Sterling Bank Plc followed a cautious lending mood in the third quarter ended September 2020, as credit loss expenses continued to swell to the detriment of profit improvement. Loan impairment charges rose by 148 per cent to over N9 billion at the end of the third quarter – the strongest growth in loan losses the bank has seen since 2014.
The rising loan impairment appears to warrant a lending caution on the part of the bank’s management, which pruned its credit portfolio rather than expand it at the end of the third quarter. Customer credit volume was slightly down at N610 billion at the end of September from the closing level for 2019.
The bank is cutting down on new lending for the second year while no reasonable improvement of the credit portfolio has happened since 2017. Despite the caution, loans and advances keep building asset loss expenses rather than interest income.
Interest earnings dropped for the first time in a decade by 6.7 per cent to N88.7 billion year-on-year at the end of the third quarter. The margin of decline has widened from 4 per cent at half-year.
At N17.4 billion, non-interest revenue continues to be the strength in earnings this year at an increase of 19 per cent at the end of the third quarter. This is an accelerated growth from less than 6 per cent increase at half-year.
While the bank’s main income lines remained a week, net trading income continued to produce the quickening force on revenue performance. The income line provided the spur for non-interest income, having multiplied more than three and half times to N7 billion over the review period.
The increased margin of decline in interest income hindered the bank from growing revenue at the end of the third quarter. Gross earnings closed at N106 billion for the third quarter, maintaining the year-on-year decline of 3 per cent the bank recorded at half-year. Sterling Bank is losing gross income for the second year after a slight decline in 2019.
Cost-saving from declining interest expenses continued to present a major operating strength for the bank for the second year. Interest expenses went down by 17 per cent year-on-year to N39 billion at the end of September 2020, representing a reduction of N8 billion.
The strong growth in non-interest income and the sustained drop in interest expenses are the key favourable developments on the earnings story of Sterling Bank in the third quarter. Cost of funds dropped two and a half times as fast as interest income during the period, which provided a major cost-saving centre for the bank.
The cost-saving accounted for an improvement in net interest income against the drop in interest earnings. Net interest income improved by 3.5 per cent to N49 billion out of the 6.7 per cent drop in interest income. This is a slowdown from 10 percent growth in net interest income at the half-year.
With the strong growth in non-interest earnings, the bank pushed up operating income by 7 per cent to N66.6 billion at the end of the third quarter. The increase, however, failed to reach the bottom line. Credit loss expenses consumed more than all the increase in operating income, leading to a marginal decline in net operating income after impairment charges at about N57 billion.
The bank’s management kept operating cost in check in the third quarter and closed the period with a slight reduction in total operating expenses at less than N49 billion. However, the slacken performance in revenue raised the cost margin in the third quarter to 46 per cent.
The bank, therefore, stepped back on profit margin from 7.7 per cent at half-year to 6.9 per cent at the end of the third quarter. This reflects cost increases against stagnant revenue situation the bank faced in the third quarter. It closed last year with a net profit margin of 9 per cent – the highest in four years.
Sterling Bank closed the third quarter operations with an after-tax profit of N7.4 billion, stepping up from a 4 per cent drop at half-year to a decline of under 3 per cent year-on-year. A high rise in tax expenses accounted exclusively for the drop in after-tax profit against a 5 per cent improvement in pre-tax profit to N8 billion over the review period.
The bank earned 26 kobo per share at the end of the third quarter operations, virtually unchanged from the record in the same period in 2019.
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