Again, foreign exchange gain leads Access Bank’s N296bn revenue in Q1

Access Bank Plc is reaping huge foreign exchange gains for the second year with a net gain of almost N86 billion in the first quarter. This is an exceptional leap in net foreign exchange gain from N1 billion in the corresponding period last year.

The bank’s first quarter interim earnings report made up to March 2022 shows a sustaining weakness in earnings from the core business of lending and investing, which is significantly remedied by the exchange gain-led growth in non-interest earnings.

Net income after loan impairment charge went down by 9.5 per cent to close at N73.7 billion for the quarter. This shows that interest income, the bank’s main revenue source, did not contribute to the improvement of profit during the period.

This is a further weakness this year compared to last year when the bank grew net income by 9 per cent against 51 per cent advance in after tax profit. Despite the improvement last year, the bank’s income net of loan impairment expenses of N218 billion stayed below the 2019 peak of N257 billion.

The strength to grow profit during the first quarter of the current financial year came from non-interest revenue, which more than doubled at 112.6 per cent year-on-year to about N167 billion at the end of March.

Non-interest earnings contributed 56.5 per cent of gross earnings of N295.7 billion for the first quarter, rising from 35 per cent in the same period last year. Net foreign exchange gain accounted for more than one-half of the non-interest earnings for the quarter.

Access Bank successfully turned the tide of three years of foreign exchange losses last year when it recorded an upswing from a net foreign exchange loss of N7.5 billion in 2020 to a net gain of over N101 billion. The upswing in net foreign exchange gain, which powered the robust profit growth last year, is being sustained for the second year.

However, profit improvement so far this year is nowhere near the exceptional growth seen at the end of the 2021 financial year. Access Bank closed the first quarter operations with an after tax profit of N57.4 billion, which is a year-on-year improvement of 9 per cent.

The slowdown in profit momentum in the first quarter is a reflection of increased pressure from the cost of funds, which consumed much of the increase the bank realised in interest earnings. Interest expenses rose by more than 73 per cent year-on-year to over N86 billion, which is three and half times the increase of less than 21 per cent in interest income. The bank closed the first quarter with a total interest income of N173.7 billion.

Access Bank has faced the challenge of interest expenses rising well ahead of interest earnings since last year and the development intensified in the first quarter of the current year. Last year, interest expenses grew by 32.7 per cent to N300 billion compared to a 23 per cent growth in interest income to about N602 billion.

Last year also, an increase of 32.3 per cent in loan impairment expenses to over N83 billion added to the strain that squeezed net income. This year so far, loan losses have been largely contained at an increase of 9 per cent year-on-year to N13.7 billion but the upsurge in cost of funds has claimed any cost saved.

Interest cost claimed almost half of total interest earnings at 49.7 per cent in the first quarter, jerking up from 34.7 per cent in the same period in 2021. That caused a decline of 7 per cent in net interest income year-on-year to N87.4 billion at the end of the first quarter.

The increase in cost of funds was led by payments to customers, which advanced by 156 per cent to roughly N54 billion for the quarter. The bank’s report said the increase in cost of funds is due to an increase in customer deposits.

The bank’s customer deposits rose by roughly 32 per cent from the first quarter figure of N5,684.6 billion in 2021 to N7,494.5 billion at the end of the first quarter of 2022. This is an additional customer deposit inflow of N1.8 trillion over the period.

The challenge for the bank, therefore, resides in the inability to match the growth in interest earnings with the rapid growth in interest expenses. The difficulty draws from large non-performing risk assets evidenced by huge credit losses of over N83 billion the bank recorded last year.

In 12 months to March 2022, the bank expanded customer credit volume by over N1 trillion from less than N3.3 trillion in 2021.

Access Bank closed the first quarter with a N12 trillion balance sheet largely made of customer loans and advances of N4.3 trillion, investment securities of N2.3 trillion and restricted deposits/other assets in excess of N2 trillion. It also held cash and bank balances of N1.4 trillion, non-pledged trading assets of N855 billion and pledged assets of N432 billion.