Access Bank Plc Q4/FY 2020: Strong Non-Interest Income Offset the Impact of weak NIM and Jump in Loan Impairment

April 8, 2021/InvestmentOne Report

·         Net interest income of N66.68billion, down 4.84%q/q , 0.50%y/y     

·         Non-interest income of N50.91billion, down 18.68%q/q, up 254.46%y/y.

·         Profit before tax of N9.30billion, down 78.03%q/q, 16.39% y/y.

·         Profit after tax of N3.71billion, down 91.01%q/q, 33.98%y/y..

Weak q/q Performance

Access Tower. Image Credit: accessbankplc.com

Last week, Access Bank released its audited FY 2020 result which showed a 78.03%q/q decline in PBT to N9.30billion in Q4 2020.  This was driven by 4.84%q/q fall in Net Interest Income (NII), 18.68%q/q decline in Non-interest income, 9.72%q/q increase in OPEX and 61.21q/q jump in loan impairment charges. We believe the decline in Net Income may not be unconnected to the weakness in NII margin as the bank’s loan book grew by 18% at the end of FY 2020 from +14% at the end of 9M 2020. Non-interest income was down due to the FX loss of N20.21billion from a gain of N78.86billion recorded in Q3 2020 and a 30.46% fall in net fees and commission income which offset the Net gains on investment securities of N38.50billion from a loss of N50.65billion recorded in Q3 2020.   

Strong Gains in Non-interest Income Support Earnings

On a y/y basis, while Net Interest Income (NII) was somewhat flat, Non-interest jumped to N50.91billion from N14.36billion recorded in Q4 2019. In line with the trend in the banking sector, loan impairment jumped to N28.65billion in Q4 2020 from N9.58billion in Q4 2019 as the bank accounted for the impact of the current pandemic on assets value. OPEX jumped 31.26%y/y on the back of high cost of operation of the enlarged business scale. We highlight that the increase in Non-interest Income was driven by lower FX loss of N20.21billion recorded in Q4 2020 compared to a loss of N89.03billion in Q4 2019. As a result of the jump in loan impairment and OPEX, the bank’s PBT declined by 16.39% y/y to N9.30billion in Q4 2020. 

Lower FX loss Drives FY Performance

For FY performance, the bank recorded a 12.51% increase in PBT to N125.92billion on the back of the jump in Non-interest income to N252.37billion from N112.11billion in FY 2019. The jump in Non-interest Income was more than enough to offset a 5.15% fall in Net Interest Income (NII), 26.94% increase in OPEX and a jump in Loan impairment to N62.89billion from N20.19billion recorded in FY 2019. According to the management, the jump in loan impairment was due to a one-off COVID impact on a Structured Trade Finance (“STF”) portfolio in the Access Bank UK. The increase in Non-interest income was driven by 26.37% increase in net fees and commission, 85.61% jump in net gains on investment securities (mark to market gains due to rally in FI market in 2020) and lower FX loss of N7.57billion compared to a loss of N83.88billion recorded in 2019.The fall in NII was due to weak Net Interest Margin which fell to 5.00% from 7.00% in 2019. The increase in OPEX was due to the bank’s continuous expansion strategy which has caused its expenses to rise further. 

Despite the jump in OPEX, cost to income ratio declined to 63.40% from 65.20% in FY 2019 on the back of a stronger growth in income. Nonetheless, this is still outside the range of 55%-60% guidance set by the bank for 2020.  Elsewhere, the bank’s NPL ratio fell to 4.3% from 5.8% in FY 2019 on the back of write-offs in the period under review. 

Outlook

Given that most banks already applied for loan restructuring with the CBN, we expect the impact of the current pandemic to be limited on asset quality. With that being said, we believe a diversified loan portfolio of Access bank puts its risk lower than others. As a result, we expect the bank to be less affected (relative to other tier 1 banks) by the current weakness in the macroeconomic environment. Nonetheless, we expect the bank to focus on risk management and cost containment to weather the impacts of the current pandemic.

We expect the current expansion strategy to other African countries and non-bank financial services to have a positive impact on the bank’s earnings diversification and sustainability in the long run. We highlight that the bank expanded its business to Kenya and Mozambique, further increasing its footprints across the African Continent. Access Bank Zambia also concluded the acquisition of Cavmont Bank Limited in January 2021 and the Group recently announced the approval by relevant regulatory authorities for the acquisition of Grobank Limited in South African market. In terms of Holdco structure, the Bank has received the Approval-In-Principle from the Central Bank of Nigeria for the restructuring and the HoldCo will consist of 4 subsidiaries in order to tap into the market opportunities that are available in the consumer lending market, electronic payments industry and retail insurance market.

