September 12, 2020/InvestmentOne Report 

·         Net interest income of N53.99billion, down 25.23%q/q , down 45.08%y/y   

·         Non-interest income of N65.87billion, down 9.74%q/q, up from N364million in Q2 2019.

·         Profit before tax of N28.01billion, down 39.49%q/q, up 0.54% y/y.

·         Profit after tax of N20.11billion, down 50.88%y/y, down 2.99%y/y.

Weak NII Drags PBT Down

Access Bank announced its H1/Q2 2020 result which showed a 39.49%q/q declined in PBT to N28.01billion in Q2 2020.  This was driven by 25.23%q/q decline in Net Interest Income and 9.74%q/q fall in Non-interest income which offset the 8.14%q/q decline in loan impairment and 7.03%q/q fall in OPEX. We believe the decline in Net Income may not be unconnected to the weakness in Net Interest Margin which fell to 4.9% at the end Q2 2020 from 5.9% in Q1 2020 and 6.6% in FY 2019 as yields continued to fall. We believe the bank could have reduced its interest rate in order to boost its loan book (+11%ytd). Non-interest income was down due to the 23.50%q/q fall in net fees and commission and 37.35%q/q decline in Gains on Investment Securities. The decline net fees and commission may be due to weak trade related income while the decline in Gains on Investment securities was due to high base effect as the bank recorded an extraordinary gain from derivative instruments in Q1 2020.  Unlike the trend in other banks, Access bank recorded a decline in its loan impairment on a quarter on quarter basis due to its already high impairment level in Q1 2020.

Rise in Derivative Income Offsets the Impact of the Jump in Loan Impairment

On a y/y basis, Net Interest Income was down 45.08% to N53.99billion while Non-interest income jumped to N65.87billion from unusually weak performance of N364million recorded in Q2 2019. In line with the trend in the banking sector, Loan Impairment jumped to N7.88billion in Q2 2020 from N1.51billion in Q2 2019 as the bank accounted for the impact of the current pandemic on assets value. In the same vein, OPEX increased by 21.16%y/y to N83.97billion in Q2 2020. While the decline in Net-interest income was driven by lower interest environment, the jump in Non-interest income was due to the rise in derivative income compared to Q2 2019 level. Resultantly, the bank’s PBT rose marginally by 0.54% y/y to N28.01billion in Q2 2020. 

Rise in Non-Interest Income Supports Earnings

For H1 performance, the bank recorded a marginal increase of 1.84% in PBT to N74.31billion. While Net Interest Income (NII) fell by 18.65% to N126billion, Non-interest income jumped to N138.85billion from N46.15billion in H1 2019. Overall, the decline in NII, jump in Loan Impairment (N16.47billion in H1 2020 from N4.88billion in H1 2019) and a 40.04% increase in OPEX was enough to reduce the impact of the jump in Non-interest Income.

As a result of the increase in OPEX, cost to income ratio rose to 65.8% from 62.2% in Q1 2020 and 65.2% recorded in FY 2019. This is still outside the range of 55%-60% guidance set by the bank for 2020. This was due to high cost of operation of the enlarged business scale, driven by higher regulatory costs and increased investment in creating slacks in IT efficiency according to the management. Elsewhere, the bank’s NPL ratio fell to 4.4% from 5.5% at the end of Q1 2020 and 5.8% in FY 2019 on the back of write-offs in the period under review.

H2 Outlook

Given that most banks already applying for loan restructuring with the CBN, we expect the impact of the current pandemic to be limited on asset quality. With that being said, we believe a diversified loan portfolio of Access bank puts its risk lower than others. As a result, we expect the bank to be less affected (relative to other tier 1 banks) by the current weakness in oil price. Nonetheless, we expect the bank to focus on risk management and cost containment to weather the impacts of the current pandemic. As such, we think the bank’s current LDR ratio of 59.1% may be lower than CBN target of 65% at the end of the year.

Nevertheless, we expect the bank’s margin to improve on the back of the recent cut in interest rate on savings deposits which accounted for about 24% of the bank’s deposit at the end of H1 2020.

Overall, we expect the bank’s drive to boost transaction volume on its e-channels platform to support earnings while its strong capital base (CAR of 20.0%), which is well above the regulatory requirement of 15% should support its ability to survive in a challenging macroeconomic environment like this. 

Source: Company financials, Investment One Financial Services Research  

Source: Company financials, Investment One Financial Services Research