Skye Bank profit falls on loan loss expense

Skye Bank plc full-year profit declined by 47.4 percent as rising loan loss expense continues to hurt the bottomline of the Nigerian lender.

Profit was N9.74 billion in 2014, compared with N18.53 billion the same period of the corresponding year (FY) 2013, the Lagos-based company said in an e-mailed statement, recently.

The bank took a hit at the bottomline due to a 58.2 percent surge in loan loss expense to a record N19 billion from N12 billion the previous year.

A loan loss expense is an expense set aside as an allowance for bad loans (customer defaults, or terms of a loan have to be renegotiated). A higher loan loss provision could hit a bank hard as the accumulated expenses go right to the bottomline, hence slowing lenders reserve releases.

Analysts say the floundering earnings and return on investment of Skye Bank has culminated in its shares doing less well than expected.

“Although the shares shed 9 percent today, we would not be surprised to further sell-off over the next few days given the weak results,” said Olubunmi Asaolu, equity research analyst with FBN Capital in a May 14 note to BusinessDay.

“The shares have shed 18 percent ytd, compared with the -0.7 percent return on the All Share Index. Our estimates are under review. We rate Skye Bank shares Underperform,” said Asaolu.

Skye Bank’s earnings per share (EPS) fell by 48.1 percent to 75k from 144k the previous year.

Cost to income ratio (CIR) increased to 45.85 percent in 2014 from 43.14 percent the previous year. It means the bank is not efficient in reducing costs while increasing profit. Operating expenses increased by 9.8 percent to N62.70 billion.

Net margin, another measure of profitability and efficiency, fell to 7.12 percent in 2014 as against 14 percent in 2013.

Skye Bank’s gross earnings jumped by a mere 3.3 percent while interest income moved by an unimpressive 2 percent as the Nigerian lender continues to grapple with regulatory headwinds such as the central bank hike in interest rate.

The Central Bank of Nigeria (CBN) devalued the naira and raised interest rates by 100 basis points to 13 percent from 12 percent previously held as it sought to stem losses to its foreign reserves from defending the currency hit by weaker oil prices.

Nigeria’s external reserves continued its steady decline, dropping by 13.7 percent to $29.77 billion since the beginning of the year, the lowest fall the past 10 years.

Skye Bank is aggressive about lending while creating risk assets as loans to deposits ratio moved to 68.38 percent in 2014 as against 66.71 percent the previous year.

Loans and advances to customers increased by 18.4 percent to N651.26 billion compared with N549.85 billion in 2013. Deposits from customers increased by 15.7 percent to N952.30 billion in 2014, as against N823.32 billion in 2013.

The bank plans to raise as much as N50 billion by selling stock this year as it seeks to boost liquidity and fund operations.

This strategic move is expedient given the liquidity squeeze bedeviling lenders in Africa largest economy, Nigeria.

Skye Bank has N1.42 trillion of assets and market capitalisation of N28.68 billion. The bank’s share price closed at N2.17 on the floor of the NSE.

 

BALA AUGIE