September 6, 2019/Cordros Report
Access Bank PLC recently released audited H1-19 numbers. The result was impressive as the bank recorded strong growth in both gross earnings and profitability. The strong performance was underpinned by funded income growth, with non-funded income underperforming the prior year. Consequently, the bank recorded a strong PBT growth of 61.7% y/y. Finally, the bank proposed an interim dividend of NGN0.25/share, which translates to a yield of 3.9% based on the closing price on the 5th of September 2019 (NGN6.45).
The bank recorded interest income growth of 46.4% y/y to NGN226.1 billion in the period, which was underpinned by the strong growth recorded in gross loans and advances of 30.6% y/y to NGN2.72 trillion. On the other hand, non-interest income declined by 28.7% y/y to NGN47.15 billion, as trading income on investment securities declined by 93.0% y/y to NGN4.15 billion.
Interest expense increased by 16.1% y/y to NGN117.75 billion, significantly below the growth rate in income, resulting in a significant growth in net interest income of 81.9% y/y. Consequently, the bank’s net interest margin expanded by 2.0ppts to 7.6% from the prior year, reflecting the benefits of the bank’s increased pool of low-cost liabilities.
Also, the bank’s operating expenses increased substantially during the period by 28.9% y/y to NGN123.30 billion. This was driven by a combination of increases in (1) AMCON levy (+29.4% y/y) given the expansion in the bank’s assets base (+31.0% y/y to NGN6.49 trillion), (2) Professional fees (+325.1% y/y to NGN4.84 billion) related to the business consolidation with Diamond, (3) Personnel expenses (+19.8% y/y to NGN31.5 billion) also related to the larger entity, as well as other ancillary costs. However, despite the expansion in operating expenses, the bank’s cost-to-income ratio (after accounting for LLEs) moderated to 62.5% from 68.2% in the corresponding period of the prior year.
Consequent on the growth in income relative to expenses, the bank recorded a profit before tax growth of 61.7% to NGN74.12 billion, while PAT settled 59.1% higher y/y at NGN63.02 billion. At the current run-rate the bank’s PAT for FY-19 will settle 56.1% higher, while annualized RoAE would settle at 23.5% relative to 19.0% in the prior year.
The macro-prudential ratios remained strong, save for the bank’s NPL of 6.4% which remains above the statutory level but has trended downward from the 10.0% recorded in Q1-19. The bank’s capital adequacy ratio of 20.8% remains well above the statutory limit for D-SIBs (16.0%), while the bank’s liquidity level of 49.7% also remains well above the limit. While the bank has significant headroom to drive growth given the macro-prudential ratios, we expect more focus on the remediation to bring NPLs downwards.
Conference Details: The bank will have a teleconference call on Monday, September 9th, 2019 at 2 pm. The teleconference call facility can be accessed by dialing: (Nigeria) +234 1 903 0040; (South Africa) +27 10 201 6700; (United Kingdom) +44 333 300 1417; (United States) +1 508 924 4325. Please click on this Registration link to pre-register for the call and receive dial-in information.
Comment: So far so good, it seems for the bank, as the numbers seem to show no signs, as of yet, of synergistic issues. The performance is strong, and the improvement in non-performing loans is positive. However, we seek clarity as to the driver of the moderation to gauge the sustainability. Nonetheless, at the current run-rate, the bank is on course to record a strong FY-19 performance.
