As the spectra of tightening policy looms, Access Bank plc has meandered the regulatory headwinds through cost savings that help catapult third quarter (Q3) profit by 28 percent, analysis of the financial shows.
The bank’s double growth in both assets and earnings showed a rebound from a 4 percent profit enlargement in the first half of 2014.
For the first nine months through September 2014, Access Bank’s profit after tax surged by 28 percent to N35.34 billion from N27.59 billion the same period of the corresponding year (Q3) 2013. Earnings per share (EPS) rose by 154k in (Q3) 2014, compared with 121k as of (Q3) 2013.
“Continuous improvement in cost structure (as reflected in the 450bps ease in cost-to-income ratio to 64.6%) supported the N35.3 billion profit for the nine-months (implied 18.5% annualised return on average equity),” said Abiola Rasaq of the research and strategy unit of Associated Discount House Limited.
“Given the strong earnings run-rate in Q3, we look forward to a strong finish by year-end, thus reinforcing our view that the stock is undervalued at current pricing – N8.90,” said Rasaq.
Despite the tightening stance of the Central Bank of Nigeria (CBN), the Nigeria lender was able to increase interest income by 20 percent to N131.72 billion in (Q3) 2014, as against N109.91 billion as of (Q3) 2013, while net interest income spiked by 27 percent to N75.94 billion.
The CBN has increased cash reserve requirements on public sector deposits to 75 percent from 12 percent since July last year, to curb inflation and limited how much banks can charge account holders when they withdraw money.
The Asset Management Corporation of Nigeria, a state company created to buy bad debt from lenders after the country’s 2009 financial crisis, also last year raised its annual levy on banks to 0.5 percent of their assets from 0.3 percent.
Access Bank is aggressive about lending as loans to deposit ratio jumped to 71.40 percent in the period under review as against 59.01 percent the preceding year.
Further analysis by BusinessDay showed that loans and advances were up by 34 percent to N1.05 trillion in Q3 2014, from N786 million as of Q3 2013, which means the lender is propping up loan growth.
Deposits from customers also spurted as it increased by 11 percent to N1.47 trillion, as against N1.33 trillion the preceding period.
“From a regulatory perspective, the bank is well capitalised, there is no (desperate) need for the additional capital that management is seeking,” said Olubunmi Asaolu, analyst with FBN Capital, in an email note to BusinessDay, saying “unless, of course management’s desired growth outlook is more aggressive than what the current capital base supports.”
In order to fund operation, bolster reserves and boost common stock, Access Bank is seeking to raise N68 billion ($420m), though the deal has not been finalised.
It should be noted that Nigeria bank’s are selling equity and debt after the apex bank changed the way lenders calculate capital buffers. Total assets were up by 13 percent to N2.07 trillion in Q3 2014, as against N1.83 trillion the preceding year.
Access Bank’s share price closed at N8.90 on the floor of the NSE, while market capitalisation was N203.65 billion.
“Without the additional capital, we believe Access Bank can actually sustain an ROE of 20 percent or slightly over,” said Asaolu.
BALA AUGIE
