ACCESS released its Q1-21 financial report yesterday, which showed that the bank recorded good growth in earnings supported by core earnings. This is a deviation from the pattern witnessed thus far across Tier-1 banks, where non-core earnings have supported performances, while funded income has been relatively weaker. Consequent to the growth in funded income, which trickled to the bottom line given much-reduced interest expense and tethered operating expenses, the bank recorded an EPS of NGN1.46 (+22.7% vs Q1-20).

The bank recorded an interest income growth of 9.0% y/y to NGN143.80 billion in the period, supported by good growth in income from investment securities (+26.1% y/y to NGN55.52 billion), which offset the marginal decline in income from loans and advances to customers (-2.1% y/y to NGN82.09 billion). The income growth in investment securities may point to the bank being able to invest maturing funds as market yields increased at the tail end of last year. Given still rising yields, we expect growth in this line to remain strong through the year, while improved risk asset creation should also see better income generation from loans.

Interest expense declined by 16.5% y/y to NG49.84 billion, as the bank recorded a significant decline in expense on deposits from customers (-32.8% y/y to NGN21.03 billion), which was enough to offset growth in expenses on debt securities (+7.3% y/y to NGN5.11 billion) and borrowings (+54.1% y/y to NGN9.76 billion). The decline in expenses on deposits may be tied to the bank’s improved CASA (63.4% vs Q1-20 58.0%). The bank seems to be reaping the benefits of the lower deposit base garnered from its acquisition of Diamond bank, while there seems to be headway being made to extend this base further. The aforementioned  bodes well for the bank going forward and should lead to good growth in net interest income for the year.

Non-interest income declined by 3.9% y/y to NGN70.12 billion, despite most contributory lines recording growth – fees and commissions (+33.6% y/y to NGN30.73 billion), income from investment securities (-1,811% y/y to NGN27.07 billion), FX revaluation (+110.0% y/y to NGN5.33 billion), FX trading (+174.0% y/y to NGN1.08 billion). However, the decline in other operating income, primarily stemming from lower recoveries (-91.4% y/y), was enough to offset the growth from all other major lines. Notwithstanding the weaker non-funded income growth, funded income growth was substantial enough to lead to a growth in operating income (+ 10.9% y/y).

Operating expenses increased during the period by 1.3% y/y to NGN91.50 billion, as all major contributory lines recorded spikes – personnel expenses (+2.2% y/y to NGN20.06 billion), AMCON levy (+20.1% y/y to NGN21.04 billion), and NDIC premium (+49.3% y/y to NGN5.55 billion). Given the moderate year-on-year expansion in operating expenses, the bank’s cost-to-income ratio (after accounting for LLEs) improved to 60.4% from 66.1% in Q1-21.

Consequent to the growth in income relative to expenses, the bank recorded a profit before tax growth of 29.7% y/y to NGN60.05 billion, while PAT settled 28.4% higher y/y at NGN52.55 billion, given the higher income tax expense (+39.9% y/y).

Comment: The bank’s performance is impressive and should lead to a strong performance for the year. While non-funded income growth may lag due to weaker recoveries, we may expect funded income growth to accelerate, especially as the bank accelerates risk assets creation in light of sub-regulatory limit on LFR. Our estimates are under review.