Access Bank held its conference call and as expected provided insights into its N34.4 billion net provisioning for 2017. They also provided some interesting explanations for their derivatives income which helped boost non-interest income.
The folks at Standard Bank Group listened in and sent in this report via their very informative Newsletter “Views of a Salesman” (which you should also signup to).
Factors which drove ROE downwards
- Impairments: very conservative provisioning in telecoms (9mobile) @ 38% haircut equating to N32.8bn.
- The twist? However, the bank believes it is in a sweet spot given provisions taken and the expectations that 9mobile could become profitable again in the near term. This could facilitate potential write-backs
- Opex was up 17% driven by inflation, and ‘firm specific decisions which should yield fruits in 2018 and beyond’.(Cost lines such as branding & communications to push retail drive and sponsorship of events). Through expenses made on digital platform (IT infrastructure) for example, Access was able to provide better solutions and services which supported its signing on of 4x IOCS. Also, investments made on digital platform are a defensive strategy against disruptions from Fintechs in the near future…
- NIMs: re-pricing of structured funding. Going forward, mgt expect NIMs to expand on the back of better cost of funds
Derivatives:
- Currently at $1.8bn from $2.2bn.
- Reference rate has been changed from NIFEX to NAFEX .
- Futures and forwards maturing this year – about 50% of total book. At maturity – accounting treatment would feed through as reversal on some previous gains made.
- Margins have thinned out. Whatever income lost would be made up through other sources. (Low cost replacing).
- Mgt considers the retail business though “gruesome”, to be a potential source for plugging the gap in Q1 and Q2.
Loan book:
- 10% core growth of loan book expected in 2018
- Asset quality: NPL – except TMT, eyes on manufacturing and general commerce which are linked to the macro. COR : at 4.8%, guidance is below >4.5% for 2018.
- Restructured loans – approx. 7% of loan book as at FY 17
- FCY loans now account for 39% of loan book, down y/y from 42%
