Abubakar Suleiman, CEO, Sterling Bank

By Okey Onyenweaku

At a time when the world and national economies are almost on their knees, and with businesses closing down, Sterling Bank is giving its shareholders a reason to be hopeful. Its 2019 full-year result shows that the bank has done a decent job of propping up its profitability numbers.

Its management succeeded in pushing up its profit before tax by 15 per cent, up from N9.2billion in 2018 to N10.6billion in 2019. Notably, this double-digit profit margin at the bank is coming at a time when businesses are struggling to find their feet in an economy that keeps weakening by the day.

Also noteworthy is the fact that the lender gross earning also rose marginally by 0.9 per cent from N150.194 billion to N148.708billion in the same period.

Indeed, with returns on government bills now on the floor from a hitherto giddy height of 13.5 per cent and with some other macro-economic adjustments which have massively crashed rates, banks have had a major aspect of their high revenue earners disabled. This has exposed the fragile disposition of banks which depended on government bills to shore up their revenues over time.

Despite these reversals, market observers finger the increase in the net interest income and operating income which grew 17 per cent and 20 per cent to N64.699billion and N87.603billion respectively in 2019 as the pillars of support for the bank’s impressive figures.

Commenting on the financial performance, Abubakar Suleiman, Chief Executive Officer (CEO) of Sterling Bank said, “In the final quarter of 2019, our relentless commitment to improving education through micro banking was rewarded with ‘The Banker’s Award for Banking in the Community’ on the global stage by the Financial Times of London.”

He explained further that the bank was also ranked among the ‘top 3 banks in retail’ by Nigerian consumers in a KPMG banking survey, which is indeed a major accomplishment for the brand.

According to Mr Suleiman, the bank also recorded an increase in gross earnings, driven majorly by growth in fees and commissions by 24.3 per cent, despite a steady loan base – as it continues to diversify into key sectors of focus – and a decline in trading income.

In 2019, the bank delivered more than 200 per cent increase in loans to its retail and consumer segment with its Loan-to-Deposit Ratio (LDR) above the regulatory limit all year round.

Notably, the bank’s digital lending product continued to set the trend with more than N45 billion disbursed to more than 50,000 customers.

Also, interest expense declined by 10.9 per cent driven by a 19.4 per cent year-on-year increase in low-cost deposits as the Bank continues to grow its Retail & Consumer base, resulting in a 110 bps drop in the cost of funds and consequently, a 130bps increase in net interest margin.

According to the CEO, the Bank’s cost-to-income ratio remained relatively flat year-on-year, even as operating expenses grew on the back of staff salaries and wages and spend on technology infrastructure as well as digital platforms.

However, while the bank proposed to pay three kobo dividend to shareholders, total expenses leapt 12 per cent from N63.494billion in 2018 toN71.093billion in the contemporary period.

Total assets also inched up 7.23 per cent. At a time banks are expected to lend more to hit the regulatory target of Loan to Deposit Ratio of 65 per cent Sterling bank’s loans and advances dropped from 0.36 per cent from N621 billion in 2018 to N618 billion in 2019.

Looking at the bank’s performance in the last five years, its total assets have grown by 47.9 per cent from N799.4billion in 2015 to N1.182billion in 2019. Similarly, its gross earnings grew 33.7 per cent from N147.4billion in 2015 to N110.1billion in 2019.

It has paid a dividend two times in the last five years.

The bank had paid dividends of 9kobo in 2015, 2kobo in 2017 and 3kobo in 2019.

Sterling Bank is a second-tier financial institution, which has been making significant efforts to sustain its business even though the bank’s deposit liabilities from customers are rising (it grew from N760.6 billion in 2018 to N892.6billion in 2019 or a jump of 17.3 per cent on a year-on-year basis).

The Nigerian Stock Market’s All Share Index (ASI), a measure of the average market value of stocks, has so far slumped -21.27 per cent year-to-date and 1.5 per cent year-on-year. This has chiselled down the value of bank financial investments and weakened the asset side of their balance sheets of banks.

Market analysts do not seem comfortable with the macro-economic environment presently and what it portends for the future for businesses operating in not only Nigeria but all over the world. Many market observers’ discomfort hinges on the persistent slide in the economic structure of Nigeria. They fear that the crude price has fallen too low and hovers between $25 and $35 per barrel, the local currency, the Naira has weakened further to N380.00 a dollar, while inflation is also not abating at 12.3 per cent.

These according to them do not favour businesses and not even banks. Specifically, too, the banks are expected to lend more in an uncertain operating environment and recently the banking industry appears to be reshaping as evidenced in Access Bank’s merger with the defunct Diamond Bank and other on-going merger talks.

According to analysts then, deeper challenges would confront the country and as such steps need to be taken now to more massively review the current budget given the damage that has been caused by the crude oil price slump and the Coronavirus crisis.

 

While some analysts fingered the lack of a compelling economic direction from President Buhari as one of the strong reasons the future may be turbulent, others have hinged it on the tight regulations being dished out by both the fiscal and monetary authorities.

Yet a third group has sadly pointed at the shrinking revenues of the nation, caused by a lack of productivity and increased funding for security, in addition to low disposable income in the hands of consumers. As they posit, which bank can beat its chest that all is well in the picture painted above, let alone second-tier banks with a small market share like that of Sterling Bank?

If strong banks such as GT Bank, Zenith Bank, Access Bank, UBA among others are not comfortable with the operating environment, only time will tell how the second-tier banks would fare in future.

Despite all the challenges, however, Sterling Bank’s equity instruments and debt instruments glided up to N5.470billion and N141billion in 2019.

Suleiman noted that investments in technology have also allowed the bank to continuously record steady growth in the instant payments market contributing to the bank’s transactional revenue. While the bank has seen traction in machine supported transactions, driven by the adoption of its digital channels, Sterling’s NIBBS Instant Payments (NIP) transaction volume grew by 78 per cent compared to the previous year, faster than the industry growth while recording the fastest growth in Fees & Commission income in comparison with its peers.

Nevertheless, some of the bank’s shareholders appear optimistic that their bank would someday reward them adequately after the storm which is plaguing the banking industry and other businesses in Nigeria.

A three kobo dividend is better than none, said a shareholder activist, Mr Boniface Okezie who explained that Sterling Bank and other banks were going through hard times given the harsh operating environment.

‘’The business environment is tough. The banks are over-regulated. However, we know that the bank will get better because the management is focused’’, he said.

The troubling environment and drop in the price of its stock by 39% Year to Date notwithstanding, analysts still believe that Sterling Bank has good staff and focused management with a strategic thrust, but they have to double their effort.

Its stock price closed on Wednesday, April 1, 2020, at N1.15 per share.

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