November 30, 2020/InvestmentOne Report

·         Net interest income of N70.07billion, up 29.77%q/q , 27.23%y/y     

·         Non-interest income of N62.61billion, down 4.95%q/q, up 23.75%y/y.

·         Profit before tax of N42.32billion, up 51.06%q/q, 52.01% y/y.

·         Profit after tax of N41.27billion, up 105.24%q/q, 55.34%y/y..

Higher earnings as NII improves

Access Bank announced its Q3 2020 result which showed a 51.06%q/q jump in PBT to N42.32billion in Q3 2020.  This was driven by 29.77%q/q increase in Net Interest Income and 13.56%q/q decline in OPEX which offset a 4.95%q/q decline in Non-interest income and 125.45%q/q jump in loan impairment charges. We believe the rise in Net Income may not be unconnected to the improvements in the bank’s loan book (+14%ytd) and Net Interest Margin (5.1% from 4.9% at the end of Q2 2020). Non-interest income was down due to the loss on Investment securities (loss of N50.65billion from a gain of N51.94billion in Q2 2020) which offset the jump in Net FX gains to N78.8billion from a loss of N11.51billion in Q2 2020 and 77.61%q/q increase in Net fees and commission. The increase in net fees and commission may be due to the improvement in transaction on the bank’s e-channels platform.   

Strong NII and Non-Interest income

On a y/y basis, Net Interest Income and Non-interest rose by 27.23%y/y and 23.75%y/y to N70.07billion and N62.61billion respectively. In line with the trend in the banking sector, Loan Impairment jumped to N17.77billion in Q3 2020 from N5.73billion in Q3 2019 as the bank accounted for the impact of the current pandemic on assets value. However, OPEX was somewhat flat rising marginally by 0.68%y/y to N72.58billion in Q3 2020. We believe the increase in Net-interest income was driven by higher loan book while the jump in Non-interest income was due to the rise in Net FX gains (N78.86billion from N24.09billion in Q3 2019) and 69.09%y/y increase in net fees and commission. Resultantly, the bank’s PBT rose by 52.01% y/y to N42.32billion in Q3 2020. 

Impressive Non-Interest Income supports PBT

For 9M performance, the bank recorded a 15.89% increase in PBT to N116.62billion. While Net Interest Income (NII) fell by 6.63% to N196.27billion, Non-interest income jumped to N201.46billion from N97.75billion in 9M 2019. Overall, the jump in Non-interest income was more than enough to offset the decline in NII, jump in Loan Impairment (N34.24billion in 9M 2020 from N10.61billion in 9M 2019) and a 25.60% increase in OPEX.  

Despite the jump in OPEX, cost to income ratio declined to 62.1% from 63.8% recorded in 9M 2019 on the back of a stronger growth in income. Nonetheless, this is still outside the range of 55%-60% guidance set by the bank for 2020. Elsewhere, the bank’s NPL ratio fell to 4.2% from 4.4% at the end of Q2 2020 and 5.8% in FY 2019 on the back of write-offs in the period under review.  

Outlook

Given that most banks already applied 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 the macroeconomic environment. Nonetheless, we expect the bank to focus on risk management and cost containment to weather the impacts of the current pandemic.

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 20.3%), which is well above the regulatory requirement of 15% should support its ability to survive in the current challenging macroeconomic environment.

Source: Company financials, Investment One Financial Services Research

Source: Company financials, Investment One Financial Services Research