The name Stanbic IBTC is as popular in the Nigerian financial services arena even as its long acknowledged qualitative services and strong performance have almost always been taken as given.
And with its broader continental and global affiliations, the lender has also earned wider recognition in most corners of Africa and the world for its compactness, focus and consistency in delivering some of the best services in the banking industry.
Indeed, industry feelers reveal that this strong and very service oriented bank has definitely been the envy of its peers in very many respects.
However, of late investors seem nervous and confused as to what is going on in the bank presently. And the give away has to do with the poor first quarter 2021 performance of Stanbic IBTC.
Things appear not to sit well with the formerly quitwe highly profitable bank. What has gone wrong many appear to be asking?
In the results under consideration, Stanbic IBTC Holdings Plc’s profit before tax plunged by 50 per cent to N12.1billion in first quarter (Q1) results for the period ended March 31, 2021; down from the N24.2billion it had reported in the results for the first quarter ended March 31, 2020.
A huge pall of anxiety now hang on the faces of its shareholders as they fear that this may be a harbinger of some uncertainty in the other three quarters to come.
Compounding matters, the bank’s unaudited results further disclosed a 45 per cent drop in profit after tax from N20.6 billion in Q1 2020 from N11.3 billion reported in Q1 2021.
Simlarly, its Gross earnings also declined by 26 per cent to N45.7 billion from N61.4 billion reported in Q1 2020.
The group reported Net interest income of N15.9 billion, down 14per cent from N18.5 billion in Q1 2020 while Non-interest revenue closed Q1 2021 at N23.1 billion, down 29per cent from N32.6 billion reported in Q1 2020.
Market observers fear that most measurement indicators of the bank were on the decline in the Q1 2021.
Nevertheless, Chief Executive Stanbic IBTC, Dr. DemolaSogunle, prefers to put the chief causative factor for this showing on the macro-economic conditions in the country, while looking ahead to better days: “The domestic economy remains quite fragile. Negative real returns prevailed in the first quarter as headline inflation continued on the rise, currently above 18per cent as of March 2021.
“Economic activities are expected to improve as the authorities take on appropriate actions and business confidence improves.
“Just recently, in April 2021, the CBN resumed dollar sales to foreign portfolio investors for the first time since December 2020 to clear the backlog of foreign exchange demand.
“The Group’s profitability in the first quarter moderated year-on-year due to pressure on trading income: trading activities in our Global Markets business slowed down compared to prior year, operating expenses from regulatory induced charges increased, as well as the continued pressure on risk asset yields.
“The decline was partly cushioned by the year-on-year improvement in net fee and commission revenue as well as impairment write back of N155 million in Q1 2021 compared to the charge of N1.97 billion in prior year. The impairment writeback was due to releases and after write-off recoveries achieved during the quarter.
“Again, the diversity of our earnings proved supportive during the period. Wealth’s profitability improved from prior period and provided succour for the contraction in profitability of the Corporate and Investment Banking and the Personal and Business Banking businesses.
“That said, gross customer loans continued to grow, increasing by 16 per cent from the December 2020 position. The continued loan growth would support margin accretion and ultimately compensate for the pressure on yields.
“Customer deposits also increased by six per cent from the December 2020 position, most of the growth arose from cheap deposits and resulted in further improvement in the CASA ratio to 83.3 per cent (FY 2020: 82.8 per cent), which was positive for our funding costs. Our capital and liquidity positions remained robust in Q1 2021.
“Our latest addition, Stanbic IBTC Insurance Limited commenced full operations during the quarter. Our Pension business introduced the Loyalty program, UMatter, to appreciate our esteemed clients. Our Asset Management business launched the Stanbic IBTC Enhanced Short-Term Fixed Income Fund which invests in short term bonds issued by the Government and corporate entities,” he explained.
The low performance compared to its usual robust ratings in the industry may be understandable given the economic quagmire.
Analysts believe that Stanbic IBTC is one of the banks which releases its results the way it comes without any really discernible recourse to creative accounting and window dressing.
Going by that stand, Managing Director of HighCap Securities limited, Mr. David Adonri told Business Hallmark in a telephone interview that Stanbic IBTC’s low performance was a through reflection of the harsh operating environment.
“Stanbic IBTC does not window dress its results. It gives you the result the way it is. In fact, that result tells you that the operating environment is truly tough,’’ he said.
Despite the negative impact of Covid-19 which plunged Nigeria into recession in the second quarter of 2020, the economy however grew by 0.11 per cent at the end of the fourth quarter and again grew 0.5 per cent in Q1 2021. Yet this does not change the pessimism of many who believe the economic managers and the government are not on the right path.
The Nigerian economy has not been strong and no immediate indication shows that. The economy only recorded a paltry growth of 0.11 per cent in 2020 after a recession of -3.2 per cent in the second quarter and slid further down by -6.10 per cent in third quarter 2020.
The economy grew again by 0.5 per cent in Q1, 2021.
Recent statistics revealed that the rate of unemployment, the second highest in the world is 33%; Underemployment rate stood at 22%; inflation which is hitting the roof top at 18.17 per cent is the highest in the last seven years, has just retreated marginally to 18.12 per cent in Q1,2021; diaspora remittances inflow in the country fell 27 per cent year on year (YoY) to $17.2billion in 2020 from $23.55billion.
Many have not forgotten that the operating environment last year was choking for almost all the businesses including banks.
