EUR 3.48 For Business Accounts Only

Access Bank Plc. - Moderate 9M: Strong revenue but funding cost gaining motion.

• Access Bank Plc. (Access.NL) released a 9M 2017 result that was a tad below our expectation, with the company’s EPS of N95 printing 4.3% higher YoY. Notwithstanding strong growths in interest income and non-interest revenue (NIR), earnings were markedly moderated by higher funding cost and operating expenses with a loss on derivative instrument further compounding pressures.
• Parsing through the details, despite higher asset yields (+320bps YoY to 13.5%), net interest margin (NIM) rose by a mild 63bps YoY to 6.7% on the back of pressures from funding cost (WACF: +230bps YoY to 5.9%). Funding cost pressure was, in turn, a reflection of higher interest expense on term deposit and debt securities ($900 million outstanding Eurobond instruments maturing 2021). For evidence, low-priced deposit (CASA) as a share of total deposit declined from 57% (9M 2016) to 47% in 9M 2017.
• Elsewhere, NIR tracked 28% higher YoY on the back of robust trading income (+76% YoY to N75 billion) - a reflection of N116 billion realized FX gains on matured derivatives in the period. Despite the foregoing and the net interest income of N5 billion (+14.2% YoY), higher operating expenses (+31% YoY) and a flattish loan loss provisioning (+4.0% YoY) moderated pass-through from gross earnings with PAT of N56.4 billion only 4% higher relative to prior year.
• Softer provisioning masks soft core earnings in Q3 17. Like its peers that have released results thus far, Access reported lower loan loss provisioning in Q3 17 (-66% QoQ) which combined with softer operating expenses (-18% YoY)—a reflection of the one-off AMCON charge in Q2 17—to mask underlying weakness on the core front. Pertinently, while interest income rose marginally (1.7% QoQ) given lower yield on assets (-26bps QoQ to 10.4%), interest expense rose by a sharper 7.7% QoQ with WACF tracking higher by 35bps QoQ to 6.4%. The foregoing drove a contraction in NIM (-53bps QoQ to 5.8%). 
• Further down, with N2 billion FX loss on derivative position (Q2 17: N7.9 billion loss), trading income declined 43% relative to prior quarter to drive a 28% contraction in NIR to N34.4 billion. Consequently, PBT of N20.8 billion was flat QoQ. Irrespective, lower taxes (-47% QoQ to N3.9 billion) provided support for EPS, which printed 26% higher QoQ at N0.59 (Q2 17: N0.46).
• Further analysis to follow.

 

• See attached for full report