Sterling Bank Expects Stronger H2, Hopes For Highest Profit Advance In Five-years

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Sterling Bank Plc expects to achieve a stronger earnings performance in the second half when it hopes to rake in close to N13 billion in after-tax profit, compared to N8 billion at the half year. That will constitute more than 61 per cent of the anticipated N20.6 billion closing profit for 2022.

If realised, it will take the bank’s profit figure up by about 53 per cent in the year, the highest profit improvement record since 2018. The bank closed the preceding financial year with an after-tax profit of N13.5 billion.

The bank’s profit expectation is shown by its earnings forecast for the third and fourth quarter operations in which after-tax profits of N6.3 billion and N6.2 billion are projected respectively. These will be major improvements from the profit numbers of N3.5 billion and N4.5 billion realised in the first and second quarters respectively.

Management’s optimism is based on equally stronger revenue expectations for the second half. From an average of N39 billion in gross earnings per quarter in the first half, Sterling Bank has projected N50.5 billion and N52.6 billion in gross income for the third and final quarters respectively.

By the forecast, over N103 billion or 56.7 per cent of the anticipated revenue of roughly N182 billion for the year is expected from the second half. That will be an increase of 23 per cent in gross earnings for the bank in the year, marking the strongest revenue growth since 2014. The bank closed last year’s operations with gross earnings of N148 billion.

A reasonable level of stability in earnings was recorded at the half year, as seen from the bank’s half-year interim report, which appears to inform the improved outlook for the second half. Cost and income balance weighed in favour of income at the half year, which stretched out margins and enabled profit to grow two and half times ahead of revenue. 

Gross earnings grew by 16.5 per cent year-on-year to N78.3 billion at the half year, driven by 48.5 per cent growth in non-interest income to N19.3 billion. Interest earnings improved by less than 9 per cent over the same period, which marks a rebound after two years of decline.

Interest expenses grew virtually at par with interest income at 9 per cent year-on-year to over N25 billion, which is a reversed movement for the bank after three years of decline. Moving against the general industry trend, management was able to prevent the cost of funds from encroaching on net interest income.

Loan impairment expenses are also contained at an increase of 7 per cent year-on-year to N4 billion at the half year. The bank’s forecast for the second half shows that the moderated growth in credit losses would be maintained.

The strong growth in non-interest income and the cost saving from loan impairment expenses were the key favourable developments that powered profit improvement at the half year. Net operating income after loan impairment charges advanced by about 22 per cent to nearly N49 billion at the end of June 2022.

Total operating expenses however could not be contained, which grew by 18 per cent year-on-year to over N40 billion at the half year. That pushed up the bank’s already high-cost margin to 51.5 per cent, a sustaining uptrend for the fifth year running. 

The operating cost margin has risen every year from 39.7 per cent in 2017 to 49.2 per cent in 2021. The bank’s management expects the trend to continue in the second half.

A gain in net profit margin from 8.5 per cent to 10.2 per cent over the review period enabled an increase of 40.8 per cent in after-tax profit to N8 billion at the half year. Management expects that further gain in profit margin in the second half will enable the stronger profit growth projected.

The bank earned 28 kobo per share at the end of half-year operations, up from 20 kobo per share in the same period in the preceding year. The full-year expectation is 71 kobo per share against 47 kobo per share for the 2021 financial year.