The N7.2 billion interim dividend recommended by Access Bank Plc after recording improved earnings for the half-year ended June 2017, is highly encouraging, writes Goddy Egene
The earnings season for the half year (H1) ended June 30, 2017 is almost over as most of the companies have released their financial results for the period. Though the operating economic environment remains challenging, some of the results have raised investors’ hopes for positive harvest at the end of the year. While investors are generally looking forward to an improved harvest at the end of the year, some banks have started putting smiles on the faces of their shareholders through interim dividends.
Specifically, four banks have declared interim dividends. They are: Zenith Bank Plc (25 kobo per share), Guaranty Trust Bank Plc (25 kobo), United Bank for Africa Plc (20 kobo) and Access Bank Plc (25 kobo).
For instance, the 25 kobo recommended by Access Bank Plc last week translates a total of N7.2 billion, which is to be paid out of the N39.45 billion profit after tax (PAT) recorded for the H1 of 2017. In all, Access Bank reported an impressive performance for the period.
Revenue and profitability
According to the results, Access Bank recorded gross earnings of N246.6 billion, up 42 per cent from N174.1 billion in the corresponding period of 2016. The growth in gross earnings was driven by 66 per cent increase in interest income on the back of continued growth in the bank’s core business and 34 per cent non-interest income underlined by strong foreign exchange (FX) income on the bank’s trading portfolio.
Interest Income grew by 44 per cent to N161.9 billion, from N112.3 billion, while non interest income stood at 84.4 billion, showing an increase of 37 per cent compared with N61.7 billion in the corresponding period of 2016.
Operating income increased by 29 per cent to N167.5 billion, from N130.2 billion.
Profit Before Tax (PBT) for the period rose to N52 billion, representing a 18 per cent growth when compared to N43.9 billion in 2016, while PAT grew to N39.5 billion in 2017 from N33.6 billion in H1 2016. Return On Average Equity (ROAE) remained flat at 16.9 in H1 2017 flat.
Asset Quality/ Operational Efficiency
In terms of asset quality, non-performing loans (NPL) to total gross loans rose marginally to 2.5 per cent, as against 2.1 per cent as at December 31, 2016. NPL coverage Ratio (with regulatory risk reserves) stood at 174.8 per cent as at June 2017, compared with 169 per cent in December 2016. Cost of risk reduced marginally from 1.1 per cent in December 31, 2016 to 1.0 per cent in June 2017. An analysis of the operational efficiencies showed that Cost-to-Income Ratio (CIR) rose from 58.4 per cent to 62.7 per cent driven by increase in operating expenses. The increase in operating expenses from N75.9 billion to N1015.1 billion stemmed from high inflationary environment and the effect of unamortised AMCON charges. However, Net Interest Margin (NIM) improved to 6.7 per cent, up from 6.3 per cent.
Loans and advances totalled N1.79 trillion in June, compared with N1.86 trillion in December 2016. Customer deposits declined by nine per cent to N1.90 trillion as against N2.09 trillion in 2016. Total assets was flat at N3.46 trillion as at June 2017 compared with N3.48 trillion in December 2016. Capital adequacy of 21.6 per cent and Liquidity ratios of 45.4 per cent, remain consistently above the regulatory minimum requirement.
Group Managing Director’s Comments
Commenting on the results, Group Managing Director/CEO, Access Bank, Herbert Wigwe said the bank’s performance in H1 reflects the strength and sustainability of our business as well as the effective execution of our strategy.”
According to him, the group maintained stable asset quality, recording non-performing loan (NPL) and Cost of Risk Ratios (CRR) of 2.5 per cent and 1.0 per cent, respectively.
“We maintained stable asset quality, recording non-performing loans (NPL) and cost of risk ratios (CRR) of 2.5 per cent and 1.0 per cent and wound down on our foreign currency exposures as a deliberate strategy to de-risk the business. As we cautiously grow our loan portfolio in light of macro realities, we will continue to uphold our proactive risk management principles in order to maintain asset quality within acceptable limits. Whilst balancing our appetite for growth and profitability, we remain committed to maintaining solid liquidity and capital ratios,” Wigwe said.
He added that the bank’s retail expansion drive led to investments in its channels, distribution network, service quality and brand enhancement.
“These, as well as AMCON charges resulted in higher operating expenses in the period. We continue to, however, intensify the implementation of our cost reduction initiatives in order to improve the bottom-line despite high inflationary environment. In view of the recovering macro, our focus remains growing the retail franchise through digital expansion to enable diversified earnings as well as continuous and proactive risk management as we selectively grow risk assets. We will remain resilient in the execution of our bold strategy for increased growth and profitability whilst maximising shareholder value in 2017 and beyond,” Wigwe noted.
Assessing the results, analysts at Cordros Capital Limited have said consistent with its dividend payment, Access Bank has proposing an interim dividend of N0.25 (same as previous year) – translating to a payout ratio of 18.33 per cent and a dividend yield of 2.44 per cent.
According to the analysts, the growth in interest income, broadly in line with their expectation , was driven by improved yields on earning assets (+280 basis points-bps- to 13.10 per cent) loans and advances to customers (+33.48 per cent ), and investment securities – available for sale (+64.64 per cent), held for trading (+307.11 per cent ), and held for maturity (+14.45 per cent ), given Access Bank’s ‘ large portfolio of fixed income securities, in line with other banks’ results released so far.
“Accordingly, net interest margin expanded 40 bps to 6.70 per cent, despite a more-than-expected surge in interest expense (79.88 per cent , 28.31 per cent above our estimate), driven by the elevated interest charges on customers deposit (63.68 per cent), interbank placements (+107.92 per cent ), and debt securities issue (+181.02 per cent) – reflecting the impact of the premium on the $112 million refinancing of its Eurobond and an additional N59 billion commercial paper issued in H1 of 2017,” they said.
They explained that Access Bank recorded a marginal (+1.48 per cent ) growth in credit loss provisioning in H1 in 2017, with cost of risk contracting by 10 bps to 1.00 per cent, despite NPL expanding by 60 bps to 2.50 per cent.
“In line with industry peers, Access Bank Plc recorded a surge in opex (rose 50.21 per cent and 14.09 per cent above our estimate, stemming from a one-off charge of AMCON levy (as against amortisation over the full year) impact on other opex (+65.62 per cent), elevated personnel costs (+25.72 per cent), and depreciation expense (+27.11 per cent ). As a result, cost-to-income ratio expanded 901 bps y/y to 62.73 per cent, above our estimate of 55.26 per cent, despite a 28.65 per cent growth in operating income,” they said.
The analysts said they believe management is still on course to deliver on its 2017F ROE of 20.0 per cent (vs. 17.4 per cent in full year of 2016) and net interest margin of 7.0 per cent (vs. 6.2 per cent in full year of 2016).
“Also, given the run rate in interest income (supported by its sizeable fixed income portfolio and quality loan book) and the significant foreign exchange trading gain booked in H1-17, we believe Access Bank is poised to outperform in 2017 full year. Based on our last target price of N12.19, we have a BUY recommendation on the stock,” they said.