EUR 4.00 For Business Accounts Only

Initial View- Access Bank Plc - Funding cost disappoints in Q3

• Access Bank Plc released Q3 19 results on Friday, with PBT largely flat QoQ (-0.09%). However, due to a materially lower tax spend (relative to Q2), PAT expanded 27% QoQ. The flat movement in PBT emanated from decline in net interest revenue (-43% QoQ) and higher credit loss provision, both of which more than outweighed increase in non-interest revenue. On NIR, compared to Q2 wherein the bank booked net trading loss of N40 billion, Access recorded net trading profit of N26 billion in Q3, which neutered the impact of lower net fee income (-26% QoQ) and Other Income (-71% QoQ). Particularly on the net trading line, the major gains were recorded on FX trading (gain of N23 billion, compared to loss of N24 billion in Q2) and FI trading income of N16 billion (Q2: loss of N7 billion). Elsewhere, following loan growth of N60.8 billion for the bank in Q3 alone, the 12-month expected credit loss drove most of the expansion in impairment for loans by N6.9 billion in Q3. On the positive, the bank booked N4.6 billion writeback on previous impairment of financial assets, which moderated total provisioning over Q3 to N5.7 billion. Over 9M 19, the bank recorded PBT and PAT growth of 47% and 44% YoY.
• On interest income, similar to UBA, the growth in interest on loans over Q3 was largely muted. Particularly, interest income declined 18% QoQ following declines in interest on loans and investment securities, with assets yield moderating 48bps QoQ. While loan yield remained resilient, despite the loan growth, yield on investment securities and cash balance contracted 250bps and 110bps QoQ. On the other hand, WACF expanded 97bps QoQ to 5.6%, with related interest expense higher 21% QoQ. The increase largely reflects the higher interest on interbank takings (+46% QoQ), customer deposit (26% QoQ) with CASA sliding to 54% (55% in Q2) and interest on borrowings (28% QoQ). Overall, NIM contracted 92bps QoQ.
• While we had expressed confidence in the movement on the funding line over in Q2/H1 following moderation in WACF, the line disappointed over Q3. On the positive, cost to income ratio moderated 193bps QoQ to 67%, NPL improved 54bps QoQ to 6.3% and capital adequacy ratio remained strong at 20.3%. On an LDR basis, the bank is ahead of the 65% regulatory minimum effective 31st December, with a 67.4% Loan to funding ratio (H1 19: 65.6%).
• Access currently trades at FY 19 P/B multiple of 0.4x, which is at a discount to Tier 1 average of 0.8x. With funding cost retracing the level prior to merger with Diamond bank, we do not see a valuation rerating in the short term. Nonetheless, at current level and based on our FY 19E dividend of N60, we view expected dividend yield of 8.3% as attractive and could be compelling to investors, given the lower pressure on LDR relative to peers.
• 9M 2019 analyst and investors conference call: Access will be hosting a conference call on 30 October at 15.00 Lagos & London time. For more details, .