The banks posted impressive results in an operating environment where the 2021 budget runs a deficit of N5.2trillion representing 3.6 per cent, while the country owes N33trillion ($82bn) debt. The fear here hinges on the fact that federal government spends about 60 per cent of its revenue to service debt.
The major revenue earner for the country, crude oil price, which has retreated from $70 pbd to $62.46 pbd as at March25, 2020 still fluctuates.
Insecurity has not only hobbled agriculture, many parts of the Northern part of Nigeria have been taken over by bandits that not much business activities can subsist.
With the fearful scenario above, economic trajectory of the country is still uncertain. This is because even the apex bank has warned that care must be taken to galvanize and push the economy out of slumber.
What has heightened fears of Nigerians is the rising debt of Nigeria which stood at $33trn in 2021 while it is expected to hit $38trn in December 2021. But what worries Nigerians most is that about 70 per cent the revenue is used to service debt.
Despite these worries the Minister of Finance, budget and National planning, believes that the 23 per cent debt to Nigeria GDP was sustainable.
Whereas the IMF forecasts economic growth of 3.4% in 2021 and 4% by 2022, Nigeria is expected to grow by 2.5% in 2021 and 2.3% by 2022, while South Africa is projected to hit growths of 3.1% and 2.0% for the respective years in focus.
This forecasts notwithstanding many analysts believe that even if such growth is recorded there are fundamental problems with the Nigerian economy and how it is being managed.
Just a few days ago, the Naira was further devalued by 7.6 per cent to N410.25 to a dollar in pursuit of convergence. The above scenario notwithstanding, Stanbic IBTC still made huge profit for its owners. But this time around many other banks, like Zenith Bank, Access Bank, Fidelity Bank among others were able to perform better than what they achieved last year in the same operating environment.
Forced to break into retail banking during the compulsory banking consolidation exercise of 2004-2006, the bank has remained creative, tactful and focused.
Many still believe that its investment banking business is still the best in the industry.
From when it was established in 1989 as a first class investment bank, IBTC had always been deliberate with its operations to achieve both customer satisfaction and greater shareholder value for its owners.
As always, that focus and target have not changed.
The twin barreled pandemic; that is that of Coronavirus and low price of crude which have disrupted businesses, supply chains and even caused many deaths all over the world seem to have placed a strong knee on the neck of many firms and ‘they can’t breathe’
The latest number of deaths according to reports stood at about 3 million coronavirus deaths while infections were 61million as at Thursday November 25, 2020. The lender (Company) has remained formidable in the midst of all odds.
In fact, the previous years’ its strong performances have also provided a sturdy base for the vigour and strength which the lender has displayed.
Despite that its management, which was then led by Mr. Peterside Atedo, had frowned at the banking consolidation (Recapitalisation to N25bn) that ended in 2006 which forced it into a universal banking system, the company has long taken advantage of the new trends to grow its balance sheet and remain highly competitive in the banking industry. The company also realized the advantages in diversifying when it quickly became a holding company in 2012 when the opportunity offered itself instead of streamlining to only core banking operations as was dictated by the regulatory authorities in 2010.
‘’Risk management is at the core of the operating and management structures of the group. The group seeks to limit adverse variations in earnings and equity by managing the balance sheet and capital within specified levels of risk appetite. Managing and controlling risks, and in particular avoiding undue concentrations of exposure and limiting potential losses from stress events are essential elements of the group’s risk management and control framework, which ultimately leads to the protection of the group’s reputation and brand’’, the company had said.
According to the bank, the group manages its capital base to achieve a prudent balance between maintaining capital ratios to support business growth and depositor confidence, and providing competitive returns to shareholders. The capital management process ensures that each group entity maintains sufficient capital levels for legal and regulatory compliance purposes. The group ensures that its actions do not compromise sound governance and appropriate business practices and it eliminates any negative effect on payment capacity, liquidity and profitability.’’
Its modest success has shown that quality actually pays in the long-run. This may be the reason why the bank has run a modest, focused, tight and qualitative organization. In fact, the bank believes in doing its own thing rather than join the fray of aggressive competition that pervades the Nigerian banking industry.
But this is happening when majority of listed deposit money banks (DMBs) financial performance scorecard in the third quarter of the financial year 2020 reflects the sluggish economic disposition of the nation as average banks’ profits weakened as against the corresponding year’s numbers.
Unfortunately, it is not all roses for the Holding Company. Between 2013 and 2014, the company had faced a huge image problem for allegedly indulging in creative accounting. Though it has since left that behind, the challenge dragged down its market capitalization by over N22billion within 24 hours amidst the ragging battle it had with the regulators at that time.
Fortunately for the bank, analysts believe that the company possesses strong virtues that still endears it to its customers and investors.
Managing Director of Crane Securities, Mr. Mike Ezeh told Business Hallmark described the company as a high flyer which has always displayed strength with strong and balanced balance sheet.
Its foreign partnership, according to Ezeh is an added advantage to the institution because it helps it to attract mostly institutional investors.
Mr. Ezeh however, explained that though its being the highest valued stock is a credit to the company, he noted that it puts its shares beyond the reach of ordinary investors or shareholders.
‘’The company’s strong balance sheet is not commensurate with the dividend it pays which is usually small.’’ , he complained.
This notwithstanding, analysts believe that Stanbic IBTC is a strong institution any day, even without a huge retail base.