ABC 1Q24 Review: Quarterly earnings drop to USD 26.6mn yet NPL ratio decreases for first time since 1Q22

Gross loans see slight growth, while deposits increase solidly in 1Q24 on the back of robust CASA growth

• As of 1Q24, the number of loan accounts reached 670,720, an increase of 63,591 accounts or 10.5% YoY. Gross loan rose moderately by 2.3% YoY, totaling USD 6,730mn, driven by a 58.2% YoY increase in personal & other loans from USD 320.2mn to USD 506.6mn and a 43.5% increase in credit card loan from USD 65.4mn to USD 93.9mn. Meanwhile, small and medium loans – which accounted for over 80% of ABC’s loan portfolio – offset each other in terms of growth, increasing slightly by 1.0% YoY and decreasing 4.72% YoY, respectively.
• The number of deposit accounts increased by 17.0% YoY from 4,068,040 in 1Q23 to reach 4,761,637 in 1Q24. Total deposits from customers and other banks reached USD 7,637mn, posting a 12.5% growth YoY. Total deposit growth was driven mainly by a 15.1% and 10.2% increase in CASA deposits and fixed deposits, respectively. Meanwhile, ABC’s CASA deposit rate ratio widened by 1.1%pt YoY to 48.3% as of 1Q24.
• In 1Q24, the number of ABC mobile users surged 23.9% YoY to roughly 3.7mn users. Notably, the number of transactions soared 125% YoY from 71.5mn transactions in 1Q23 to 161.1mn transactions. Additionally, the value of transactions increased by 75.2% YoY to reach KHR 150,265,520mn. ACLEDA mobile has undergone significant enhancements and redesigned to become more user-friendly, modern, and secured. Furthermore, the incorporation of various features and loan products have increased the popularity of the mobile app.

Interest income increases 6.3% YoY but average interest yield declines

• ABC earned USD 195.3mn in interest income in 1Q24, up 6.3% YoY, driven by a 14.0% YoY growth in earning assets. Interest from loans and advances, which constituted 97.6% of total interest income increased by 7.9% YoY to USD 190.7mn. In addition, the increase in the average interest yield on loans increased by 0.52%pt from 10.9% in 1Q23 to 11.4% in 1Q24 also contributed to the overall interest income growth.
• The average interest yield on earning assets decreased from 9.6% in 1Q23 to 9.1% in 1Q24, mainly due to the change in the composition of earning assets, with gross financial investments and deposits and placement with other banks almost doubling in 1Q24.

NIM squeezed by 1% as funding cost rises

• In 1Q24, interest expenses increased 16.8% YoY to USD 88mn, growing faster than interest income growth. This increase was primarily driven by higher cost of funding on all interest cost categories, rising from 3.95% to 4.26%. As a result, net interest margin (NIM) decreased 1.0%pt YoY from 6.1% to 5.1% in 1Q24.
• Interest expense from CASA deposits rose from USD 7.0mn to USD 8.2mn, posting a 16.4% increase YoY, despite the average cost of fund edging up only 0.04pt%, as the CASA deposit outstanding amount grew 15.1% YoY. On the other hand, interest expense on fixed deposit surged 23.9% from USD 48.2mn in 1Q23 to USD 59.7mn in 1Q24, driven by a 10.2% YoY increase in outstanding amount of fixed deposits, and 0.52%pt increase in average interest rate on fixed deposits from 5.62% to 6.14%.

Fee and commission income grows marginally

• In 1Q24, fee and commission income inched up 2.6% YoY to USD 12.7mn. The marginal growth was contributed mainly by a 43.8% YoY increase in ATM fee and 76% YoY jump in training fees, offset by a decrease in early loan redemption fees and commission fees.

Credit cost rises due to migration of substandard and doubtful loans to loss loans while decreased NPL ratio suggests an improvement 

• Net impairment losses shot up to USD​​ 18.5mn in 1Q24 from USD 10.2mn in 1Q23. The loss was largely attributed to a 108.8% YoY increase in allowance for impairments on loans and advances, caused by a decrease in quality of loan portfolio. The loss loan ratio widened by 0.56%pt over 1Q24 from 2.70% at the end of 2023 to 3.26% at the end of 1Q24, vs 0.36%pt increase over 1Q23. However, the NPL ratio decreased by 0.06%pt from 6.39% to 6.33% over 1Q24, vs 0.63%pt increase over 1Q23. The decrease in NPL ratio The significant increase in allowance for loan impairments was due to the migration of substandard and doubtful loans to loss loans during the period. Indeed, substandard, and doubtful ratios decreased by 0.39%pt and 0.24%pt, respectively. Therefore, the decrease in NPL ratio in 1Q24 indicates a good sign for an improvement in future loan quality and may suggest a future decrease in the allowance expense.

Foreign exchange gain continues to be the main driver of other income

• In 1Q24, ABC earned USD 7.5mn in other income, rising 6.4% compared to the same period last year. While foreign exchange gain increased 18.3% YoY, recovery from loans and advances written off declined slightly by 1.9% YoY.

Bottom line declines due to higher funding cost and legacy NPLs

• Risk-adjusted net interest income (interest income + interest expense – allowance for impairment) reached USD 89.0mn, declining 9.4% YoY. On the other hand, the total operating expenses (G&A expenses + fee and other commission expense) rose moderately by 3.4% YoY, driven by an increase of 8.6% YoY in D&A expenses and 15.2% YoY increase in utilities expenses. As net interest income decreased and total operating expenses increased, cost-to-income ratio (CIR) rose by 3.3%pt to 58.4% in 1Q24. Consequently, pre-tax profit declined 29.3% YoY to USD 33.1mn and consolidated net profit decreased 31.3% YoY to USD 26.6mn in 1Q24.
• Earnings per share (EPS) in 1Q24 (ttm) stood at USD 0.30 (or KHR1,232), decreasing 30.0% compared to the same period last year. Meanwhile, book value per share (BPS) stood at USD 3.23, a modest 4.0% increase compared to USD 3.11 in 1Q23. Meanwhile, ABC stock is trading at P/E of 7.80x and a P/B of 0.72x at the end of 1Q24.