Sterling Bank overcomes harsh operating and regulatory headwinds as earnings surge

 

 

Sterling Bank Plc has overcome the harsh operating and regulatory headwinds hurting the profits of lenders in Africa’s largest economy as half year earnings rises 12 percent.

The growth at the top line and bottom line means the shareholders of the bank will get a high return on their investments. Analysts say the stellar good performance by the Nigeria lender will make investors swoop on its stocks.

For the first six months through June 2015, Sterling Bank’s gross earnings increased by 12 percent to N55 billion from N49 billion the previous year. The growth was driven by a 32.2 percent increase in non-interest income to N15.2 billion from N11.4 billion reported in the corresponding period of 2014.

“I am pleased to report on the steady progress made by Sterling Bank in the first six months of the year. Our performance further validates our resilience in the face of regulatory and other macroeconomic headwinds,” said Yemi Adeola, Managing Director of the bank, in a statement to BusinessDay.

“We prioritized performance optimization and operational efficiency leading to a 260-basis points improvement in cost-to-income ratio. We also achieved pre-tax Return on Average Equity of 14 per cent with a double-digit growth in top-line earnings. Our capital position remained strong with capital adequacy ratio at 15 per cent, 50 per cent higher than the regulatory benchmark”, said Adeola.

Analysts say the growth in earnings was coming amid foreign exchange restrictions hurting earnings of lenders in Africa largest oil producer.

The Central Bank of Nigeria applied rules and restrictions to stabilise the naira after it declined to a record low in February as the price of oil, the nation’s major foreign-exchange earner fell by a half in the second half of last year. The central bank has devalued the naira twice since November and prevented banks from buying dollars in the interbank market without matching orders, steadying the exchange rate while reducing liquidity.

The naira has dropped 7.8 percent against the dollar on the interbank market this year and has been trading in a range of 197 to 199.75 per dollar since the end of March. It was at 198.25 as of 2:30 p.m. on Monday in Lagos.

Nigerian consumer inflation was at 9.2 percent year-on-year in July unchanged from the previous month, which marked the highest rate since February 2013 and above the central bank’s target upper limit, according the statistics office.

Sterling Bank’s net income rose by 6.9 per cent to N5.4 billion during the period under review from N5.1 billion recorded a year earlier.

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.

The 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 bank is unrelenting in its cost cutting measures, put in place to woo more customers and increase asset base as it is putting in place the state of the art technology for that purpose.

“For the remaining half of the year, the Sterling Bank Chief Executive Officer said the Bank will complete the ongoing implementation of a number of technology-led service improvement initiatives across core and subsidiary systems in order to improve operating efficiency and employee productivity,” said Adeola.

Sterling Bank’s loans and advances to customers increased by 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 ratio increased to 59.55 percent in June 2015 as against 56.55 percent last year which means Sterling Bank is aggressive about lending amid weak macroeconomic indicators that impacted on industry loan growth.

Analysts say  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.

Furthermore, we remain confident that we will complete the final tranche of our capital program in order to build additional resilience in view of the prevailing difficult macro-economic conditions while also strengthening earnings capacity”, Adeola  added.

BALA AUGIE