The Bank recently released its Q1 2020 unaudited financial report indicating a modest performance in earnings due to the drop in non-interest income. However, the modest growth in interest income supported the bank’s performance. Gross earnings in the period under review rose marginally by 1.98% to N111.95 billion in Q1 2020 from N109.78 billion in the corresponding period of 2019.
Interest income was the major driver for growth amidst the low yield environment, having advanced by 3.43% y/y from N74.48 billion in Q1 2019 to N77.03 billion in Q1 2020. The growth was driven by the interest received on investment securities by 8.29% to N27.27 billion and interest on loans and advances granted to customers by 6.10% from N43.74 billion to N46.41 billion in Q1 2020.
Interest expense declined by 21.59% from N16.26 billion in Q1 2019 to N12.75 billion in Q1 2020. This was largely supported by a 20.78% drop in interest expense on deposits from customers despite the 9.30% enhancement in deposits from customers as the bank’s drives towards its low-cost funding strategy. Furthermore, interest expense on borrowed funds declined by 1.71%, due to the 2.95% drop in borrowed funds to N158.17 billion in Q1 2020, from N162.99 billion in FY 2019 as the bank doesn’t have any major debt instrument in place. Consequently, the drop in interest expense further supported the growth in net interest income from N58.21 billion in Q1 2019 to N64.28 billion in the period under review, indicating an increase of 10.42%.
Non-Interest Income dropped by 1.07% y/y to N34.94 billion from N35.29 billion in Q1 2019. The downward trend in non-interest income was as a result of 24.74% decline in fees and commission from N18.01 billion in Q1 2019 to N14.46 billion in the corresponding period of 2020, due to the drop in fees from E-business(21.52%), corporate finance fees (59.44%), credit-related fees (38.81) and foreign exchange deals (12.38%). However, other operating income and trading gains grew by 22.35% and 27.43% to N15.94 billion and N5.41 billion respectively, which were buoyed by foreign exchange recoveries and revaluation gains. Operating expenses increased by 10.85% to N39.77 billion, while operating income rose by 5.51% to N97.97 billion, thus settling the cost to income ratio at 40.59% from 38.64% in Q1 2019. The bank’s Profit before Tax (PBT) increased by 2.14% from N56.98 billion in Q1 2019 to N58.20 billion in Q1 2020. Mean-while the Profit after Tax (PAT) increased by 1.55% to N50.06 billion from N49.30 billion in Q1 2019.
Gross loans and advances expanded by 8.08% to N1.62 trillion from N1.50 trillion in FY 2019. The total deposit also expanded by 8.33% from N2.64 trillion in FY 2019 to N2.86 trillion at the end of Q1 2020. We maintain a positive outlook for the bank despite the current economic trend, as the bank’s management continues to drive its low-cost funding strategy, coupled with its investment in the fixed income market and relaxation from foreign exchange losses. We maintain our BUY rating recommendation at the current market price as the stock traded at a discount to our blended target of N32.75.