Access Bank’s 2020 financial performance, bolstered by loan write-off, recoveries

The year 2020 was a turbulent one. The effect of coronavirus-induced lockdown gave serious blow to many institutions especially the banking sector. CHIMA NWOKOJI takes a look at the steps taken by one of the lenders to weather the storm.

The decline in crude prices and the containment measures put in place to deal with the public health crisis last year, led to a constriction in business activities, with resulting implications for banks, federal and state governments, as well as households and businesses. Although most Deposit Money Banks (DMBs) witnessed astronomical increase in patronage of their electronic channels in 2020, most of them received shocks in their loan books.

But, good number equally took proactive steps that impacted positively, on their balance sheets. One of such is Access Bank Plc. On the back of a ₦105 billion write-off and recoveries in the period, the big lender squeezed its Non-Performing loans (NPL) ratio until it fitted below the regulatory threshold; from 5.8 per cent in December 2019 to 4.3 per cent as of December 2020. This, coupled with strategic approach to loan recovery helped the lender to maintain good assets quality.

Even the Central Bank of Nigeria (CBN) recognised the need for proactive steps to contain bad loans. Apex banking sector regulator promptly gave regulatory forbearance to restructure all loans in order to reduce the burden on borrowers. By the new structure then, loan tenures ran for longer periods with more affordable monthly repayments.

In addition to the reduction of interest rate for CBN intervention loans from nine per cent to five per cent, the apex bank also announced a year extension of moratorium on all principal repayments of CBN loans.

Access Bank’s meticulous step in the loans and advances space contributed immensely to its solid and resilient top-line figures despite a challenging economic and regulatory landscape. This lender said, “Its an attestation to our long history of resilience, scale, dedicated people and sustainable business model.

It added that resilient business model ensured that the group adapted to accommodate the resultant macro-economic downturn and headwinds of the COVID-19 pandemic.

Available records thus showed that the Group recorded gross earnings of ₦764.7 billion (+15 per cent y/y), arising from a 112 per cent year on year (y/y) growth in non-interest income to ₦275.5 billion, which it added in a statement, is testimonial to the effectiveness of its strategy and capacity to generate sustainable revenue.

Profit Before Tax stood at ₦125.9 billion despite the high cost of operating the enlarged franchise and the increase in net impairment charge of near ₦43 billion arising principally (~50 per cent of net impairment) from a Structured Trade Finance (STF) portfolio in the Access Bank UK.

The STF impairment is one-off/COVID related and recoverable over the next 12-18 months against insurance cover from world class insurers.


Taking Loan Recovery seriously

The lower ratio reflected the hard knuckle approach to loan recovery adopted by the group which is fast gaining the reputation as Nigeria’s toughest loan recovery machine. The bank has one of the toughest loan asset portfolio managers and a delinquent asset recovery team.

The toughness of asset managers has enabled the bank to push its nose ahead of sector rivals concerning improved asset quality. The group witnessed its highest NPL ratio in 2019 while 2018 advertised its lowest NPL ratio just before its move to merge with Diamond Bank Plc. in 2019.


Other Metrics

The lender recorded consistent growth in retail banking business, leading to a 5.8 million growth in customer sign-on during the year via its financial inclusion drive and retail revenue of ₦177.2 billion as against ₦107.8 billion recorded in 2019.

Customer deposits grew by 31 per cent to ₦5.59 trillion in December 2020, compared with ₦4.26 trillion in 2019 with savings account deposits of ₦1.31 trillion. Similarly, net loans and advances grew by 18 per cent to ₦3.61 trillion (December 2019: ₦3.06 trillion).

Asset quality also continued to improve as guided to 4.3 per cent (December 2019 5.8 per cent) as the bank intensified recovery efforts, undertook significant write off and leveraged robust risk management practices.  The lender has assured investors that this is expected to continue to trend downwards as it strives to surpass the standard already built in the industry prior to the merger with Diamond Bank.

