Access Bank Plc experienced a year of consolidation in 2020 after a major increase of 44 percent in the size of the balance sheet in 2019. At the end of nine months of trading last year, the bank reported total assets of N7.9 trillion, which an increase of less than 11 percent from the prior year closing figure. This is the lowest growth rate in asset for the bank since 2014.
Net customer loans and advances portfolio slowed down drastically from 46 percent upsurge in 2019 to a 6 percent increase to close at over N3 trillion at the end of the third quarter. The increase in the size of the balance sheet was led by lending to other banks, which jumped by more than 171 percent to about N415 billion.
Other rapidly growing assets as at the end of the third quarter include non-pledged assets, which grew by 130 percent to N298 billion in nine months, derivative assets, which rose by 38 percent to N198 billion and restricted deposits, which expanded by 26 percent to N1.3 trillion.
Access Bank is one of the few banks that were able to grow revenue ahead of assets in 2020. Against the increase of less than 11 percent in total assets, it achieved an increase of 15 percent in gross earnings at the end of the third quarter.
Non-interest income provided the spur for the improvement in gross earnings over the review period. It doubled year-on-year to N217 billion at the end of the period, as most of the non-interest income lines recorded considerable improvements.
The growth in non-interest earnings was driven by a kind of windfall in net foreign exchange gain of almost N79 billion in the third quarter. The gain wiped off net foreign exchange losses in the preceding quarters and raised the net gain by 145 percent year-on-year to N12.6 billion at the end of September.
The strong growth in non-interest income was diluted significantly by interest income, which dropped by 7 percent year-on-year to N375 billion. This appears to reflect the sharp slowdown in customer credit and the bad lending environment that prevailed generally in 2020.
Gross earnings amounted to N593 billion for Access Bank at the end of September 2020, which is a year-on-year increase of 15 percent. With a slower growth of 11 percent in asset base, the bank improved asset turnover from 0.09 at the end of 2019 to 0.1 at the end of the third quarter.
The bank’s management applied some cost savings to strengthen its ability to convert revenue into profit. Interest expenses provided the main cost saving area for the bank in the year, dropping slightly ahead of interest income at 8 percent year-on-year to N179 billion. Net interest income still declined by 6.6 percent to N196 billion at the end of September due to the drop in interest income.
Two other major cost lines of the bank could not be tamed with cost of funds. Net loan impairment expenses is the main culprit, which jumped more than three times from less than N11 billion at the end of the third quarter of 2019 to over N34 billion at the end of September 2020. The high rise in credit losses caused a drop of 19 percent in net interest income after loan impairment charges.
The second cost element that undermined margins is operating cost, which grew by 26 percent year-on-year to N247 billion at the end of the third quarter. It claimed an increased share of gross earnings at 42 percent compared to 38 percent at the end of 2019.
Access Bank applied the cost saving from interest expenses to defend profit margin at the end of the third quarter at 17.3 percent. This is just an uptick from 17.2 percent in the same period in 2019 but a marked improvement from the closing net profit margin of 14.5 percent in 2019.
This enabled the bank to grow after tax profit by 15.7 percent year-on-year to N102 billion at the end of the third quarter. The growth is slightly ahead of the 15 percent increase in gross earnings.
The closing third quarter profit figure has already exceeded the bank’s 2019 full year profit of N97.5 billion. The summary of the bank’s earnings story at the end of the third quarter report is that decline in interest expenses countered the flop in interest income. The net effect is that profit margin was defended and the bottom line grew slightly ahead of revenue.
Return on assets
Access Bank ended the third quarter trading with a return on total assets of 1.7 percent, which is a marked improvement from 1.4 percent at the end of the preceding financial year. The bank showed strength in converting assets into revenue, as it grew gross earnings ahead of total assets. It also showed resilience in converting revenue into profit by defending profit margin, which enabled the gains in revenue to flow down into the bottom line.