Fall in fee income slows down Sterling Bank

Sterling Bank suffered a drop of 44% in fee-based income in the second quarter and the bank’s earnings growth has slowed down remarkably from the first quarter performance. Revenue is headed for a decline at the second quarter growth rate and profit is headed back to the 2013 level. Costs are under effective check but revenue weakness has permitted an increase in the cost-income ratio – which has hurt profit margin and growth.

Fees and commissions income came down to two-thirds of last year’s corresponding numbers, which the bank said is due to the stringent regulatory measures in the foreign exchange market. That also accounts largely for a drop of 55% in net trading income during the period. Other operating income fell by 70%, as a windfall from property sale last year is absent this year.

The bank closed the second quarter operations with a surprising growth of 36.5% in net credit volume over the closing figure in 2015. The growth isn’t yet reflecting in interest income, which was only 4.3% up year-on-year at N41.54 billion. A big surprise however is how the bank succeeded in cutting down interest expenses by as much as 22% at the end of the second quarter amid an increase of 6.3% in customer deposits. This is the biggest positive event in the bank’s income statement so far this year – leading to a 32% lifting in net interest income.

At N50.06 billion, gross earnings went down by 9% year-on-year at the end of the second quarter. The full year outlook indicates revenue in the region of N104 billion for Sterling Bank in 2016. That will be a decline from the closing gross income of N110.19 billion the bank generated in 2015. The bank has grown revenue consistently over the years though growth rates have declined in recent years.

The growth in net interest income was absorbed by the drop in non-interest income, causing a slight decline in operating income. Another favourable cost behaviour came from impairment charges for credit losses, which dropped by 16.7% year-on-year to N3.66 billion at the end of June. That countered the drop in fee income and pushed net operating income slightly above the corresponding figure in the preceding year.

The bank however could not keep operating cost down as it did in the other two major cost areas. Operating expenses grew by close to 8% year-on-year to N26.10 billion at the end of the second quarter, raising the cost margin from 44% in the same period last year to 52.1% at the end of June this year. Operating cost has not claimed revenue that much in recent years.

The increase in the operating cost margin undermined profit performance and after tax profit dropped by about 26% year-on-year to N4.02 billion at the end of the second quarter. Net profit margin is down from 9.9% in the second quarter of last year to 8% at the end of June this year.

Net profit is projected at N8.5 billion for Sterling Bank at the end of 2016. That will be a drop of 17.4% from the profit figure of N10.29 it reported at the end of 2015. The bank has grown profit every year over the past five years.

Earnings per share amounted to 14 kobo for Sterling Bank at the end of the second quarter, down from 19 kobo per share in the same period last year. It is expected to earn 29 kobo per share at full year against 36 kobo at the end of 2015. It gave shareholders a dividend of 9 kobo per share at the end of its last year’s trading.