Overall, we expect the bank’s strong capital base (CAR of 21.00%), which is well above the regulatory requirement of 15% should support its ability to survive in the current challenging macroeconomic environment.

 

   

ACCESS BANK PLC FY 2020 (YE: DEC) (N millions)

 

 
 

Q4 2020

 

Q/Q

 

 

Y/Y

 

 

FY 2020

 

Y/Y

 

 

 

Interest Income

 

113,932

 

-11.38%

 

 

-13.57%

 

 

489,216

 

-8.87%

 

 

 

Interest Expense

 

-47,257

 

-19.21%

 

 

-27.08%

 

 

-226,267

 

-12.85%

 

 

 

Net Interest Income

 

66,675

 

-4.84%

 

 

-0.50%

 

 

262,949

 

-5.15%

 

 

 

Non-interest income

 

50,914

 

-18.68%

 

 

254.46%

 

 

252,374

 

125.12%

 

 

 

Profit before provisions

 

117,589

 

-11.37%

 

 

44.50%

 

 

515,323

 

32.36%

 

 

 

Loan Impairment charges

 

-28,653

 

61.21%

 

 

199.13%

 

 

-62,893

 

211.52%

 

 

 

Total Opex

 

-79,637

 

9.72%

 

 

31.26%

 

 

-326,508

 

26.94%

 

 

 

PBT

 

9,299

 

-78.03%

 

 

-16.39%

 

 

125,922

 

12.51%

 

 

 

Tax

 

-5,590

 

431.87%

 

 

1.55%

 

 

-19,912

 

11.43%

 

 

 

Tax rate

 

 

60.1%

 

5763bps

 

 

1062bps

 

 

15.81%

 

-15bps

 

 

 

PAT

 

3,709

 

-91.01%

 

 

-33.98%

 

 

106,010

 

12.71%

 

 

 

Source: Company financials, Investment One Financial Services Research  

 

FY 2020 BANKS COMPARISON SHEET

 

NGN billion (unless stated otherwise)

 

 

 

ZENITH

 

UBA

 

GTB

 

ACCESS

 

FBNH

 

Key Income Statement Figures

 

Gross Earnings

 

 

696.45

 

621.45

 

455.25

 

764.72

 

579.4

 

Net Interest Income

 

 

299.68

 

259.47

 

253.67

 

262.95

 

251.6

 

Non-interest Income

 

 

251.75

 

148.18

 

148.25

 

275.5

 

174.7

 

Total Expenses

 

 

256.03

 

249.85

 

144.25

 

326.51

 

292.50

 

Loan Impairment Charges

 

39.53

 

27.01

 

19.57

 

62.89

 

50.60

 

Profit Before Tax

 

 

255.86

 

131.86

 

238.09

 

125.92

 

83.7

 

Y/Y PBT Growth

 

 

 

 

 

5.17%

 

 

18.49%

 

 

2.76%

 

 

12.51%

 

 

11.20%

 

 

Dividend (Kobo per share)

 

 

2.70

 

0.35

 

2.70

 

0.55

 

0.45

 

EPS (kobo per share)

 

 

7.34

 

3.20

 

7.11

 

3.01

 

2.45

 

Key Balance Sheet Figures

 

Total Assets

 

 

8,481

 

7,698

 

4,945

 

8,680

 

7,689

 

Total Liabilities

 

 

7,364

 

6,974

 

4,130

 

7,929

 

6,924

 

Total Equity

 

 

1,117

 

724

 

814

 

751

 

765

 

Key Ratios

 

Net Interest Margin

 

 

7.90%

 

5.40%

 

9.26%

 

5.00%

 

6.10%

 

Cost of Fund

 

 

2.10%

 

2.90%

 

1.20%

 

NA

 

2.30%

 

Cost to Income

 

 

50.00%

 

61.20%

 

38.24%

 

63.40%

 

68.60%

 

NPL ratio

 

 

4.29%

 

4.70%

 

6.39%

 

4.30%

 

7.70%

 

Liquidity (bank level)

 

 

62.50%

 

44.00%

 

38.91%

 

46.00%

 

NA

 

Cost of Risk

 

 

1.50%

 

0.90%

 

1.18%

 

1.18%

 

2.40%

 

Capital adequacy ratio (bank level)

 

 

23.00%

 

22.40%

 

21.89%

 

20.60%

 

17.00%

 

ROE

 

 

22.40%

 

17.20%

 

26.83%

 

15.60%

 

12.60%

 

ROA

 

 

3.10%

 

1.71%

 

4.63%

 

1.34%

 

1.30%

 

Source: Company financials, Investment One Financial Services Research

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