Sterling Bank Plc slashed the cost of funds for the third year running in 2021, ending the financial year with the lowest interest expenses in five years. The bank’s management applied the cost savings of as much as N4.5 billion in the year to patch up a 29 per cent rise in loan loss expenses to over N10 billion.
The information is contained in the unaudited accounts for the 2021 full year operations issued by the bank recently. The report shows that the bank cut interest expenses by 9 per cent to N45 billion in the year and that had no negative impact on building customer deposits.
Moving against the cut in interest expenses, the bank’s customers raised deposits by a clear 27 per cent to N1.2 trillion at the end of 2021. This is the strongest growth in customer deposits the bank has recorded in more than a decade.
This means Sterling Bank achieved the lowest average cost of the naira of its deposit liabilities in many years last year. This is a defiant move against the generally increased cost of funds that banks and other financial institutions faced in 2021.
For Sterling Bank, the proportion of interest earnings claimed by the cost of funds went down from 44.2 per cent in the preceding financial year to 40.3 per cent at the end of 2021.
With interest income flat at N111.5 billion, the drop in interest expenses resulted in an increase of N4.5 billion or 7 per cent in net interest income to N66.6 billion.
A good part of the cost-saving from interest expenses was however claimed by the strong growth in credit loss expenses – a major growth in loan losses for the bank for the second year. In essence, the bank cut from depositors to make up for bad borrowers in the year.
Sterling Bank lost the moderated increase in loan loss expenses seen at the end of the third quarter. The final quarter accounted for almost N4 billion of the N10 billion credit loss charges recorded at full year.
Another cost overrun in the year came from total operating expenses that grew by 16.6 per cent to N80.9 billion in the year. This represents an increase of N11.5 billion – one of the major increases in operating costs for the bank is seven years.
The bank needed improvement in earnings to be able to meet the major increases in cost and improve profit. Its main revenue line – interest income ended flat but the much-needed support came from non-interest earnings.
The strength of Sterling Bank to improve profit in 2021 lay in major increases in all its non-interest earnings lines.
Other operating income led to the growth in non-interest income with a jump of one and half times to close at N6.6 billion for the year.
Net fee and commission income followed with an increase of over 41 per cent to N18.5 billion. Net trading income also grew by 13.6 per cent to over N13 billion during the year.
The gains in non-interest income enabled an increase of 17 per cent in operating income, which amounted to N105 billion for the year.
Non-interest earnings also accounted exclusively for a moderate increase of 4.5 per cent in gross earnings to roughly N150 billion at the end of the year. As we expected in our outlook for the bank at the end of the third quarter, this is the first revenue improvement for Sterling Bank in three years.
The bank lost revenue over the preceding two years and the closing revenue figure for the 2021 financial year remains down from its 2018 earnings peak of N155.6 billion.
The challenges of cost increases and the benefits of revenue gains worked out a favourable balance for Sterling Bank in 2021. The bank closed the year with an after-tax profit of about N13 billion, which is an increase of 14.7 per cent for the year.
It marks an accelerated growth in profit for the bank from a 4 per cent increase in the preceding financial year and a sustained improvement in profit for the fifth straight year.
Sterling Bank closed the 2021 operations with earnings per share of 45 kobo, improving from 39 kobo per share in the prior fiscal year. It gave shareholders a cash dividend of 5 kobo per share at the end of the 2020 financial year, which is expected to be repeated for the 2021 trading.
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