Sterling Bank Plc | First Glance: Impressive Full Year Performance Supported By Growth in NIR


Sterling Bank Plc released its FY-2017 results, which showed growth across major line items, save for the Net interest income which recorded a decline in the full year. Gross earnings grew by 19.79% to NGN133.49 billion, while PBT and PAT increased by 43.47% and 65.12% to NGN8.61 billion and NGN8.52 billion respectively.

Gross earnings and PBT were largely in line with our expectation, albeit with marginal deviations of 4.40% and 6.70% from our estimates, while the PAT was 16.06% higher than our expectation. Against polled estimates by Bloomberg, pre-tax profit was 1.62% lower, while post-tax profit came in 10.68% higher.

The 19.79% upturn in Gross earnings was largely driven by the 87.84% surge in NIR, which muted 10.37% decline in net interest income. A faster pace of increase in the interest expense (+39.48%) to NGN60.14 billion, than in interest income (+11.32%), drove the decline in Net interest income. Interests paid on customer deposits and on debt securities and borrowed funds were 30.43% and 205.35% higher than the previous year. As a result, NIM dropped by 251 bps to 2.51%, with the yield on interest-bearing assets lower by 196 bps to 14.30% and cost of funds 106 bps higher at 7.39%.

Growth in the NIR stemmed from the significant increase in the Net trading income to NGN4.67 billion, from NGN235 million in 2016. Gains on foreign exchange trading was 3.10x the value in the previous year, while the loss on bond trading was reduced to -NGN0.58 billion (vs. -NGN3.31 billion).On the flip side, gains on T-bills instruments was lower by 26.43% at NGN1.78 billion. NGN4.66 billion was reported as cash recoveries on previously written off accounts, from NGN447 million in 2016, significantly buoying the growth recorded in Other income.

Loan and Impairment charges inched 4.72% higher than the NGN11.71 billion in 2016, to NGN12.27 billion, while loans to customers increased by 27.73% to
NGN598.07 billion. As a result, cost of risk dipped 47 bps to 2.09%.

OPEX remained tapered in the year, with 3.69% (2016: +1.92%) increase to NGN52.48 billion, following 19.04% increase in depreciation and amortization
charges, as well as marginal upticks by 0.20% and 2.99% in personnel and other operating expenses respectively.

Tax charge in the year was significantly lower by 89.86%, buoying growth in the bottom line, with pre and post-tax profits higher by 43.47% and 65.12%

In Q4-2017, Gross earnings grew (+3.44% q/q, +22.19%y/y) to NGN38.84 billion, as the 33.50% q/q (-8.49% y/y) growth in net income muted the 20% q/q (+353.71% y/y) decline in NIR. Contrary to the full year’s performance, the net trading income dropped by 51.92% from the previous quarter, and 294.55% lower from the previous year.

Loan impairment charges (+30.59%q/q, +2.66%) in the quarter increased to NGN4.64 billion. Total opex also grew by 4.84% q/q and 18.21% y/y to NGN13.72 billion in the period.

The bank recorded a pre-tax profit of NGN2.04 billion in the quarter, from a loss of 73 million in the same period of 2016. A tax credit of NGN573 million was
recorded in the quarter, driving the 24.44% growth of PAT in the quarter to NGN2.62 billion, loss of NGN377 million in the previous year.

On first glance, Sterling Bank Plc’s performance was impressive over the full year, and we expect the positive reaction to the result.