Access Bank: Profit drops on loss of trading income, rising credit losses

After three years of sustained profit improvements, Access Bank closed the 2017 operations with a profit drop, as loss on investment securities and rising credit losses hurt profit performance. The bank’s profit had slowdown sharply in 2016, which extended into a drop in 2017.

Net gains on investment securities collapsed from N55 billion into a net loss of over N33 billion over the period. The bank closed the 2017 financial year with an after tax profit of N61.99 billion, down from the 2016 peak of N71.44 billion to the lowest profit figure in three years. The ability to convert revenue into profit is down to the lowest mark in six years.

Despite the disappointment in investment trading income, the bank was able to reinforce growth in gross earnings in 2017 after a slowdown in 2016. At N459.08 billion, gross earnings accelerated from 13% in the prior year to 20.4% growth in 2017. Interest income accounted for the revenue improvement exclusively at an increase of 29% to N319.85 billion while non-interest income improved by 4.3% to N139.23 billion during the year.

The net loss on investment securities was remedied by a massive growth in net foreign exchange gain from only N3.6 billion in 2016 to nearly N108 billion at the end 2017. This was significantly a recovery in the income line after a drop of 86% in the preceding year. The positive development was again punctured by a 60% drop in other income.

A sharp increase in interest expenses posed a new challenge for the bank in 2017 after a major slowdown in the preceding year. At N156.40 billion, interest expenses advanced by 44.6% compared to an increase of 5.6% in 2016 and the 29% improvement in interest income.  Interest expenses claimed 49% of interest income in the year, increasing from less than 44% in the preceding year. That slowed down growth in net interest income from 32% to 17.5% over the review period.

Impairment charges for credit losses again stood as a major obstacle on the flow of revenue into the bottom line. The charges rose by 57% to N34.47 billion in 2017, up on the rise of 54% in the preceding year – an accelerated growth for the third year running. Rapid growth in credit losses was a key factor in the profit slowdown in the previous year and again a major force in the profit drop in 2017.

Total operating cost, accelerated from 10% in the prior year to 17% at the end of 2017. That still showed a slight moderation relative to the increase of 20% in gross earnings. A slight decline in operating cost margin could not remedy the impacts of the drop in income and rising interest and loan loss expenses during the year.

The summary of the bank’s position at the end of the 2017 financial year is that costs grew generally ahead of revenue. Profit margin declined for the second year from 18.7% in 2016 to 13.5% at the end of 2017 – the lowest profit margin the bank has recorded since 2012.

The bank earned N2.18 per share at the end of 2017, down from N2.50 in the preceding year. It has declared a final cash dividend of 40 kobo per share, up on the interim dividend of 25 kobo it paid in the course of the financial year. The bank’s register of shareholders is scheduled to close between 13th and 18th April and payment date is 25th April, 2017. Total dividend for the year is unchanged from the 65 kobo the bank paid for the 2016 operations.

The bank grew the size of the balance sheet by 17.7% to N4.10 trillion in 2017, up on the top record growth of 34.4% in the preceding year.  The growth drivers are pledged assets, which grew by 42%, cash-based assets, which rose by 33.6% and investment securities, which expanded by 21%. Asset growth was financed mainly by increases of 169% in due to banks, 124% in other liabilities and 7.5% in customer deposits.