August 30, 2018/InvestmentOne Report 

• Net interest income of N40.6billion, down 9.0% q/q; up 0.8% y/y
• Non-interest income of N24.3billion, down 41.8% q/q, 49.3% y/y
• Profit before tax of N18.4.0billion, down 32.9% q/q; 24.7% y/y
• Profit after tax of N17.5billion, down 20.8% q/q; up 2.7% y/y 
  

Late yesterday, Access Bank released its Q2 2018 financial statements which were surprisingly unreflective of improvements in the macroeconomic environment even as loan impairment charges declined significantly while non-performing loans (NPL) ratio moderated.  

The bank reported a 32.9% q/q decline in PBT to N18.4billion, driven mainly by the 41.8% q/q decline in non-interest income as well as the 9% q/q decline in interest income, which combined to erode the 52.1% q/q fall in impairment charges and the 18% q/q drop in total expenses. consequently, PAT printed at N17.5billion, representing a 20.8% decline q/q. 

Higher Cost of Funds Weigh Down Interest Income Performance 

The bank reported net interest income of N40.6billion, representing a 9.0% q/q decline. This is largely attributable to a 150bps rise in Cost of Funds (CoF) to 5.8% as at Q2 2018. The increased CoF is unusual, given the declining interest rate environment as well as the general drop in CoF among its peers. Consequently, we saw Net Interest Margin (NIM) drop 50bps q/q to 5.3%. 

Foreign Exchange Revaluation loss knock Non-Interest Income 

The bank reported a net foreign exchange loss of N33.8billion in H1 2018, representing a 157% decline y/y. On a quarterly basis, net foreign exchange loss printed close to N.27.0billion, against a loss of N.6.8billion in Q1 2018. This maybe attributable to the bank’s net short foreign currency balance sheet position and the potential effect of a higher translation rate, as we have seen across other banks as they transition to NGN345/USD in Q2 2018 from NGN330/USD in Q1 2018.  

We await further clarity from management on this. Also we saw a 8.7% q/q decline in net fee and commission income to N14.3billion in Q2 2018, largely attributable to the 9.1% decrease in income from fees and commission.  

Good News – Lower Impairment Charges 

We believe the 52.1% q/q drop in loan impairment charges was supported by the 7% YtD decrease in absolute Non-Performing Loans.  

However, as a result of a shrinking gross loan book (down 3% YtD), we saw NPL come in flat at 4.7% in H1 2018. The decline in absolute NPLs maybe  reflective of improving macro-economic conditions as we have continued to see across lenders. However, contrary to other lenders, the drop in impairment charges was not seen to improve the bank’s bottom line performance in H1 2018.  

We are of the opinion that the bank may have written off some of its NPLs, given the steep drop in impairment charges and marginal decline in NPL coverage by 100bps YtD to 105%. However, we await further clarity from management on this and its plan for improvement for the rest of the year. 

The bank proposed an interim dividend of 25kobo per share representing a dividend yield of 2.63% based on yesterday’s close price. We shall be looking to management for clarification on this during the investor and analyst conference call today at 14:00hrs Lagos (09:00hrs New York, 14:00hrs London, 15:00hrs Johannesburg). The call will be open to the public.  

Members of the public who would like to join the conference call should click on the Registration link to pre-register for the call and receive dial-in information. The audio conference call can be accessed by the dialing the following numbers:

 ACCESS BANK Q2 2018/H1 2018 (YE: DEC) (N millions)