Access Holdings Plc has incurred a massive impairment charge on financial assets brought on by Ghana’s sovereign debt crisis, which raises concerns about the expansion strategy of a lender that is spreading its tentacles across the continent.
Access Holdings made a loss of N6.7 billion from its rest of Africa operations in 2022.
The largest lender by total assets in Africa’s largest economy booked an impairment charge of N197.79 billion in December 2022, which represents a 137.69 percent surge compared to N83.21 billion as at December 2021.
A breakdown of loan loss expense shows the bank took an impairment of N103.10 billion in recognition of the economic loss impact of Ghana sovereign debt crisis (Domestic debt and Eurobonds).
“Whilst the economic loss on Ghana Domestic debt has been determined via a Domestic Debt Exchange Programme (DDE) with definite terms, unlike the DDE, the Ghanaian government has not yet presented restructuring terms for the Eurobonds,” said the bank.
“Though, restructuring parameters are subject to a lot of uncertainty, the possibility of further material impairment charge for this event is considered remote. The carrying amount for Ghana sovereign debts in the books of the Group amounts to N348.18 billion.”
The heavy loan loss expense weighed on the bottom line as profit after tax reduced by 5 percent to N152.20 billion as at December even as it realised N281.30 billion in net gains on financial assets at fair value.
Of course, the management and board of directors of Access Bank are not efficient in generating income and growth from its equity financing as the return on average equity (ROAE) fell to 13.34 percent in December 2022 from 17.79 percent the previous year.
Analysts are concerned that the lender may have bitten more than it can chew and it is not nimble enough to have diversified its revenue stream away from risky operating conditions in Africa.
Access Bank is weighing expansion to 26 countries through mergers and acquisitions by the end of 2027, according to a presentation posted on the Nigerian stock exchange.
Specifically, the lender hopes to expand its footprint in France, the UK, Hong Kong, Malta, Dubai, India, Ghana, Kenya, China and the United Arab Emirates (UAE), among several others.
“Across Africa, there is an opportunity for Access to extend financial services to the unbanked and deepen its financial services offerings to banked customers,” the bank said.
Additionally, there is an increasing demand for deepening financial services such as loans, payments and insurance.
Access Bank plans to leverage its “strong M&A capability and ability to build organically to create value with each expansion, prioritising countries with better sovereign rating and complementary business landscape”.
Nigeria’s big banks are struggling with bad loans from Ghana operations that prevented them from reaping the benefits of a hike in interest rates by the central bank which bolstered net interest income.