Fiscal 2020 was the first time that Stanbic IBTC Holdings Plc was unable to improve gross earnings any time since 2011. The bank’s unaudited financial report for the 2020 operations shows that revenue closed flat at N234.4 billion at full year, topping the preceding year’s figure with just N638 million.
The bank has not been able to push up revenue reasonably since 2018 with the earnings weakness hitting the worst record in a decade in 2020. The setback happened mostly in the final quarter when a drop of 11 percent in gross earnings quarter-on-quarter was reported.
That turned a 4 percent revenue improvement at the end of the third quarter into a flat growth at full year.
The bank’s management was however able to work its way through cost-saving to keep profit growing at the end of the year. Defying the tight earnings situation, the bank achieved an 11 percent increase in after-tax profit to N83 billion at the end of the year.
Revenue constraint in the year came from interest earnings that followed a downward trend all the way from the first quarter. Interest income dropped by 12 percent to close at below N106 billion at the end of 2020.
Non-interest earnings, led by trading income, displaced interest earnings as the principal income line of the bank. At N124.7 billion, non-interest earnings accounted for 53 percent of gross earnings at the end of the year. This is a historic development in the revenue structure not just for the bank but for the entire banking business.
Non-interest income grew by 15.7 percent – Which was driven by a leap of 43.4 percent in trading revenue. The increase made up for the drop in interest income and therefore prevented a drop in gross earnings.
Cost-saving is the key strategic tool that management applied to grow profit in the face of flat revenue. Cost-cutting happened in respect of the cost of funds – which dropped by close to 26 per cent to N31.7 billion.
The drop in interest expenses is more than twice the 12 percent drop in interest income, which afforded the bank significant cost saving in the year. It meant a reduction of as much as N11 billion in interest expenses for the year. It represents the lowest interest expenses for Stanbic IBTC Holdings in four years.
The drop in the cost of funds is against a major increase of nearly 50 percent in total deposits to N1.3 trillion at the end of the year. This represents a major drop in the average cost of funds during the review period.
The proportion of interest earnings claimed by interest expenses declined from about 35.4 percent in 2019 to less than 30 percent at the end of 2020. This enabled the bank to record a moderate drop of less the 5 percent in net interest income to N74 billion.
Much of the cost-saving from interest expenses were claimed by credit loss charges during the year. Net loan loss expenses multiplied more than six times in the year to close in the region of N10 billion.
Despite the upsurge in credit loss expenses, the bank still improved net interest income after net loan impairment expenses moderately to roughly N199 billion. A tight rein on operating cost kept it flat at N94 billion, which helped to defend pre-tax profit at N94.7 billion for the year.
The final boost to the bottom line is a drop of 27.6 percent in income tax expenses. The drop made a difference between flat pre-tax profit and an increase of 11 per cent in after-tax profit to over N83 billion at the end of the year.
The ability to keep profit growing on flat revenue is the key strength in operations for Stanbic IBTC Holdings in 2020. The drop in interest expenses made it possible for the bank to increase its ability to convert revenue into profit.
Also, the tight control over operating expenses enabled the bank to prevent operating cost from claiming an increasing share of the revenue. The operating cost margin was maintained at 40.2 percent – one of the lowest cost margins in the banking industry.
Net profit margin improved from 31.1 percent at the end of 2019 to 34.5 percent at the end of the 2020 financial year. This is the highest profit margin that the bank has recorded in a decade or more and one of the highest in the Nigerian banking industry.
The bank closed the 2020 operations with a balance sheet size of roughly N2.5 trillion. This is an aggressive asset expansion of 32.5 percent over the 2019 closing and one of the most rapid balance sheet expansions the bank has recorded in a decade.
Stanbic IBTC Holdings closed the 2020 operations with earnings per share of N7.29, which is an improvement from N6.92 per share in the same period in 2019. It paid an interim cash dividend of 40 kobo per share at the end of half-year operations in June 2020. A final cash dividend is expected to be announced with the release of the audited financial report for the year.
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