A rise in operating expenses has taken a bite out of Access Holdings’ profitability as business costs grow steadily. This affected bottom-line earnings, leading to a slower +9.05% growth in profit before tax (PBT). The group may need to scale its operating income to support its growth strategy as it prepares for a new phase of its operations that is expected to cover what insiders call the five verticals. It is believed that the bank is on the verge of redefining the face of banking through service delivery reorganisation and technology adaptation. 

Key Highlights 

• Gross earnings leaped by +30.85% to N906.93bn in 9M 2022, up from N693.12bn in 9M 2021.
• Impairment charges increased by +36.05% to N52.95bn in 9M 2022. 
• PBT rose slightly by +9.05% from N135.07bn in 9M 2021 to N147.30bn in 9M 2022.
• Retained earnings grew by +19.19% from N397.27bn in 9M 2021 to N473.50bn in 9M 2022.
• Customer deposit increased significantly by +66% to N175.83bn in 9M 2022 from N105.72bn in 9M 2021. 
• Loans and advances to customers edged higher by +34.82% to N352bn in 9M 2022 pushing impairment charge up by +36.05% to N52.95bn in 9m 2022.
• Net interest income grew slightly by +4.80% to N280.53bn in 9M 2022. 
• The Holdco’s total assets stood at N13.42trn as of 9M 2022, a +29.75% year-on-year increase

Share price Movement

The Holdco’s stock price movement reflected volatility, following a broad bearish drift with a YTD return of -8.11%. Despite peaking in Q1 2022 during a FUGAZE rally, the bank saw equity sell-offs intensify on a downward fizzle as price bumped against a support of N7.7 in October 2022 (see Chart 1 below).

Chart 1:

Gross Earnings 

The group’s earnings rose +30.85% from the N693.12bn in 9M 2021 to N906.93bn in 9M 2022. This marked the highest earnings growth in four years, driven by a +21.47% rise in interest income pushing net interest income to N280.52bn in 9M 2022 (see Chart 2 below).

Chart 2:

Profitability

Recent PBT shows declining profit growth as earnings growth fell from +15.11% in 2021 to +9.05% in 9M 2022. The fall in earnings growth was because of a +31.10% increase in operating expenses including personnel expenses, amortization, impairment, and depreciation. However, PBT improved to N147.30bn in 9M 2022 from N135.07bn in 9M 2021 while the profit after tax rose by +12.27% from N122.03bn in 9M 2021 to N137.00bn in 9M 2022. Analysts noticed the group’s other operating income dipped by -21.09% due to a fall in income from investment and debt recovery (see Chart 3 below).

Chart 3:

Impairment Charge 

Impairment charges continued to trend upwards, rising by +36.05% to N52.95bn in 9M 2022. This was caused by a larger number of bad loans and advances (See Chart 4 below).

Chart 4:

Total Assets

The Tier 1 bank’s asset base continued its strong rise, growing by +30% to N13.45trn in 9M 2022 from N10.37trn in 9M 2021. The +23.38% rise in loans and advances, and +24.30% rise in investment securities drove the rise in total assets (see Chart 5 below).

Chart 5:

Cost-to-income Ratio (CIR)           

The bank’s CIR was primarily driven by a +32% rise in operating expenses, CIR rose to 54.40% in 9M 2022 from 50.91% in 9M 2021. The ratio rise was indicative of a weaker cost optimization strategy (see Chart 6 below).

Chart 6:

Return on Equity (ROE)

The financial group’s ROE hit a four-year low of 13.24% in 9M 2022 on the back of a +29.44% rise in shareholder’s equity despite the +12.40% increase in net earnings This implies that each N1 earned from shareholders generated N0.13 as profit during the period (see Chart below).

Access Bank Return-on-Equity 9M 2019-2022

Source: Access Financial Statement, Proshare Research.

End note

Despite the earnings growth in 9M 2022, the increase in operating costs affected the Holdco’s profitability, leading to a fall in PBT growth. The group may need to refocus on cost optimization to reverse the dip in efficiency, and profitability.

Nonetheless, the +50% increase in deposits creates opportunities by way of larger loan portfolios and earnings. However, the financial group must push back against rising loan losses.  

More significantly, the bank would be heading into Q4 2022 with eyes peeled to its five-year strategic plan expected to cover between 2023 and 2027. Analysts have been wary about the continental foray of the bank, with concerns centering on culture drift, foreign exchange translation exposures, differential market penetration approaches, and regulatory constraints. While being big is a strategic bonus in a continent that offers sizable headroom for faster-paced growth, the downside consequences of adopting the wrong market growth strategy in each African country would be more than a corporate bump on the head.