Sterling Bank Plc missed both revenue and profit targets in the third quarter upon which its high hopes for a stronger second half of the 2022 financial year are hinged. Gross earnings of a little over N41 billion were generated in the third quarter, way off the target of N50.5 billion for the period.
The bank’s third-quarter interim financial report for the period ended September 2022 also shows that the bank reported an after-tax profit of N5.4 billion for the third quarter, down from the forecast figure of N6.3 billion for the quarter.
Despite that earnings targets were missed, the bank recorded improvements that still keep hopes alive for a nonetheless better second half. Gross earnings have improved from an average of N39 billion per quarter in the first half to a little over N41 billion in the third quarter.
Also, there has been a major improvement in profit numbers from N3.5 billion and N4.5 billion realised in the first and second quarters respectively to N5.4 billion in the third quarter. The third quarter profit figure accounts for over 40 percent of the closing after-tax profit of N13.4 billion for the nine months of operations in the year.
The profit figure for the third quarter represents a strong growth of 43 percent quarter-on-quarter from just a 10 percent increase in gross earnings. The increase was therefore extracted from cost saving that stretched out the profit margin.
The main cost-saving line in the quarter is the cost of funds which went down by over 14 percent quarter-on-quarter to N10 billion. The drop enabled the bank to grow net interest income by over N4 billion or 24.6 percent quarter-on-quarter.
The second cost-saving line is credit loss expenses, which dropped by roughly N500 million or 20 percent quarter-on-quarter to less than N2 billion. This extended the improvement in income net of loan impairment charges to 25.8 percent to close at over N29 billion for the quarter.
The closing profit of N13.4 billion for the three quarters of the year is already almost at par with the full-year after-tax profit of N13.5 billion in 2021. A strong contribution to profit is also expected from the final quarter when an after-tax profit of N6.2 billion is forecast.
Optimism for the final quarter reflects the bank’s earnings pattern last year in which 30 percent of the full-year profit was generated in the final quarter.
However, the stronger revenue expectations for the second half have been deflated considerably by the third quarter outcome. The bank’s forecast gross income of N52.6 billion for the final quarter is therefore likely to be missed as well.
Reasonable estimates indicate gross earnings in the region of N160 billion for Sterling Bank for the 2022 full year against the roughly N182 billion projected. The bank closed the 2021 operations with gross earnings of N148 billion.
The bank’s management is however applying an alternative route of cost saving to make up for revenue target misses and keep profit growing well ahead of revenue. The cost and income balance have been maintained in favor of income with further cost savings in the third quarter. This has stretched out profit margin further from 10.2 percent at half year to 11.2 percent at the end of the third quarter.
The nine-month position of the bank shows gross earnings of N119.6 billion at the end of September 2022 – an increase of 14 percent year-on-year. Revenue growth remains driven by non-interest income, which grew by 35 percent to N29.7 billion. Interest earnings improved by 8.8 per cent to N90 billion over the same period.
At N25 billion at the end of the third quarter, interest expenses slowed down from a 9 per cent increase at half year to flat, which permitted an increase of over 14 percent in net interest income to N54.6 billion.
Loan impairment expenses followed the same pattern of the slowdown from a 7 percent increase at half a year to flat at N6 billion at the end of the third quarter. This is consistent with the bank’s forecast for the second half, which shows that credit losses would be curtailed.
The strong growth in non-interest income and the cost savings from interest and loan impairment expenses are the key favourable developments that powered profit improvement at the end of the third quarter. Net income after loan impairment charges grew by 23 percent year-on-year to N78 billion at the end of September 2022.
Total operating expenses continued growing well ahead of revenue at 19 percent year-on-year to the region of N64 billion compared to the 14 percent increase in gross earnings. The bank’s already high operating cost margin increased further from 51.5 percent at half year to 53.5 percent at the end of the third quarter, a sustaining rise for the fifth year running.
The bank earned 47 kobo per share at the end of the third quarter, up from 33 kobo per share in the same period in the preceding year.
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