Access makes bank on aggressive write-offs, continues to grow interest spreads
Access Financial Service wrote off $300 million in loans in the past two years.
The microlender implemented aggressive provisioning in 2009, when it started to write off loans which were not serviced for 180 days or more, but it was in 2012 when it introduced greater consistency to its policy.
Moreover, the company has been pushing for better compliance from its partners who remit loan payments to Access on behalf of its employees.
These efforts added over $40 million to the company's earnings during the three months to March 31.
Allowances for credit losses fell from $39 million in the first quarter of 2014 to $3 million in the review period. Also, its other operating income doubled to $18 million due to the recovery on loans previously written off.
This helped Access grow its net profit to $138 million in the quarter under review, up from $80 million.
The figure at the bottom line would have been larger if the microlender hadn't recommenced payment of income taxes at a half-rate, following five years of zero income taxes under the concession for listing on the Jamaica Stock Exchange (JSE) junior market. It forked out $20 million to tax authorities in the first quarter of 2015.
Still, the $11-million gain Access realised from purchasing loan portfolios from Asset Management Company Limited and Appliance Traders for $504 million, as well as $15 million (6.4 per cent) growth in interest from loans more than offset the increased tax burden.
Earnings was also helped by further reduction in interest expense, which fell from $13 million during the three months to March 31, 2014, to $7 million in the review quarter.
This translated into high interest spreads for Access. In other words, for every dollar of income the microlender generated from loans in the first quarter of 2015, it cost the company just three cents to service its debts. It cost them over five cents on the dollar a year earlier and 13 cents back in 2009 when the company listed on the JSE.
"We are using a lot of internally generated funds to finance lending," Access CEO Marcus James told Wednesday Business.
Indeed, the company's $1.5-billion loan book as at March 31 was matched by just $850 million in liabilities, which the microlender borrowed at 10 per cent or less, based on loan details provided by its 2014 annual report.
However, the high interest spreads also reflects high lending rates. Access generated over $1 billion in interest from loans over the 12 months to March 31 from an average loan portfolio of $1.3 billion.
Fast loan turnover also positively impacted the spread. Access disbursed just over $2 billion in loans and wrote off $150 million in 2014, yet the company's loan book actually declined by $39 million to $1.08 billion.
"We are focused on turning around loans in faster times," James said. "Our goal is to disburse business loans within two days and personal loans in two hours."
Personal loans make up over 80 per cent of Access's loan portfolio in 2014.
Increased competition in the microlending market pushes the company to innovate its product offerings. Its latest project - for which the company received over US$1 million in funding from the Inter-American Development Bank - is focused on increasing support for rural entrepreneurship through the development of agricultural products.
"The pilot is going very well, and we are seeing improvement in the quality of our loan portfolio to agriculture," said James. "The project should be fully rolled out by the end of June."
Lending will target micro to small agricultural projects, ranging from $50,000 to $1.5 million in value. Access's CEO said that the target in year one is to disburse 700 new loans under the project.