March 6, 2017/InvestmentOne Research
NIGERIA | EQUITIES | BANKING | ACESS BANK PLC
Q4 2016 results highlight: Surge in loan impairment charges weighs on PBT performance
• Net interest income of N32.8bn: down -13.6% q/q; up+11.2% y/y
• Profit before tax of N18.3bn: down -16.6% q/q; up +25.0% y/y
• Profit after tax of N14.3bn: down -18.5% q/q; -19.3% y/y
Access Bank released its Q4 2016 results earlier today which showed a -16.6% q/q decline in PBT to N18.3bn. We highlight the PBT performance was +175% higher than our projection, due to the bank’s non-interest income performance, +200% higher than we expected.
The bank’s weak q/q PBT performance was due to the +353% q/q jump in loan impairment charges and the -13.6% q/q decline in net interest income which combined to offset the +30.2% q/q increase in non-interest income while opex remained relatively flat q/q.
On initial examination, it would appear that the significant increase in loan impairment charges may have been part of management’s plan to take advantage of the one-off forbearance granted to the Banking sector by CBN last year, as the bank wrote off c.N14bn worth of loans in Q4 2016.
In dissecting the numbers further, we highlight that unlike Zenith bank’s Q4 2016 results which showed a N5.4bn loss on FX revaluation, Access bank reported a N54.8bn unrealized FX gain in Q4 2016. This combined with the N16.2bn gain on the disposal of its 17.65% stake in Stanbic Pension Managers more than offset the N46.9bn loss on derivative instruments.
With this said, the bank’s PBT performance was much better on a y/y basis, up +25.0%. This was largely the result of a +48.9% y/y increase in non-interest income, +11.2% y/y uptick in net interest income, which combined to cancelled out the +260% y/y surge in loan impairment charges.
Overall, Access Bank’s Q4 2016 results were reflective of the fragile macroeconomic environment, which resulted in the surge in loan impairment charges.
While we believe the bank’s earnings may see support from the high yield and interest rate environment, we remain concerned on the sustainability of non-interest income performance going forward. Our view is premised on the volatility seen in the performance of foreign exchange income and derivative instruments over the last four quarters. This in addition to the likelihood that loan impairment charges should stay high, given our expectation that economic output may remain weak in the near term, could be a potential drag on PBT and ROE going forward.
The bank proposed a final dividend of 40kobo representing a dividend yield of c.6% based on today’s close price.
Our models are under review, we rate Access Bank (BUY). Our price target is N8.80.
ACCESS BANK Q4 2016/FY 2016 figures (N’ millions) | |||||||||
Q4 2016 | Q/Q | Y/Y | I-one est. | Actual vs I-one est. | FY 2016 | Y/Y | I-one est. | Actual vs I-one est. | |
Interest Income | 66,076 | -4.1% | 26.0% | 71,216 | -20.2% | 247,287 | 19.0% | 252,427 | -2.0% |
Interest Expense | (33,302) | 7.4% | 45.1% | (29,337) | -21.5% | (108,139) | 5.6% | (104,174) | 3.8% |
Net Interest Income | 32,774 | -13.6% | 11.2% | 41,879 | -19.2% | 139,148 | 32.0% | 148,253 | -6.1% |
Non-interest Income | 40,568 | 30.2% | 48.9% | 12,300 | 200.7% | 133,457 | 3.1% | 105,189 | 26.9% |
Profit before provisions | 73,342 | 6.1% | 29.3% | 54,179 | 30.7% | 272,605 | 16.1% | 253,442 | 7.6% |
Loan Impairment charges | (9,617) | 352.8% | 259.7% | (1,240) | 530.4% | (21,953) | 54.3% | (13,576) | 61.7% |
Total Expenses | (45,390) | 0.9% | 15.2% | (42,966) | -17.2% | (160,313) | 10.1% | (157,889) | 1.5% |
PBT | 18,335 | -16.6% | 25.0% | 9,974 | 175.1% | 90,339 | 20.4% | 81,978 | 10.2% |
Tax | (3,992) | -8.7% | -228.3% | 1,792 | -511.4% | (18,900) | 106.1% | (13,116) | 44.1% |
Tax rate | 21.8% | 188bps | 4297bps | 18.0% | -380bps | 20.9% | 870bps | 16.0% | 492bps |
PAT | 14,344 | -18.5% | -19.3% | 11,766 | 70.6% | 71,439 | 8.5% | 68,861 | 3.7% |
Source: NSE, Investment One Research
