Access Bank has utilized the resources of its shareholders in generating higher profit (Return on average equity) more than peer rivals.
This indicates that the lender’s diversification efforts have started bearing fruits as the rest of Africa’s contribution to earnings continued to grow in the first quarter.
Its 21.15 percent return on average equity (ROAE) as at March 2022 is the highest in the industry, according to MoneyCentral calculations.
Return on average equity (ROAE) is a financial ratio that measures the performance of a company based on its average shareholders’ equity outstanding.
Access Bank’s ROAE compares with Zenith Bank at 19.22 percent; United Bank for Africa (UBA), 20.36 percent; Guaranty Trust Holding Company (GTCO), 19.29 percent; Wema Bank, 15.96 percent; Stanbic IBTC Holdings, 15.60 percent; First City Monument Bank (FCMB), 8.39 percent, and Fidelity Bank, 13.29 percent.
A higher ROAE means Access Bank has returned its income as shareholders’ equity, as it made more money from non-interest-income.
Non-interest income surged by 180.19 percent to N110.37 billion as at March 2o22, thanks to 39.59 percent uptick in fees and commission income and higher net foreign exchange gains of N85.82 billion.
The fees and commission is buoyed by higher channel and electronic banking income (12.30 percent to N20.13 billion in the first quarter of 2022), which was broadly reflective of the bank’s customer base of 45 million.
The largest lender by total assets has a well-diversified loan portfolio and excellent risk management strategy as evidenced in improved asset quality.
Non-performing-loans (NPLs) reduced to 4 percent in the period under review from 4.30 percent the previous year; the NPLs figure is lower than the regulatory threshold of 5.0 percent.
Analysts at Chapel Hill Denham have retained their BUY ratings on Access Bank with their target price unchanged at N15.12.
The research house said its ratings are anchored on the bank’s customer base (45 million) and its possible implications on earnings.
In addition, they forecast that the transition to Holdco structure will herald in more prosperity, propelling Access Bank share price beyond their target price.
Banking industry struggles with growing ROE
Nigeria banks were unable to deliver higher returns to shareholders as profit was supported by foreign exchange gains, income from investment securities due to gradual improvement in yield environment and loan accretion.
The average industry return on average equity for the largest lenders in Africa’s most populous nation increased to 14.95 percent in March 2022 from 14.73 percent, according to calculation by MoneyCentral.
Wema Bank recorded the fastest expansion in returns to equity holders as ROAE rose to 15.96 percent in March 2022 from 8.26 percent the previous year.
Stanbic IBTC Holdings surprised to the upside as ROAE moved to 15.60 percent in March 2022 from 12.90 percent the previous year.
However, all of the Tier-1 lenders saw ROAE reduce, and the outlook for the sector remains bleak.
Analysts say the downside risk includes: introduction of Basel 111, forthcoming elections, higher cash reserve ratio, effective tax rate, and macroeconomic uncertainties.