Rising Cost Of Funds Pressures Access Bank In Q1

Access Bank Plc faced an upsurge of over 73 per cent in interest expenses year-on-year, amounting to over N86 billion at the end of the first quarter. The bank hasn’t experienced this level of increase in the cost of funds since 2012 when a massive growth of 78.4 per cent was recorded.

The challenge of rapidly growing interest expenses has faced the bank since last year when interest expenses grew by 32.7 per cent to N300 billion, which is well ahead of the 23 per cent increase in interest earnings. The situation has intensified this year as shown by the cost-income reading of the first quarter operating results at the end of March 2022.

The increase in the cost of funds in the first quarter measures three and half times the increase of less than 21 per cent in interest income to N173.7 billion for the same period. The imbalance isn’t letting the bank convert the increase in interest earnings into net income.

Interest expenses consumed roughly one-half of total interest earnings generated in the first quarter. This is a major increase from 34.7 per cent in the same period last year, resulting in a decline of 7 per cent in net interest income in the first quarter to N87.4 billion.

An analysis of the bank’s cost of funds in the first quarter shows that the increase was led by payments on customer deposits. Payment to customers surged by 156 per cent to about N54 billion over the review period. The bank’s report attributed the rapid growth in the cost of funds to an increase in customer deposits.

Access Bank grew customer deposits by roughly 32 per cent from the closing figure of about N5,684 billion in the first quarter of 2021 to roughly N7,495 billion at the end of the first quarter of 2022. This shows an increase of N1.8 trillion in customer deposits over the period.

Over the same period, the bank expanded customer credit volume by a little over N1 trillion to close at N4.2 trillion at the end of the first quarter. The challenge however lies in the inability to match the growth in interest earnings with the rapid growth in interest expenses.

The difficulty appears to stem from bad loans obstructing the flow of assets into revenue. This is evidenced by huge credit loss expenses, which rose by over 32 per cent to over N83 billion in 2021.

Loan impairment expenses slowed down to a 9 per cent increase year-on-year in the first quarter of the current financial year but remain huge at N13.7 billion. The rising cost of funds and persisting credit losses gave way to a slowdown in profit momentum for Access Bank in the first quarter.

The two cost elements consumed more than the increase in interest earnings in the first quarter, resulting in a drop of 9.5 per cent in net income to N73.7 billion at the end of the quarter. This is a sustaining weakness on the side of interest income, which isn’t contributing to profit growth.

The bank had even a better record last year when it grew net income by 9 per cent but the strength of the bank’s 51 per cent leap in after-tax profit in the year came from non-interest earnings.

Non-interest income, led by huge foreign exchange gains, is again the strength for profit improvement for Access Bank in the first quarter. The bank closed the first quarter of operations with an after-tax profit of N57.4 billion, which is a year-on-year improvement of 9 per cent.

The bank realised a net foreign exchange gain of almost N86 billion in the first quarter, which is a windfall compared to a net foreign exchange gain of N1 billion in the corresponding period last year. It accounted for more than one-half of the non-interest earnings for the quarter.

Driven by the foreign exchange gain, non-interest income more than doubled at about 113 per cent year-on-year to about N167 billion in the first quarter. Non-interest earnings contributed 56.5 per cent of the bank’s gross earnings of N295.7 billion for the first quarter, a big increase from 35 per cent in the same period last year.

Gross earnings rose by 33 per cent in the first quarter, more than three and half times the 9 per cent increase in profit. The difference reflects the encroachment of costs on revenue, which lowered the profit margin from 23.7 per cent in the same period last year to 19.4 per cent in the first quarter of 2022.

The bank ended the first quarter with earnings per share of N1.63 against N1.49 per share in the same period last year. It closed last year’s operations with earnings per share of N4.45 and gave out a cash dividend of N1 per share to shareholders.

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