TEAM 5
Aakash Goyal
Adamu Mohammed
Adekunle Abiona
Mayowa Olawale
Zahoor Syed
Hult International Business School
Applied Economics and Managerial Decision Making
Team 5
Applied Economics and Managerial Decision Making
Overview
We would be reviewing Access Bank PLC for the purpose of this assignment. Access Bank PLC
is the largest bank in Nigeria by total asset and the largest bank in Africa by total number of
customers. It is present in nine African countries and the United Kingdom with representative
offices in China, India, Lebanon and the United Arab Emirates.
Macro-Economic Analysis
Using PESTEL analysis, we analyze the Macro-economic factors that affect Access Bank PLC’s
business.
Political Factors
The Nigerian Banking Industry is the most sophisticated, transparent and technologically
advanced industry in Nigeria. It is free from political influence, to a large extent, and government
policies that affect the operational nature in which banks carryout their functions are few and far
fetched. Notwithstanding, some legislation such as the introduction of stamp duty charges for all
domestic funds transfer by the Federal Government in 2020 threatened the financial inclusion
drive of Access Bank as small savers found the stamp duty fee unattractive and sought alternative
means to execute their financial transactions beyond the scope of commercial banks.
Economic Factors
Nigeria is the largest economy in Africa with total Gross Domestic Product of $441 billion dollars
in 2021 (World Bank, 2022). It is also the largest market in Africa with its population estimated at
two hundred and eleven million people in 2021 (National Population Commission, 2022).
However, despite being the largest exporter of crude oil on the continent, it suffers many economic
setbacks as over 63% of its population live below the poverty line according to the National Bureau
of Statistics (Premium Times, 2022). The financial inclusion rate is currently 64% which signals
the opportunity for growth in market share by onboarding the unbanked which constitute a
significant proportion of the total population. The country’s inflation rate is currently a 17 year high
of 20.77% which threatens the purchasing power of the Bank’s liquid assets going forward. The
steep dependence on il and Gas earnings as the primary source of foreign exchange by the
government and the import-based economy of Nigeria has resulted in a shortage of foreign
currency hence a risk that the Bank might not be able to source sufficient foreign currency to meet
its international obligations as and when due. Unfavorable changes in foreign exchange rates
also threaten to erode the Bank’s profit through foreign exchange losses.
Social Factors
Nigeria has the largest youth population in the world with seventy percent of its population below
the age of thirty. This can be advantageous to Access Bank’s business structure as the bank
offers several products targeted at the youth population and a youth-oriented drive comprising
exciting initiatives could be the most effective and cost-efficient approach to gaining access to the
unbanked population and get them to do business with the bank thereby increasing its customer
base and market share.
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Applied Economics and Managerial Decision Making
Technological Factors
The Banking Industry is the most sophisticated industry in Nigeria. There have been several
technological advancements in recent years which include advanced cyber security infrastructure,
customer relationship management, the adoption of biometrics, the use of artificial intelligence
and the drive for increased adoption of alternative banking channels such as ATMs, mobile
banking, internet banking, etc. among others.
The rapid technological advancements in the Nigerian banking industry are revolutionizing the
way banking was traditionally conducted in the country. These offer several opportunities to
reduce cost, increase revenue and enhance business processes. For example, banks are
currently advocating the increased adoption of its alternative banking channels by customers
which has been successful in reducing the footfall in branches. The resultant effect is significant
cost savings due to lower branch expansion and reduced total cost of servicing individual
customers. The increase in technological channels adoption also offers Access Bank the
opportunity to increase its market share by enabling people in locations without its branch network
to execute transactions successfully.
Environmental Factors
Historically, the Nigerian environment wherein Access Bank’s largest business exists is relatively
free of natural disasters such as earthquakes, tornadoes, hurricanes, landslides, etc. However,
more recently, the impacts of climate change have become evident with extremely high
temperatures in the dry season and floods and in the wet season. These environmental changes
threaten the seamless operation of the Bank’s business especially flooding as it hinders
employees from transiting to their workstations as appropriate and it causes discomfort for
customers which might result in loss of business.
Legal Factors
The Nigerian banking industry where Access Bank operates is highly regulated and is only second
to the Oil and Gas industry as the most regulated industry in the country. All Banks require banking
licenses issued by the apex bank- The Central Bank of Nigeria (CBN)- without which they cannot
operate. The Apex bank reserves the right to withdraw these licenses if any financial institution is
deemed to have failed to meet any of its stipulated regulation.
The Apex bank also stipulates minimum capital requirements for each bank as a condition for
issuance and maintenance of their licenses. Other government agencies that oversee the
activities of Banks in Nigeria include the Securities and Exchange Commission (SEC), the
Economic and Financial Crimes Commission (EFCC) and the Nigerian Financial Intelligence Unit
(NFIU) among others.
