Sterling Bank grows pre-tax 17% in 2018

Abubakar Suleiman, Sterling Bank CEO

Sterling Bank’s profit-before-tax was up by 17 per cent to N9.5billion in 2018 on the back of increased Operating Expenses and higher Impairment.

Its just released financial statement showed that gross earnings increased by 14 per cent year-on- year to N152.2 billion, slightly below the projection of N153.2 billion by analysts from CSL Securities.

The growth in Gross Earnings was on the back of an increase of 21 per cent y/y in Interest earned on Loans and Advances to customers, reflecting the growth in its loan book (+4 per cent y/y to N621.0bn) and the growth of 16 per cent y/y in Non-Interest Income driven by higher Fee and Commission Income (+18 per cent y/y) and a significant increase in Foreign exchange trading gains (+119 per cent y/y to N7.6bn).

Interest Income grew 13 per cent y/y to N125.2bn, driven by the growth of 21 per cent y/y in Interest earned on Loans and Advances to Customers. On the other hand, Interest Expense rose 16 per cent y/y to N69.9 bn in FY 2018 from N60.1bn in FY 2017, on the back of the growth in Customer Deposits (+11 per cent y/y) which fuelled the 32 per cent y/y growth in Interest paid on Customers Deposits.

Despite the growth of 32 per cent y/y in interest paid on customers deposits and the significant increase in interest on debts issued (+378 per centy/y), cost of funds remained flat at 7.4 per cent in FY 2018 (FY 2017; 7.4 per cent). Net Interest Margin however declined to 6.6 per cent (FY 2017; 6.9 per cent) on account of lower yields on earning assets due to the moderation in yields on money market instruments.

Although Impairment charges declined significantly by 52 per cent y/y to N5.8bn, it came in higher than  our forecast of N4.7bn. Nonetheless, cost of risk (COR) declined by 167bps to 0.9 per cent, albeit it was below our 2018 COR estimate of 0.7 per cent. We believe the deterioration in asset quality underscored by the NPL ratio of 8.7 per cent in FY 2018 compared to 6.2 per cent in FY 2017 is largely responsible for miss in both items when compared to our estimates.

Further down the income statement, Operating Income grew by 12 per cent y/y to N82.3bn in FY 2018. Operating Expenses however grew faster by 26 per cent y/y to N66.9bn, which came above our 2018 estimate of N63.9bn. The faster growth in OPEX when compared with Operating Income led to a 914 bps increase in cost to income ratio ex-provisions to 81.4 per cent from 72.2 per cent in FY 2017, above our 2018 estimate of 78.9 per cent.

The bank’s Capital adequacy ratio (CAR) improved to 13.3 per cent (FY 2017: 12 per cent), which is above the regulatory requirement of 10 per cent for banks without international subsidiaries.

Pre-tax Profit grew 17 per cent y/y to N9.5bn while Profit after tax rose by 15 per cent y/y to N9.2bn. EPS came in at N0.32 in FY 2018 compared to No.28 in FY 2017. RoAE also improved to 9.2 per cent compared to 8.6 per cent in FY 2017.