Access Bank: Beating the odds

"Access Bank rode against the headwinds to beat the odds in the first half with strong growths in income, profitability and balance sheet. Capital Market Editor Taofik Salako reports that the increasingly stronger fundamentals of the first-tier bank have firmly placed it on the top curve of the banking growth trajectory – a near consensus among analysts" - (GMD, Access Bank, Herbert Wigwe).

Shareholders of Access Bank will receive about N7.23 billion as interim cash dividends, representing a dividend per share of 25 kobo. The interim dividend recommendation highlights the strong performance of the bank in the first half of this year, as increasing profitability of the commercial bank’s core banking business and cost efficiency expanded net earnings distributable to shareholders. Access Bank is one of the three banks that on the basis of audited report and accounts for the six-month period declared interim dividend per share of 25 kobo. Guaranty Trust Bank and Zenith Bank had earlier declared similar dividend.

Key extracts of the audited report and accounts for the six-month period ended June 30, 2016, showed pre and post tax profits rose by 28 per cent and 26 per cent. The bottom-line performance rode on the back of impressive growth and efficiency in the bank’s core banking incomes as interest income and net interest income grew by 14 per cent and 42 per cent. Gross earnings rose to N174 billion in first half 2016 as against N168.3 billion in the corresponding period of 2015. Interest income rose from N98.9 billion to N112.3 billion as a result of steady income growth from the bank’s core business and a 14 per cent reduction in interest expense. Non-interest income thus improved from N48.16 billion in first half 2015 to N68.45 billion in first half 2016. Also, strong growth in fee and commission income contributed to non-interest income of N61.7 billion which largely off-set the decline in trading income. Operating income grew by 11 per cent from N117.6 billion to N130.2 billion in 2015. Profit before tax rose by 28 per cent to N50 billion in first half 2016, from N39.1 billion in 2015, while profit after tax stood at N39.4 billion, up by 26 per cent from N31.1 billion in the corresponding period of 2015. The bank ended the period with a return on average equity (ROAE), which is above the inflation rate of 16.48 per cent.

The bank’s balance sheet also emerged stronger with the loans and advances rising by 29 per cent to N1.82 trillion by June 2016 compared with N1.41 trillion recorded by the end of the year ended December 31, 2015. The devaluation of the naira accounted for 16 per cent of the loan growth, while core loan growth was 4.5 per cent. Customer deposits grew by 17 per cent from N1.68 trillion in December 2015 to N1.97 trillion in June 2016. Total assets improved by 26 per cent to N3.27 trillion by June 2016, up from N2.59 trillion in December 2015. The bank closed the first half with capital adequacy ratio (CAR) of 19.6 per cent, significantly exceeding the regulatory minimum.

The bank continued to benefit from efficient credit risk management as asset quality remained stable, in spite of the macroeconomic headwinds. The proportion of non-performing loans to total loans stood at 1.9 per cent, within the best industry performance range and significantly below Central Bank of Nigeria’s industry target of 5.0 per cent. Besides, the bank increased coverage ratio(with regulatory risk reserve) to 223.6 per cent, up from 216.4 per cent as at December 2015. Impairment charges rose by 15 per cent from N8.9 billion to N10.2 billion, which is comparatively lower than the over 100 per cent recorded by some its peers.

Underlying indices showed that the performance of the bank was driven by intrinsic fundamentals derivable from core banking business. Net interest margin, which measures the profitability of core banking operations, improved to 6.4 per cent in first half 2016 as against 5.6 per cent in first half 2015. Cost of funds, which measures the ability of the bank to attract relatively cheaper funds, improved to 3.6 per cent in first half 2016 compared with 5.3 per cent in comparable period of 2015. Strong income growth and improved cost controls impacted cost to income ratio, which improved from 59.2 per cent in first half 2015 to 53.7 per cent in first half 2016.

The 2016 first half performance placed the bank on a good footing to sustaining its strong year-on-year growth, scaling up its profile as one of the top three banks in all weathers. Access Bank had recorded a well-rounded performance in 2015 as pre-tax profit rose by 44 per cent to N75.04 billion. The bank paid final dividend of N8.68 billion in addition to earlier interim dividend of N7.23 billion, bringing total dividend for the 2015 business year to N15.9 billion. The breakdown of the dividend indicated that shareholders received a final dividend per share of 30 kobo, in addition to interim dividend per share of 25 kobo, bringing total dividend per share to 55 kobo.

Key extracts of the full-year audited report and accounts of Access Bank for the year ended December 31, 2015 had shown considerable growth across the key indices. Gross earnings rose by 37.5 per cent from N245.38 billion in 2014 to close at N337.40 billion in 2015. Interest income and non-interest income contributed 62 per cent and 38 per cent respectively to the group top-line. Interest income had grown by 17 per cent N207.8 billion in 2015 as against N176.9 billion in 2014, underlining improved income from lending activities and increased yield on investment securities. Non-interest income jumped by 89 per cent to N129.4 billion as against N68.4 billion, a jump that that was attributed largely to strong gains on foreign exchange trading income, which reflects management’s ability to diversify the bank’s revenue sources. The bank’s bottom-line showed impressive growth. Operating income rose by 39 per cent to N234.8 billion in 2015 as against N168.4 billion in 2014. Profit before tax grew by 44 per cent from N52.02 billion to N75.04 billion. Profit after tax improved by 53.3 per cent to N65.9 billion in 2015 as against N42.98 billion in 2014. Earnings per share thus improved from N1.85 in 2014 to N2.62 in 2015. Return on average equity (ROAE) improved to 20.4 per cent in 2015 as against 16.5 per cent in 2014.