Other legal requirements affect Access Bank’s operations such as employment laws which
stipulate the procedure for engagement and termination of staff and the responsibilities of both
employees and employers during the employment duration. Laws associated with retirement
benefit obligations are also important to Access Bank as they stipulate the proportion of the
employee’s gross income that should be paid to their Pension Fund Administrators. These legal
requirements must therefore be upheld to the highest standards to avoid the risk of losses arising
from litigation or regulatory sanctions.
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Applied Economics and Managerial Decision Making
Meso-Economic Analysis
Using Porter’s 5 forces model, we would discuss the meso-economic factors affecting Access
Bank’s business as follows:
Supplier Power
Since Access Bank is a service company, it does not manufacture any products. For the essence
of this study, we have defined its suppliers to include the employees as their inputs constitute the
core of the bank’s business. Therefore, supplier power is adjudged to be relatively low as the
employees cannot independently drive up their wages.
Buyer Power
The determinant of prices for most products and services offered by Access Bank is the Central
Bank. The advised price ceilings and price floors are homogenous across the industry and cannot
be altered by any single organization. This means the customers of Access Bank PLC have very
little buyer power as they are unable to determine the prices at which they would be serviced.
Competitive Rivalry
There are many large players in the Nigerian banking industry with every player offering identical
products and services hence there is a high presence of competitive rivalry in Access Bank’s
business environment.
Threat of Substitutes
Access Bank offers products and services that are obtainable in every other bank in Nigeria. This
increases the threat of its customers switching to competitors when they perceive unfavorable
cost charges such as interest rates and poor customer service experience.
Threat of New Entry
It is highly capital intensive to commence banking business in Nigeria as there is a minimum
capital requirement depending on the nature of banking business you intend to operate- regional,
commercial, mortgage, international, etc. There are also other non-financial requirements
stipulated by the Central Bank such as the competence and integrity of the directors that make it
uneasy to engage in the business of banking in Nigeria. The threat of new entry posing a risk to
Access Bank’s business is therefore significantly low.
Micro-Economic Analysis
Using the SWOT analysis, we discussed the micro-economic factors that directly affect Access
Bank’s business as follows:
Strengths
Access Bank is the largest bank in Africa by total customers and the largest bank in Nigeria by
total assets. It also has the largest loan portfolio and customer deposit in the country. Access
Bank has very strong corporate banking and treasury management skills that make it the go-to
bank for multinationals. The bank has a highly skilled and knowledgeable workforce.
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Applied Economics and Managerial Decision Making
Weaknesses
The weaknesses that have been identified in the bank include poor retail customer perception as
emphasis is placed on large multinationals. The inorganic growth of the bank through the
acquisition of other banks (such as Diamond Bank in 2019) has resulted in the existence of
diverse organizational cultures within its work environment.
Opportunities
With one of the largest bank branch networks in the country and almost 40% of the bankable
population excluded from the financial web, Access Bank can exponentially increase its customer
base and market share by driving innovative financial products targeted at prospective customers
in underserved populations.
Threats
The threats to the bank’s business include loss of retail customers due to poor customer
experience, the loss of highly knowledgeable key members of staff to competitors, the risk of theft
or fraud, the risk of unfavorable foreign exchange rates eroding its profits and the threat of
regulatory sanctions among others.
Nature of Market
The Nigerian banking industry can be described as a competitive oligopoly. An Oligopoly is a
market structure in which a market or industry is dominated by a small number of large sellers or
producers. (Wikipedia, 2022)
There are only twenty-four commercial banks in Nigeria with an average capital base of $2 billion
dollars. Most of them are characterized by large scale branch networks and international
presence. The Oligopolistic system in the Nigerian banking industry is however competitive as
regulations by the Central Bank create homogeneity in the price, product and services offerings
among all players within the industry.
Implications for Access Bank
Despite the presence of competition, Access Bank still possess the opportunity to make profits in
the short-term and the long-term. A huge proportion of costs attributable to the bank are fixed
(such as staff costs, cost of branch buildings, cost of its core banking application, licensing cost
etc.) hence, the average cost required to service a single customer declines as the number of
customers increase. Additionally, non-price competitive advantages such as brand perception
could drive customers the way of the bank. Access Bank also has a history of inorganic growth
as they became the largest bank in the country through several mergers and acquisitions. This is
a continuous practice and Access Bank could acquire another competitor to increase its market
share and customer base.
The homogeneity in product pricing is also due to regulatory interference as the Central Bank sets
price ceilings for the prices chargeable for most products and services offered by the banks.
Team 5
Applied Economics and Managerial Decision Making
Demand Analysis
The Demand for Access Bank’s products and services is highly elastic as a one percent
change in price will result in a more than proportional reduction in the amount of its products
and services demanded and vice versa. This is due to the presence of other large
competitors offering identical products that are perfect substitutes for Access Banks’
products and services.
Access Bank’s Demand Curve
P
D
Q
P=price Q=Quantity demanded D=Demand
Supply Analysis
A one percent increase in the price of Access Bank’s products and service offerings would have
a proportionally lower rate of increase in the bank’s supply. This is because the Bank operates in
a service industry where most of its costs are fixed and are tailored towards servicing the financial
and business needs of individual customers. Hence an increase in price will not lead to a
proportional increase in the products or services the Bank would be able to offer to its customers
therefore the supply of Access bank is relatively price inelastic.
