Stanbic IBTC Holdings Plc beat economic lockdown in the second quarter and led the banking sector in growing the size of the balance sheet. Closing the half year operations with a balance sheet size of N3 trillion, the bank recorded a defiant growth of 61 percent in asset base in six months. It hasn’t grown this rapidly any time since the beginning of the current decade.
Asset expansion was led by cash and cash equivalents, which rose by 142 percent to N1.1 trillion to occupy over 36 percent of the balance sheet. Trading assets doubled to nearly N500 billion and financial investments grew by 65 percent to N256 billion. Loans and advances increased by 8 percent to N579 billion – the slowest growth rate in three years.
Lending caution appears to reflect the effect of the economic lockdown with rising credit losses. That also seems to explain the rise of 42 percent in other assets to about N240 billion.
The swelling of the liabilities side of the balance sheet provided the funding capacity for the build-up of assets. Total liabilities expanded by over 70 percent to N2.7 trillion over the first six months of the year, which was led by trading liabilities and total deposits. These grew by 73 percent to N432 billion and 37 percent to N1.2 trillion respectively.
The performance of interest earnings continued to disappoint, as the decline recorded in the first quarter continued in the second. Management maintained the position in the first quarter where cost of funds dropped well ahead of interest expenses, thereby moderating the impact of the loss of interest income during the period.
Non-interest income remained the revenue driver at an increase of 27 percent at half year, accelerating from 21 percent at the end of the first quarter. It accounted exclusively for the improvement in gross earnings as well as profit the bank reported at the end of half year operations.
Credit loss expenses continued on the adverse movement in the second quarter, jumping from a net loan impairment expense of about N2 billion in the first quarter to N6.4 billion at half year. This is against the net loan impairment expense of N1.6 billion the bank recorded in all of the 2019 financial year.
Stanbic IBTC Bank’s audited accounts for the half year ended June 2020 show that gross earnings improved by less than 8 percent year-on-year to N126.6 billion, stepping up from 4.6 percent increase in the first quarter. Despite sustained growth in loans and investments over the period, interest income continued to drop at 9 percent to N55 billion.
Non-interest income grew by 27 percent to nearly N70 billion at the end of June, exceeding the principal income line of interest income. The development leveled up the drop in interest income and accounted exclusively for the improvement in gross income at half year.
At N17.6 billion, interest expenses dropped by 18 percent at the end of June. This is twice as fast as the 9 percent drop in interest income. That moderated the drop in net interest income from 8 percent in the first quarter to 4.4 percent at half year.
The drop in cost of funds is against the increase of 37 percent in total deposits at the end of half year operations. This means a major drop in the average cost of funds for the bank during the review period. The proportion of interest earnings claimed by interest expenses continued to decline at less than 32 percent at the end of June.
Stanbic IBTC Holdings ended the first half of the 2020 financial year with an after tax profit of N45 billion, accelerating from 7.8 percent in the first quarter to 25 percent growth year-on-year. This shows a new strength in profit capacity from the bank’s flat position at the end of last year.
There is a further gain in profit margin in the second quarter from 30.8 percent in the same period last year and from 33.5 percent in the first quarter to 35.7 percent at half year. This is the highest profit margin for the bank in a decade and one of the highest margins in the banking industry.
The gain in profit margin came from the accelerated growth in revenue and the sustained drop in interest expenses. There was also a reduction in operating cost margin from 42.6 percent to 38 percent over the review period. This followed a 3 percent decline in operating expenses to N48.5 billion at the end of June.
An improvement in the ability to convert improved revenue into profit is the summary of Stanbic IBTC Bank’s earnings story at half year.
The bank earned N4.19 per share at the end of half year operations, improving from N3.42 per share in the same period in 2019. The bank has proposed an interim cash dividend of 40 kobo per share for the half year operations.
Comments are closed.