By Omoh Gabriel, Business Editor
AFTER its 2003 trans-formation, 2006 financial year represented for Access Bank, an important redefining period following the successful consolidation carried out in the banking industry.
With shareholders‚Äô fund of about N29 billion as at end of 2006 financial year, the Bank, during the period refocused efforts towards attainment of top five industry position in size and operational measures by 2010.
The impetus for this new corporate aspiration arose from the Bank‚Äôs successful acquisition of Capital Bank International and Marina International Bank in 2005 in one of the most successful business combinations of the era.
During review period, the Bank took a number of strategic steps in line with this aspiration. It issued a unique convertible instrument to some international investment organisations and in the process became the first Nigerian bank to benefit from the International Finance Corporation‚Äôs convertible facility. This brought with it valuable international affiliations expected to help the Bank in its second phase of consolidation.
During the year also, it took steps to expand the local market by opening seven branches and put in place credible plans to open as many as another 40 outlets in 2007.
Not surprisingly, Access Bank witnessed remarkable growth during the period. Total assets grew to N175 billion from N66 billion recorded in 2005. This is more than 160 per cent increase for the year. Total deposit liabilities also increased from N32.6 billion to N110.9 billion which represents about 28 per cent growth.
The Bank made some strategic investments which not only buoyed up earnings but also aimed at expanding future capacity for delivery of financial services. In particular, it invested a massive N5.48 billion in government bonds and used same to collaterise for its appointment as a settlement bank by the Central Bank of Nigeria.
Access Bank entered the Pensions Management industry by taking up 75 million ordinary shares of N1.00 in the share capital of IBTC Pension managers Ltd.
Subsequent to the consolidation exercise, it entered the retail side of investment banking market by acquiring a key stockbroking firm ‚Äì Marina Securities Ltd., in which it holds 70 million ordinary shares of N1.00 each.
These are in addition to key investments in Central Security Clearing System Ltd., a Discount House and other small-scale businesses.
Without doubt, these investments rank prominently in the Bank‚Äôs calculations to grow rapidly over the next five years. Inorganic growth also features prominently in the plan. But beyond all these, what has made Access Bank a quality brand today, is the pedigree of its management and staff. Since its transformation in 2003, the combination of Aig Imoukhuede and Herbert Wigwe brought uncommon professionalism and tenacity in managing the operations of the bank. Apart from up-scaling personnel quality generally, they have successfully matched structure and strategy to produce a dynamic institution that is reckoned with the market.
Although they have a long way to go towards the Bank‚Äôs avowed goal of achieving a top five industry position by 2010, the steps taken so far suggest that they are headed in the desired direction.
The results published as part of 2006 Annual Report and Accounts is perhaps a clear affirmation.
EARNINGS AND PROFIT PERFORMANCE
With such a massive increase in assets and funding base, it is not a surprise that Access Bank in 2006 reported about 122 per cent increase in interest-based earnings alone from N3.9 billion in 2005 to N8.7 billion.
Although other sources of income also witnessed growth, interest earning was understandably more significant in the overall increase of gross earning from N7.5 billion to N13.4 billion.
This is because both lending and treasury management activities increased tremendously during the period, while loans (net) increased from N16.2 billion to N54.1 billion as at end of period. Short-term investment increased from N8.0 billion to N40.0 billion. Interestingly, the reports suggested that the Bank improved in its risk management efficiency as overall cost of funds (including provisions) did not increase appreciably. This resulted in more than 256 per cent increase in net interest margin from N1.4 billion to N4.9 billion.
During the period, the bank made efforts to control costs arising from operations. This was largely successful. However, the extra-ordinary costs arising from business combination made tremendous negative impact on the bottom line. While direct business combination expenses gulped N545 million, goodwill amortisation took as much as N1.6 billion. Interestingly, the overall excess of acquisition costs over net assets of acquired companies amounted to N8.2 billion.
Consequently, with the write-off of more than N2.0 billion of extra-ordinary costs, cost of operations increased by more than 100 per cent from N4.2 billion to N8.4 billion.
Despite this, the Bank was still able to grow Profit After Tax by 47 per cent from N502 million to N737 million. But because of increase in number of shares from 8.1 million to 13.9 million, earnings per share declined from 12 kobo to seven kobo as return on average equity declined from 5.7 per cent to 3.4 per cent.
Directors could not declare a cash dividend to shareholders for the period as a result of outstanding goodwill in the books.
ADEQUACY OF CAPITAL
One key performance area that features prominently in the Bank‚Äôs agenda for a competitive position in the industry between now and 2010 is capital adequacy, both in absolute and relative terms. Expressly, the Bank has committed itself to achieve a capital base equivalent of $1.0 billion over the period and defined definite routes to accomplish this. According to the Bank, this will be through a combination of foreign debt placing and conversion, public subscription and merger/acquisitions.
But as at end of 2006 financial year, its shareholders‚Äô fund closed with a figure of N28.9 billion, up from N14.1 billion in 2005. It was only N2.7 billion in 2004, underlying the success achieved in its last capital raising exercise and business combination.
Accordingly, the critical adjusted capital/risk asset ratio has increased from about 12.8 per cent in 2004 to 27.3 per cent in 2005 and 27.8 per cent in 2006. This has obviously placed the Bank in an enhanced position to expand risk assets and earnings. This is what the Bank took advantage of to multiply operating earnings during the review period.
It also resulted in increased confidence of the Bank‚Äôs several counter-parties in its ability to retain stability and provide cushion for operations.
With concrete plans to further increase capital base in the near future, earning capacity is bound to further improve.
ASSET AND LIABILITIES QUALITY
2006 financial year, for Access Bank, saw a massive increase in total asset and contingencies from N80.99 million to N204.6 million but the bank demonstrated that it is not just contented with qualitative increase in numbers of its balance sheet items but also the quality. It accordingly, embarked on a general cleaning of loan assets of the consolidated entity. It specifically made provisions of N2.57 billion on risk assets from acquired entities to bring the entire portfolio to required prudential standards. It also succeeded in reducing unsecured loans in both absolute and relative terms.
However, notwithstanding these efforts, the ratio of non-performing to total portfolio increased from 9.8 per cent at end of 2005 financial year to 13.3 per cent in 2006. This corresponds to the period of massive increase in gross loans from N17.96 billion to N60.94 billion. In other words, in an average of 15 facilities, two suffered some deficiencies as defined by prudential guidelines as against two in every 20 in 2005. Although this suggested a slight deterioration in quality, the ratio is better than the average industry level of about 20 per cent.
Notwithstanding the quantum increase in risk assets, highly liquid assets witnessed even greater growth during the period as the Bank was determined to meet its obligations to counter-parties. Accordingly, the proportion of assets tainted with risk of credit default declined from about 63.8 per cent in 2005 to 50.8 per cent just as proportion of cash and short-term investments increased from 29.6 per cent to 48.27 per cent.
On balance, Analysts‚Äô opinion is that the Bank‚Äôs balance sheet witnessed a marginal improvement in quality during the review period. Not surprisingly, more investors (including international ones) now have the confidence to enter longer-term investment contracts with the Bank.
In summary, it is clear that Access Bank has within the last three years transformed into a formidable and dynamic institution in the Nigerian financial landscape. And last regulation-induced consolidation exercise initiated by the Central Bank of Nigeria provided the Bank with a veritable opportunity to launch into its desired growth trajectory. During the 2006 review period, it recorded significant growth in all areas of performance measurement which strengthened the confidence of its managers to push for a place in the top five of the industry in the next four years. Analysts believe that given the structure and strategy already put in place by the Bank, the only direction to move is up.