Access Bank’s growing trend in revenue and profit was halted in 2013 and the bank could not hold back its principal costs from rising. That eroded profit margin and caused a decline in profit against an exceptional growth in the preceding year. The major revenue line, interest income declined in the year and exclusively accounted for the overall earnings constraint. A saving grace came from a windfall in net write back in loan loss expense, which provided a good measure of stability for the bottom line.
Gross income of the bank closed flat at N206.79 billion in 2013 compared to a big leap of 52.2% in the preceding year. The slow down was anticipated, as the actual figure is just 0.7% below our forecast figure of N208.2 billion gross income for the bank in 2013. The slow down is in line with the general pattern of earnings in the banking sector in the year.
The main revenue line, interest income declined by 12% to N145.96 billion during the year, which was roughly countered by improved performance of non-interest earnings. The contribution of interest income to gross earnings therefore declined from 80% in 2012 to 70.6% in 2013.
There was a strong growth of 73% in other income and a 30% improvement in fee-based earnings. The improved performance in non-interest income enabled the bank to keep gross earnings from declining. A 12% decline in interest income against a 33% rise in the bank’s net loans and advances is however a bad signal.
The bank posted a net profit of N36.30 billion for its 2013 operations, which is a decline of 8.0% from its peak profit figure of N39.33 billion in 2012. As is the case with revenue, the profit weakness was also anticipated based on the interims. The actual profit figure is 5.5% below our net profit forecast of N38.4 billion for Access Bank in 2013.
A decline in profit against a flat growth in gross earnings shifts attention to the general cost behaviour of the bank during the year. The bank devoted increased proportions of its revenue to two major expenditure heads during the year. The first is operating cost, which rose by 18% against the flat growth in revenue.
At N101.18 billion, operating expenses accounted for an expanded share of gross income at 48.9% in 2013 compared to 41.4% in the preceding year. The inability to keep operating cost from growing at the relatively high pace in a year of inability to grow revenue was the bank’s main operating weakness in 2013. This accounted exclusively for the profit decline the bank recorded during the year.
Interest cost is the second expenditure line that eroded profit capacity last year. It rose by 5.0% to N68.24 billion during the period against the drop of 12% in interest income. The net effect was a drop of 22% in net interest income at N77.72 billion in 2013. A decline in interest income against an increase in interest expenses is yet another signal to watch.
A justification for the increase in interest expenses seems to come from an increase of 11% in the bank’s deposit liabilities during the year. Access Bank now carries a deposit portfolio of more than N1.4 trillion. Also, a drop of 21% in investment securities to N353.81 billion in 2013 may have been responsible for the drop in interest income. Central Bank’s sterilisation of public sector deposits last year possibly forced some asset reductions.
By far the most significant development on the income statement of the bank last year happened in respect of provision for credit losses. The only way that the bank did not suffer a significant drop in profit was because it saved big money on risk asset provision. Against a net provision of N10.02 billion in 2012, it had a net write back position of N6.16 billion in 2013. This is a strong indication that its overall credit quality standard has improved.
The big cost saving from loan loss expense provided a major operating strength for the bank in 2013. The other source of strength came from the outstanding growth in non-interest income. While the positive signals weren’t strong enough to keep profit growing, they at least prevented a possibly wider downward swing.
Net profit margin declined slightly from 19% in 2012 to 17.5% in 2013. This is in line with the general industry trend for the banking sector in the year. GTB’s profit margin went down from 39% in 2012 to 36.9% in 2013 and Zenith Bank also recorded a decline in net profit margin from 32.6% to 26.9% over the same period. UBA’s net profit margin declined from 24.9% to 17.6% during the review period.
The bank earned N1.59 per share in 2013, down from N1.72 in the prior year. Net assets per share is only slightly improved at N10.68 at the end of 2013. The bank has proposed a final dividend of 35 kobo per share, having paid an interim of 25 kobo in the course of last year.
The total dividend of 60 kobo for the year is a decline from the 85 kobo it paid for 2012 operations. This is a total dividend yield of 7.8%. The register of shareholders will close of 14th April and payment is scheduled for 30th April 2014.