze and exchange rate fluctuation that can influence financial assets value