By Philemon Adedeji
Access Corporation in its audited half-year financials results ended June 30, 2022,recorded significant improvements across key performance indicators, such as total assets, profit & loss figures despite economic challenges.
The result is on the back of double-digit inflation rate when businesses and their consumers have had to deal with rising cost of goods and services.
The group recorded decent growth in Pre-provision operating profits, supported primarily in Non-Interest Revenues (NIR), specifically trading revenues.
However, a rise in loan loss provisions dampened its impact on earnings growth. Nevertheless, the group’s H1 2022earnings, when analyzed, ahead analysts forecasts for 2022 financial year by 11.3per cent and five per cent, respectively, owing to a positive surprise on the tax expense line.
Analysis of the results shows that the group gross earnings rose significantly to a decent 31.42 per cent year-on-year (YoY) to N591.803 billion in H1 2022 from N450.3 billion recorded in H1 2021. With interest and non-interest income contributing 63 per cent and 37per cent respectively.
Interest Income also grew by 16per cent YoY to N372.3billion in H1 2022 from N319.7billion in H1 2021, as income from loans and advances rose to 35per cent YoY to a N246.2billion from N182.4billion in H1 2021.
Non-Interest Income for the period rose by 71per cent YoY to N219.4billion from N127.9billion as trading gains on fixed income securities rose significantly by 91per cent YoY to N112.4billion from N59 billion in H1 2021.
However, Operating expenses (OPEX) grew by 35.4per cent YoY, mostly on personnel expenses (33.9per cent YoY), IT and e-business expenses (+97.4per cent YoY), and AMCON surcharge (+27per cent YoY).
Consequently, operating efficiency worsened, with the Cost-to-Income ratio rising to 65.6per cent in H1 2022 from 60.1per cent in H1 2021, largely driven by the cost of running the enlarged franchise including high regulatory costs which currently accounts for 26 per cent of total OPEX
However, the Cost of Risk dropped by seven basis points YoY to 1.3 per cent in H1 2022 from 1.4 per cent in H1 2021 off the back of a 10per cent increase in gross loans YTD.
Increase in Impairment charge on Loans and other assets was driven by a proportionate increase in the loan portfolio of the Bank.
Nevertheless, the growth in Net revenue offset the rise in costs and led to Pre-provision operating profits s growth of 6.7per cent YoY.
Further down the profit & loss figures, loan loss provisions rose by 28.6per cent YoY, a consequence of the 9.9per cent expansion in the group’s loan book (Cost of Risk was flat at 1.6per cent), while the group recorded 1,321.2per cent growth in its Share of profit of investment in associate.
As a result, the Group’s profit before tax rose by a marginal 0.4per cent YoY to N97.78 billion in H1 2022 from N97.4billion in H1 2021.
Notably, the group’s effective tax rate fell to 9.3per cent from 10.8 per cent in H1 2021, and led to N88.75billion profit after tax in H1 2022 from N86.82billion in H1 2021 as a result of continuous growth seen across both interest non- interest income lines, slight reduction in income tax expense arising from deferred tax expenses, offset by growth in operating expenses as the management continue to expand the Corporation.
Returns on Asset stood at 1.4per cent well above the industry average Returns on average equity also stood at 17per cent.
The Board of directors have approved a dividend per share of 20 kobo for the period
Asset quality continues to improve
Overall, the Group’s asset quality continued to show a positive trend, as the NPL (non-performing loan) ratio declined to 3.7per cent in H1 2022 (FY 21: four per cent, H1 2021: 4.3per cent) and is below the statutory limit of five per cent.
The group’s total capital adequacy ratio closed at 22.4 per cent, significantly higher than the minimum regulatory requirement of 15per cent.
Risk Weighted Assets increased by N316 billion YTD primarily driven by growth in Total Assets. Customer deposits continue to dominate the Bank’s funding mix at 59 as we deepen wallet share of corporates, commercial and retail customers.
Liquidity ratio remained well in excess of regulatory minimum at 53.6 per cent as of June 30, 2022 from 50.7 per cent in 2021FY.
Strong Balance Sheet
Access Corporation grew total assets by 13 per cent to N13.2trillion as of June 30, 2022 from N 11.7trillion in 2021 over the management ongoing deliberate efforts to optimize deposit mix and proactively maintaining a well-diversified loan book.
