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ACCESS BANK PLC - Marginal Profit gains despite 26% y/y Gross Earnings growth

Strong Earnings improvement only translates to 3% PAT growth
ACCESS recently posted its Audited FY’19 results, reporting strong growth in Gross Earnings, thanks mainly to the business combination with Diamond
Bank. The bank posted 26% y/y growth in Gross Earnings to ₦666.8 billion (Vetiva Estimate: ₦738.2 billion), driven by a 41% increase in Interest
Income. Notably, the bank reported a Net Interest Margin of 6.6%, an improvement on FY’18 NIMs of 5.3%. However, the bank’s performance still
trails the Tier-1 average NIMs of 7.5%. Meanwhile, earnings missed our estimate due to a 12% decline in Non-Interest Income. This was occasioned
by an ₦83.9 billion loss on foreign exchange investments caused by the unwinding of the bank’s FX derivative contracts which matured in Q4’19.
Furthermore, the bank recorded a 38% y/y increase in loan loss provisions to ₦20.2 billion (Vetiva Estimate: ₦17.8 billion); a result of the 39% y/y
increase in Loan book. Finally, the bank’s Opex increased by 33% y/y to ₦271.6 billion (Vetiva Estimate: ₦265.8 billion), a result of the increase in
personnel, premises and equipment costs. Overall, the bank posted a PAT of ₦97.5 billion (Vetiva Estimate: ₦141.6 billion) a 3% y/y increase, giving an
EPS of ₦2.74 (FY’18: ₦3.25).

Further cost synergies to subdue Opex growth in 2020
While ACCESS recorded a 33% y/y increase in Opex due to merger activities, we expect the bank to tame Operating costs in 2020, due to further cost
synchronizations and operational synergies, therefore, we forecast flattish growth in Opex for FY’20. Furthermore, our loan book expectation of 2% y/y,
coupled with the significant provisions incurred in FY’19 leads us to project a 9% increase in provisions to ₦21.9 billion (FY’19: ₦20.2 billion), whilst we
expect a further 4bps improvement in NPL ratio to 5.4% (FY’19: 5.8%), driven by further write-offs and recoveries.