Access Bank: Interest cost limits profit at half year

Access Bank faced a big challenge of rising interest expenses in the first half of its 2017 operations. The bank seems to have broken free from the constrained growth in revenue it encountered last year but a sharp increase in interest expenses weakened its ability to convert the improving earnings into profit. Profit margin is down for the second year from a peak record in 2015.

The bank’s expenditure profile is showing an entirely different picture from the structure seen last year. Last year’s challenge for the bank was a 54% upsurge in loan loss expenses but interest expenses showed a favourable behaviour that permitted an outstanding growth of 32% in net interest income.

This year, the positions have been reversed. Loan impairment charges are flat at 1.5% increase year-on-year but interest expenses grew at a top speed of 80% compared to an increase of 44% in interest income.

Also, operating cost, which moderated at an increase of 10% last year, advanced by over 38% year-on-year at the end of half year. The summary of the bank’s position at the end of June is that costs grew generally ahead of revenue. Profit margin therefore declined from 19.3% in the first half of last year and from 18.7% at full year to 16% at the end of the first half of 2017.

Gross earnings amounted to N246.58 billion for Access Bank at the end of June 2017, a year-on-year growth of close to 42%. Interest income registered a surprising growth of 44% to N161.9 billion over the period. This is against a drop of about 4% in loans and advances to customers, which stood at N1.74 trillion at the end of June. Investment securities also dropped by 27% to about N167 billion from the closing figure last year, leading a slight decline in the size of the balance sheet.

Other major developments on the revenue side are sharp swings in earnings from investment securities and foreign exchange trading. Net gains on investment securities of over N33 billion in the same period last year collapsed into a net loss of N3.65 billion at the end of June this year. Countering the development, a net foreign exchange loss of N11.11 billion at half year 2016, sprang up to a net gain of over N59 billion at the end of June 2017.

Based on the half year performance, gross earnings are projected at N495 billion for Access Bank at full year. This will be an increase of 30% over the closing revenue figure of N381.32 billion the bank posted in 2016. It will be an accelerated growth in revenue from the increase of 13% last year.

The bank paid N78.86 billion in Interest expenses at the end of half year trading, which claimed increased proportions of interest income and gross earnings at 48.7% and 32% respectively. That permitted an increase of 21% in net interest income, which amounted to N83 billion at the end of June.

Impairment charges for loan losses increased slightly by 1.5% to about N10.36 billion, which moderated the impact of interest expenses on the bottom line. That stepped up growth in interest income net of impairment charges to 25%.

The bank appears to have lost its grip on total operating expenses last year, as the cost line rose by over 38% year-on-year at the end of half year. With a slightly stronger growth in revenue, operating cost margin declined from 43.7% to 42.5% over the review period. That was however insufficient to counter the deep incursion of interest expenses on revenue, resulting in a decline in profit margin.

After tax profit grew at a significantly slower pace than revenue at 17.3% to N39.46 billion. The full year outlook indicates an after tax profit in the region of N80 billion for Access Bank in 2017. This will be an increase of 12% over the bank’s profit figure of N71.44 billion at the end of 2016. It will be a step up from an improvement of 8.5% in profit last year.

The bank earned N1.38 per share at the end of June 2017, improving from N1.17 in the same period in 2016. It has declared an interim cash dividend of 25 kobo per share. The bank’s register will close on 7th September and payment date is 21st September 2017. The bank paid a total cash dividend of 65 kobo for the 2016 operations.