Sterling Bank’s N18bn Cost Of Funds Lowers Profit Delivery In Q3

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Sterling Bank Plc recorded a major increase of over 78 percent in cost of funds to almost N18 billion for the third quarter, which claimed much of the increase in interest income and weakened quarterly profit delivery to N5.8 billion.

The bank’s third-quarter interim financial report for the period ended September 2023 shows that interest expenses accelerated two and half times ahead of the 31 percent increase in the second quarter and more than twice the growth of 33.3 percent in interest income in the third quarter.

The cost of funds claimed N8 billion of the N10.4 billion increase in interest earnings in the third quarter and permitted only a 12 percent increase in net interest earnings to N23.4 billion.

This is unlike last year when the cost of funds dropped by over 14 percent in the third quarter and enabled an increase of 24.6 percent in net interest earnings for the quarter.

An increase of 14.7 percent in customer deposits to N1.5 trillion over the nine months of the year against the high growth in interest expenses means a considerable rise in the average cost per naira of deposits.

The much stronger growth in interest expenses than interest income affirms a significant increase as well in the average cost of generating naira of earnings.

The bank however took advantage of limited credit losses to moderate the impact of the enlarged cost of funds – which helped to defend the bottom line. Credit loss expenses moderated at an increase of 11 percent to N2.2 billion for the third quarter.

Despite the slowdown, net credit loss expenses claimed almost the entire increase of N2.5 billion in net interest income, which left net interest earnings after loan impairment charges at N21 billion for the third quarter.

There was also a slowdown in operating expenses in the third quarter, which prevented further incursion of costs on earnings. The bank’s after-tax profit of N5.8 billion for the quarter is an improvement of 7.6 percent from the N5.4 billion it posted for the same quarter last year.

This compares to outstanding growth of 43 percent in after-tax profit achieved in the same quarter in 2022.

Sterling Bank’s closing position for the nine months of operations to September 2023 shows gross earnings of N158.6 billion, which is an increase of 28 percent year-on-year.

Revenue growth is led by net trading income that rose by 62 percent to N10.3 billion while interest earnings followed with an increase of 31 percent to N118 billion year-on-year. Other operating income dropped more than 10 percent to N6.9 billion over the review period.

At N49.5 billion at the end of the third quarter, interest expenses accelerated from a 24.7 percent increase at half-year to almost 40 percent, reflecting the high growth experienced in the third quarter.

The increase in the cost of funds beat the improvement of 31 percent in interest income, which slowed down the growth in net interest income from roughly 34 percent at half year to 25.6 percent to N68.5 billion at the end of September 2023.

Loan impairment expenses provided a cost-saving line with slow growth of 5 percent to N6.4 billion at the end of the third quarter.

The strong growth in net trading income and the cost savings from loan impairment expenses enabled an increase of 22.9 percent in net income after loan impairment charges to N96 billion at the end of the third quarter.

Total operating expenses stayed moderate relative to gross earnings at an increase of 22.6 percent to a little over N78 billion compared to the 28 percent increase in gross income. The bank’s operating cost margin went down from 51.5 percent to 49.3 percent at the end of the third quarter, still comparatively high by the average industry figure – which has been dragged down by major banks to well below 40 percent so far this year.

The bank earned 57 kobo per share at the end of the third quarter, up from 47 kobo per share in the same period in the preceding year.

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