IN the history of enterprise transformation exercise in the Nigerian banking industry, the Access Bank experience stands out as remarkably successful. To well informed Analysts, this is not just for the bank’s return to the path of growth and profitability but also for building some tangible and intangible structures that is bound to sustain the current phase of growth into the far future. The story started in 1998/99 after a decade of operation, when the bank decided to jettison a largely conservative business orientation and sought to embrace a more active strategy oriented towards growth. Hence a unique service delivery improvement initiative was inaugurated as a way of redefining key capabilities.
The bank also went public and got its shares listed on the Nigerian Stock Exchange. Although this initial transformation project succeeded in refocussing the bank, the impact was only considered marginal and this prepared the ground for a major overhaul and restructuring that was to take place in 2002. The management was re-invigorated with a new team of highly professional and upwardly mobile executives (who were specifically mandated to take the bank to the top five of the industry by 2007), just as capital base was firmed up. The bank thus commenced a new life, defined new aspirations inclined towards market leadership and committed itself to new terms of engagement with the environment. Suddenly, the image of fringe player gave way to that of middle level institution strategy to play in the big league.
The result was almost instant as total asset grew almost 100 per cent from N11.34 billion as at 31st March 2002 to N22.58 billion in 2003. Other key financial indicators witnessed similar growth pattern during that year for which our Analysts authoritatively conformed as being in the top 30 placing of the industry. By 31st March 2004, total asset moved up to N31.34 billion for which we can also authoritatively confirm has further moved up to the top 25. With three more years to attain the objective of being in the industry top five on both size and efficiency measures, the bank sees the recent directive of consolidation in the industry as a special “gift” from the Central Bank to enable it achieve this objective, and possibly ahead of time. Accordingly, it has gone to the capital market to raise additional fund with the expectation of having more than N11.0 billion in shareholders fund before the end of 2004. With this, it plans to consummate one or two acquisitions to attain the mega status in less than one year. The bank is up beat about this opportunity and appears confident that the attractiveness of its shares among investors in the market will help to make a success of the plans.
Another area where the bank had serious plans is in branch development, redesigning and relocation. Having concluded the first phase in which great effort was directed at redesigning and relocation, the bank now plans to open 12 new branches very soon and a sense of urgency is attached to this aspiration. This is to enable the bank acquire the necessary capability to play leading roles in clearing money market instruments and also enhance access to cheap and stable funds.
In the course of the period, Access Bank joined the big Western Union family in order to expand the scope of its quality customer services delivery to the international money transfer business. It also joined the Valuecard Consortium, all for the convenience and satisfaction of customers.
However, the bank is quite aware that desire to create and sustain quality products and services requires the best in terms of skills and intellectual resources. To this extent, it created what it called Access Bank School of Banking Excellence in order to encourage continuous learning and capacity building. This is considered necessary to sustain the current tempo of financial results which has been hailed by Analysts.
The pre and post-2002 rating classification of the foremost bank rating firm, P.A. Data Rating tells important story of the success of the latest transformation initiatives in Access Bank.
EARNINGS AND PROFITABILITY
As a result of transformation, which particularly increased business volume, gross earning increased remarkably in 2003 to N4.37 billion from N2.60 billion reported in 2002 and further to N5.52 billion in 2004. One outstanding aspect of this result is that about 50 per cent of earning came from fees, commissions and other non-interest sources. This reflects considerable success of diversifying services and hence sources of earnings. Another positive side of the financial profile is the vastly improved net interest margin. From 24 per cent in 2002, the bank achieved 34 per cent in 2004, showing remarkable success in moderating growth of cost of funds. But operating expenses rose faster as a result of general inflation and increases in energy costs.
On the earning side, overall earning did not rise in tandem with assets arising from a number of legal constraints and intensive competition. The result is that in our analytical scales of earning and costs, efficiency declined marginally. But because of the new found advantage inherent in earnings, and substantial net, interest margin net profit was sustained in the growth path volume from N557 million in 2003 to N637 billion in 2004 after cleaning up the books in 2002. However, return on average equity implied that the profit level declined marginally from 26 per cent to 24 per cent, but substantially higher than nine per cent achieved in 2001 and 16 per cent in 2000. It is also substantially higher than inflation figures estimated to be about 13 per cent for 2003.
Looking at all the value drivers used for analysis here, this performance was assigned average (B) which implies that the bank matched its preceding year’s average rating for which shareholders were handsomely rewarded with both cash and bonus dividends.
SAFETY MARGIN AND CAPITALISATION
Of the critical success factors defined for Access Bank’s transformation project, proactive accretion of capital base ranked highly, and this informed the injection of over N1 billion to the bank in 2002 operating period, including diversification and expansion of the board. Largely for this recapitalisation effort, the safety rating of the bank was classified as above average by Analysts and this provided the required confidence for management to prosecute its growth agenda. With this, the bank has been able to achieve what may be described as monumental growth but this necessarily diminished safety margin implied by core shareholders equity, which closed at N2.70 billion as at 31st March 2004.
Specifically, estimated risk weighted asset ratio which peaked at about 29 per cent in 2002 progressively declined to 13 per cent in 2004.
Although safety margin in 2004 was above the minimum prescribed capital adequacy level, the management of the bank in the usual proactive stance planned to expand capital base through a combination of Rights and Prospectus offer even before the Monetary Authorities announced the recent directive on consolidation. By this plan, for which it is currently in the capital market, the bank hopes to raise shareholders fund to a level above N11.0 billion in the first phase and employ external mechanisms of growth to go beyond the N25.0 billion mark. But prior to this, safety and capitalisation rating was downgraded slightly from average (B) as at 31st March, 2004.
LIQUIDITY AND ASSET QUALITY RISK RATING
Perhaps the most remarkable result achieved by the new management of Access Bank from the perspective of informed Analysts is in the area of risk management. There has been a steady and un-interrupted improvement in risk quality for the past four financial years. This is notwithstanding a portfolio risk profile that was retained more on the radical side. Although end period liquidity levels remained largely between 47 per cent and 58 per cent over the period, a range associated with average industry positions, non-performing loans ratio declined consistently from 21 per cent in 2001, 15 per cent in 2002, 11 per cent in 2003 and eventually 7.3 per cent in 2004 when it joined the elite league of top performers in this criteria.
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