Surge in interest income spurs Sterling Bank to growth

A surge in interest and non interest income amid weak macro economic conditions and regulatory headwinds has spurred Sterling Bank to growth as the Nigeria lender continues to use technological innovations to reduce costs while bolstering profits.

Analysts say the impressive performance by the lender will make its shares attractive to investors.

For the first nine months through September 2015, Sterling Bank’s gross earnings increased by 12.02 percent to N81.81 billion from N73.03 billion the previous year.

The growth at the top line was spurred by growth in interest and non interest income by 11.6 percent and 13.03 percent respectively.

The bank’s bottom lines followed the same upward trajectory as net income increased by 6.86 percent to N7.54 billion in September 2015 as against N7.06 billion the previous year.

Operating incomes were up by 62 percent to N50.68 billion in the period under review bolstered by 17 percent growth in trading income.

Sterling Bank was efficient in keeping costs to the barest minimum amid regulatory induced costs as cost to income ratio fell by 210 basis points on the back of improved optimization.

General Admin expenses which accounted for a third of opex declined by 13.5 percent on the back of the ongoing cost management initiatives, being implemented.

“Our third quarter performance was in line with expectations. We continue to prioritize efficiency in the management of our balance sheet in response to a difficult operating environment,” said Yemi Adeola, the Managing Director/ Chief Executive of the bank.

“Despite pressure on earnings, we achieved a 12 percent growth in top line revenue to N81.8 billion driven by a 13 increase in noninterest income and a 210 basis points improvement in cost-to-income ratio. However,  funding costs increased by  130 basis points arising from tighter monetary policy  measures .NPL ratio rose to 4.9 percent driven primarily by a reduction in the size of the overall loan book as a result of the re-purchase of state government loans by the  central government,” said Adeola.

Indeed the operating environment has been challenging for Sterling Bank and other lenders in Africa’s largest economy as multiplicity of regulations and restrictions imposed by the central bank, lower oil price, and increasing inflationary pressures continues to prevent most banks from recording double digit growth.

The Abuja based bank has restricted foreign-exchange trading to stabilize the naira and regulate an economy grappling with more than 70 percent fall in the price of oil to $37.

The naira has been fixed at about N198-N199 since March last year while foreign reserves have dropped by 15 percent in 2015.

While regulators controls have helped stabilized naira amid economic doldrums, analysts say such measures however is causing liquidity squeeze and also hurting profits of banks.

Sterling Bank’s  gross loans increased by 14 percent  and net loans by 13 percent  to N331.9 billion and N318.2 billion respectively year-to-date due to the liquidation of state government loans. Deposits to customers fell by 11.18 percent to N582.63 billion in 2015 from N655.944 billion in 2014.

The bank attributed the fall in deposit base to the implementation of the Treasury Single Account (TSA) policy of the central bank.

A TSA is a unified structure of government bank accounts or a set of linked bank accounts through which the government transacts all its receipts and payments and gets a consolidated view of its cash position at all times.

Sterling Bank’s loan to deposit ratio fell to 54.60 percent in September 2015 as against 56.60 percent last year.

The banks’ total asset reduced slightly by 3.38 percent to N792.54 billion in September 2015 compared with N824.53 billion last year.

The banks shareholders’ funds increased by 4.1 percent to N88.20 billion in the period under review from N84.71 billion as at December 2014.

The bank’s Capital adequacy ratio reached an all –time high of 19.3 percent, driven by asset substitution arising from the liquidation of the sub-sovereign loan.

Liquidity ratio improved substantially to 47.8 percent from 33.6 percent in Dec 2014, further improving the lender’s buffers in a very difficult environment. Total capital (including debt) increased by 4.1 percent to N92.9 billion, driven by profit accretion.

Sterling Bank’s share price closed at N1.83 (Wed Jan 06) on the floor of the exchange while market capitalization was N52.68 billion.

‘‘In the final quarter of the year, we expect to complete the ongoing implementation of a number of technology-led service improvement initiatives across core and subsidiary systems as stated in my second quarter update. We remain focused on our customer acquisition and revenue diversification initiatives while loan growth will remain steady and disciplined,’’ said Adeola.

BALA AUGIE