Access Holdings Plc is facing another financial year in which rapid growth in the cost of funds towers above interest earnings.
The bank’s Holding company recorded N159 billion in interest expenses in the first quarter of operations, representing an increase of 84 percent. It dwarfs the 56.6 percent growth that pushed interest income to N254 billion.
The bank’s first quarter interim financial report at the end of March 2023 shows that the increase in interest income represents an additional income of N80.5 billion. However, less than N3 billion reached the income line net of interest and loan impairment expenses.
Interest expenses consumed N72.6 billion or 90 per cent of the gain in interest income and net impairment charges on financial assets claimed another N5 billion of it. The loan loss expenses grew by 36.7 per cent quarter-on-quarter to N18.7 billion in the first quarter, marking another year of rapid growth in credit losses after an upsurge of 137.7 per cent to almost N198 billion at the end of 2022.
Net interest income after loan impairment charges improved by less than 4 per cent to N76.6 billion over the review period.
The disparity in the growths of interest income and expenses was also the main challenge to the bank’s management in 2022 when the cost of funds and net loan impairment expenses consumed far more than the increase in interest earnings – which slashed margins and led to profit drop for the year.
Notwithstanding the low margin of improvement in net income, the bank was able to grow the bottom line by almost 24 per cent to N71.6 billion at the end of the quarter. The strength for the accomplishment came from expanded growth in non-interest earnings.
Non-interest income grew by almost 40 per cent quarter-on-quarter to N170.7 billion, which was powered by a marked drop in net losses on financial instruments from N44.6 billion to N6.7 billion over the period.
Added to the strength of non-interest income is some cost savings from operating expenses during the quarter. The total operating cost of the bank amounted to slightly below N150 billion at the end of the first quarter, representing a moderated growth of 28 per cent.
With the slowdown, the operating cost margin went down from 39.5 per cent in the same quarter last year to 35.2 per cent at the end of the first quarter of the current financial year. This is the lowest operating cost margin that Access Holdings has recorded in many years – the ability to earn its naira of revenue with the lowest operating cost on record.
The company closed the first quarter operations with gross earnings of almost N425 billion, representing an increase of 43.7 per cent quarter-on-quarter. Interest income led the revenue growth for the period with an increase of 56.6 per cent.
The improvement in non-interest income and the cost saving from operating expenses helped the bank to significantly overwrite the weakness in net income from the lending and investing operations of the bank. The weakness still showed up by way of loss of profit margin reflecting the inability to grow profit as fast as revenue.
Net profit margin went down from 19.6 per cent in the same period in 2022 to 16.9 per cent at the end of the first quarter.
Access Holdings closed the first quarter operations with earnings per share of N2.06, improving from N1.63 per share in the same period last year. It is paying a final cash dividend of N1.30 per share for its 2022 operations.
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