Stanbic IBTC Holdings: Robust balance sheet enhances growth in gross earnings, profits

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The growing balance impacted on Stanbic IBTC Holdings Plc’s gross earnings and profitability as the holding company defies banking industry trend.

For the nine months ended September 30, 2017, the holdings company posted a strong top and bottom line performances over stability in global macro economy as oil prices continued to improve.

Crude oil prices initially dropped below $48 per barrel on the back of oversupply concerns. However, during the first nine months of the year, prices have risen steadily to above $52 pbl due to efforts taken by both Organization of Petroleum Exporting Countries (OPEC) and non-OPEC members to cap supply.

The Holdings’ profit increase was driven by significant growth in both interest income and non-interest earnings thereby causing annualized Return on Average Equity (ROaE) to improve in the period under review.

Stanbic IBTC is a financial institution in Nigeria that offers end-to-end financial services through a three-pronged structure; Corporate and Investment Banking, Personal and Business Banking and Wealth Management.

Stanbic IBTC is 53.2 per cent owned by Standard Bank Group and draws on the deep resources within the Standard Bank Group and emerged from the merger of Stanbic Bank Nigeria Limited with IBTC Chartered Bank Plc in 2007.

Stanbic IBTC is the leading investment banking franchise in Nigeria with excellent capabilities in wealth creation & management, financial advisory and capital markets, and is the only local bank with a Fitch AAA (nga) rating.

Growth in gross earnings aided double-digit increase in profit

For the nine months ended September 30, 2017, the group gross earnings increased by 35 per cent to N154billion from N114.6 billion reported in nine months ended September 30, 2016.

Interest Income gained 47 per cent to N89.68 billion from N61.2 billion while interest expenses rose by 21 per cent from N22.1 billion in nine months of 2016 to N26.7 billion in nine months of 2017.

The Holdings’ Net interest income was up by 61 per cent to N62.9 billion as interest income largely due to growth in income from investment securities despite a 21 per cent growth in interest expense.

Consequently, net interest margin improved as a result of increase in asset yields, which was on the back of higher yields on investment securities that contributed to the growth in interest income.

Non-interest revenue grew by 22per cent to N64.28 billion from N52.9 billion in nine months of 2016 driven by a 65 per cent increase in trading income and 44 per cent growth in other income.

Growth in trading revenue was driven by increased income from foreign exchange transactions and fixed income, both growing by over 100per cent following the Central Bank of Nigeria’s (CBN) continued introduction of initiatives to increase foreign exchange liquidity and customer activity.

Total operating income rose significantly by 38 per cent to N127 billion from N91.98 billion in nine months ended September 30, 2016.

Credit impairment charges increased by 33 per cent to N20.3 billion from N15.3 billion in nine months of 2016 as a result of additional provisioning for bad & doubtful loans.

Credit loss ratio worsened to seven per cent as additional credit impairment charges were raised in line with efforts to accelerate the write-off of delinquent facilities.

The Holdings’ total operating expenses gained 20 per cent to N122.5 billion from N102 billion in nine months ended September 30, 2016.

Staff cost was up 21per cent due to increase in accrued performance reward and inflation adjustment to staff salaries. Average headcount also increased to ensure adequate manpower to drive our strategy.

Other operating expenses increased by 19 per cent mainly as a result of growth in Asset Management Corporation of Nigeria (AMCON) expenses, deposit insurance premium following the growth in customers’ deposits and admin and membership fees.

Cost to income ratio improved to 48.1 per cent from 55.5 per cent recorded in prior year as the financial institution continued to maintain a higher growth in total income compared to cost growth.

Effective tax rate declined to 17.5 per cent from 21.6 per cent year-on-year although the tax payable increased YoY as profit grew.

Over improved gross earnings, Stanbic IBTC Holdings reported 78 per cent increase in profit before tax to N45.65 billion from N25.7 billion in nine months ended September 30, 2016.

Tax income increased by 44 per cent to N7.98 billion from N5.5 billion as profit after tax rose significantly by 87 per cent from N20.15 billion to N37.67 billion in nine months ended September 30, 2017.

Earnings Per Share (EPS) closed the period under review at N3.15 per share from N1.73 per share.

Defying banking industry drop in customers deposit, loan & advances to customers

As Nigerian’s banks continued to report drop in customers’ deposit and in loan & advances to customers year-on-year, Stanbic IBTC Holdings maintained growth in total assets driven by improved customers’ deposit and loans & advances to its customers.

The group’s total assets rose by 35 per cent to N1.4 trillion as at September 30, 2017 from N1.1trillion reported in 2016, funded mainly by deposits from customers which accounted for 49 per cent of total assets.

Customer deposits close at N696.5 billion from N561.0 billion in 2016 while loans & advances gained five per cent to N384.96 billion from         N368 billion reported in 2016.

The drive to grow transactional balances resulted in a 17per cent growth in current account balances, while savings account balances grew by 16per cent from 2016.   Stanbic IBTC term deposits increased by 42per cent, a major component of deposit growth in the nine months ended September 30, 2017.

Gross loans portfolio has grown slightly by 7.4 per cent year-to-date due to cautious renewed lending.

Installment sales, finance leases and mortgage loans declined as a result of maturities in the year. Increase in overdraft and term loans was due to a review of risk appetite considering the current economic situation.

The Non-Performing Loans (NPL) increased to N29.09 billion (2016:N18.68 billion). The main driver of the increase in NPL was the classification of a major corporate client in the oil & gas sector whose operations were disrupted by militancy action.

Consequently, NPL ratio closed nine months ended September 30, 2017 at 7.2 per cent as against five per cent reported in 2016 financial year.

The group maintained adequate capital with total Capital Adequacy Ratio (CAR) at 21.8 per cent , above the regulatory requirement of 10 per cent.  The group’s liquidity ratio closed at 106.2 per cent against a regulatory minimum of 30 per cent.

The increase in profitability impacted positively on Return On Equity (RO) resulting in an increase to 31.8per cent from 18.9per cent achieved in 2016.

Conclusion

With the economy out of recession, peace in the Niger Delta, oil prices trading above $50.00 pbl and increasing oil production output, the bank is optimistic about sustaining its positive performance for the rest of 2017.

The bank explained that, with inflation rate gradually declining, we expect interest rates to begin to moderate which should lead to a fall in yields on government securities. “We are of the view that headline inflation should moderate to around 15.5per cent at the end of 2017.

“We remain optimistic that our NPL ratio will moderate around our 2017 guidance ratio by the end of the financial year.,” the bank explained in a statement.

The bank is aimed at improving on its cost efficiency; Improve risk asset quality; Improve low-cost deposits and further strengthening of corporate governance.

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