Standard Chartered Bank profit falls on huge impairment loss

Standard Chartered Bank Limited, a subsidiary of Standard Chartered Plc needs to act fast as impairment loss on risk assets damped profit, an unimpressive results that confirms analysts fret that the economic slowdown will impact negatively on lenders earnings.

For the year ended December 2015, Standard Chartered net income dipped by 46.60 percent to N13.43 billion as against N25.15 billion the same period of the corresponding year 2014.

The sharp drop in profit was due to a rising loan loss expense otherwise known as impairment on loans and advances. The lender’s impairment loss on risk assets surged by 786.67 percent to N15.07 billion in December 2015 from N1.70 billion in December 2014.

Impairment charges or loan loss expenses occurs when it is probable that the Bank will be unable to collect all or some of the amounts due, including both the contractual interest and principal payments under a loan agreement.

The exposure to oil and gas stoked by a sharp drop in oil price hit Standard Chartered as Non performing Loans (NPLs) spiked by 93.69 percent to N23.65 billion in December 2015 from N24.11 billion. Analysts had envisaged that the continuing deterioration in Nigeria’s macro-economic conditions will result in banks recognising higher than expected impairment charges on loans made to the Energy and Commercial Business sectors.

Lenders in Africa’s largest economy had extended credit facilities to oil and gas firms and other business when the price of oil was higher than $100 a barrel. 

However, as a result of the sudden drop in oil price by 70 percent, collateralize assets lost value and many of these firms were unable to honour obligations. 

Economic growth slowed to 2.8 percent in 2015, the lowest since 1999. The International Monetary Fund forecasts a further slowdown in 2016. “As has become typical of the Nigerian banks, we expect to see a spike in impairment charges in the fourth quarter, as auditors and the CBN take a tougher stance on classification of certain exposures,” said Adesoji Solanke, lead analysts Sub Sahara African banks at Renaissance capital, in a recent note to BusinessDay.

“The common factor being higher than expected impairment charges. From an asset quality view point, we remain more concerned about the tier 2 banks given they are relatively more exposed to lower quality names and have less earnings buffers to take on additional asset quality stress,”  said Solanke

Analysts are increasingly questioning the risk management strategy of Nigerian lenders given the pressure on assets quality and rising NPLs.

Further analysis of Standard Chartered financial statement shows gross earnings increased fell by 1.64 percent to N73.16 billion in December 2015 from N74.38 billion in December 2014. Interest and similar income moved by 8.68 percent to N57.30 billion in the period under review as against N52.72 billion as at December 2014.

The Nigerian lender’s interest and similar charges reduced by 22.10 percent to N16.67 billion in December 2015 from  N21.40 billion as at December 2014. Net interest jumped by 29.72 percent to N40.63 billion in December 2015 from N31.32 billion as at December 2014. Standard Chartered net margin, a measure of profitability and efficiency fell to 18.35 percent in December 2015 from 33.81 percent as at December 2014.  Return on equity (ROE) fell to 12.38 percent in the period under review as against 25.33 percent as at December 2014.

The bank is less aggressive about lending as loans to deposits reduced to 63.49 percent in December 2015 as against 79.30 percent as at December 2014.

Loans and advances to customers grew by 74.64 percent to N289.41 billion in December 2015 from N309.12 billion as at December 2014. Customer deposits were up by 17.56 percent to N455.81 billion in December 2015 from N387.71 billion as at December 2014.

The bank was founded in 1999 and is based in Lagos, Nigeria. Standard Chartered Bank Nigeria Limited operates as a subsidiary of Standard Chartered PLC.

BALA AUGIE