Access Bank Plc has announced the issuance of commercial papers (CPs) worth up to N194 billion as part of its N400 billion CP programme. The offering is structured into two series—Series 3 and Series 4—each with different tenors and yield rates.
Breakdown of the Issuance
- Series 3: A 180-day maturity with a discounted rate of 19.44%, translating to an effective yield of 21.50%.
- Series 4: A 270-day maturity with a discounted rate of 20.92%, resulting in an effective yield of 24.75%.
- Subscription period: March 20 – March 25, 2025.
- Minimum investment: N5 million, with additional investments in multiples of N1,000.
Understanding the discount rate and effective yield is essential for investors. The discounted rate represents the percentage by which the CP is sold below its face value. Investors purchase the CP at a reduced price and receive the full-face value upon maturity. Meanwhile, the effective yield accounts for the total return over the holding period, reflecting the true earnings from the investment after factoring in the time value of money. Since commercial papers are issued at a discount and redeemed at full value, the effective yield is always higher than the discount rate.
Purpose of the Fundraising
Access Bank intends to use the proceeds from this issuance to meet short-term funding requirements, including working capital needs and general corporate purposes.
Financial Performance of Access Bank
Access Bank is a leading financial institution with a diversified business model, a strong retail banking network, and robust corporate banking capabilities. As of Q3 2024, the bank reported:
- Total assets: N40.6 trillion.
- Customer deposits: N22.3 trillion.
- Gross earnings: N3.418 trillion, reflecting a 114.49% YoY increase.
The bank’s revenue is driven primarily by core banking activities:
- Interest income: Accounts for 70% of total earnings.
- Loans and advances: Contributed 52% of total interest income (+9.62% YoY).
- Investments in securities: Represented 35% of total interest income but declined by 16% YoY.
Access Bank’s debt portfolio has also grown:
- Total borrowings: N3.771 trillion, marking a 52% YoY increase.
- Interest expense on debt and borrowings: N198.503 billion, which accounts for 8.28% of total interest income.
Credit Rating and Market Perception
Agusto & Co. has reaffirmed Access Bank’s “Aa” credit rating, reflecting its status as Nigeria’s largest bank by total assets and its expanding presence across Africa. The rating is supported by:
- Strong capital position.
- High asset quality.
- Robust refinancing capabilities.
- An experienced management team.
However, Agusto & Co. also highlighted challenges that could impact the bank’s financial outlook, including:
- Global economic uncertainty.
- A relatively high-cost structure compared to other Tier-1 banks.
- Economic challenges in key African markets where the bank operates.
On the environmental, social, and governance (ESG) front, the bank received an ESG score of “2”, suggesting that ESG factors have minimal influence on its credit profile.
Key Takeaways for Investors
- Strong Financial Position: Access Bank’s “Aa” rating reflects its stability, vast asset base (N40.6 trillion), and expanding footprint across Africa.
- Debt and Interest Management: Despite a significant increase in total borrowings (52% YoY), interest expenses remain at 8.28% of interest income, indicating that the bank is well-positioned to meet its short-term obligations.
- ESG and Governance Factors: The bank’s ESG score suggests a limited impact of environmental and social risks on its credit rating, reinforcing its solid governance framework.
- Inflation and Real Returns: As of February 2025, Nigeria’s inflation rate declined to 23.18% (from 24.1% in January).
- The Series 4 CP (effective yield: 24.75%) slightly outpaces inflation, potentially providing a positive real return.
- The Series 3 CP (effective yield: 21.50%) falls below inflation, implying a negative real return.
- Comparison with Treasury Bills:
- As of March 2025, the one-year Treasury bill yield stands at 22.52%.
- Access Bank’s Series 4 CP (24.75%) offers a higher return than Treasury bills, while Series 3 CP (21.50%) offers a lower return.
- Treasury bills, being backed by the government, are risk-free, whereas Access Bank’s CPs come with moderate corporate risk but offer higher potential returns.
Investment Considerations
For investors seeking higher returns and willing to assume moderate corporate risk, Access Bank’s Series 4 CP (24.75%) may be an attractive alternative to Treasury bills and FGN bonds. However, those prioritizing capital preservation might prefer government-backed instruments.
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