Stanbic IBTC Holdings delivers robust returns to shareholders than peers

Stanbic IBTC Holdings Plc is pretty much undoubtedly a big fish in a small pond, and it is high time the regulator elevate it to an ocean where it can comfortably swim underneath the blue sea with fellow sharks.

This is because the small and mid-sized lender, over the years, has been delivering robust returns to shareholders, which means it has a superior return on equity (ROE) to peer rivals. A higher ROE is taken as the management’s ability to generate better income from equity.

Abhishek Basumallick, Founder, Intelsense, said, “ROE is one of the most important parameters to look at the quality of a business. A company that continues to have a strong ROE on a consistent basis means it can generate a significantly high return on capital over long periods of time under different circumstances.”

The chart below shows Stanbic

IBTC generated ROE of 26.30 percent as at June 2020, which is pretty clearly higher than rivals Fidelity Bank, (12.90 percent); First City Monument Bank, (9.40 percent); Sterling, ( 8.72 percent); Union Bank, (8.42 percent); Wema, (5.42 percent), and Unity Bank, (-0.74 percent).

Interestingly, Stanbic IBTC has also used the resources of its in generating higher profit than all big banks except Guaranty Trust Bank Plc.

For instance, Firstbank Holdings, Access Bank, Zenith Bank, and United Bank for Africa (UBA), all have ROES of 11.80 percent, 15.30 percent, 23.30 percent, and 12.10 percent.

Amid a punitive regulatory environment and coronavirus induced headwinds, Stanbic IBTC was able to record double-digit growth in profit.

For instance, net income for the first six months through June 2020 spiked by 24.71 percent to N45.20 billion as against N36.24 billion the previous year. This confidently makes Stanbic IBTC the largest Tier 2 lender by profit. See charts.

The growth at the bottom line was largely driven by a reduction in cost and contributions from trading income that helped compensate for receding interest income.

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Total operating expenses were down 3.06 percent to N48.53 billion as at June 2020 even amid inflationary pressure, as the lender continues to contain cost while increasing profit as cost to income ratio fell to 45.20 percent in June 2020 from 53.20 percent as of June 2019.

Non-interest income increased by 27.16 percent to N69.79 billion in the period under review as against N54.85 billion the previous year.

The growth in noninterest revenue was largely underpinned by a 94.65 percent surge in fixed income securities to N34.26 billion as of June 2020.

A reduction in cost and contributions from fixed income securities added impetus to the bottom line as net profit margin increased to 35.71 percent in June 2020 from 30.87 percent the previous year.

However, Stanbic IBTC Holdings and other banks in Africa’s largest economy are operating in a harsh regulatory environment while the coronavirus pandemic has added a new layer of risk.

An effort to boost economic growth in Africa’s most populous country, the central bank hiked the minimum loans to deposit ratio to 65 percent from 60 percent.

Analysts have warned that forcing banks under the current macroeconomic condition could stoke non-performing loans (NPLS) and undermine profitability.

That’s triple whammy for companies that are reeling from a decline in fixed income securities that led to a decline in interest income and net interest income.

The non-performing loan ratio of the Nigerian banking sector dropped to 6.6 per cent at the end of April 2020 from 11 per cent in April 2019, according to the Governor of the Central Bank of Nigeria, Mr Godwin Emefiele.

The largest banks witnessed rising impairment on loans as the lockdown measures put in the place by the government to curb the spread of the virus paralyzed economic activities across the country and customers were unable to pay interest on money borrowed.

Analysis of the financial statement of these banks shows combined bad loans surged 112.15 percent to N119.06 billion as at June 2020, according to data gathered by Businessday.

Analysts have said impairment losses could surge on the back of guidelines prescribed by IFRS 9.

Stanbic IBTC supports its clients’ businesses and aspiration as gross loans and advances increased by 8.28 percent to N579.48 billion as at June 2020 from N535.17 billion the previous year.

The lender’s loans and deposit averaged 66 percent as At June 2020, which is above the regulatory benchmark.

Fitch, the global ratings firms, retained AAA rating of Stanbicibtc and its banking subsidiary, which reflects the strongest capacity for timely payment of financial commitments

“Overall, we think that 2020 will once again test the resilience of the Nigerian banking sector,” said analysts at United Capital Limited.

In terms of asset quality, we expect NPLS to increase significantly due to substantial exposure to some of the hardest-hit sectors, especially oil & gas, manufacturing, and trade &general commerce.

Also, in the consumer lending space, we expect a significant level of defaults as unemployment levels rise and salary cuts have become the order of the day.

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