Balance sheet analysis equally showed resilient and steady growth. Loans and advances grew by a quarter to N1.41 trillion as against N1.12 trillion. Customer deposits closed 2015 at N1.68 trillion, 16 per cent above N1.45 trillion recorded in 2014. Total assets also rose by 23 per cent to N2.59 trillion in 2015 compared with N2.10 trillion in 2014. The bank’s capital adequacy ratio (CAR) improved by 110 basis points to 19.5 per cent in 2015 as against 18.4 per cent in 2014, driven by a successful equity raising during the year. Against the negative industry trend on assets quality, Access Bank bucked the trend and improved its asset quality as the percentage of non-performing loans to total gross loans improved to 1.7 per cent in 2015 as against 2.2 per cent in 2014.

Analysts’ reviews
Analysts have commended the performance of Access Bank in the first half, with most indicating that the bank surpassed their expectations. Exotix, an international finance and investment firm, described the performance as “strong headline earnings growth”, noting that the bank “has a firm grip on the number three loans market share position”.

“As noted above, first half 2016 earnings are tracking ahead of our estimates although we expect a potential pullback in second half due to declining margins and increasing cost of risk. Nonetheless, we think the bank’s ability to sustain mid to high teens return on equity and capital adequacy is impressive and could result in an upward re-rating from its full year 2016 P/BVPS of 0.4 times,” Exotix stated.

FBN Capital, the investment banking subsidiary of FBN Holdings, also said the first-half results were ahead of estimates. “Relative to our forecasts, the results were well ahead of expectations because we did not forecast any gain or loss on the other comprehensive income (OCI) line. Although net interest income was only slightly ahead of our N33 billion forecast, the non-interest income result was 46 per cent ahead of our estimate, leading to profit before provisions coming in 22 per cent higher than we had expected. While loan loss provisions of N7.8 billion negatively surprised by 82 per cent, the better-than-expected revenues were more than enough as an offset, leading to a positive surprise of 49 per cent on the profit before tax line,” FBN Capital stated.

The FBN Capital’s analysts’ report stated that while there could be some cautious reviews of the bank’s earnings, analysts’ consensus estimates will nevertheless move up across the board.

Analysts at Cowry Asset Management Limited described the results as impressive, noting that Access Bank is a leader in the banking industry. Cowry Asset placed a buy recommendation on the shares of Access Bank, indicating that the bank’s share price could rise from yesterday’s opening price of N5.60 to some N22.31 per share over the next 12 months. Nearly all analysts agreed that the bank’s share price has potential to appreciate, although the target price differs. FBN Capital had in earlier review indicated a target price of N8.30, more than 48 per cent above the current price.

Looking forward
The management of Access Bank said the first-half performance shows continuing resilience of the bank in the face of a challenging macro-economic environment, which has been further exacerbated by double-digit inflation, amid an untimely devaluation.

Group Managing Director, Access Bank Plc, Mr. Herbert Wigwe, said the bank continued to grow its retail market share, leveraging innovation and technology to create lifestyle products and enhance customer experience. This growth has led to significant increase in transaction volumes and fee-related income. In addition, cost of funds dropped by 170 basis points, reflecting the increase in its low cost funding base.

“The results underscore our continued ability to grow sustainably whilst effectively adapting to a challenging operating landscape.The prevalent macro-economic conditions put a strain on business performance across the industry, with increased concerns about asset quality deterioration. Despite these challenges, the bank’s asset quality remained stable, as non-performing loans remained below industry average, in line with our guidance. Our capital and liquidity levels were also sustained above regulatory limits,” Wigwe said.

He pointed out that notwithstanding the high inflation and the impact of the currency devaluation on cost, the bank’s operating cost remained stable owing to cost management initiatives.

“Optimising operational efficiency will remain an imperative for the second half of the year, as we continue to see the benefits of our cost initiatives intensify over the next few months. We believe that macro conditions will remain challenging. Nonetheless, our priority in the coming months will be to strengthen our position in the industry; increasing focus on risk and operational efficiency, with customer-centricity at the heart of our strategy,” Wigwe outlined.

The latest results further strengthened Access Bank’s standing as one of best returns-yielding and investor- friendly stocks. With most banking stocks running with double-digit losses, year-to-date return analysis by FSDH Securities indicated that Access Bank and three other banks were the only stocks with positive returns so far this year. Access Bank’s share price opened with a year-to-date gain of 15.46 per cent yesterday, more than a double of banking industry’s average return of about six per cent and exceedingly better than the negative overall market’s average return of -4.45 per cent. The three other banks included Guaranty Trust Bank, United Bank for Africa (UBA) and Zenith Bank, which was trailing Access Bank with average return of 8.90 per cent.  The first-half results may be a reassurance to the 830,000 shareholders of Access Bank, that notwithstanding the challenges, the dividends will keep coming better.