Access Bank Realised Post-Merger Synergies, to Enter Major Trade Hubs
Access Bank realised post-merger synergies, plan presence in major trade hubs Beyond its boardroom discussion, Access Bank Plc has come out to say that lender is planning to build presence in major trade hubs around the world.
The management said lender has realised merger synergies of ₦59.9 billion, comprising largely of recoveries, lower cost of funds and contract renegotiations.
This is coming at the time when the largest bank with total assets at N7.147 trillion carrying value held that its post-merger synergy has started paying off.
Herbert Wigwe, the Group Managing Director/Chief Executive Officer revealed this to analysts at its earnings conference where the bank stated that its combination with Diamond Bank has started adding values.
According to the him, over the next couple of years, the Bank will be present in two or three more of the world’s financial centres.
Speaking to the group strategy, Wigwe said the management is trying to create an institution that is resilient, stand the test of time, diversified not just across the African continent but outside of the continent.
Access Bank said it is committed to driving an effective and sustainable business growth by intensifying efforts to bolster performance.
“You would see us having one of the strongest African banks in the United Kingdom with increased contributions from a percentage standpoint, therefore creating the natural hedge.
“Over the next couple of years, Access bank will be present in two or three more of the world financial centres.
“This will help to enhance overall risk rating and to ensure that if you are in soft currency countries you would have hedged yourself and over time from a risk rating standpoint”, the GMD/CEO stated.
Wigwe said what that means is that lender needs to be present in some of the major trade hubs within the continent.
Meanwhile, Access Plc. said it has realised merger synergies of ₦59.9 billion, comprising largely of recoveries, lower cost of funds and contract renegotiations.
The Bank’ CEO said at the time of sharing the merger synergies from this combination, they expected about ₦155 billion over a three-year period.
He explained that in the first year Access made about ₦60 billion. The merger has started to create value as post-merger metrics have far exceeded those of the individual banks on a standalone basis.
The management said looking at customer deposits, Access Bank as at the end of the first quarter 2019 had ₦2.9 trillion; Diamond Bank had ₦1.1 trillion, leading to a combined deposit of ₦3.9 trillion.
However, the numbers show that lender closed the year 2019 with ₦4.2 trillion of customer deposits.
Also, retail transaction income for Diamond Bank for the first quarter of 2019 it was ₦6.7 billion while Access Bank was ₦4.3 billion.
“So if you combined it, it was ₦11 billion and on an annualised basis about ₦44 billion expected in 2019.
“However, at the end of the year we did about ₦52 billion which is 17% above the combined entities when you annualise the income”, the management explained.
Access Bank gross earnings grew by 26%, closing at about ₦666 billion in the period compared to ₦528.7 billion in 2018, comprising of 81% interest income and 19% noninterest income.
Interest income jerked up by 41% to about ₦536 billion.
The management said key contributors to this growth include 86% coming from investment securities, which rose to about ₦193 billion compared to
₦103 billion in the corresponding period in 2018.
“We saw a 28% rise in interest in loans to about ₦334 billion compared to ₦262 billion in 2018, of course resulting from the combined and growing loan book.
“As a result, net interest income from the overall balance sheet improved by 60% to ₦277 billion in 2019 compared to ₦173 billion for 2018”, the GMD said.
The bank’s operating income increased by 25% to ₦389 billion from ₦311 billion in the corresponding period of 2018.
This was largely due to the significant growth in net interest income and other operating income.
The key drivers of the operating income were 48% increase in commissions and fees to ₦91.8 billion in 2019 compared to ₦62.1 billion in 2018.
The management attributed this to the increased retail transaction charges, commissions on channels and other e-business income as well as account maintenance charge.
“We will continue to gain traction on these income lines as we continue to extend our retail offerings and grow as one combined institution, basically stabilising for growth”, the GMD said.
Access saw contribution from other operating income which basically came from other financial services; gain on disposal of property and equipment and about ₦38.4 billion coming from the recoveries of fully written off bad loans.
Wigwe said: “This was one of the things we said we were going to pursue aggressively as soon as the combination was done”.
On the other hand, we saw a decrease in our net traded income to a loss of ₦17.7 billion from a gain of ₦72.6 billion in 2018.
Of course this was accounted for by our current foreign exchange trading losses and of course the FX revaluation and reduction in the gain on derivatives and equity investments, he added.
Operating expenses were up by 31% to ₦253.8 billion compared to ₦194 billion in 2018 as a result of increase in personnel expense, depreciation, AMCON, IT and e-business expenses.
With respect to customer deposits, this closed at about ₦4.26 trillion, which basically reflected a 66% year on year growth from ₦2.6 trillion in Dec’18 and a 0.4% quarter on quarter from September 2019.
With respect to loans and advances this closed at about ₦3 trillion as at 31 December 2019, again up from ₦2.14 trillion in December 2018.
This has come from the combination and careful risk asset creation to quality corporate names, and also the supporting retail segment in line with some of the things which the Central Bank intends to project.
The management held that the group’s asset quality remains under check as the non-performing loan ratio stood at 5.8% in the period compared to the nine-month period which was 6.3%.
The key sectors that are responsible for this are; oil & gas services at 14.8%, general commerce at 11.1% and real estate activities at about 7.4%.
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Wigwe said: “We will continue to drive down the non-performing loan ratio to the traditional level where lender used to be prior to the merger through a combination of write-offs, recoveries, declassification and loan restructuring”.
On a year to date basis we have written off a total of ₦93 billion and incurred full provisions on that.
However, expected credit loss charge increased by 27% to ₦21.7 billion in 2019 from ₦14.2 billion in 2018.
Capital adequacy ratio was at about 18.2% on a full impact basis.
However, if lender considers the regulatory transition arrangements, our capital adequacy ratio stood at 20.0%, the management said.
On the position of the bank should naira be devalued, Greg Jobome, the Chief Risk Officer (CRO) said lender has stressed should there be a devaluation up to ₦550.
At that level, Access capital position will still meet the regulatory requirements, Jobome said.
Jobome however stated that management doesn’t want to see those kinds of rates because at that exchange rate a good chunk of the market will face a lot of stress.
Jobome said: “what we do as business as usual is anticipating potential market shocks.
“In line with that, we did stress for oil price around $30 or $40 per barrel which is precisely where it is hovering right now”.
Access Bank however enhanced its loan growth expectation for 2020, as lender guided to grow at 10% to 15%.
The CRO explained that with respect to LDR, naturally the goal is to meet all regulatory requirements and to support regulator in every way possible, and that is precisely what the bank is doing.
“To balance that is our challenge. We do still have to be careful so that we don’t end up creating an asset quality issue in 12 months’ time or in 24 months’ time.
“So, we are striving to achieve that level of 65% or even exceed it, but with good quality names so that we do not have an asset quality or a capital issue on the back of that”, Jobome stated.
He said the bank target is investment grade names where it has grown loans over the past six to nine months already.
“The other area that we are pushing is retail, we have seen significant lending that we’ve picked up with respect to digital lending and other aspects of retail lending”, he said.
Despite the fact the massive deal in 2019, Seyi Kumapayi, the Chief Financial Officer said there is no integration cost coming in for 2020.
Access Bank realised post-merger synergies, to enter major trade hubs