Rising Cost of Funds Slows Infinity Trust Mortgage Bank’s Profit To N330m At H1

Infinity Trust Mortgage Bank Plc came under pressure from the rising cost of funds in the second quarter, which grew by over 64 per cent to N184 million at the half year. This is more than twice the increase of 31 per cent in interest income to N786 million over the same period. 

The mismatching growth in interest earnings and expenses eroded margins and reduced profit improvement to 7.7 per cent to close at N330 million for the half year. This is a considerable loss of speed from an outstanding profit growth of close to 38 per cent the bank recorded in the 2021 full year to N542 million.

The bank’s interim financial report for the half year ended June 2022 also shows that gross earnings have decelerated from 35 per cent growth in the same period last year to a 15.7 per cent increase to N909 million at the half year.

Moving against the records of the preceding year, all the bank’s income lines apart from interest earnings are on the decline this year. Last year, the strong revenue growth cut across all the bank’s income lines. 

Leading revenue declines is the net fee and commission income, which dropped by 38 per cent year-on-year to N37 million at the half year. This is a reversed movement from over 74 per cent growth in that income line year-on-year to N60 million at half-year in 2021. 

Other operating income also went down by 31 per cent to under N86 million over the same period. This is also a downswing from 57 per cent growth to N124 million at the end of June 2021.

Last year’s favourable combination of growing revenue and generally moderated costs for the mortgage bankers has changed to slowing revenue and rising cost, which is hampering profit growth this year.  

The upsurge in interest expenses this year is also a major change of direction from a major slowdown recorded in 2021. The high jump of 64.4 per cent in interest expenses at half year contrasts from only a 10.6 per cent increase in the cost of funds in the same period in 2021. 

The high growth in the cost of funds raised the proportion of interest earnings claimed by interest expenses from 18.6 per cent at the half year in 2021 to 23.5 per cent in June this year. The encroachment caused a slowdown in net interest income from over 33 per cent rise in the same period last year to 23 per cent to close at about N602 million in June 2022. 

The bank’s management was however able to keep all other costs in check – which helped to moderate the impact of the increased cost of funds on the bottom line.

Net credit loss expenses are leading the cost saving for the second year with a net write-back of over N4 million at the half year. This is an enhanced position from a net charge of N22 million at the end of last year.
 
Despite the credit loss write-back, net operating income slowed down at an increase of 6 per cent to N729 million at half year against a 47 per cent advance to N688 million in the same period in 2021.
 
Cost moderation was achieved in all the other expense lines of the bank over the review period, leading to a reduction in cost to income ratio. Total operating expenses slowed down from an increase of 20 per cent at the half year in 2021 to 5.5 per cent to N388 million at the end of June 2022. 

The slowdown led to a decline in operating cost margin from 47 per cent in the same period last year to less than 43 per cent in the half year in June 2022. 

The cost savings were however insufficient to counter the impact of the increased cost of funds on earnings, leading to a decline in net profit margin from 38.2 per cent in the same period last year to 35.5 per cent at the end of June this year. 

Loss of revenue and profit margin are the key weaknesses of Infinity Trust Mortgage Bank that have slowed down profit growth so far in 2022. This is a reversed move from last year’s position when interest income grew while interest expenses moderated.

The bank earned 7.7 kobo per share at the end of June 2022 against 7 kobo per share in the same period last year. The company earned 12 kobo per share at the end of 2021 and gave out 5 kobo per share to shareholders in cash dividends.