Access Bank : From the Backyard to the Forefront of Nigerian Banking

Through its long journey from the backyard to the forefront of industry leadership, Access Bank has unwittingly rewritten the history of Nigerian banking. Through the fret and frenzies of survival and growth, the bank has carved for itself one of the most fascinating corporate stories in the world of banking. Gaining operating momentum from stage to stage and extending its territorial wings all the way, the bank has pushed revered industry leaders aside and grabbed the position of Nigeria’s largest bank by the size of the balance sheet. 

It happened somewhat overnight, as the bank that closed third on the industry ranking on assets at the end of 2018 woke up as the largest banking institution in Nigeria in 2019. The result of Access Bank’s business combination with Diamond Bank is the birth of a N6.5 trillion-naira bank, crowning the emerging entity as Nigeria’s largest bank by the size of the balance sheet.

Asset base swelled from under N5 trillion at the end of 2018 to almost N6.5 trillion at the end of June 2019. This is the bank’s second major stir on the banking industry ranking after the ripples of its acquisition of Intercontinental Bank group in 2011.

Summary of 2018 operations

Access Bank rebuilt profit in the 2018 financial year from a drop in the prior year and set a record of the highest profit advancement in six years. The bank closed the year with a strong final quarter that produced close to 30 percent of gross earnings and more than one-third of profit.

It was an impressive earnings story for the bank in 2018, pushing gross income by 15 percent up on a strong growth of 20 percent in the preceding year. The strong growth in revenue is one of the critical factors in the improved earnings story of the bank that saw a 58 percent profit advancement in 2018. That was one of the highest profit advances in the banking industry in the year.

Another key factor in the performance is a drop of over 57 percent in loan impairment expenses. With that, the bank changed direction from major increases in the preceding three years to the first drop in loan impairment expenses since 2014. A 55 percent drop in tax expenses provided the third leg of the bank’s high profit growth tripod in 2018.

Outlook for 2019

Access Bank unveiled its post-merger status with Diamond Bank in the first quarter of 2019. The bank has shown new strengths in critical areas, recharging further the enhanced operating momentum it gained in 2018. It has emerged a carrier of the largest earning assets in the Nigerian banking industry as well as the biggest revenue earner.

The established strength of Diamond Bank in retail business has come handy for Access Bank to ascend to the position of the largest single depository with customer deposits in the region of N4 trillion. This is a 53 percent jump from N2.56 trillion customer deposits at the end of 2018.  The development has diluted cost of funds to the bank’s advantage, improved margins and profit capacity.

The overnight swelling of the size of the balance sheet has extended further the bank’s pre-merger lead as the biggest lender. Access Bank was already carrying the largest credit portfolio in the banking industry at about N2 trillion before the merger. It has extended the leadership by loan portfolio with a net lending to customers position of N2.65 trillion at the end of the second quarter of 2019.

Expansion of earning assets has increased the earning capacity. Gross earnings grew by 28 percent year-on-year to over N324 billion at half year. Both interest and non-interest incomes contributed to the revenue improvement recorded over the period. The full year outlook indicates another strong growth in revenue for the bank in 2019.

The ability to convert revenue into profit has also improved. There is an improvement in net profit margin from 18 percent at the end of 2018 to 19 percent at the end of the June 2019. The bank looks set to maintain the top tier profit growth range this year. 

Further strength in operations came from a drop of 33.3 percent in net impairment charges at the end of the second quarter, which has sustained a major drop recorded in 2018. This indicates improving loan recoveries and write-backs of previous charges to profit.

The key operating functions that powered the profit lifting of last year are still in force, even recharged. The strength from revenue is still in place and a major drop in loan impairment expenses, is equally being maintained in the current year.

The bank has reinforced its equity cushion from a little over N490 billion at the end of December last year to N584 billion at the end of the second quarter. This is one of the top three largest equity resources put together in the Nigerian banking space.

A major operating strength that Access Bank has demonstrated so far in the post-merger operations is a moderated behaviour of interest expenses – which had been a big challenge to the bank since 2017. The proportion of interest income claimed by interest expenses has declined from over 54 percent at the end of 2018 to 43 percent at the end of the second quarter.