The assets base of the Group remained strong and resilient with Total Assets of ₦8.68 trillion in December 2020, a growth of 22 per cent year to date (YTD) from ₦7.14 trillion in December 2019.

This is mainly on the back of execution of exquisite mergers and acquisition plays, as reflected in the emerging continental banking giant’s asset base growth over the last three years.

Total loans and advances grew Y-o-Y by +17.83 per cent from N3.06 trillion in 2019 to N3.61 trillion in 2020, on the back of a +154.04 per cent rise in loans and advances to banks. The DMB’s total deposit also grew Y-o-Y by +20.28 per cent from N5.44 trillion in 2019 to N6.55 trillion in 2020. This was driven by a +31.29 per cent rise in deposits from customers while deposits from banks declined by -19.22 per cent in 2020

These strategic actions taken by the bank over the past 12 months, evidence a strong focus on retail banking and financial inclusion, an African expansion strategy and a drive for scale for sustainable value creation.

In 2020, Access Bank proudly opened its doors for business in Kenya and Mozambique, further increasing its footprints across the African Continent. Access Bank Zambia also concluded the acquisition of Cavmont Bank Limited in January 2021 and the Group recently announced the approval by relevant regulatory authorities for the acquisition of Grobank Limited, creating an inroad into the South African market in realisation of the Group’s strategic ambitions.

In view of the opportunities that exist in the market, Access Bank said it will be transitioning to a HoldCo structure. The Bank has received the Approval-In-Principle from the Central Bank of Nigeria for the restructuring and the HoldCo will consist of four subsidiaries in order to tap into the market opportunities that are available in the consumer lending market, electronic payments industry and retail insurance market.

“Going into the fourth year of our five-year cyclical strategy, our focus remains on consolidating our retail momentum and expanding our African footprint in a sustainable manner. Finally, I would like to thank our people, shareholders, and other stakeholders as we could not have achieved these results without their dedication, commitment, and support,” Herbert Wigwe said about the banks performances.


Investment in Technology

Access Bank revealed it spent a whopping N18.7 billion in Information Technology (IT) and E-Business related initiatives in 2020. The figure is nearly double (92 per cent higher) the N9.7 billion spent in 2019. The same expense line cost it N11.39 billion in 2018.

The bank claims the expenses are in line with its “investments in IT capability with the focus of improving customer experience and to support digitisation,” a strategy the bank believes will help it to compete better.

Access Bank reported a spike in revenue from its digital channels, posting a revenue of N56.1 billion, a 58 per cent increase from a year earlier. Income from digital channels were N36 billion and N14.2 billion in 2019 and 2018 respectively.

This year, the bank also invested about N10.2 billion on intangible assets out of which N8.49 billion went into purchasing software.

Undoubtedly, Deposit Money Banks rely heavily on software applications to service their customers and drive operations. Available records show that commercial banks in Nigeria have invested heavily in expanding their digital products amidst an onslaught of competition from FinTechs who are innovating faster and cutting into market share.

However, big banks like Access Bank have the financial muscle to compete in this space as buttressed by investments. For banks like Access Bank, the focus is to drive financial inclusion and retail customer acquisition through channels such as USSD, Mobile Banking, TelCos and other forms of digital platforms. Access Bank claims these moves have yielded benefits as it recorded improvement across its financial inclusion initiatives.Total digital transaction value according to the lender, rose to N33.89 trillion in 2020 made up of 1.6 trillion transaction counts. It also opened 3.6 million new accounts through  its Telco partnerships and now has 5.8 million customer sign-on, out of which a huge number are mobile users (USSD & Mobile).

As the bank explains “Our Retail Banking business has grown consistently across all income lines, driven by strong focus on consumer lending, payments and remittances, digitisation of customer journeys and customer acquisition at scale.”

The bank also claims it created four million digital loans in the year and it disbursed N105 billion in loans via its digital lending platform generating a 48 per cent year on year growth. It generated N5 billion in revenue from digital lending, representing a 49 per cent growth year on year.


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