Customer deposits increased by 13per cent YoY to N7.84 trillion in the period (N6.95 trillion in 2021), reflecting the impact of its continuous and deliberate deposit mobilization.
Deliberate efforts to take advantage of the flat yield curve has yielded an increase in term deposits to N3.1 trillion from N2.9 trillion with locked in rates CASA account deposits stood at N4.7trillion as of June 30, 2022 from N4.1 trillion in 2021, accounting for 60 per cent of customer deposits.
This is largely as a result of leveraging innovative digital technology and financial inclusion to mobilize sustainable low-cost deposits.
The group in H1 2022 maintained a well-diversified gross loan book of N49 trillion as at Jun 2022 from N4.4trillion in 2021 FY, reflecting strategic approach to mitigating concentration risk.
The FCY as a share of the loan book remains modest at 22 per cent in 2022 from 19.7per cent and it is in line with the management risk appetite.
In addition, loan to Funding ratio closed at 62.6 per cent as at June 30, 2022 from 21.56 per cent in June 30, 2021, reflecting the healthy risk asset growth.
According to analysts at Coronation Research, “The Q2 results were unimpressive, in our view, with earnings falling to a six-quarter low. The major culprits were weak NII growth, in the face of rising CoF pressure, as well as increased loan loss provisioning.
“We are also disappointed by the unexpected cut in the interim dividend. However, we understand that the group may be looking to conserve capital in order fund its upcoming acquisitions and the expansion of its Holdco operations.
“Nevertheless, the solid performance in Q1 means H1 earnings are still tracking ahead of our and the market’s expectations. In addition, we are encouraged by the performance of the Rest of Africa business which grew PBT by 175.1 per cent YoY and contributed 64.2per cent to the group’s PBT in H1 22 (H1 21: 23.4per cent).
“Like UBA (BUY, TP: N11.72), the performance highlights the diversification benefits of having Pan-African operations. The company is on track to ‘Win with Africa,’ exploiting significant digital and retail banking opportunities, supported by Nigeria and Africa’s demographics.
“Elsewhere, we like management’s dynamic view on the future of banking, as it makes a foray into the payments space, in addition to insurance brokerage, pension fund management and consumer lending.
“As the group expands its operations, we expect the diversification benefits of this to strengthen its investment case. Finally, the valuation remains compelling, in our view. Accordingly, we maintain our BUY recommendation on the stock.”
Also, the Group CEO, Access Corporation, Herbert Wigwe in a statement said, “The Holding Company’s inaugural financial results showed a strong performance, in the first half of the year despite the strong macroeconomic headwinds locally & internationally.
“The Holding Company became fully operational in May 2022 and the other verticals: Payment Company (PayCo), Asset Management Company (AmCo), Insurance Brokerage Company (InsureCo) are expected to be fully consolidated from the second half of the year.
“These results reflect a sustainable business model coupled with an effective strategy execution from the Banking Group, amidst a challenging macroeconomic environment with significant headwinds.
“We made solid gains towards the achievement of our strategic goals with a 31per cent y/y growth in gross earnings toN591.7billion (H1 2021: N450.6billion), leading to a Profit After Tax of N88.7billion for the period.
“The Banking group’s strong performance in the period was evident in the 68per cent y/y rise in Non-Interest Income ofN219.4billion from N127.9billion in H1 2021 as the group continues to ensure delivery of maximum value to our stakeholders.
“Our Retail Banking business has grown consistently across all income lines, driven by strong focus on consumer lending, payments and remittances, digitization of customer journeys, and customer acquisition at scale.
“Total Deposits rose to N9.915trillion, a 15per cent y/y increase (H1 2021: N8.65trillion). This reflects deliberate steps to optimize our balance sheet and ensure the Group can support its customers across various markets, in addition to executing our expansion strategy.
“2022 marks the final year of our five-year strategy to become Africa’s gateway to the world. In the five-year period we have seen enormous growth in our value proposition and international presence as we have expanded our operations across Africa. As Access Corporation enters a new chapter, we are realigning our objectives to create a globally connected ecosystem, offering new interconnected services across customer needs.
“We thank all our stakeholders, for their commitment to the company as well as all staff of Access Corporation for their tireless efforts. We remain confident in our ability to continue delivering value while we reorganize to capture new opportunities.”