Central Bank’s policy has negative impact on industry earnings – Access Bank

Access Bank had its 2013 half year investor presentation.

The Central Bank of Nigeria's policy on the increment of Cash Reserve Ratio (CRR) on public funds deposited in banks is taking its toll on the banks.

Access Bank, one of Nigeria's banks, licensed by the Central Bank of Nigeria as an International Bank, highlighted the impact of this policy in its 2013 half year investor presentation released last week.

According to the bank, the CRR on public sector of 50 per cent (from 12 per cent) in the third quarter of 2013 is having a "negative impact on the Nigerian banking industry earnings" adding that there is an "increased pressure on the cost of funds for banks", given the reduced dependence on banks on public sector deposits.

The bank said that compliance with this policy would impact on its earnings an estimate of N3 billion in 2013.

The bank also highlighted other pressure points on banks' earnings which include the Central Bank's revised guide on bank charges. These include the COT which was reduced from N5 to N3/million in 2013, and to be completely phased out by 2016, the interest on savings which was increased to 30 per cent of MPR: and 3.6 per cent paid on savings from about 1 per cent.

The bank said these policies are having "Increased pressure on non-interest income for Nigerian banks and that the estimated impact of these on Access Bank's earnings is about N6bn in 2013."

Another issue it lamented was the increase in AMCON Charge. There was an increase in banks' AMCON levy from 0.3 per cent in 2012 to 0.5 per cent of total assets in second half of 2013. The bank said this move would only end up increasing banks' cost base. It said the impact on Access Bank's Opex was estimated at N7.2 billion in 2013.

Highlights of 2013 half year result
The bank's Net interest Income (NII) declined by 29 per cent to N39 billion year-on-year but up 29 per cent to 22 billion from 17 billion quarter-on-quarter. Net Interest Margin (NIM) improved by 60 basis points (bpts) from the depressed first quarter 2013 level to 6.8 per cent in second quarter (QoQ), Non-Interest Income was up N5.3 billion or 20.9 per cent YoY to N30.7 billion and down N6.9 billion or 36.7 per cent QoQ to N11.9 billion, Operating expenses up N5.4 billion or 11.2 per cent YoY to N53.8 billion and N4.4 billion or 17.8 per cent QoQ to N29.1 billion, while the contribution of Non-Interest income to gross earnings increased to 30 per cent in first half 2013 from 23 per cent.

Profit Before Tax (PBT) declined by 13 per cent to N26 billion in half year 2013 but increased by 36 per cent to N15 billion QoQ. Funding cost increased by 16 per cent in half year due to high interest rate environment, loan growth of 11 per cent from N623 billion in Q1 to N691 billion in Q2, 14 per cent reduction in interest income from earning asset resulting from sale of AMCON bonds in second half year 2013 and non-interest income declined by 36 per cent QoQ as a result of significant non-recurring dividend income from Q1.

Key drivers of the half year results, according to the bank, include growth in interest expense due to high cost of funding due to high interest rate environment. The growth was driven by increased transaction volume, strong dividend income and good trading performance; significant decline in premium income from WAPIC (Insurance) (seasonality), increase in AMCON surcharge and other non-recurring expenses such as additional NDIC premium, (N568 million) claim expenses by WAPIC (N1.3 billion), depreciation adjustment (N768 million), professional fees and branding cost (N560 million) and card charges (N600 million) among other parameters.

Covering up anticipated earnings shortfall
With these anticipated shortfalls in banks' earnings due to varying regulatory policies, Access Bank highlighted set targets for second half 2013, as well as paths to which it can improve it services to its customers and attract new ones, while hoping to generate more earnings doing so.
Sent from my BlackBerry® smartphone provided by Airtel Nigeria.