Q3’15 result: Access Bank on track to delivering FY targets

Last week, the Nigerian Stock Exchange (NSE) published Access Bank Plc third-quarter (Q3) to September 30, 2015 results. Broadly speaking the Bank’s nine months results came in quite strong –as shown in its top-to-bottom line figures.

Gross earnings grew by 42 percent year-on-year (y/y) to N257.6billion in 9M’15 (9M’14: N181.8bn) largely driven by strong growth in trading income. Interest income increased by 18% y/y to N155.4bn in 9M’15 (9M’14: N131.7bn) driven by 22% y/y growth in income from loans and advances. Non-interest income grew by 106percent y/y to N102.2bn in 9M’15 (9M’14: N49.6bn) as a result of increased net gains from trading.

While presenting the nine months results to investors and analysts, Access Bank Plc expressed commitment to delivering on its full year 2015 growth objectives despite continued market instability and a tighter regulatory environment.

The Bank’s net trading income dropped from N30.5bn in Q2’2015 to N21.6bn in Q3’2015 due to maturity of some of the underlying trading transactions. Fees and commission income was up 10percent y/y and 36percent quarter on quarter-on-quarter (q/q).

Operating expenses grew by 38 percent y/y to N106.2bn in 9M’15 (9M’14: N76.9bn), and remained flat q/q. The key drivers of the operating expenses according to the bank are: recruitment and training of staff to boost retail market penetration; investment in brand equity development, particularly in the retail segment, through increased marketing activities; and upgrade of IT solutions to improve business processes and service delivery to customers.

Cost-to-Income Ratio (CIR) improved to 59.6% in 9M’15 (9M’14: 61.2%), benefitting largely from improved earnings. In line with the Bank’s stricter methodology on provisioning, the impairment charge stood at N11.6bn in the period (9M’14: N7.0bn), with a corresponding rise in cost of risk to 0.9% during the same period (9M’ 2014:0.4%). The Bank will continue to monitor and improve the quality of its risk assets to minimize credit impairment losses.  PBT increased by 43% y/y to N60.4bn in 9M’15 (9M’14: N42.2bn). Key drivers: 22% y/y increase in interest income from loans and advances to N120.4bn (9M’14: N99.0bn) − 106% y/y increase in non-interest income owing largely to strong trading gains.

Return on assets (ROA) improved by 70 bps y/y to 3.6% in 9M’15 (9M’14: 2.9%). Return on Equity (ROE) grew to 20.4% in 9M’15 (9M’14: 18.9%) driven by improved profitability. However, this was diluted by the N41.7bn capital injection in the third quarter. Total assets grew to N2.4trn in the period (Dec’14: N2.1trn) largely driven by increased investments in high-yield government securities.

“On the back of these results, we would expect to see a positive reaction from the market.  We rate Access Bank shares outperform,” said analysts at FBN Capital in their first reaction to Access Bank plc Q3 results.

Olubunmi Asaolu led team of research analysts at FBN Capital Limited further: “A significant positive surprise on the non-interest income line for the third consecutive quarter by Access Bank has led us to increase our 2015E earnings per share (EPS) forecast by 12.4%”.

They added, “We believe concerns around asset quality are among the major factors weighing on Access shares (-24% ytd vs ASI’s -13.4%). We think these concerns are overblown. Our model already incorporates a conservative cost of risk assumption of at least 1.5% going forward (vs 1.0% guidance for 2015E).”

Access Bank loans and advances stood at N1.3trn in Sep’15 representing a 17% year-to-date (ytd) increase from N1.1trn in Dec’14. Access Bank plc customer deposits increased by 7 percent to N1.6trillion in the nine-months to September 30, 2015 from N1.5trillion recorded in December 2014.

The bank said the increase reflects continued implementation of its customer engagement strategy. Trading and pledged assets grew by 145% ytd to N342bn in Jun’15 (Dec’14: N140bn) driven by significant investments in high yielding government bonds and treasury bills. The Bank’s robust risk management practices led to a 500bps drop in its NPL ratio from 2.2% in Dec’14 to 1.7% in 9M’15.

Yield on Assets (YOA) remained relatively flat at 12% ytd from Dec’14. Tighter system liquidity and regulatory environment (CRR harmonization of private and public funds) negatively impacted Cost of Funds (CoF) in the period, resulting in a q/q increase from 5.3% in Jun’ 15 to 5.4% in Sept’15 Net Interest Margin (NIM) declined by 100bps y/y to 5.9% in Sep’15 largely driven by increasing funding costs due to a higher interest rate environment. However, NIM improved q/q by 30bps from 5.6% in Jun’15.

The Group’s loan book grew by 17% ytd to N1.3trn in Se p ’15 (Dec: N1.1trn) despite macro instability, regulatory headwinds and political uncertainty witnessed during the period under review.

Increase in LDR was driven by the 5% reduction in customer deposits resulting from the impact of the TSA implementation. Sustained improvement in asset quality with NPLs declining to N22.4bn in Sep’15 (Dec’14: N25.3bn), leading to an improved NPL ratio of 1.7% in Sep’15 (Dec’14: 2.2%). NPLs are adequately covered by provisions (including regulatory reserves) as coverage ratio rose considerably from 154.0% in Dec’14 to 195.8% in Sep’15.

In the period under review, the bank focused on achieving a largely diversified risk asset portfolio.

The Bank’s risk asset focus continues to be on the real sector supporting economic growth. The Bank made a significant improvement in the resolution of a long-standing NPL in the oil and gas sector leading to an NPL reduction of about 500bps.

The Bank remains focused on continuous mitigation of its exposure to unforeseen shocks by prioritising asset quality, guided by its robust risk management framework. Customer deposits grew by 7% ytd to N1.6trn in Sep’15 from N1.5trn in Dec’14 on the back of continued effective execution of its customer engagement strategy. In the period under review, current and savings account balances accounted for 60% of total deposits, while term deposits constituted 40% of total deposits.

Current Account and Savings Account (CASA) balances grew by 13% ytd to a total of N930bn in Sep’15 (Dec’14: N825bn) as a result of improved value chain penetration across the Bank’s Strategic Business Units (SBUs).

“We will continue to actively implement value chain and customer engagement initiatives for continued deposit growth, particularly low-cost deposits, in order to drive down our cost of funds and loan-to-deposit ratio”, the Access Bank said in the presentation to investors and analysts.

Iheanyi Nwachukwu