Key Takeaways from Access Bank H12020 Investors Conference Call

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Sunday, September 13, 2020 / 06:00 PM / TheAnalyst/ Header Image Credit: Ecographics


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Access bank's H1 2020 financial result showed growth across its different income lines and saw an improvement in its asset quality despite local macroeconomic headwinds caused by a global coronavirus pandemic.

 


Highlights

  • Gross earnings grew by +22.31% Y-o-Y to N396.56bn in H1 2020 from N324.38bn recorded in H1 2019
  • PBT grew by +1.84% Y-o-Y to N74.31bn from N72.97bn recorded in H1 2019.
  • The bank's cost-to-income ratio increased significantly to 65.8% in H1 2020 from 61.5% recorded in the corresponding period of the previous year.
  • NPL declined noticeably in H1 2020 to 4.4% from 6.4% recorded in H1 2019 showing an improvement in asset quality
  • ROAE declined to 19.1% from 23.5% recorded in H1 2019
  • ROAA declined to 1.6% in H1 2020 from 2.2% recorded in H1 2019.

 

Growth Amidst a Pandemic

 

Gross Earnings:

Gross earnings grew by +22.31% Y-o-Y from N324.4bn recorded in H1 2019 to N396.8bn recorded in H1 2020, this was majorly driven by a +62% increase in interest income and a +38% increase in non-interest income (see chart 1).

 

Chart 1: Access Bank's Gross Earnings (N'bn)

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Source: Proshare Research, Access Bank Financial Statement

 

 

Profit Before Tax

Profit before tax increased by +1.84% Y-o-Y, from N72.9bn recorded in H1 2019 to N74.3bn recorded in H1 2020, this was majorly driven by a +21.42% Y-o-Y increase recorded in operating income and a significant increase recorded in net gain on other financial instruments which rose by +3,153% (see chart 2).


Chart 2: Access Bank's Profit Before Tax (N'bn)

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Source: Proshare Research, Access Bank Financial Statement

 

Loans and Deposits-  Odes to Growth

 

Deposit from Customers

The total deposit of Access bank grew Y-o-Y by +20.69% from N4.96trn recorded in H1 2019 to N5.99trn recorded in H1 2020. This was majorly driven by +11.59% Y-o-Y growth in customer deposits reflecting the impact of the lender's deliberate deposit mobilization. Customer deposit comprised of 65% local currency deposits and 35% foreign currency deposit (see chart 3).

 

 

Chart 3: Access Bank's Total Deposits (N'trn)

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Source: Proshare Research, Access Bank Financial Statement


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Gross Loans and Advances

Access bank's gross loans and advances grew Y-o-Y by +29.19% from N1.85trn recorded in H1 2019 to N2.39trn recorded in H1 2020, majorly driven by a +21.18% growth in loans and advances to customer. Analysts have been flummoxed by the rise in loans and advances by deposit money baks within a period of a health pandemic and the attendant economic lockdowns that have followed, especially in Q2 2020. Neverthless, tier1 banks seem to have been able to beat the odds and continue to grow their loan books and generate higher interest incomes. According to an analyst in one of the stockbroking companies in ikoyi, Lagos, "you get a sense of local Nigerian banks defying gravity, somehow they have found ways of making water run up a mountain rather than run down. The feat is admirable though fuzzy" he said (see chart 4).

 

Chart 4: Access Bank's Gross Loans and Advances (N'trn)

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Source: Proshare Research, Access Bank Financial Statement

 

Shareholders Fund

Shareholder's funds grew by +14.73% from N584 bn recorded in H1 2019 to N670 bn recorded in H1 2020. This was largely driven by +24.35% Y-o-Y growth in retained earnings. The rise in shareholder's funds mirrors the trend with other top banks as they shore up their capital positions to improve their adequacy ratio or CAR. Going forward this would strengthen the bank's balance sheet but it would also draw down return on shareholders funds as long as growth in profit after tax lags the rise in the addition to the funds. For long-term equity holders the bank's playbook is a boon as it represents a steady rise in future earnings (see chart 5).

 

Chart 5: Access Bank's Shareholders Fund (N'bn)

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Source: Proshare Research, Access Bank Financial Statement

 

 

Costs- Fighting The Pain

 

Access bank's cost-to-income ratio (CIR) skidded upwards to 65.8% in H1 2020 from 61.0% recorded in H1 2019, this was driven by a +49.76% increase recorded in its operating expenses. Major drivers of the increase recorded in operating expenses were the +86.40% Y-o-Y increase recorded in outsourcing cost and +56% Y-o-Y increase recorded in AMCON charges. A sore point in the bank's H1 performance is the rise in its CIR. The bank saw a significant rise in travel expenses which analysts considered as unusual during a period of international flight suspensions and domestic interstate travel restrictions. The bank will need to address the rampant operating costs in months ahead as the pain of bleeding cash on travels may draw the ire of shareholders by the year end (see chart 6).

 

Chart 6: Access Bank's Cost-to-Income Ratio

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Source: Proshare Research, Access Bank Financial Statement

 

Asset Quality - All About the NPLs

Non-performing loans of Access bank declined to 4.4% in H1 2020 from 6.4% recorded in H1 2019. This was as a result of a +60.10% Y-o-Y increase in recoveries recorded by the Group and a robust risk management approach by the bank, this shows an improvement in asset quality. H1 2020 results show the Group's NPL by sector shows it is largely exposed to the Oil and gas services, steel rolling mills and the agricultural sector (see chart 7).

 

Chart 7: Access Bank's Non-Performing Loan Ratio

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Source: Proshare Research, Access Bank Financial Statement

 

Access Bank Strategy- A Peer into The Looking Glass

Access bank has indicated an emphasis on operational cost management, aggressive asset recovery, improvement in its asset quality and an increase in agency banking as priorities for 2020. Looking into the future the bank would need to take a stronger grip of its operating costs while it effectively leverages its immense technology advantage.


The bank will need to upgrade its consumer journey experience and pull out the stops in jumping the consumer to higher levels of satisfaction. The reflecting glass of operating performance of Access bank in H1 2020 have not been blinding but they have been noticeable.

 

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 Source: Access Bank Financial Statement, Proshare Research




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