Access Bank Q1 2019 Result: Unprecedented!

April 17, 2019/InvestmentOne Report

• Net interest income of N56.8billion, up 12.3% q/q; up 27.3% y/y
• Non-interest income of N46.8billion, up 23.7% q/q, up 11.9% y/y
• Profit before tax of N45.1billion, up 37.0% q/q; up 64.4% y/y
• Profit after tax of N41.1billion, up 28.3% q/q; up 86.1 y/y 

Access Bank released its Q1 2019 results late yesterday and it can only be described as a home run for the bank. Following its recent merger with Diamond bank, we were left jaw dropped as the bank posted a 16.4% y/y (4.3% q/q) increase in gross earnings, 27.3% y/y (12.3% q/q) boost in net interest income and an 11.9% y/y (23.7% q/q) rise in non-interest income. All of these combined with a 32.0% y/y (46.5% q/q) drop in impairment charges led to PBT and PAT growth of 64.4% y/y and 86.1% y/y to N45.1billion and 41.1billion respectively. Wow!

As we are all aware, Access Bank only just completed its merger with Diamond Bank on the 19th of March 2019, hence this result reflects a partial post-merger performance. With net loans and total deposits growing by 30.4% and 52.8% q/q respectively, it appears that the balance sheet figures have been consolidated, but the income statement however appears to be Access standalone. 

Revenue Drivers 

Profit before provisioning grew at an exceptional 19.9% y/y (17.1% q/q), largely due to the 4x rise in income from investment securities, as investment securities itself was up 54% q/q. Also supporting revenue growth was the net foreign exchange gains which went from a loss position of N6.8billion in Q1 2018 to a profit of N6.2billion in Q1 2019. Given benign outlook for the banking sector in 2019, this was rather impressive and we would look to management for further clarity as to how this came about and how sustainable this really is. 

Asset Quality 

The bank’s NPL ratio deteriorated to 10.0% in Q1 2019 from 2.00% in FY 2018, despite the huge jump in gross loans. Absolute NPLs were up more than 5x to N284.3million from N41.6million in FY 2018. According to management, we understand that the bank has had to write off between N200-N220billion of Diamond Bank’s NPLs after the announcement of the merger. It appears not all of Diamond bank’s NPLs have been fully provided for and as such have not been written off. However, the combined entity’s coverage ratio stands at 85% and is a level we are comfortable with for now.

Elsewhere, even though the bank’s Cost-to-Income ratio improved to 53.2% in Q1 2019 from 62.2% in Q4 2018 on the back of stronger revenue growth, opex was up 12.0% q/q reflective of the cost accompanying the merger.

Finally, while we commend the exceptional performance in Q1 2019, we do not believe this is sustainable going forward.