September 23, 2024/InvestmentOne Update
Formidable Income from Core Business: Over the weekend, the H1’2024 financial report was finally released by Access Holdings PLC. According to the report, income from core business remained formidable as net interest income improved by 128.95% YoY to NGN513.39bn in the first half of 2024, relative to what was recorded in the same period in 2023.
This was on the back of the 142.59% YoY jump in interest income to NGN1.47trn given the prevailing high yield environment amidst the current dynamics of the Nigerian economy. Precisely, the expansion in interest income was mainly driven by interest earned on cash and bank balances (+465.84% YoY), loans and advances (+128.29% YoY) and investment securities (+89.28% YoY).
In the same vein, interest expense saw a notable increase of 150.58% YoY to NGN958.73bn in H1’2024 also due to tight financial conditions emanating from the contractionary stance by the apex bank in recent months.
Higher Non-Interest Income Supports Gross Earnings: Aside from income from the core business, non-interest income also increased by 116.00% YoY to NGN723.61bn in H1’2024 aided by fee and commission income which grew by a little over 100.00% YoY to NGN250.95bn amid the surge recorded across credit related fees and commissions (+86.20% YoY), account maintenance charge (+121.48% YoY), commission on other financial services (+267.37% YoY) and commission of FCY transaction channels (+67.94% YoY). Furthermore, fair value and foreign exchange gain increased by 111.88% YoY to NGN406.91bn, constituting about 56.23% of non-interest income in the period.
This stemmed from fair value gains on equity and fixed income investments as the bank took advantage of the volatility in interest rates, particularly in the fixed income market, while total net foreign exchange gain rose marginally by 3.91% YoY to NGN253.90bn. Elsewhere, other operating income witnessed a 286.77% YoY increase driven by dividends on equity securities (+127.71% YoY), bad debt recovered (+445.87% YoY) and income from other investments (+491.15% YoY). Eventually, gross earnings came in at NGN2.19trn (+133.16% YoY) in H1’2024 boosted by both interest and non-interest income in the first of 2024.
Improved Profitability Despite Higher Costs: Meanwhile, the cost constraint was evident in the review period as total operating expenses surged by 127.61% YoY to NGN719.10bn on the back of the jump in personnel expenses (+143.90% YoY), depreciation (+83.39% YoY), amortization (+81.66% YoY) and other operating expenses (+128.09% YoY), mirroring the elevated inflationary pressures in the economy amidst the current macroeconomic policy adjustments.
Notably, other operating expenses contributed mostly by about 71.25% to total operating expenses in the period due to the pronounced increase in AMCON levy (+63.09% YoY), administrative expenses (+135.81% YoY) and IT and e-business expenses (+265.08% YoY) amongst others. Moreover, we observed a significant increase of 230.12% on impairment charge amounting to NGN122.74bn mainly due to the allowance for impairment on loans and advances to customers at NGN61.42bn, up 83.84% YoY.
This reflects the challenging macroeconomic condition which limits loan repayments by customers amidst the notable growth in the loan book which increased by 37.64% from the end of last year to NGN12.28trn as of H1’2024.
As such, profit before tax came in at NGN348.92bn, 108.19% YoY higher, pointing to improved
profitability despite the pressure from costs. Meanwhile, income tax increased by 110.20% YoY to NGN67.60bn leading to a post-tax profit of NGN281.33bn, up from NGN135.44bn in H1’2023.
Consequently, ROE and ROA stood at 33.50% and 2.66% at the end of H1’2024, compared to 14.19% and 1.17% in H1’2023 respectively. Similarly, EPS more than doubled from last year, increasing to NGN7.61 from the NGN3.74 recorded in H1’2023. As a result of the improvement in profitability, the bank declared an interim dividend of NGN0.45 (dividend yield of 2.37%) as against the NGN0.30 (dividend yield of 1.93%) paid to shareholders in H1’2023.
Outlook Remains Positive: Looking ahead, we anticipate higher earnings in subsequent quarters which should continue to boost the bank’s profitability in the near term. We envisage that the elevated yield environment will likely continue to drive higher asset yield and increase interest income, particular with further anticipated growth in the loan book. For non-interest income, we expect commission from credit related fees and other financial services to propel earnings even as the bank continue to deepen its presence across the African continent.
Moreso, fair value gains from financial instruments trading are expected to support earnings in the coming months. Overall, we are optimistic about further improvement in performance across the major income lines as the bank maintains its strategic strides towards growth.
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