Access Bank cautious on loans in H2

The management of Access Bank Plc observed a cautious mood on new lending over the first half of the current financial year ended June 2020. The caution appears to be warranted by rapidly rising credit loss expenses facing the bank for the second year. Bad loans are on the rise with loan loss expenses growing at a galloping speed.

Net loan impairment charge jumped two and half times in the first quarter and sped up to more than threefold at half year. The bank’s audited financial report for the half year show that net loan impairment expenses surged upward from less than N5 billion in the same period in 2019 to N16.5 billion at the end of June 2020.

The asset impairment pressure is across the entire lending and investing portfolio – loans to other banks and to customers, other financial assets, money market placements and investment securities. Access Bank is experiencing a rapid growth in loan loss expenses for the second year after an increase of 37.7 percent to over N20 billion at the end of last year.

Rising loan losses are linked to the rapid customer loan portfolio expansion the bank recorded in its post-merger position with Diamond Bank in 2019. Customer credit volume had expanded by 46 percent or N918 billion to N2.91 trillion during the 2019 financial year.

This year so far is one of caution on asset expansion, particularly loans and advances. Only a slight increase of N89 billion or 3 percent in the customer credit portfolio has happened over the bank’s six months of trading to June 2020.Investment securities improved by 11.6 percent to N1.2 trillion at half year compared to over 116 percent advance in 2019.

There is therefore a considerable slowdown in growing the size of the balance sheet from 44.3 percent in 2019 to 8.8 percent over the six months of the current year. The slowdown in asset growth reflects an equally sharp deceleration on the liabilities side of the balance sheet. Customer deposits – the principal liabilities lost the high growth momentum of 65 percent last year and grew by less than 10 percent to N4.7 trillion at the end of June 2020.

The subdued growth in earning assets equally affected earnings performance at half year. Access Bank’s audited half year report shows gross earnings of roughly N397 billion, which is a year-on-year growth of 22.3 percent.

The bank’s key income lines have lost the high growth rates achieved last year. Interest earnings – the main revenue line, dropped by close to 10 percent year-on-year to N247 billion at the end of June against an outstanding increase of 41 percent at the end of last year.

Net fee and commission income has lost the high speed growth of 41 percent in 2019 and improved by 8 percent at half year. The same is true of other operating income – which has slowed down from an exceptional growth of 324 percent in 2019 to an increase of 21 percent at half year.

One major upturn for the bank however helped to counter much of the weaknesses in earnings performance over the review period. This came from net gains on investment securities – which changed direction from a drop of 31 percent in 2019 to multiply 32 and half times to almost N135 billion at the end of June 2020.

The positive impact of the gains on financial assets was again largely countered by another huge net foreign exchange loss of N66 billion at half year, sustaining foreign exchange losses for the third year running. The foreign exchange loss was an increase of 250 percent year-on-year –which consumed much of the improvement in earnings made during the period.

Access Bank had equally recorded a rise of 253 percent in foreign exchange loss to N84 billion in 2019. The sustained high growth in the current year was the key factor that weakened the bank’s profit capacity and caused a decline in profit at half year.

Interest expenses went up by 2.3 percent to N120 billion at the end of half year against the drop in interest earnings during the period. That overturned the bank’s high growth record of 60 percent in net interest income at the end of 2019 to a drop of about 19 percent to N126 billion at the end of June 2020.

Interest expenses claimed an increased share of interest income at 51 percent at half year compared to 43 percent in the same period last year. The same applies to operating expenses,which claimed 44 percent of gross earnings against 38 percent over the same period.

In all the three main expense lines of the bank, costs made new incursions into earnings, which squeezed profit margin and caused a slight decline in the bottom line. Net profit margin declined from 19 percent in the same period last year to 15.4 percent at the end of June 2020.

Access Bank closed half year operations with an after tax profit of N61 billion, slightly down from a little below N62 billion in the same period in 2019. Inability to grow profit reflects the increases in loan impairment expenses,interest expenses and operating cost as well as a huge foreign exchange loss.

The bank earned N1.73 per share for the half year ended June 2020, which is a decline from N1.90 in the same period in 2019. The bank has announced an interim cash dividend of 25 kobo per share to shareholders.