1Q25 earnings up 21% driven by non-interest revenue
Justin Mwangi
#themes: NIM, non-interest revenue, lending
Event: Afreximbank released its 1Q25 results reporting a 21% increase in earnings to USD 215mn driven by non-interest revenue and exchange rate adjustments, as expected.
NIR more than doubled to USD 63mn from USD 30mn due to a 12x jump in other operating income. Net fees and commissions decreased marginally by 2% to USD 26.5mn. NII increased by 5% to USD 411mn as growth in interest earning assets (+12%) helped offset a 50bps decline in NIM to 4.8%. As we expected, both asset yields and funding costs have started to decline. The gross interest income dropped 1% while interest expense decreased by a faster 5% YoY.
Total revenue increased by 12% to USD 474mn while operating expenses rose by 23% leading to a deterioration in the cost to income ratio to 15.9% from 14.5% in 1Q24. However, the ratio remains very healthy, in our view, and within the management target of below 30%. PPOP increased by 10%.
Provisions increased by 5% to USD 18mn while exchange adjustments swung from a USD 19mn loss in 1Q24 to a USD 7mn gain and fair value adjustments on financial instruments declined from a USD12mn gain in 1Q24 to a USD 5mn loss in 1Q25.
ROE increased by 34bps to 12.5% while ROA increased by 11bps to 2.5%.
Net loans increased by 4% YoY to USD 27.8bn but fell by a similar magnitude QoQ due to unscheduled early loan repayments by some sovereign borrowers. Net loans stood at USD 29bn. As a result, the loan to assets ratio contracted to 75% (1Q24: 82%) - the lowest level since 3Q19. On the other hand, cash and cash equivalents increased by 51% YoY and 59% QoQ to USD 7.4bn. The liquid assets ratio shot up to 20% from 15% in 1Q24.
Overall, total assets increased by 13% YoY to USD 37.0bn while total assets plus contingent liabilities increased by 18% to USD 42.7bn.
Total liabilities increased by 11% YoY to USD 29.5bn driven by money market deposits which increased by 168% to USD 4.2bn. Borrowings from banks increased by 5% to USD 14.5bn while customer deposits and debt securities declined by 2% and 7% YoY, respectively.
Asset quality: The NPL ratio improved to 2.44% from 2.72% in 1Q24 but edged up marginally from 2.33% in FY24.
Upshot: The headline earnings performance was strong though driven mostly by NIR. We expect NII growth to improve as the bank lends out more in the remainder of FY25E. Asset quality and cost to income ratios remain healthy and should continue to support earning growth going forward. In the last six years, the bank’s FY earnings have been c.4.6x of 1Q profits on average. If a similar performance is recorded in FY25E, then we expect the dividend yield to remain at around 10% or higher.
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