Access Bank Gets Hold Rating With Cautious Outlook

By Dipo Olowookere

Analysts at United Capital Research have advised investors having shares of Access Bank Plc in their holdings to hold them for now.

This is because they feel the lender remains modest going by the figures in recently released financial statements for the first quarter of 2019, which are yet to capture the full impact of its merger with Diamond Bank Plc.

The analysts noted that things are expected to be very clear when Access Bank finally releases its results for the first half on this year in July.

They said for instance, the annualized ROE of 30.9 percent posted in the Q1 2019 earnings “is clearly unsustainable given that OPEX is yet to account for the merger and interest income for financial asset (FVOCI) which may or may not be reversed, depending on the nature of the asset.”

As a result, a cautious outlook on Access Bank’s profit before tax and profit after tax for 2019 has been maintained.

“While we maintain that CAR and NPL ratios may be bullish due to a possible understatement of Risk-Weighted Asset (RWA) pending audit, the management has stated that maturing Eurobond for Diamond Bank in May will be fully paid-down,” United Capital Research said in its report.

In its analysis, it was stated that Access Bank reported a 16.4 percent y/y increase in Gross Earnings (GE) to N160.1 billion in Q1- 19, majorly driven by Interest Income which grew by 15.9 percent y/y to N110.8bn.

It pointed out that the jump was surprising considering the not so impressive numbers submitted by peers for the same period.

“Two further reasons buttress our concern. Firstly, interest income was driven by a surge in interest income from financial assets (at FVOCI) which increased to N25.5bn from N4.6bn in the prior year. Depending on the type of financial assets (not stated), incomes reported at FVOCI are subject to vagaries of the economic cycle, and can consequently print lower in the subsequent quarter.

“Secondly, the Q1-19 result is unaudited, and thus, should be taken with a pinch of salt.

“Again, Net Interest Margin (NIM) eased 2bps to 5.6 percent while Cost of Funds (COF) decreased 140bps to 4.4%. Also, impairment charges fell 32.0 percent y/y and OPEX was stable at N55.1bn. As such, Cost to income Ratio moderated to 53.2 percent (vs. 62.0 percent in Q1-18).

“However, all these metrics did not factor in the Diamond Bank merger. Accordingly, PBT and PAT jumped 64.4 percent and 86.1 percent to N45.1bn and N41.1bn respectively, while annualized ROE and ROA came in at 30.9 percent and 2.9 percent.”

The biggest, with a N6.4tn Total Assets: In contrast to the Income Statement, the Balance Sheet showed a consolidated position of the merged entity, accordingly, Access Bank’s total assets now stands at N6.4tn, making the Bank indeed the largest in the country. Thus, Loans & Advances (N2.7tn), Deposits (N3.9tn) and Net Assets (N0.6tn) all increased by double-digit.

Notably, consolidated Non-Performing Loans (NPLs) settled at 10.0 percent (from 2.5 percent in FY-18), but Cost of Risk (COR) eased to 0.5 percent (from 1.5 percent in FY-18).

Also, Capital Adequacy Ratio (CAR) reduced from 20.1 percent in FY-2018 to 19.1 percent.

“We think these ratios are slightly bloated given that some (such as COR and COF) of them are pegged against P&L item which does not account for Diamond Bank’s operations during the period. “Meanwhile, others (such as CAR & NPL) may have been understated given that this result is not audited,” it stated.