- Gross loans rose by 49.1%, partly due to the business combination with the erstwhile Diamond Bank Plc. We also note the impact of Central Bank’s LDR push on the numbers, evinced by the 8.1% growth in credit assets compared to the bank’s H1’19 position (pre-announcement of the measures). This was achieved in spite of the bank’s initial guidance of slower loan growth while focusing on resolution of credit quality issues imported from the merger. In effect, the growth in loans did little to worsen asset quality concerns as the NPL ratio declined from 10.0% post-combination to 6.0% in FY’19, per our estimates.
- Net interest income strengthened (59.7% YoY), supported by the 52.2% increase in interest-earning assets (notably driven by loan growth of 49.1% and a 2.5x increase in investment securities) following the merger. Ultimately, the net interest margin improved to 6.9% from 6.2% in FY’18. The improvement in net interest income also reflected a moderation in the cost of funds to 5.0% from 5.5% in FY’18, per our estimates. Notwithstanding the 47.3% increase in interest-bearing liabilities, we note that the redemption of $600 million in Eurobonds (Access Bank $400 million; Diamond Bank $200 million), the 8.2ppts improvement in CASA ratio to 58.1%, and the general moderation in yields underpinned the fall in funding cost.
- Non-interest revenue (NIR) fell by 18.9% YoY, mainly dragged by the 3.5x increase in FX losses, as well as the slowdown in derivative (-60.4% YoY) and equity (-68.5% YoY) trading gains in the period. Weaknesses on these fronts undermined the impact of the 41.0% YoY increase in net fee & commission and loan recovery efforts.
- Operating expenses rose by 30.8% YoY, partly due to one-off integration costs following the business combination. This, consequently, shot up cost to income ratio to 65.2% from 62.2% in FY’18. On the other hand, the cost of risk was relatively flat at 0.7%.
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