Net losses from bad loans multiplied more than eight times for Stanbic IBTC Holdings Plc in the third quarter, accounting for over 55 per cent of the N59.4 billion credit losses the bank threw overboard at the end of the third quarter.
A year of the biggest loan loss charge-offs is in the making for the bank holding company beginning just as we expected in our review of its first operations: “…the current financial year looks quite likely to see a new peak in credit losses for the bank”.
Beginning with over N7 billion in the first quarter, loan loss charges rose to over N19 billion in the second quarter and surged to N32.8 billion in the third quarter.
The loan impairment losses at the end of the third quarter are already close to four times the N15.4 billion charge-off for the entire 2023 financial year. The figure is also six times the corresponding figure of under N10 billion the bank lost in 2023.
The bank’s unaudited third-quarter financial report at the end of September 2024 shows that the pressure from non-performing loans came from corporate borrowers that constitute the bulk of the bank’s customers.
Mounting credit losses ran for the third straight year for the bank since 2022 when a net charge of N10.3 billion spiked from a net write-back of N1.5 billion in the preceding year.
The figure climbed by over one-half in 2023 to N15.5 billion and has been on the upward run in the current financial year.
This is despite a conservative 16 per cent expansion to N2.4 trillion in net customer lending over the nine months of the year. The bank has undertaken aggressive credit volume expansion in the preceding three years and is expected to reap both gains in interest income and bad loan losses in the current year.
In 2023, net loans and advances portfolio swelled by about 69 per cent, closing at over N2 trillion, the most rapid risk asset expansion in decades.
In five years to 2023, Stanbic IBTC Holdings multiplied its net loans and advances close to four times from N535 million at the end of 2019.
The benign side of the aggressive loan portfolio expansion is the increased capacity for interest earnings. The bank generated interest income of about N426 billion at the end of the third quarter, an increase of 130.7 per cent year-on-year.
The nine-month interest earnings already stand above the closing figures of N270.6 billion and N152.7 billion for the 2023 and 2022 financial years. An increase in credit volume and a hike in lending rate are the key functions of both the elevated earnings and the bad loan losses.
The cost of funds added to the surge in loan loss charges which keeps rising ahead of interest earnings and constricting margins.
At about N174 billion at the end of September 2024, interest expenses grew by 171.4 per cent year-on-year, beating the increase of 130.7 per cent in interest income.
The bank hasn’t detracted from last year’s pattern when the cost of funds grew by 141 per cent to N95.4 billion in a full year compared to an increase of 77 per cent in interest income to N270.6 billion.
Despite the incursion of interest expenses, net interest income grew by 109 per cent to about N252 billion at the end of the third quarter.
The high rise in loan loss expenses encroached on a good part of the net interest earnings, lowering the growth rate in net income after loan impairment charges to 74 per cent to close at N192.5 billion in September 2024.
Support came from non-interest earnings, which grew by 50.7 per cent to N214 billion, powered by net fee and commission income and other revenue but weakened by a loss in fair value adjustments and disappointments from life insurance operations.
The bank’s gross earnings amounted to N649.5 billion at the end of the third quarter, which is an increase of 95.9 per cent year-on-year.
The revenue-consuming impacts of interest and loan loss charges were moderated by cost savings from operating costs, which grew at a slower pace of 49 per cent to N183.6 billion than the 95.9 per cent growth in gross earnings.
Therefore, the operating cost margin dropped from 37.1 to 28.3 per cent over the review period. However, the cost savings were insufficient to remedy the impacts of the cost of funds and loan losses on margins.
The net profit margin dropped from 32.9 per cent in the same period last year to 28.2 per cent at the end of the third quarter.
Stanbic IBTC closed the third quarter operations with a pre-tax profit of roughly N223 billion and an after-tax profit of about N183 billion, representing increases of 72 per cent and 67.4 per cent respectively.
The bank closed the third quarter operations with earnings per share of N13.90, rising from N8.25 per share in the same period last year.
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