Access Bank gets margin squeeze in Q3, still beats last year’s profit in 9 months

Access bank suffered a squeeze in profit margin in the third quarter but still beat the 2020 full year profit in nine months at roughly N122 billion compared to N102 billion. Bearing the strength for profit growth this year are two functions of growing revenue and cost moderation.

There was however a squeeze in profit margin in the third quarter and a profit drop of 9 percent quarter-on-quarter to N35 billion followed. This is against accelerated growth in profit recorded in the preceding quarters at 28 percent in the first quarter and 75 percent in the second.

The profit squeeze in the third quarter was driven by three major developments on the sides of both costs and incomes. The first is rising cost of funds — which grew by 43 percent quarter-on-quarter to N83.5 billion or 41 percent of the closing figure for the third quarter. This is more than two and two-third times the increase of 16 percent in gross earnings quarter-on-quarter during the period.

Interest expenses consumed over 55 percent of the N151 billion interest income generated within the third quarter, rising from 45.5 percent in the same quarter in 2020. The result is a drop in net interest earnings for the third quarter from over N70 billion to N67.6 billion quarter-on-quarter.

The second development is on the side of earnings – which is a huge drop of 76.4 percent in net foreign exchange gain quarter-on-quarter to N18.6 billion. This was a critical earning line for the bank last year, the loss of which created a major impact on the bottom line in the third quarter of this year.

The third leg of the profit squeezing tripod in the third quarter is operating cost – which rose by 36.4 percent quarter-on-quarter to more than N101 billion for the third quarter. That consumed almost 45 percent of the gross income generated in the quarter.

With cost increases and revenue disappointment in the third quarter, Access Bank lost net profit margin at 15.5 percent compared to nearly 20 percent net profit margin in the same quarter last year.

The outcome is that of the over N31 billion increase in revenue for the bank in the third quarter, no part of the increase reached the bottom line.

Despite the weak third quarter, the bank’s year-to-date after tax profit closed above the full year figure for 2020, as we projected at the end of half year operations. Nevertheless, the ability to convert revenue into profit weakened at the end of September. Net profit margin declined from 19.3 percent at half year to 17.6 percent at the end of the third quarter.

The bank retained the strength of growing revenue at the end of the third quarter. Gross earnings have stepped up every quarter on year-on-year reading from less than 6 percent increase in the first quarter to 13.5 percent at half year and further to almost 17 percent at the end of the third quarter, closing at N693 billion for the nine-month period.

The high rise in interest expenses in the third quarter changed the bank’s position from a slight decline in cost of funds at half year to an increase of 13.5 percent to over N203 billion at the end of the third quarter in September 2021. This represents an increase of over N24 billion during the period.

However, with the strength of revenue still going for the bank, interest earnings rose nearly twice as fast as interest expenses at 25.5 percent year-on-year to N471 billion at the end of the third quarter. This is an upturn for the bank this year from a drop of 9 percent in interest income in the 2020 financial year.

Cost of funds still moderated relative to interest earnings, claiming a reduced share of interest income at 43 percent at the end of the third quarter compared to 47.7 percent in the same period last year. However, it is an increase from the half year margin of 37.4 percent, reflecting the strong growth in interest expenses in the third quarter.

Net interest income grew by 36.4 percent year-on-year to N267.7 billion at the end of September, slowing down however from 58.5 percent growth at half year. Interest income accounted almost exclusively for the growth in revenue, as non-interest earnings recorded only a marginal increase.

This was compensated by a slowdown in loan impairment charges following a drop by N7.5 billion in the third quarter. At the end of the third quarter, loan impairment expenses decelerated from 74 percent upsurge at half year to an increase of 13.7 percent year-on-year to close at almost N39 billion.

The bank built an after tax profit of nearly N122 billion at the end of the third quarter, which is an increase of 19 percent year-on-year. This is a sharp slowdown from the top record profit growth of 59 percent at half year – reflecting the profit decline suffered in the third quarter.