Access Bank recently released the first post-merger audited H1 2019 financial report for the combined entity following the merger with Diamond Bank. The results was broadly impressive as the Group recorded double-digit growth across major income lines whilst maintaining a robust balance sheet with total assets of the combined entity printing N6.5trn (N4.9trn in Dec 2018) while total equity grew to N583.8bn (N482.6bn in Dec 2018).
Interest Income grew strongly, up 46% y/y and 46% q/q while Interest Expense was up 16% y/y and 18% q/q. Despite the sturdy growth in Customer Deposits (up 63% YTD), cost of funds decreased 100bps y/y to 4.8% from 5.8% in H1 2018- we believe this reflects the effectiveness of management’s drive in sourcing low-cost deposits. The improved funding cost along with the increase in yield on assets (up 120bps y/y to 13.4% from 12.2% in H1 2018) bolstered the expansion in NIMs (7.6% in H1 2019 from 5.6% in H1 2018).
Net Fee and Commission Income grew remarkably, up 25% y/y and 87% q/q. The growth in Fee and Commission Income was buoyed by channels and other e-business income (up 50% y/y), commission on virtual products (up 126% y/y), account maintenance fees (up 97% y/y). We attribute the double-digit growth recorded in the major income lines to the digitization strategy of the group.
However, Other Income (Net gains on investment securities, Net foreign exchange gain/loss and other operating income) fell sharply, down 73% y/y and 171% q/q. The marked decline in Other Income was due to the fall in Net gains on investment securities (N4.1bn in H1 2019 compared to N59.6bn in H1 2018), on the back of the decline in gains from derivative instruments and fair value gain on equity investment.
The bank’s OPEX was up 26% y/y and 24% q/q. The rise in OPEX was however offset by the higher increase in Operating Income (+35% y/y). Consequently, H1 2019 cost to income ratio (CIR ex provisions) improved to 61.0% compared to 64.9% in H1 2018.
Non-performing loans (NPL) ratio stood at 6.4% in H1 2019, an improvement from 10% reported for Q1 2019. Management noted that asset quality is expected to show improvement going into the future as they strive to hit and surpass the standard built in the industry prior to the merger. Cost of risk however increased slightly to 0.7% in H1 2019 from 0.6% in H1 2018 due to an increase in Impairment Charge (N9.7bn in H1 2019 vs N6.9bn in H1 2018).
Capital Adequacy (CAR) remained adequate at 20.8%, reflecting full impact of the IFRS implementation as risk-weighted assets increased by 12%. Similarly, Liquidity ratios of 49.7% in H1 2019 (H1 2018: 43.2%), remained well above regulatory requirement of 30%.
Overall, PBT was up 62% y/y but down 36% q/q. The quarterly decline in PBT was due to the sharp fall in Other Income (down 171% q/q). Net Profits however grew 59% y/y to N63.0bn, owing to a higher effective tax rate of 15.0% in H1 2019 compared to 13.6% in H1 2018. Annualized ROAE printed 23.5% in H1 2019 (H1 2018; 16.3%).
The bank declared an interim dividend of N0.25.
We have a Buy rating on Access Bank with a target price of N10.32/s.