Access Bank, Nigeria’s biggest lender by asset, is reaping early fruits of a merger with Diamond Bank which has seen its profit rise 59 percent in mid-year 2019.
The tier-one lender saw its profit surged to N63.025 billion in half-year 2019 compared to N39.63 billion posted a year ago. This is the fastest pace mid-year profit has grown in at least five years.
“To summarise the result, those benefits associated with the merger are being crystalized faster than initially anticipated,” said Gbolahan Ologunro analyst at Lagos-based CSL Stockbrokers Limited said.
On Friday, the bank’s shares gained 6.98 percent to N6.9 per share on the Nigerian Stock Exchange. “I think we would also see a divergence from historical trends where access and UBA used to trade at similar earnings multiples. We might see Access now being priced at a higher premium to UBA.” He said.
Access Bank and Diamond Bank completed their merger on April 1 2019. In the six months to June 30, Access Bank boosted its gross earnings and profitability supported by improvements in net interest margin.
Gross earnings rose 26.6 percent to N320 billion from N252.8 billion noted a year ago.
On the back of betterment in earnings cash and balance to banks, loans and advances to customers, and investment securities, interest income grew 46.2 percent to N272.9 billion.
Net interest income rose 81.89 percent to N155.15 billion following a 16.14 percent rise in the bank’s interest expense.
Meanwhile, net interest margin improved to 7.4 percent from 6.2 percent in 2018 full-year, analysts at CardinalStone, a Lagos-based Investment house, estimate. Access net interest income after impairments charges rose 92.76 percent as loan loss expenses fell 33.52 percent in the period.
The lender’s Fees and commission income jumped 38.21 percent to N41.86 billion while Fees and commission expenses saw a significant increase. Notwithstanding net fees and commission income rose 24.82 percent to N37.53 billion.
A closer look at the segment’s breakdown show increase across the board including commission on virtual products, channels and other e-business income and retail account charges which grew significantly.
Only commission on foreign currency denominated transactions declined in the period.
Access Bank saw a big decline in its net gains from investment securities to N4.15 billion, while it pared net foreign exchange loss.
The lender more-than-doubled other operating income to N24.41 billion and noted an increase in personnel expense and other operating expenses. Access posted a profit before tax of N74.16 billion, 61.67 percent increase year-on-year.
Net income attributable to each unit of share rose 39.86 percent to N1.93 in mid-year 2019. The merger saw Access Bank Customer Deposit surge 63.09 percent to N4.18 trillion as the lender boasts of Nigeria’s largest customer base.
The credit quality of the lender improved in half-year 2019 as Non-Performing Loan ratio declined to 6.8 percent from 10.0 percent as at the first quarter of 2019 according to Lagos-based Chapel Hill Denham. The NPL is slightly above the Central Bank of Nigeria’s threshold of 5 percent.
‘‘We believe this is reflective of Access’ tight risk framework and suggests recovery efforts are on track to deliver stronger risk asset quality by full year.” A note by the Investment house read.
Access Bank is proposing an interim dividend of 25 kobo per share which translates to a dividend yield of 3.9 percent based on the closing price of N6.45 per share on Thursday.
CardinalStone’s target price for Access Bank is N8.74 per share, some 29 percent above the current price, rating the stock a BUY.
The Lagos-based investment house, however, expressed concerns over the decline of 28.7 percent year-on-year in Access Bank non-interest income weakened owing to much lower gains on investment securities.
Key drivers of the performance were derivative losses of N1.8 billion and much lower gain of equity investments of N5.9 billion, it noted.
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