Access Bank’s Supply Curve
P
S
Q
P=price Q=Quantity supplied S=Supply
Market Equilibrium
Since the Central Bank sets price ceilings for most products and services offered by Nigerian
Banks, Access Bank’s product prices are below the market equilibrium prices. This is because
the government is trying to protect individual customers by ensuring they pay the minimum
Team 5
Applied Economics and Managerial Decision Making
possible fee per transaction and to drive financial inclusion by attracting the unbaked through low
banking costs.
Impact of the Central Bank’s Price Restriction on Access Bank
P
S
Pe
Pc
D
Price Ceiling set by the CBN
shortage
Qs
Qe
Qd
Q
P=Price Qs=Quantity Supplied Qe=Equilibrium quantity Qd=Quantity demanded Pe=
Equilibrium price Pc= Price ceiling D=Demand S=Supply
Recent Business Performance
In its most recent audited financial report for the year ended December 31, 2021, Access Bank
reported a decline in its total comprehensive income of 43.21 billion Naira from the year ended
December 31, 2020 as it recorded total comprehensive income of 125.5 billion Naira, a 25.6%
decrease from the 168.7 billion Naira it reported the previous year – 2020. The decline in total
comprehensive income was due to losses incurred as a result of negative changes in the fair
value of its financial instruments as the Bank’s operating profit of 160.2 billion Naira for the year
ended December 31, 2021 was higher than the operating profit of 106 billion Naira recorded at
the end of 2020.
The Bank also recorded a significant increase in total assets from 8.7 trillion Naira at the end of
2020 to 11.4 trillion Naira at the end of 2021. The increase in total assets was due to increase in
its cash assets as a direct result of a 25% rise in customer deposits from 5.6 trillion Naira in 2020
to 7 trillion in 2021. Other factors responsible for the increase in total assets were increase in loan
assets to customers, increase in the Bank’s trading assets and capital appreciation in its
investment securities.
The bank also saw a rise in its total customer base to 42 million customers becoming the bank
with the largest number of customers in Africa. (Access Bank, 2022)
Strategic Business Decisions
The most significant strategic decision Access Bank has made in 2022 is the alteration of its group
structure to become a holding company. Banks are mandated by the statutes of the license issued
by the Central Bank to be exclusively involved in typical banking business. As such Access Bank
had not been able to offer financial services that go beyond the scope of typical commercial
banking.
By modifying its operations into a holding company structure, a new legal entity known as Access
Bank Holdings trading as Access Corporation was born. Access Bank PLC became a subsidiary
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Applied Economics and Managerial Decision Making
of the new holding company. This enables the Access Bank Holding company to acquire
subsidiaries that can engage in financial services such as Equity Brokering, Asset Management,
Pension Fund Administration, General and Life Insurance, etc.
The new structure became effective on April 1, 2022 and is expected to significantly bolster the
groups earnings and growth potential due to its diversified business operations. The Bank has
identified six other African countries where it intends to expand its presence within the year as it
has also received clearance to commence operations in France. (Access Bank, 2022)
Sustainability and Environmental Initiatives
Access Bank has remained the leading Bank in Nigeria in terms of sustainability for several years
as the Bank takes its corporate responsibility towards achieving its sustainable development goals
very seriously. The Bank ensures sustainable practices in the conduct of its business especially
in appraisals of the projects wherein it invests.
The Bank invested $37 million in various Corporate Social Responsibility efforts in 2021 impacting
as much as 30 million people in 1,316 communities. Access Bank boasts a very diverse workforce
of over 28,000 staff members globally out of which 47 percent are female.
Environmentally, Access Bank is committed to maintaining a sustainable operating environment
with emphasis on climate risk as it is committed to aligning its lending portfolio with the Paris goals
of limiting global warming to less than 2 degrees. The bank pioneered waste recycling in the
Nigerian financial sector and has expanded its waste recycling to 75 locations.
The Bank has been recognized internationally for its sustainability initiatives and received several
awards which include the 2021 Outstanding Business Sustainability Achievement awarded by
Karlsruhe Sustainable Finance Award in Germany and 2021 Outstanding Leadership in
Sustainability Transparency, Africa awarded by Global Finance. (Access Bank, 2022)
References
World Bank. (2022). GDP (Current US$). https://data.worldbank.org/indicator/NY.GDP.MKTP.CD
Premium
Times.
(2022).
133
million
Nigerians
living
in
poverty-NBS.
https://www.premiumtimesng.com/business/565993-133-million-nigerians-living-in-povertynbs.html
Wikipedia. (2022). Oligopoly. https://en.wikipedia.org/wiki/Oligopoly
Access
Bank.
(2022).
Full
2021
Annual
Report.
https://investorrelations.accessbankplc.com/AccessBankGroup/media/Investors/AnnualReports/2021-Annual-Report-Full.pdf