Access regaining earnings growth momentum

Access Bank is expected to finish this financial year with a much better operating story than shareholders heard last year. The bank seems to have regained the earnings growth momentum it lost last year when revenue was flat and profit declined. A step up in revenue growth and resumption in profit growth are likely to be the highlights of the bank’s performance in 2014.

Mr. Herbert Wigwe, the new group chief executive officer of the bank, is very likely to announce his coming into office with a new profit high for the bank. He closed third quarter operations with after tax profit just slightly below the full year figure in 2013. His key accomplishment so far in the affairs of the bank is the lowering of the cost-income ratio, as revenue is looking up and costs are looking down. He has therefore improved profit margin at a time that most banks are unable to defend theirs.

The bank reported a year-on-year growth of 17.3% in gross earnings to N181.80 billion at the end of the third quarter. Interest income led revenue growth with an increase of 20% to N131.72 billion during the period. The full year outlook indicates gross income in the region of N245 billion for Access Bank in 2014, an anticipated growth of 18.3% over the closing figure last year. This will reinforce the growth momentum after a flat growth last year.

The bank grew after tax profit well ahead of revenue at 28% to N35.35 billion year-on-year at the end of the third quarter. The growth rate accelerated from the second quarter level, which has improved the full year outlook.

Based on the third quarter growth rate, after tax profit is projected at N46.7 billion for Access Bank at the end of 2014. This will be an increase of 28.7% over the closing figure of N36.3 billion the bank posted in 2013. It will be an increased growth momentum from a decline of 7.7% in after tax profit in the preceding year and one of the strongest profit advances in the banking industry this financial year.

Increased growth momentum is built on accelerating revenue and moderating cost. The bank is expected to achieve one of the strongest revenue improvements in the banking industry in 2014. Significant cost moderation has been achieved during the review period, lowering the cost-income ratio and improving profit margin. By stepping up growth is a year of a general slowdown in the banking industry, the bank’s management is narrowing its positioning on the industry leadership table.

Total operating cost declined by 2% to N76.87 billion year-on-year, thereby lowering operating cost margin from 50.5% to 42.3% over the period – one of the lowest cost margins in the banking sector. Interest expenses grew less rapidly than gross earnings at 11% to N55.78 billion against an increase of 20% in interest income. This permitted a strong growth of 27% in net interest income and led to a reduction in the average cost of funds for the bank.

A good part of the cost savings was claimed by the swing in loan impairment charges from a net write back of N8.68 billion at the end of the third quarter last year to a net charge of N6.96 billion this year. Net loans to customers had expanded by 34% to N1.06 trillion by the end of September over the closing figure last December.

Net profit margin still improved from 17.8% to 19.4% year-on-year at the end of the third quarter. This is in defiance of the general downward trend in profit margin in the banking industry this year. In terms of ability to convert revenue into profit, Access Bank ranks 4^th in the business. As at the end of the third quarter, GTB maintained the lead on profit margin among listed banks with 33.5%, followed by Stanbic Bank with 26.7% and Zenith Bank with 26%.

The bank earned N1.54 per share at the end of the third quarter, improving from N1.21in the same period last year. Earnings per share is projected at N2.04 for Access Bank at full year, subject to dilution expected from a rights issue in the course of the year.