Investors who bought into the pretty picture painted by Access Bank following its acquisition of tier-2 lender Diamond just last year may be forgiven for having some sort of buyer’s remorse.
Despite Nigeria’s red hot equity market in 2020 (up 30 percent year to date), Access is the only major lender whose stock is down with a year to date return of -17 percent.
Other stocks of Tier-one lenders such as UBA have returned +14.6 percent, Zenith (+26%), GTBank (+11.62%) and FBN Holdings (+13.82%) so far this year.
Tier-2 lenders are not left out of the party, with Fidelity Bank stock up 24.3 percent, Stanbic IBTC +7.4 percent, FCMB +66.4 percent and Unity Bank +4.6 percent, just in 2020.
Access has struggled to execute its big cost saving plans following the merger with Diamond Bank in the first quarter of last year, a deal that catapulted it to becoming the largest bank by total assets in Africa’s largest economy.
Access Bank had touted synergy gains as one of the merits of that merger but recently released 9 months 2020 results showing net impairment charges tripling to N34.2 billion compared to a year ago, amid other operating expenses that surged by 34 percent to N163.8 billion, shows that dream may be evaporating.
Personnel expenses came in at N57 billion up 4.3 percent as Access struggled to lay off workers amid a pushback from regulators.
The lender also has one of the largest expansion in cost to income (CIR), which means that costs are rising at a higher rate than income.
Access Bank attributes the higher CIR to the high cost of operation of the enlarged business, driven by higher regulatory costs and increased investment in creating IT efficiency.
Bloomberg reported that the acquisition of Diamond Bank contributed to 31 percent increase in operating expenses.
Personnel, recruitment and training costs account for more than a third of overheads after the deal boosted employee numbers and resulted in “wage harmonization,” across the businesses.
The Nigerian lender expended more on staff as its annualized cost per head stood at N3.34 million, that compares with Zenith Bank (N3.03 million); Guaranty Trust Bank, (N2.63 million), and United Bank for Africa (N1.60 million) as at Q2, 2020, MoneyCentral data shows.