Thursday 24th August 2017 4:35 PM/ Investment One Research
Q2 2017 results highlight: Opex weighs heavy on strong non-interest earnings
· Net interest income of N40.3bn, down -5.7% q/q; up +19.1% y/y
· Profit before tax of N20.8bn, down -33.2% q/q; -2.7% y/y
· Profit after tax of N13.4bn, down -48.3% q/q; -4.3% y/y
Access Bank released its Q2 2017 results yesterday which showed -33.2% q/q decline in PBT to N20.8bn, -10.4% lower than our estimate.
The bank’s performance was largely driven by the +34.4% q/q spike in opex, +124.1% q/q jump in loan impairment charges and a -5.7% q/q decline in net interest income, which more than outweighed the +11.4% q/q increase in non-interest income.
The rise in opex was partly due to the bank taking the prudent approach in reporting its FY 2017 AMCON levy in Q2 2017, like other audited Tier 1 banking results released in Q2 2017. However, we highlight that after adjusting for the AMCON levy, opex is up +17.2% q/q, which may be indicative of inflationary pressures in the economy.
Furthermore, the jump in loan impairment charges may not be unconnected with the increase in the bank’s non-performing loan (NPL) ratio, which inched up +30bps q/q to 2.5%. In addition, we believe the surge in provision may be due to Access bank taking a conservative stance on its 9mobile (EMTS) exposure, like other audited Tier 1 banks, although the entity is still performing.
As a result of the increase in provisioning, the bank’s NPL coverage rose to 174% as at Q2 2017, from 164% as at Q1 2017. Nonetheless, capital adequacy ratio at 21.6% as at Q2 2017 remained sufficiently above the 15% regulatory threshold for systemically important banks.
Also, we point out that the uptick in non-interest income was the result of the +148% q/q jump in FX trading income and a +12.6% q/q uptick in net fees and commission income, which more than offset the -N14.7bn q/q decline in net gains on investment securities. In our opinion, the jump in FX trading income may not be unrelated with the bank’s N124bn net derivative position on its balance sheet.
Compared to the restated Q2 2016 results, which were adjusted for the AMCON levy for consistency, PBT fell by -2.7% y/y due to a +44.8% y/y jump in opex, which cancelled out the +29.6% y/y surge in non-interest income, +19.1% y/y increase in net interest income and a -8.3% y/y decline in loan impairment charges.
Going forward, we believe the bank should continue to benefit from the high interest rate environment and the improving liquidity in the FX market. However, we remain concerned on the impact of the volatility seen in FX trading income and further deterioration in asset quality, which may weigh on PBT and ROE in FY 2017.
The company announced an interim dividend of 25kobo per share representing a c.2.4% dividend yield on yesterday’s close price.
While our models are under review, we rate ACCESS shares HOLD.
1. Access Bank Plc H1-17 Results: Impressive Top Line Growth Dashed by Change in AMCON Levy Treatment
2. Access Bank Reports Q2 2017 Results as PBT Declined Marginally by -3% YoY to N20.8bn
3. ACCESS Declares N39.46 billion PAT in Q2 2017 Results; Proposes 25k Interim Dividend ,(SP:N10.24k)
4. Access Bank Plc Q1'17 Conference Call & Earnings Presentation - The Key Takeaways
5. ACCESS Declares N26.02 billion PAT in Q1 2017 Results,(SP:N6.40k)
6. Access Bank Plc holds 28th AGM, pays shareholders total dividend of 65k for 2016 FY
7. Access Bank Plc - Management to Continue Exploiting Opportunities in FX Derivatives
8. Access Bank Plc 2016 FY Conference Call & Earnings Presentation - The Key Takeaways
9. ACCESS declares N71.44 billion PAT in 2016 Audited Results; Proposes 40k Final Dividend,(SP:N6.48k)
10. Access Bank Posts N90.3bn Profit in 2016, Declares 40k Final Dividend
11. FO, Access Bank and Others Turn to the Bond Market
12. Access Bank Plc - Investment Case Still Strong Despite Raised OPEX
13. ACCESS declares N57.09 billion PAT in Q3 2016 Results,(SP:N5.70k)
14. Access Bank Plc Successfully Raises US$300m Eurobond
15. Access Bank Announces Exchange Offer and Minimum New Issue Yield