Evaluating Access Bank’s post-merger performance

Access Bank, one of the leading Nigerian lenders, has been under scrutiny by Moody's Investors Service for its performance post-merger. The banking sector in Nigeria faces challenges due to the soft macroeconomic environment, with concerns about asset risk and profitability. Aderonke Akinsola, a banking analyst at Chapel Hill Denham, provided insights into Access Bank's performance and outlook in a recent interview on CNBC Africa. The second quarter performance of banks in Nigeria is expected to be consistent with the first quarter, given the prevailing soft macroeconomic conditions. Interest rates remain a challenge, limiting the ability of banks to generate strong interest income. Consumer spending power is also weak, affecting businesses' performance. Therefore, overall earnings for banks in the second quarter are anticipated to be similar to the first quarter. Moody's highlighted asset risk and profitability as key rating challenges for Nigerian banks. The asset quality concerns persist, although some improvements have been seen in certain sectors. The stability in the foreign exchange market could support asset quality, but significant improvements are unlikely as long as the economy remains weak. Access Bank's merger with Diamond Bank in March transformed it into the largest bank by assets, loans, and deposits in Nigeria. Akinsola expressed optimism about Access Bank's post-merger prospects, citing its expanded customer base, strengthened retail deposit book, improved current account and savings account (CASA) ratio, and enhanced digital distribution network. A revised valuation placed a target price of $16 for the bank. Despite the positive outlook, concerns about asset quality and operating efficiency remain. Diamond Bank, before the merger, had significant asset quality issues, reflected in a high non-performing loan (NPL) ratio of 34% in 2018. Access Bank has been addressing these concerns but still has room for improvement, with the Q1 NPL ratio at 10% compared to 2.5% pre-merger. Access Bank's risk management framework and proactive approach to risk mitigation are seen as strengths that could uphold its asset quality post-merger. The bank's strong treasury arm and digital distribution network position it well to navigate challenges and capitalize on opportunities in the Nigerian banking sector. Compared to peer banks in the local and frontier markets, Access Bank is viewed favorably in terms of size and performance. Its robust treasury book and strong interest income from investment securities are expected to contribute to a decent interest income post-merger. Looking ahead, the half-year numbers for Access Bank are anticipated to provide a clearer picture of its post-merger status and performance. A focus on asset quality and cost management will be crucial for sustaining profitability and driving value for investors. The macroeconomic environment in Nigeria remains a key determinant of banks' performance, with limited growth opportunities in the current scenario. Overall, while challenges persist in the Nigerian banking sector, including asset quality and profitability concerns, Access Bank's strategic initiatives post-merger position it well to capitalize on opportunities and drive value for shareholders in the future.