Access Holdings Plc (Nigeria) – HY2020 results conference call transcript

By Published On: June 15th, 2022Categories: Corporate announcement, Transcripts

Operator

Good day ladies and gentlemen and welcome to the Access Bank Plc 2020 half year results presentation. All participants are currently in listen-only mode and there will be an opportunity to ask questions later during the conference. If you should need assistance during the conference call, please signal an operator by pressing * and then 0. Please also note that this call is being recorded. I would now like to turn the conference over to Mr Herbert Wigwe. Please go ahead, sir.

Herbert Wigwe

Thank you very much, Chris, and good afternoon ladies and gentlemen. You are welcome to Access Bank’s half year 2020 earnings call. We have prepared a detailed presentation which highlights all aspects of our business, and we’re going to be sharing that with you right now. It’s hosted on our website. On the call with me today are Roosevelt Ogbonna, who is our Group Deputy Managing Director, Greg Jobome, who is our Executive Director in charge of Risk Management, Mr Adeolu Bajomo, who is our Executive Director in charge of IT and Operations, Victor Etuokwu, who is our Executive Director in charge of Personal Banking, Chizoma Okoli, who is in charge of Business Banking, Hadiza Ambursa, and Seyi Kumapayi, who is our Chief Financial Officer.

As a starting point, as you are aware government mandates, customer needs and our own day to day working changes and constraints due to COVID-19 pandemic have all created some form of an outlier as far as profit and performance is concerned. I will briefly go over the key performance highlights after which we will allow more than enough time for questions and answers with you. This period has been characterised by the supporting of lives and livelihoods of our various stakeholders while also making sure that we optimise shareholder returns. In the period under review the Nigerian and global economy were significantly affected by the twin shock effects of the ongoing pandemic and of course the oil price crash that happened a bit earlier. This led to the weakening of the Naira, inflation acceleration, economic slowdown and investment decline, all this culminating in a 6% GDP decline in the second quarter.

We have also felt the impact of this shock in the bank as it borders around asset quality, profitability, pressure on our IT infrastructure, capital as well as liquidity. These notwithstanding, the bank has continued to deliver on its mandate. In addition to the support granted by the Federal Government of Nigeria and the Central Bank of Nigeria to the vulnerable and key sectors of the economy we also put adequate measures in place to ensure that impact of the pandemic is minimised. We are primarily concerned with the safety of our customers and their businesses whilst maintaining our office locations as very safe environments and of course making sure that we took care of the safety of our workforce as well.

To minimise disruption during this period we increased investment in our IT infrastructure to ensure that our alternative channels were up at all times and were safe for our customers to carry out their transactions in a secure manner, and also support our staff to be able to work effectively in the face of the new normal. In safeguarding our locations and protecting our workforce we established a split team arrangement and closed collaboration spaces to basically prevent gathering, and periodic sanitising of work spaces, ensuring virtual meetings, and provision for about 70% of our workforce to ensure that they could work remotely.

Speaking more about the group performance highlights let me quickly state before we go on the reasons why we had to restate the half year 2019 numbers. As you are aware, the merger with the former Diamond Bank gave rise to goodwill. We have now completed the allocation of the acquired goodwill. This gave rise to some intangibles such as brand, customer relationships and call deposits intangibles. In line with IFRS 3 on business combination we are required to amortise all of these intangibles. Therefore, ₦2.3 billion had to be amortised and taken in the half year 2020. This also required that we restate the comparative figures for 2019 because we had to retrospectively adjust for about ₦1.15 billion of amortisation relating to June 2019 in line with the requirements of the standard.

The gross earnings of the bank grew by 22% year on year to ₦396.8 billion in the period compared to ₦324.4 billion in the corresponding period in 2019 comprising largely of 62% of interest income and 38% non-interest income. Interest income was down 10% year on year to ₦246.7 billion and the primary reason was as follows. First of all there was a 31% year on year decline in income from investment securities to about ₦74 billion. The corresponding period in the previous year was ₦107.9 billion. And this was as a result of the declining yield environment which saw the yield on government securities drop sharply between Q4 2019 and the half year 2020. This was in spite of the fact that we grew our investment securities portfolio by as much as 12%. We also witnessed a mild growth in interest income from cash and cash equivalents of about ₦5.4 billion and a 4.4% year on year growth in interest on loans and advances to customers to ₦167.3 billion which cushioned some of the impact of the yield drop that we saw on the investment securities portfolio.

Our operating income gained about 31% year on year to ₦265.1 billion from ₦202.3 billion in the half year 2019 owing to the significant growth in our non-interest income and other operating income. And the key drivers for the operating income were as follows. First of all there was a significant growth in net trading income to about ₦68.6 billion compared to a loss of ₦14.8 billion in the previous year on the back of gains on the derivative contracts and fixed income securities due to our trading activities. The gain on the derivative instruments increased significantly as a result of the change in exchange rates during the period. However, it will have to be adjusted by an unrealised foreign exchange revaluation and trading loss of ₦66.2 billion which came from the short position on the balance sheet.

We also saw a 24% growth in our fees and commission income to ₦51.8 billion largely underlined by income from increased transaction velocity across our channels and other e-business platforms. This was in spite of the cut in rates on transactional banking charges as contained in the Revised Guide to Bank Charges. We will continue to gain more traction on our income from these lines as we extend our retail offerings. Lastly, we also saw a 21% growth year on year in other operating income to ₦29.6 billion from ₦24.4 billion largely by a ₦22.4 billion recovery from fully written off bad loans.

Our interest expense, however, increased marginally by 2% year on year to ₦120.5 billion compared to the ₦117.8 billion in the corresponding period of last year. And this came from the growth in our deposits and termed borrowings which we are continuously replacing with low cost deposits. Basically what you have seen is a significant change in our CASA as far as the overall mix is concerned. So as a result our net interest income declined by 19% year on year from ₦155.1 billion in the corresponding period.

With respect to costs our operating expenses showed a significant growth of 40% to ₦174.3 billion compared to ₦124.5 billion as a result of the inflationary environment, 50% increase in VAT, and of course most importantly the increase in cost of operation required by the enlarged franchise and other regulatory costs such as the AMCON levy. The largest contributors are regulatory charges ad personnel expense, jointly accounting for 46% of the total cost in the period. Other costs include IT and e-business related expenses to support our growing channel platforms and transaction volumes.

However, it is important for you to recall that 2019 was made up of three months of former Diamond Bank only