Access Bank Q1 2016 in a nutshell: Old habits die hard. KCB mentioned...

Dear Africa interested individuals:
                                                       Access Bank has released its Q1 2016 earnings.  Let me state some quick observations and comments.

1. Access Bank's loan-value added has gone negative for the first time in over two years in Q1 2016.  Loan value-added is now -0.41% (negative).  It was +1.41% for FY 2015 and +1.09% for FY 2014.  It was also +0.2% for H1 2015.  This is the same quarter the bank gave out fresh loans amounting to about $355 million between January 2nd and March 31st, 2016  in a rising interest rate environment coupled with rising defaults.  

2. Debt/Capital has risen from 44.4% at FY 2014 to 52.1% as at Q1 2016.  A bank is relying on capital in which it pays interest and is also depending on interest on loans disbursed to generate revenue.  Its spread will have to widen to make business meaningful.  Risks amplified.  Any bank that has a debt/capital ratio of this magnitude is living life on the edge.  I have performed numerous analyses that tells me 30% is the safety net before diminishing returns set in for a commercial bank.  Compare this to Kenya Commercial Bank (KCB) that has a debt/capital ratio of 15.5%.  The leverage of KCB is 6.9X, compared to Access Bank at 7.3X for FY 2015.     

3. The amount paid out in interest and deposits for FY 2015 is not reflected as same fact on the income statement.  I am focusing on this because it is audited.  The difference between total interest expense as stated on the income statement and as paid out in cash is N80.3B ($402m).  This differential exceeds the reported pre-tax income for FY 2015 of N75.04B.  

4. While its NPL ratio is pretty good, its provisioning for its bad loans is insufficient and may lead to 'surprises' in the near future.

5. Contingent liabilities to total assets is 32% as at Q1 2016; this is worse than that for Sept. 2009 when it was 24%.  This period was more difficult for banks collectively than now.  Compare this to Kenya Commercial Bank at 13%.

6. Gross Earnings/Total Assets + contingencies was 8% as at half year 2009 and is 8.8% in 2016 after multiplying the Q1 figure by four quarters.  The half-year figure in the more difficult year of 2009 is just 80 basis points more than the annualized Q1 figure for 2016.

A price-earnings ratio of 1.5X is apparently still not enough to make investors giddy about the stock.  Ask yourself.  Why?  Its not market driven in my opinion.  The market was down 17% in 2014 and Seven Up still rose in excess of 130% without price manipulation.  GT Bank's P/E is still at about 5X  presently despite the dour index performance.    

The Central Bank of Kenya Governor has said that the days of fuzzy numbers and creative accounting" are over in the Kenyan Banking Sector.  Time will tell how true this is, but, at least there is an admission of the issue to get things started.   I have never seen a similar quote from any Central Bank Governor in Nigeria but there have been perennial problems with transparency.

In August 2015 I wrote an article on First Bank on this blog and briefly commented that Skye Bank's figures for H1 2015 are more appealing than reality. Six months later and Skye Bank issues a profit warning.

Access Bank is not the kind of bank to issue a profit warning in my opinion.  You have to decide on your own whether you see roses or thorns.  Do not let the bright lights blind you.  Best wishes.

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