Access Bank recover N14 billion in bad loans after merger with Diamond Bank

Access Bank Plc released its 2019 Half Year results showing pre-tax profits rose from N45.8 billion to N74.1 billion. This is the first half-year results since the bank consummated its merger with Diamond providing investors with a glimmer into how the merger is panning out.

Here are a few nuggets from the results;

On the merger

Access Bank revealed in its annual report that it paid N62.5 billion (N23.1 billion was cash) for Diamond Bank. They paid 260% or2.6x the share price of N0.87
Access Bank also acquired N76.2 billion in PPE from the merger with Diamond Bank.
Access Bank also recovered a whopping N13.9b from bad debts following the merger with Diamond Bank up from N1.6b a year earlier.
We understand most of these recoveries were from Diamond Bank debts previously provided for.
Access Bank was able to recover these loans following tough negotiations with obligors whom they had a cordial business relationship with.
Access Bank remains the largest bank by Customer deposits, rising from N2.56 trillion to N4.1 trillion. The closest is Zenith Bank at N3.8 trillion.
Titi Osuntoki resigned from the board while Chizoma Okoli was appointed as Executive Director of the bank.
Mergers are meant to provide cost savings via synergies. However, Access Bank cost is still fairly high with cost to income ratios above 60%. It will strive to reduce this ration to under 60%.

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On the 2019 H1 results

Net Interest income rose from N85.3 billion to N155.1 billion
Income from investment securities topped fees income which was N37.5billion net
Net income from fees rose from N30 billion to N37.5 billion
Pre-tax profits rose from N45.8 billion to N74 billion. This is impressive if you consider that Diamond Bank’s pre-tax profits in the half-year of 2018 was a paltry N2.9 billion.
We also observed that the bank spent N2.5 billion on Computer hardware and N231.7m on software.
This is a considerable amount to spend on computer hardware suggesting the bank may have upgraded its computers countrywide.

On reliance on Government securities

Access Bank like most Nigerian banks still relies on government securities. The bank had invested about N1.1 trillion in treasury bills alone up from N677 billion the year before.
The bank earned about N60 billion from securities investment up from N28 billion a year earlier.
Out of Access Bank’s N5.5 trillion in investable assets about N2.8 trillion was lent out as external loans.
Acquiring Diamond Bank also had to come with some cost, so the bank’s allowance for credit losses rose from N88.1 billion at the end of last year to N219.3 billion by half-year

Bottom Line: The merger between Access Bank and Diamond Bank was expected to provide positive synergies for shareholders. In the first half of this year, value-added in quantum was about N48.5 billion year on year. Also, 40% of the N148 billion (2018 H1: N103 billion) value-added in the half-year was retained as profits for shareholders.

Despite these positives, shareholders will want to look for the most important metrics. Earnings per share at the end of the first half of the year was N1.93 up from N1.38 same period last year. Return on Average Equity was also 11.7% during the period compared to 8.1% at the end of June 2018. These positives should douse most concerns about its depressed share prices.

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