Sterling Bank: Growth in Gross earnings, non-Interest Income drive profitability


By Kayode Tokede

Sterling Bank Plc’s audited result and accounts for financial year ended December 31, 2017 showed significant increase in Gross Earnings and non-interest income that impacted positively on profitability.

The growth in profits, thus translates to dividend, reaffirming the Tier- II bank position as one of the most managed financial institutions in the country.

Sterling Bank for the first time crossed a N1 trillion mark in total assets.

On the heels of impressive profit, Sterling Bank management delights shareholders with a proposed dividend that is expected to be approved by shareholders this week.

For the year ended December 2017, the Bank management proposed a dividend of 2kobo for every share of 50 kobo each.

The Bank’s management was able to grow margin and improve key ratios despite the prevailing tight liquidity and harsh regulatory environment.

Specifically, Non-Performing Loan (NPL) ratio declined to 6.2per cent from 9.9per cent in 2016 arising from an 18.8per cent reduction in NPLs to N38.4 billion (Dec. 2016: N47.4 billion);

Decline in NPLs was due to a significant improvement in the performance of loans to the Oil & Gas sector, resulting in a 59.2per cent reduction in the sectors NPLs to N10.3 billion (Dec. 2016: N25.2 billion);

Consistent growth in gross earnings despite tough operating environment

For the full year ended December 2016, Sterling reported a growth of 19.3 per cent in gross earnings from N111.44 billion in 2016 to N133.49 billion in 2017.

Growth in gross earnings was driven by 11.3 per cent increase in interest income to N110.3 billion from N99.1 billion in 2016     and 88.6 per cent increase in non-interest income to N23.2 billion from N12.3 billion which was largely as a result of increase in foreign exchange revaluation gains.

The gain in interest income was driven from loans and advances and investment securities that contributed 7.8 per cent and 16.1per cent respectively.

Meanwhile, Interest expenses rose by 39.5 per cent to N60.14 billion from N43.1 billion following 17.1 per cent growth in customers’ deposits.

Expectedly, the Sterling’s Bank Net Interest Income (NII) dropped by 10.4per cent from N55.99 billion in 2016 to N50.18 billion in 2017.

Increase in profitability amid hike in loan impairment charges

Despite higher operating expenses and hike in loan impairment charges, Sterling Bank maintained a stronger operation efficiency.

Loan impairment charges rose by 4.7 per cent from N11.7 billion to N12.27 billion in 2017, attributable to effective provision for bad loan.

The Bank has been able to consistently sustain its effective cost management strategies and hence profitability. Despite running a lesser branches network compared, the Bank conveniently generates more competitive profit year after year.

However, the bank’s total operating expenses grew by 3.7 per cent to N52 billion in 2017 from N50.6 billion in 2016.

The growth in total operating expenses was largely from Increase in regulatory cost that includes five per cent of total assets payment to Assets Management Corporation of Nigeria (AMCON) and other  insurance  premium), Depreciation  and Occupancy costs  and  exchange  difference  coming  from translation impact.

Thus, Cost-to-Income Ratio dropped to 71.5per cent in 2017 from 74.1 per cent in 2016.

The combination of operating expenses and loan impairment charges increase prevented a higher profitability growth for the year under review.

For the year, the Group delivered an impressive Profit before tax that closed the year at N8.6 billion, 43.4per cent increase over N6 billion in 2016 while Profit After Tax rose by 65 per cent to N8.5 billion from N5.1 billion reported in 2016.

Sterling Bank maintained its leading position in terms of margin and cost efficiency among its peers.

The bank’s value creation for its shareholders recorded growth as Pre-Tax Return on Average Equity closed 2017 at 9.1 per cent from 6.6 per cent in 2016 while Post-Tax Return on Average Equity moved from 5.7 per cent to nine per cent in 2017.

Earnings per Share rose by 66.7 per cent N0.30k in 2017 from N0.18kobo in 2016.

Steady growth in total assets

The Group’s balance sheet grew stronger in 2017 to        N1.07 trillion from       N834.19 billion in 2016.

Loan penetration moderated to 55.6per cent from 56.1per cent in 2016, while the proportion of Government securities to total assets increased to 23.9 from 21.8 per cent in 2016 as a result of attractive yields. Increase in cash & short term investments reflecting growth in deposits and the attendant increase in cash reserve requirement.

Sterling Bank net Loans & Advances increased by 27.7per cent to N598.1 billion from N468.3 billion in 2016.

Gross loans increased by 29.5per cent and net loans by 27.7per cent to N617.6 billion and N598.1 billion with bulk of the increase backed by cash; Loans to corporates increased by 29.2per cent and accounted for 96.1per cent of total loans (2016: 96.4per cent), while loans to individuals grew by 39.4per cent and contributed 3.9per cent; Agriculture and Transportation sectors benefited from the growth in loans as part of our priority sectors.

The group’s Customer deposits increased by 17.1per cent to N684.8 billion from N584.7 billion in 2016.

Growth in 2017 Customer deposits was driven by savings and tenured deposits, which rose by 15.9per cent and 36.3per cent respectively;

Sterling Bank growth in savings deposits reflects traction gained in our retail drive with active customer base exceeding three million; Cost of funds increased by 110 basis points to 7.4per cent as we tapped into wholesale funding sources amid a high interest rate environment; Pledged deposits represent funds held as securities for loans to customers.

Consequently, Loan to Deposit Ratio moved to 87.3 per cent in 2017 from 80.1 per cent in 2016.

Overall, Shareholders’ Funds grew by 20.2per cent to N102.9 billion from N85.7billion reported in 2016.

Significant impairment charge on loan book resulting in a Cost of Risk of 2.2per cent from 2.8per cent was as a result of the conservative stance of accelerating collective impairment charge.

Strong Capital Ratios

For the group, Capital adequacy ratio (CAR), computed under Basel II requirement remained strong at 12.2per cent in 2017 from 11.2 per cent. Tier 1 capital adjusted for regulatory deductions increased by 4.2per cent to N80.5 billion, representing 93.1per cent of regulatory capital; Growth in capital position was due to a 20.2per cent rise in shareholders’ equity to N102.9 billion.

Liquidity ratio remained sound and well above the required regulatory benchmark at 33 per cent in 2017.

Going Forward

The Managing Director, Sterling Bank, Mr. Abubakar Suleiman, said, “In 2018, we will continue to execute our plans to drive efficiency across the business under the following three pillars:

“Agility – We will be flexible, energetic and act with speed in response to rapid changes in our environment; Digitization – While we continue to simplify and streamline our processes, we will also optimize data analytics to meet our customers’ evolving needs; Business Specialization – We have committed to make significant investments to develop our human capital around critical sectors to enable us provide the best support to our customers’ businesses.

“We will build expertise in the sectors at the “HEART” of Sterling Bank – Health, Education, Agriculture, Renewable energy, and Transportation – in the belief that this will positively impact on our society.

“Our expectation is that these three pillars will propel us toward sustainable growth by enhancing our ability to continuously innovate; solidifying our retail funding base; strengthening our enterprise-wide risk management framework and driving excellent service delivery across all channels to enhance our customers’ experiences.

“We plan to further strengthen our capital position in the course of the year.”