Sterling Bank Steering Stable Growth
Sterling Bank’s earnings outlook for the current year indicates a slowdown in profit growth after a sustained improvement in 2018. Revenue lines went down on both sides on interest and non-interest income in the first quarter of 2019, resulting in a 10 percent drop in gross earnings to N36.5 billion.
Interest expenses have joined loan impairment charges as cost saving centres for the bank. However the cost saved and revenue lost virtually cancelled out, leaving profit flat at the end of the first quarter.
The bank closed the first quarter operations in March with an after tax profit of N3.24 billion, slightly up from N3.1 billion in the same period last year. It closed the period with a balance sheet size of N1.13 trillion, dominated by customer credit volume of N618 billion. The assets are funded largely by customer deposits of N783 billion, equity stock of N108 billion and borrowings of N119 billion.
Sterling Bank has been on a profit rebuilding task since it lost one-half of its profit in 2016. It accomplished a profit rebound of 55 percent in 2017 and pushed further ahead by another improvement of 15 percent in 2018. The improvements haven’t yet returned it to the profit high of over N10 billion it posted in 2015. The prospects for exceeding that mark look quite good this year based on the first quarter performance.
Underlying the profit improvement in the preceding two years is significant cost saving from credit impairment expenses. Net impairment expenses on financial assets have proceeded from a sharp slowdown in 2017 to a drop of over 52 percent in 2018. Loan loss expenses continue to drop in the current financial year.
Over the two years, the bank has kept gross income growing well with a balanced growth in interest and non-interest incomes. Rising interest cost has been a challenge however, as it continued to grow ahead of interest income.
Operating expenses continues to add to the pressure by claiming an increased share of revenue. Cost saving from loan impairment expenses is however sufficient to counter the cost increases and sustain the bank’s recovery force for the third year running.
In 2018, gross earnings grew by 14 percent to over N151 billion, a further growth from a 20 percent expansion in the preceding year. The strength in earnings performance came more from non-interest income, which rose by 16.5 percent to N27 billion after surging up by 88 percent in 2017. Interest earnings also stepped up at 13.5 percent increase to over N125 billion in the year.
Rising interest expenses again posed a challenge for the bank in 2018, consuming almost 56 percent of interest income. That limited the improvement of net interest income to 10 percent in the year, nevertheless a big improvement from a 10 percent drop in the preceding year.
The biggest positive development on the income statement in 2018 is a drop of 52.4 percent in loan impairment expenses during the period. Credit loss charges had slowed down sharply from 44 percent growth in 2016 to less than 5 percent in 2017. The developments signal loan recovery success and a strong gain in credit quality standard of the bank.
The drop in loan loss expenses enabled Sterling Bank to push up net interest income after impairment charges by 30% to over N49 billion in 2018, up from a drop of 14 percent in 2017. The positive impact of the development on the bank’s income statement accounted for the retained strength to grow profit and sustain the path of recovery for the second year.
The bank recorded an accelerated growth in total operating expenses due to rising administrative cost. Total operating cost grew by over 26 percent to N67 billion at the end of 2018 compared to a moderate increase of 4.7 percent in the prior financial year. This is one of the highest expense growth records for the bank since 2013.
The bank devoted 44 percent of gross earnings to meeting operating cost in 2018, rising from less than 40 percent in 2017. In effect, much of the increase in operating profit in the year was applied to meet increased operating cost. This prevented the bank from growing profit ahead of revenue, leaving profit margin virtually unchanged at one of the lowest ranks in the banking industry.
The bank’s group operations in 2018 resulted in a net profit of N9.20 billion, representing a year-on-year increase of about 15 percent. This is a slowdown from an outstanding recovery of 55.4 percent the bank made in 2017. The profit figure remains down from the 2015 peak of N10.3 billion.
Net profit margin is virtually unchanged at 6.1 percent at the end of 2018. Over the years, Sterling Bank has lost profit margin from double digit figures and has remained in the single digit level since 2013.
Earnings per share is unchanged year-on-year at 11 kobo. The bank improved earnings per share from 28 kobo in 2017 to 32 kobo in 2018. No dividend was declared for the 2018 financial year against 2 kobo per share given in 2017.
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