Monday,
March 09, 2020 /10:49 AM / By CardinalStone Research / Header Image
Credit: ICIR Nigeria
Access Bank Plc (ACCESS: TP 11.17 - HOLD) reported a modest 2.7% YoY growth in
earnings in its audited FY'19 result that was supported by stronger net
interest income (+59.7% YoY). On a quarterly basis, earnings (-75.7% QoQ) was
dragged lower by a c.N89.0 billion FX loss.
The bank proposed a final dividend of N0.40 per share, which translates
to a dividend yield of 4.7% based on last market closing price.
Highlights:
- Gross loans
rose by 49.1%, partly due to the business combination with the erstwhile
Diamond Bank Plc. We also note the impact of Central Bank's LDR push on the
numbers, evinced by the 8.1% growth in credit assets compared to the bank's
H1'19 position (pre-announcement of the measures). This was achieved in spite
of the bank's initial guidance of slower loan growth while focusing on
resolution of credit quality issues imported from the merger. In effect, the
growth in loans did little to worsen asset quality concerns as NPL ratio
declined from 10.0% post-combination to 6.0% in FY'19, per our estimates.
- Net interest
income strengthened (59.7% YoY), supported by the 52.2% increase in interest
earning assets (notably driven by loan growth of 49.1% and a 2.5x increase in
investment securities) following the merger. Ultimately, net interest margin
improved to 6.9% from 6.2% in FY'18. The improvement in net interest income
also reflected moderation in cost of funds to 5.0% from 5.5% in FY'18, per our
estimates. Notwithstanding the 47.3% increase in interest bearing liabilities,
we note that the redemption of $600 million in Eurobonds (Access Bank $400
million; Diamond Bank $200 million), the 8.2ppts improvement in CASA ratio to
58.1%, and the general moderation in yields underpinned the fall in funding
cost.
- Non-interest
revenue (NIR) fell by 18.9% YoY, mainly dragged by the 3.5x increase in FX
losses, as well as the slowdown in derivative (-60.4% YoY) and equity (-68.5%
YoY) trading gains in the period. Weaknesses on these fronts undermined the
impact of the 41.0% YoY increase in net fee & commission and loan recovery
efforts.
Operating expenses rose by 30.8% YoY, partly due to
one-off integration costs following the business combination. This,
consequently, shot up cost to income ratio to 65.2% from 62.2% in FY'18. On the
other hand, cost of risk was relatively flat at 0.7%.
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