By Omoh Gabriel, Business Editor
Access Bank shares have been considerably active in the secondary market for some times now. Investor are quite at home with the viability of the shares. A closer look at shares in the market show that Access Bank‚Äôs shares have been yielding investors good return on investment in the last two years. A market analysis of some selected high profile shares in the market show that the P/E ratio of Access bank is as high as 17.56, almost the highest in the industry while banks like Intercontinental has a P/E ratio of 7.07, First Bank 8.86, Zenith International Bank 9.2, Standard Trust 9.4, GTB 11.06, Union Bank 15.26..From the above market studies have shown that those who invest in the bank in the past have in a short spade of time recorded high yield and return on their investment. The market price of the bank shares have been above its par value resulting in capital gains. Apart from share value appreciation the bank has reworded shareholders with bonus issue which has added to their stake in the bank. This has more than compensated them for the years the bank was in limbo.
Mr. Aigboje Aig -Imoukhuede managing Director and Herbert Wigwe Deputy Managing Director were foundation staff of Guaranty Trust Bank. They took over the management of the bank two years ago. Since then the bank has return to the path of profitability. It can be safely said that they imbibed the very best learning from Guarantty Trust Bank and most of the other key staff were poached from Guarantee Trust bank and Citibank with very high performance culture. The management and staff seem set to replicate the high flying model in the fastest growing bank in the country.
Their records while at Guaranty Trust was that of outstanding performance, resulting in their being catapulted from from AGMs at relatively young ages to Executive Directors. In many instances, Aig-Imokhuede was the ‚ÄúMr. Fixit‚Äù in Guaranty Trust. At a time when service was at its lowest ebb in the Abuja zone of the bank’s operation, it was Aig’s brief to sort things out. He did it very well.
Aig and Herbert have always enjoyed a very close relationship, right from their Guaranty Trust Bank days. They have a burning passion to prove themselves by building and running a financial institution that can work among the best, not just in Nigeria but also in the world.
The proof of their talents is in what they have done to Acess bank in barely two years of taking over. An almost moribund bank has become one of the industry’s market leaders.
In the words of the Director-General of the NSE, Dr. (Mrs.) Ndi Okereke Onyiuke ‚Äúthese boys have truly washed their hands well and deserve to dine with elders‚Äù.
As a first step towards moving itself towards the CBN prescribed N25bn capital base, the bank is going to the stock market to raise about N8bn. It will further capitalize some of its reserves to move its capital base at the end of the offer to a minimum of N 10bn. The bank’s capital base is currently at N2.7bn. The bank hopes to achieve N15billion capital base and would then merge with a similar institution in the industry without losing its identity and culture.
The public needs to see Access Bank less in terms of today, but more in terms of its future possibilities as demonstrated by its recent past.
The bank’s shares were hovering at Nl.30 before the duo took over. Within two years, it climbed to over N5 and has now settled at just below N3. This drop in value being a direct consequence of the flogging bank shares are receiving as a result of the scare arising from the CBN directive on N25bn capitalization.
The future prospect of the bank’s earning streams is shown by its recent performance indicators. Access Bank recorded further improvement in its 2004 operations which resulted in an increase in gross earning which moved up from N4.367 billion in 2003 to N5.515 billion in 2004, a five year high record. This showed an increase in market share by 26.3 per cent. The increase in gross income impacted positively on profit before taxation which expanded from N810.6 million in 2003 to N951.75 million in 2004. The bank‚Äôs interest income also rose by 8.5 per cent. The increase in interest income was doused by similar increase in interest cost. Interest cost grew faster than interest income at 22.2 per cent. As a result income from core banking was surpressed. But income from non interest item came to the bank‚Äôs rescue as they rose by 50.6 per cent thus enhancing the bank‚Äôs profit before tax. This compensated for the erosion of income from interest cost. As a result the bank grew its net income by 28.9 per cent over that of the previous year The improvement however was not enough to off set the impact of rising cost of operation which grew by 47.9 per cent. Operating cost element reduced the the bank‚Äôs income and thus profit figure. The bank‚Äôs asset quality improved to one of the best in the industry as non performing loans was just 7.3 per cent of total loans and advances.
The bank‚Äôs loans are princpally to the manufacturing sector, commerce-import, export and domestic trade. During the twelve months ended 31st march 2004, the baqnk‚Äôs loans portfolio grew by 76.2 per cent to N11.461 billion. The level of non performing to total loans reduced significantly to 7.3 per cent. This compares favourably to that of banks with the best asset quality in the industry. During the period under review, the bank wrote off bad loans to the tune of N167.8 million, which contributed to the reduction in the level of non performing loans.
Cumulative provision for non performing loans stood at 66.2 per cent, which compares favourably with that of its peers , lower than the industry average of 84 per cent. The level of non performing loans is low though the bank has made adequate provisions for its non performing loans.
During the financial year ended 31st March 2004, net earnings amounted to N3.6 billion. Net revenue from funds accounted for 35.3 per cent of net earnings, while commissions accounted for 29.6 per cent and foreign exchange income was 10.6 per cent, Fees and other income represented 34.8 per cent of the bank net income.
