Access Bank: Sustaining Profitability, Deepening Market Penetration

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By OLUSHOLA BELLO, Lagos –

Access bank’s focus on assets quality and cost management have continued to pay off considering its recent financial figures released to the Nigerian stock market. It has evolved from being one of the many Nigerian banks to being a top three bank across many performance metrics.

In line with the improved yields on interest earning assets to 13.10 per cent in H1, according to Cordros Capital Limited, we have raised 2017 full year assets yield estimate by 125 basis points to 12.60 per cent, resulting in interest income growth of 36.71 per cent year-on-year (y/y) to N338.06 billion. We believe the high interest rates environment will keep yields on fixed income securities at current levels and drive interest income from repricing of loans to customers over H2, 2017.

Also, the N7.2 billion interim dividend recommended by Access Bank Plc after recording improved earnings for the half-year ended June 2017, is highly encouraging. Though the operating economic environment remains challenging, some of the results have raised investors’ hopes for positive harvest at the end of the year. While investors are generally looking forward to an improved harvest at the end of the year, some banks have started putting smiles on the faces of their shareholders through interim dividends.

For instance, the 25 kobo recommended by Access Bank Plc last week translates a total of N7.2 billion, which is to be paid out of the N39.45 billion profit after tax (PAT) recorded for the H1 of 2017. In all, Access Bank reported an impressive performance for the period.

Revenue and profitability

According to the results, Access Bank recorded gross earnings of N246.6 billion, up 42 per cent from N174.1 billion in the corresponding period of 2016. The growth in gross earnings was driven by 66 per cent increase in interest income on the back of continued growth in the bank’s core business and 34 per cent non-interest income underlined by strong foreign exchange income on the bank’s trading portfolio.

Interest Income grew by 44 per cent to N161.9 billion, from N112.3 billion, while non interest income stood at 84.4 billion, showing an increase of 37 per cent compared with N61.7 billion in the corresponding period of 2016. Operating income increased by 29 per cent to N167.5 billion, from N130.2 billion.

Profit before tax for the period rose to N52 billion, representing a 18 per cent growth when compared to N43.9 billion in 2016, while profit after tax grew to N39.5 billion in 2017 from N33.6 billion in half year 2016. Return on average equity remained flat at 16.9 in the reviewing period.

Asset Quality/ Operational Efficiency

The bank continues to focus on de-risking its portfolio, building a consolidated business, expanding its international network, and driving efficiency through technology innovation in a bid to successfully navigate the tough operating environment.  Asides restructuring existing loans, the bank has been cautious about risk asset creation – maintaining a zero exposure to the troubled power sector whilst restricting credit to quality names across other sectors. The bank continues to focus on enhanced technology and innovation to drive efficiency as the bank looks to contain its relatively high operating cost (coming from a high cost base post acquisition of Intercontinental Bank).

In terms of asset quality, non-performing loans (NPL) to total gross loans rose marginally to 2.5 per cent, as against 2.1 per cent as at December 31, 2016. NPL coverage Ratio (with regulatory risk reserves) stood at 174.8 per cent as at June 2017, compared with 169 per cent in December 2016. Cost of risk reduced marginally from 1.1 per cent in December 31, 2016 to 1.0 per cent in June 2017. An analysis of the operational efficiencies showed that Cost-to-Income Ratio (CIR) rose from 58.4 per cent to 62.7 per cent driven by increase in operating expenses. The increase in operating expenses from N75.9 billion to N1015.1 billion stemmed from high inflationary environment and the effect of unamortised AMCON charges. However, Net Interest Margin (NIM) improved to 6.7 per cent, up from 6.3 per cent.

Liquidity

Analysis of the bank’s finance showed that its balance sheet remained strong with a total assets standing at N3.46 trillion at the end of second quarter, showing the final amount of all gross investments, cash and equivalents, receivables, and other assets.  Its derivative financial assets stood N148.4 billion, while its investment in subsidiaries, properties and equipment increased from N84.11billion to N92.35 billion. Its income from derivative instrument has been a topical line item around the bank’s earnings in recent years. The income line offsets the impact of currency devaluation on its foreign currency liability and has consistently supported non-interest income.

The bank’s capital adequacy and liquidity ratios, which are a class of financial metrics used to determine a bank’s ability to pay off its short-term debts obligations, remain 21.6 per cent and 45.4 per cent respectively, more than the minimum regulatory requirement of 15 per cent and 30 per cent. The higher the value of the ratio, the larger the margin of safety a bank possesses to cover short-term debts. The bank raised a $300 million 5-year Eurobond at 10.5 per cent in October 2016 in a bid to support its foreign exchange liquidity, which continues to enhance its balance sheet.

Efficiency

The bank continues to focus on de-risking its portfolio, building a consolidated business, expanding its international network, and driving efficiency through technology innovation in a bid to successfully navigate the tough operating environment.  Asides restructuring existing loans, the bank has been cautious about risk asset creation – maintaining a zero exposure to the troubled power sector whilst restricting credit to quality names across other sectors. The bank continues to focus on enhanced technology and innovation to drive efficiency as the bank looks to contain its relatively high operating cost (coming from a high cost base post acquisition of Intercontinental Bank).

Outlook

The Group Managing Director of Access Bank, Mr. Herbert Wigwe said that “Access Bank’s performance in the first half of the year reflects the strength and sustainability of our business as well as the effective execution of our strategy.” According to him, the Group maintained stable asset quality, recording NPL and Cost of Risk Ratios (CRR) of 2.5 per cent and 1.0 per cent, respectively.

Following the release of the half year results, the Bank also declared an interim dividend of 25 kobo to its shareholders.

“We maintained stable asset quality, recording non-performing loans and cost of risk ratios of 2.5 per cent and 1.0 per cent, respectively and wound down on our foreign currency exposures as a deliberate strategy to de-risk the business. As we cautiously grow our loan portfolio in light of macro realities, we will continue to uphold our proactive risk management principles in order to maintain asset quality within acceptable limits. Whilst balancing our appetite for growth and profitability, we remain committed to maintaining solid liquidity and capital ratios,” Wigwe added.

“Our retail expansion drive led to investments in our channels, distribution network, service quality and brand enhancement. These, as well as AMCON charges resulted in higher operating expenses in the period. We continue to, however, intensify the implementation of our cost reduction initiatives in order to improve the bottom-line despite high inflationary environment.

In view of the recovering macro, our focus remains growing the retail franchise through digital expansion to enable diversified earnings as well as continuous and proactive risk management as we selectively grow risk assets. We will remain resilient in the execution of our bold strategy for increased growth and profitability whilst maximizing shareholder value in 2017 and beyond,” Wigwe noted

Company background

Access Bank Plc is a full service commercial bank operating through a network of about 305 branches and service outlets located in major centres across Nigeria, Sub Saharan Africa and the United Kingdom. Listed on the Nigerian Stock Exchange in 1998, the bank serves its various markets through four business segments: Personal, Business, Commercial and Corporate & Investment banking.

The bank has over 830,000 shareholders including several Nigerian and International Institutional Investors and has enjoyed what is arguably Africa’s most successful banking growth trajectory in the last ten years ranking amongst Africa’s top 20 banks by total assets and capital in 2011.

As part of its continued growth strategy, the bank is focused on mainstreaming sustainable business practices into its operations. The bank strives to deliver sustainable economic growth that is profitable, environmentally responsible and socially relevant.