ABC 4Q23 Review: Bottom Line Declines on High Credit and Funding Costs

Loans experience sluggish growth in 4Q23 due to economic headwinds hampering borrowing activities

• At the end of 4Q23, the number of loan accounts reached 661,941, up 11.9% YoY. Gross loan portfolio saw a slight uptick of 3.7% YoY, totaling USD 6,657.3mn at the end of 2023, mainly driven by 5.0% YoY growth in small loans, but offset by a 5.7% YoY decrease in medium loans. A notable growth was seen in personal & other loans and credit card loans which surged 84.1% and 40.6% YoY, respectively. ACLEDA’s modest loan growth is somewhat in line with the average industry loan growth of 4.8%, and this can be attributed to the unfavorable economic climate characterized by rising lending rates and NPLs. According to NBC, deposittaking institutions’ average interest rate on the newly disbursed term loans increased by 0.81%pt from 9.44% in 4Q22 to 10.25% in 4Q23. ACLEDA’s average lending rate in 4Q23 was up by 0.33%pt during the same period from 10.97% to 11.30%.

• Meanwhile, the number of deposit accounts increased by 17.7% from 3,865,749 at the end of 4Q22 to 4,550,582 at the end of 4Q23. Total deposits from customers and other banks and financial institutions reached USD 7,227.8mn, posting a growth of 13.3% YoY. Total deposit growth was driven mainly by 16.79% YoY growth in fixed deposits, while CASA deposit growth stood at 9.21% YoY. Solid deposit growth in 2023 was mainly due to the overall increase in interest rates, leading many banks to increase their deposit rates to attract local depositors. Indeed, ABC’s average CASA deposit rate in 4Q23 was up 0.16%pt YoY, while average fixed deposit rate expanded by 0.88%pt from 4Q22.

• The number of ACLEDA Bank Mobile App users surged 21.3% YoY to 3.5mn in 4Q23, compared to 2.8mn in 4Q22. Transaction value jumped 85.3% YoY to KHR 383bn, with the number of transactions seeing a 2.5-fold increase YoY to 373mn transactions.

Interest income increases 9.4% YoY but average interest yield narrows

• ABC earned USD 194.3mn in interest income in 4Q23, up 9.3% YoY, driven by 7.6% YoY growth in interest earned from loans and advances, which made up 96.2% of total interest income in 4Q23. Despite the sluggish loan growth, the increase in the average lending rate by 0.33%pt from 11.0% in 4Q22 to 11.3% in 4Q23 mainly contributed to the overall interest income growth.

• However, the average interest yield on earning assets narrowed from 9.7% in 4Q22 to 9.4% in 4Q23, mainly due to the change in the composition of earnings assets with more allocation going towards deposits and placements with other banks as loan disbursement slew down.

Attractive interest rate attract depositor resulting in higher interest expense

• Interest expenses surged by 32.5% YoY to USD 87.1mn, growing faster than interest income. This increase was primarily driven by fixed deposits, which constitute two-thirds of the funding structure and experienced a significant 47.3% YoY growth as more customers taking advantage of the higher interest rates as shown in the increase of deposit accounts.

• The average cost of fund rose 0.70%pt YoY from 3.7% in 4Q22 to 4.4% in 4Q23. The notable increase was due to higher interest rates on CASA deposits (+0.15%pt YoY), fixed deposits (+0.97%pt YoY) and borrowings (+1.81% YoY). As a result, net interest margin (NIM) got squeezed by 0.3%pt YoY to 5.3% in 4Q23.

Fee and commission income sees solid growth

• In 4Q23, fee and commission income increased by 17.5% YoY to USD 13.3mn. The solid growth was brought mainly by a 112.3% YoY increase in commission fees collected by assurance agencies, a 9.2% YoY increase in ATM fee and a 9.8% YoY increase in early loan redemption fees.

Credit cost rises as loan portfolio quality deteriorates

• In 4Q23, net impairment losses skyrocketed to USD 11.5mn from USD 0.6mn in 4Q22. This was primarily driven by a staggering 1,543% YoY increase in the allowance for impairments on loans and advances, attributable to a decline in the quality of the loan portfolio. The non-performing loan (NPL) ratio also experienced a significant increase, climbing from 2.90% at the end of 4Q22 to 6.39% at the end of 4Q23 with the loan loss ratio widening by 0.90pt% from 1.81% to 2.70% over the same period.

Foreign exchange gain continues to be the significant contributor of other income

• In 4Q23, ABC recorded USD 6.1mn in other income, a 10.5% YoY increase. The largest contributor to this income was foreign exchange gain, totaling USD 4.3mn and reflecting a 36.3% YoY growth. However, recovery from loans and advances written off experienced a decline of 13.6% YoY.

Bottom line declines due to high funding cost and deterioration in loan quality

• Risk adjusted net interest income (interest income + interest expense – allowance for impairment) reached USD 95.7mn in 4Q23, declining 14.2% YoY. On the other hand, the total operating expenses (G&A expenses + fee and other commission expense) saw a slight rise of 0.9% YoY to USD 68.3mn, driven by the increase in D&A expenses of 8.7% YoY, repairs and maintenance expenses of 4.8% YoY, offsetting by the decrease in personnel expenses by 0.7% YoY. Consequently, the cost-to-income ratio (CIR) rose by 2.1pt% to 54.6% in 4Q23 due to the revenue drop. This led to a pre-tax profit decline of 25.6% YoY to USD 45.2mn and consolidated net profit plummeted 25.0% YoY to 36.6mn in 4Q23.

• Earnings per share (EPS) in 4Q23 stood at USD 0.33 (or KHR1,346), down 22.3% compared to 4Q22, while book value per share (BPS) was at USD 3.18 at the end of 4Q23, a modest increase compared to USD 3.03 a year earlier. Based on these EPS, BPS figures, along with the closing price on Mar 13, 2024, ABC stock is trading at a P/E of 7.14x and a P/B of 0.74x.