During the period under review, the ratio of operating expenses to net income remained high at 82.7 per cent. Though this ratio is in line with that of its peers. It is significantly higher than industry average of 70 per cent. The banks attribute the high cost to income ratio to the large number of unprofitable rural branches they keep as well as the high cost of doing business in Nigeria.
In the period under review, the Bank‚Äôs pre tax return on average asset was 3.0 per cent, while its pre tax return on average equity was 35 per cent. These ratios are both lower than the industry average of 4 per cent and 50 per cent respectively. The bank‚Äôs profitability requires improvement. The bank in 2003 paid a totao of N135 million as dividend at 5kobo per share. In 2004, it paid out N300million as dividend at 10 kobo per share. Unlike 2002 and 2003 when no dividend was paid.
The bank’s earning per share stood at 21kobo in 2003 and 2004 indicating some level of consistency in the bank’s performance.
As at 31st March 2004, the bank had an equityl base of N2.7 billion unimpaired by losses which is above the current equity base of N2 billion, but with the CBN new minimum equity base requirement of N25 billion the bank has challenge of raising the balance to meet up the 31st December 2005 deadline. The bank has set in motion necessary machinery to actualise the N25 billion.
At the moment, the bank‚Äôs adjusted capital to risk weighted assets ratio at 8.6 per cent is a little above the regulatory minimum and below industry average. The adjusted capital to total loans at 23.5 per cent is two times the regulatory minimum of 10 per cent. The bank‚Äôs capital base can be said to be strong for its level of operation at the moment.
Liquidity and liability generation
As at 31st March 2004, the bank had a local currency deposit base of N22.7 billion, making it the one of the medium sized bank in Nigeria banking industry as at that date. The bank contorlled 1.3 per cent of the industry‚Äôs local currency deposits. The bank‚Äôs growing deposit base is attributable to its age, expanding branch network and reputation.
As at 31st March 2004,demand deposits accounted for 66 per cent of total deposits, savings :2.8 per cent and time deposits:31 per cent. This translated to a weighted average cost of funds of 6.4 per cent which compares favourably with those of the bigger banks in the industry.
As at 31st March 2004, the bank‚Äôs liquidity ratio was 36.5 per cent, below the regulatory requirement of 40 per cent. The bank‚Äôs loan to deposits ratio remain high at 50.4 per cent , compared to the regulatory maximum of 55 per cent. Trade reputation checks on the bank confirms that the bank has overwhelming capacity to refinance and market perception is very good. The bank‚Äôs liquidity needs improvement.
Ownership and management
The bank has several shareholders with Coscharis motors limited and Coscharis Agro holding 8.7 per cent of the bank‚Äôs shares. Also United Alliance limited holding 21.18 per cent shares of the bank. Its shares are listed on the Nigeria stock Exchange and the bank has about 16,273 shareholders. With its current move to raise more funds from the capital market the ownership base oo the bank will be further diversified. At the moment its board of directors comprises eight persons who control a reasonable proportion of the bank‚Äôs equity. Two directors are executive; the managing director and deputy, while six others including the chairman are non executive thus meeting the regulatory authorities requirement for corporate governance of having at least one non executive director more than the number of executive directos.
The management of the bank lede by Aigboje Aig-Imoukhuede, has been relatively stable in the last two years and consists mainly of persons who have had the majority of their carrier from outside the bank.
During the period under review, the staff strength of the bank declined by 3.5 percent to 316 persons. This is as a result of of the restructuring exercise the bank carried out during the period. Staff productivity as measured by net earnings per staff was N11.6 million, which is above the banking industry average of N7.5 million. Average cost per staff amounted to N2.836, which is lower than the industryN5 million. The bank should improve on staff cost in order to attract some of the best personnel in the industry. The management of the bank is competent, qualified and experienced, and the performance of the bank is at par with that of its peers.
The bank has a dominant position in the Nigeria banking industry. During the twelve months ended 31st March 2004, its asset base increased by 41 per cent to N250 billion. This translated to an increase in market share of all key indices, The bank market position is very good.
Strength and weakness
The bank has strength in, strong capital, good liquidity, strong market position, wide branch network, good management. The bank‚Äôs major weakness is weak earnings, improved but high level of non performing loans.
The bank in recognition of the indispensable role of human factor particularly in service oriented industry like banking commenced a rengineering exercise in which management placed high value on the bank‚Äôs people. This exercise involves a huge investment in staff training aimed at giving customer service qualityt and also huge investment in information technology, and the bank has installed a new software flexcube. Currently several of the bank‚Äôs strategic branches are on line and the bank plans to connet all of its branches. Growth is central in the bank‚Äôs strategy for the future because it affords it tremedous cost advantages and broadens its range of opportunies.
The bank was incorporated as a private limited liability company on 8, February 1989 and commenced business on 11 May 1989. The bank was converted to a public limited liability company on 24, March 1998 and its shares were listed on the Nigerian Stock Exchange on 18, November 1998. The bank was issued a universal banking license by the CBN on 5, February 2001.
The greatest threat to the bank‚Äôs continued existence as a single entity as it is to other bank‚Äôs in the system is the N25 billion mimimum equity base. The bank‚Äôs ability to meet this remain the greatest challenge to the board and management.