Sterling Bank Scales To New Profit Record
Sterling Bank Plc registered a final quarter leap in profit that saw it through to a new profit high at close to N11 billion at the end of the 2019 financial year. The bank’s unaudited report shows that after-tax profit advanced more than three times on a quarter-on-quarter basis in the fourth quarter of 2019 to N3.23 billion. That contributed 30 percent of the bank’s full-year profit, pushing up the growth momentum from a third quarter profit drop.
Since the bank lost one-half of its after-tax profit in 2016, it has been unable to return to the profit peak of N10.3 billion established in 2015. The strength to scale the hurdle however came in the closing quarter of 2019 that turned around a profit a drop of close to 8 percent at the end of the third quarter to a full year advance of over 17 percent.
The strength for the elevated performance in the year came from cost saving while revenue declined for the first time in many years. Interest cost was the cost-saving centre in the year, which dropped by 11 percent while interest income improved slightly.
This is a major change of direction for the bank after two years that interest expenses grew ahead of interest income. The resulting boost in net interest income meant a gain of N10 billion – a best record performance in three years.
A moderated growth in credit loss expenses seen at the end of the third quarter was maintained to full year. Loan impairment expenses slowed down further from 8 percent at the end of September to 3 percent at full year. This permitted the gain in net interest income to flow down to the bottom line.
The bank’s management failed to stem the pressure from operating expenses – which consumed nearly half of gross earnings in 2019. That raised the bank’s operating cost margin to the highest mark in five years at 47 percent. This kept profit margin at the low end of the industry numbers and well below the bank’s previous highs.
Gross earnings amounted to N149.47 billion for Sterling Bank at the end of the 2019 operations, which is a marginal decline of 1.8 percent against an increase of 14 percent in the preceding year. The decline was accounted for exclusively by non-interest income, which dropped by 5 percent to N22.3 billion.
The actual revenue figure is 2.3 percent down from the full year forecast of N153 billion for Sterling Bank in 2019. Non-interest earnings led the revenue growth in 2018 and also led a decline in 2019, an indication of the high level of operating volatility in the business space.
Cost saving was the strength for profit improvement in the year as revenue declined and it came from interest expenses. At N62.3 billion, interest expenses dropped by 11 percent in 2019, changing direction from an increase of 16 percent in 2018.
The change of direction in interest expenses from growing ahead of interest income to a decline against a slight improvement in interest earnings is the major development that changed the fortunes of Sterling Bank in 2019. This afforded the bank a cost saving of N7.6 billion that resulted in an increase of 17.4 percent in net interest income to nearly N65 billion at the end 2019 – the best growth record in net interest income in three years.
The bank closed the 2019 financial year with an after tax profit of N10.8 billion, which is an increase of 17 percent. An upturn in the final quarter remedied the slowdown seen in the third quarter and overturned the 7.7 percent profit drop at the end of the third quarter.
The actual profit figure for the year is ahead of the forecast profit region of N9 billion for Sterling Bank in 2019. This is in line with our indication at the end of the third quarter that the profit forecast was subject to a wide variation due to uneven performance records across quarters.
The bank’s management has maintained profit recovery for the third year running in 2019 from a drop of almost 50 percent in 2016. That has seen it through to a new profit high ahead of the N10.3-billion mark it registered in 2015.
Operating cost was relatively high by industry-standard at 47 percent of gross earnings at the end of 2019. This is an increase for the second year from 44 percent in 2018 to stand at the highest cost margin since 2015.
The high cost margin kept net profit margin at the base of the banking industry records at 7.2 percent though an improvement from 6.1 percent at the end of 2018. The bank earned 38 kobo per share at the end of 2019, improving from 32 kobo per share in the prior year. It gave no dividends to shareholders for the 2018 operations.
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