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Friday, February 3, 2023

Soaring expenses thwart Access Bank synergy aims post Diamond merger

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Total operating expenses of Access Bank Nigeria Plc has soared following the acquisition of Diamond Bank last year, raising concerns that the lender could shrink workforce to bolster profit.

Companies seek merger and acquisition so as to enjoy synergy like cost reduction and improved efficiency that translates to higher revenue and share appreciation, but Access Bank seem to have negated such a strategy.

For the first three months through 2020, Access Bank, with a market capitalization of N238.15 billion, incurred total operating expenses of N90.18 billion- the highest in the industry- that compares with Guaranty Trust Bank’s N45.91 billion despite a market cap of N698.99 billion.

The lender has the largest expansion in cost to income (CIR), which means that costs are rising at a higher rate than income, which could suggest that the company has taken its eye off the ball in the drive to attract more business.

cost for Access

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 slacks in IT efficiency.

The lender had said that it would cut staff salaries to avoid job loss as the lockdown policy imposed by government to curb the spread of the virus undermined revenues.

Nigeria banks are grappling with rising bad loans as Cov-19 paralyzed business activities and hindered customers and companies from honoring obligations.

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.

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