Access Bank’s whopping N126 billion bottom line in the full year ending December 2020, stands the bank as one of the fastest growing tier one banks in the country but the financial institution must improve on profitability as it is doing with efficiency.
The bank’s efficiency in operations is clearly seen in the steady rise of fees and commission income that jumped 27.1 percent, helping its efficiency ratio move up to 15.2 percent from 13.8 percent. This efficiency is also seen in the bank’s deposit mobilization efforts, raising it by a respectable 31.3 percent to N5.6 trillion from N4.3 trillion. But the bank’s loans portfolio also quickened in the period by 10.5 percent, leaving its loan deposit ratio at 57.6 percent, which is lower than the 68.4 percent of the previous year.
While a lower loans deposit ratio may indicate a more shrewd credit policy to check the incidence of loan loss and provisions (efficiency), it also indicates fewer credits to the larger economy. Fewer loans to the economy may be explained away by the recession by which the economy was clipped in the last financial year. Banks give out less in a recession due to subdued economic activities and fewer profit maximizing opportunities.
Efficient as the bank was in the outgone year, it allowed profitability to slip in the period although, once again, the economic trough in the period played a big but unfortunate role. While the bank grossed a respectable N765 billion from N666.7 billion and stashed net profit of N106 billion from the previous position of N94 billion, its pre-tax margin inched downwards from 16.8 to 16.5 percent; its next profit margin also dropped to 13.8 percent t from 14.1 percent. This means that before paying taxes and other interest related obligations, the bank could keep N168 out of every N1000 grossed but can now keep N165; and after tax, it can now keep N138 where it kept N141 out of N1000.
The biggest indicator of the bank’s need to push up profitability is the ebb in net interest margin in the period, which followed the tide backwards to 3 percent from 3.9 percent. This was clear from its receding interest income and net interest income values. While interest income fell by 6.1 percent to N425.67 billion from N453.6 billion, net interest income dropped to N262.9 billion from N277.2 billion, a 5.2 percent decline.
This suggests the bank should apply funds toward outstanding debt or shift those assets towards more profitable investments like Treasury Bills and FGN Bonds and maybe crypto currency (if the laws will allow it. This should lift its ROA, which dropped a tad in the period to 1.2 percent from 1.4 percent. Although this is largely due to the bank’s sharp rise in assets during the period by 21.6 percent or N1.537 trillion to N8.680 trillion, making it Nigeria’s biggest lender by assets.
The bank’s application of funds to more risk bearing but profitable assets will also help maximize shareholders’ value which also dropped to 14.1 percent from 15.5 percent.