Central Bank’s deposit rules bites Sterling Bank

The Central Bank of Nigeria’s deposit rules imposed on lenders in Africa largest economy is biting hard as Sterling Bank recorded a single digit growth in profit.

For the first six months through June 2015, Sterling Bank net income increased by a single digit 6.93 percent to N5.42 billion compared with N5.07 billion the same period of the corresponding year (H1) 2014.

Profit before tax also followed the same trend as rose by a mere 1.43 percent to N6.05 billion in June 2015 as against N5.97 billion last year.

Analysts and industry players had anticipated a slow growth as regulator deposit regimes and foreign exchange restrictions continue to hurt profits of lenders in Africa largest oil producers.

The Central Bank has mandated banks to keep with it 31 percent of their deposits as it seeks to protect the naira from continued bashing caused by a more than 50 percent fall in oil price. The Abuja based bank had devalued the currency twice since last year while hiking the interest rate to 13 percent from the 12 percent previously held.

The regulator also introduced curbs on currency trading after the naira fell to a record low of 206.32 per dollar on Feb. 12. That’s stabilized the unit at an average of 198.94 since the start of March.

As a result of the regulatory policy changes of the Apex Bank, Sterling Bank’s interest expense jumped by 26.41 percent to N20.40 billion in June 2015 as against N16.14 billion last year. The dip in interest expense resulted in a 10.98 percent decrease in net interest income to N19.42 billion in June 2015 from N21.82 billion last year.

However, investment and operating profit moved by 33.18 percent to N15.20 billion in the period under review as against N11.41 billion as at June 2014. The growth in operating income may have been driven by an increase in noninterest income.

Sterling Bank was cost efficient amid regulatory induced costs such as the Asset Management Corporation (AMCON) Charge as cost to income ratio reduced to 69.81 percent in June 2015 compared with 72.43 percent. Operating expenses were flattish at N24 billion. The ratio gives investors a clear view of how efficiently the firm is being run – the lower it is, the more profitable the bank will be.

The rising loan loss expenses in the books of Sterling Bank means the lender has been writing off huge irrecoverable loans that will culminate in further drain on profits.

The lists of delinquent debtors published by the bank on the pages of the dailies means more loans will have to be written off if they become irrecoverable.

Sterling Bank succumbed to the macroeconomic headwinds as loans and advances to customer increased by a mere 2.40 percent to N380.15 billion in June 2015 as against N371.24 billion as at June 2014. Deposit to customers jumped by 2.68 percent to N638.33 billion in June 2015 as against N655.94 billion as at June 2014. Loan to deposit increased to 59.55 percent in June 2015 as against 56.55 percent last year. Weak Macroeconomic indicators such moderate growth in lending activities and the devaluation of the currency impacted on industry loan growth. The sector loan growth will be influenced by the monetary policies of the CBN, capital adequacy, and competition.

Sterling Bank’s Loans were well spread across the key sectors of the economy. Oil & gas recorded the highest sectorial contribution to gross loans but spread across the key sub-sectors • Despite oil price and exchange rate volatility, the bank has maintained a healthy portfolio within the sector.

The banks’ total assets increased by 1.15 percent to N834.04 billion in June 2015 compared with N824.53 billion last year. Shareholders’ funds were up 4.36 percent to N88.41 billion in the period under review from N84.71 billion last year.

Sterling Bank’s share price closed at N2.09 on the floor of the exchange while market capitalization was N60.17 billion.