Access Bank: Breakout growth in Q3 brightens outlook

A breakout growth in earnings for Access Bank in the third quarter powered a 55 percent advance in profit quarter-on-quarter — the bank’s best quarterly record by the end of September 2020.

An after tax profit of over N41 billion earned in the third quarter gave the bank 40 percent of its closing profit of N102 billion for the nine months of the financial year.

With the strong third quarter outing, the bank has beaten its 2019 full-year profit of N97.5 billion by the end of September. The bank’s fortune has changed from a slight profit decline at half year to a rise of about 16 percent year-on-year at the end of the third quarter.

The big event in the third quarter that produced the upturn in the bottom line is a wide upswing from a huge foreign exchange loss to a massive gain within the three-month period. The bank raked in a kind of windfall in net foreign exchange gain of almost N79 billion in the third quarter.

The gain wiped off a net foreign exchange loss of over N66 billion at the end of June and built a net gain of N12.6 billion at the end of September. The impact on the bank’s income statement is a rebound from a 250 percent upsurge in net foreign exchange loss at half year to a rise of 145 percent in net foreign exchange gain at the end of the third quarter.

Despite the exchange gain, the bank recorded a slowdown in revenue growth from 22 percent at half year to 15 percent at the end of the third quarter. This reflects weaknesses in some other income lines in the third quarter as well.

These include net loss on financial instruments that soared to N50.6 billion during the quarter. That consumed a good part of net gains of N135 billion recorded at the end of half year operations. Also a drop of 64 percent in other operating income happened in the third quarter.

The bank’s management applied some cost savings, particularly in personnel expenses to reinforce the big gain in foreign exchange earnings. That enabled it to more than counter the revenue disappointments as well as cost increases.

Access Bank was able to gain profit margin at the end of the third quarter and therefore lifted after tax profit against a slowdown in gross earnings. Profit margin improved over the period from 15.4 percent at half year to 17.3 percent at the end of the third quarter.

The slowdown in gross earnings at the end of the third quarter follows a further decline of interest income in the third quarter. Interest income dropped by 7 percent year-on-year to N375 billion while gross earnings amounted to N593 billion at the end of September 2020.

Non-interest income provided the spur for the improvement in gross earnings over the review period. It doubled year-on-year to N217 billion at the end of the period, as most of the non-interest income lines recorded considerable improvements.

Interest expenses provided a cost saving area for the bank, dropping slightly ahead of interest income at 8 percent year-on-year to N179 billion. This is a reversal of the half year position when cost of funds grew while interest earnings dropped. The effect of that is a reduced rate of decline in net interest income from 19 percent in June to 6.6 percent to N196 billion at the end of September.

The pressure from loan impairment charges intensified in the third quarter. Net loan impairment expenses jumped more than three times quarter-on-quarter to the region of N18 billion in the third quarter. That swelled the year-to-date net loan impairment charge from less than N11 billion in the same period in 2019 to over N34 billion at the end of September 2020.

Access Bank carries a net customer loans and advances portfolio in excess of N3 trillion, which is an increase of 6 percent over the nine months of this year. This is a sharp slowdown in credit after the merger-induced expansion of 46 percent in 2019.

Pressure on the side of costs also continued to come from rising operating expenses, which keep growing ahead of revenue. Total operating expenses grew by 26 percent year-on-year to N247 billion at the end of the third quarter, claiming an increased share of gross earnings at 42 percent.

The summary of the bank’s earnings story at the end of the third quarter report is that cost savings increased against a slowdown in revenue. The net effect is an improvement in profit margin and a rebound in the bottom line. The bank’s after tax profit of N102 billion at the end of the third quarter is an increase of 15.7 percent year-on-year.

The bank earned N2.90 per share at the end of September 2020, improving from N2.71 per share in the same period in 2019. Shareholders can hope for more in cash dividend at the end of the year, up on the interim of 25 kobo per share paid at the end of half year.