Stanbic IBTC Bank counted an after tax profit of nearly N60 billion at the end of its third quarter operations in September 2018, a clear 23% ahead of its significantly enhanced full year profit record in 2017. Two major developments in operations accounted for the bank’s elevated profit performance.
The first is a shift from a net impairment loss of over N20 billion in the same period last year to a net write back of more than N4 billion at the end of the third quarter. This is a record unmatched in the banking sector that remains laden with massive credit losses. The strength to grow profit during the period came largely from writing back loan loss expenses to profit.
The second favourable development is a growth of over 24% in non-interest income that more than countered a decline in interest income. Interest income suddenly lost the steam that saw an outstanding growth of over 40% at the end of last year. Non-interest income therefore accounted exclusively for the increase of close to 10% in gross earnings the bank reported at the end of the third quarter.
Gross earnings amounted to N168.80 billion for Stanbic IBTC Bank at the end of September 2018, increasing from N154.22 billion in the same period last year. Interest income, the main revenue line of the bank, declined by 2% to about N88 billion. Its contribution to gross income shrank from 58% to 52% over the period.
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The full year outlook shows gross earnings in the region of N225 billion for Stanbic IBTC Bank in 2018. That would be an increase of 6% over the closing revenue figure of N212.4 billion the bank recorded in 2017. A sharp slowdown is therefore to be expected from an outstanding growth of 36% in gross earnings last year.
The bank closed the third quarter with an after tax profit of N59.76 billion, an increase of 59% year-on-year. Significant cost moderation, led by write back of loan loss expenses to profit provided the strength to lift profit that high from a moderate improvement in revenue.
Loan loss charges have been slowing down in the past two years after a massive growth in 2015 and have shifted to a net write back that has reinforced profit performance so far this year. Loan recovery has provided a stabilizing and growth function for the bank in a difficult operating season for the banking industry. Last year, it attained a new peak in profit, beating its previous profit high in 2014.
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Full year forecast indicates after tax profit of N77 billion for Stanbic IBTC Bank in 2018. This is a growth expectation of 59% over the profit figure of N48.4 billion the bank posted in 2017. Profit growth is therefore expected to remain exceptionally strong for the third year running [59% in 2016 and 70% in 2017].
The challenge for the bank so far this year is the loss of momentum in Interest income that led revenue growth last year with a towering increase of 40.5%. A decline of 2% at the end of the third quarter is in spite of N57 billion or 15% expansion in net loans and advances over last year’s closing figure. A drop of 7% in investments over the same period may have partly countered the increase in credit volume.
Against the decline in interest income, interest expenses grew by 10% to N29.44 billion – which is in line with the trend in the banking industry this year. Banks that administer the bitter pill of high interest rate also feel the pain of high cost of funds. The increase in interest expenses led to a 7% drop in net interest income to N58.44 billion for Stanbic IBTC at the end of the third quarter.
Operating cost grew by 18% to over N72 billion year-on-year, raising the cost margin from 40.5% at the end of 2017 to 43% at the end of September. Its impact on revenue was however countered by the complete absence of loan loss expenses. Net profit margin has stretched out for the third year running from under 16% at the end of 2016 to 23% in 2017 and further to 35.4% at the end of the third quarter.
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The bank earned N5.73 per share at the end of the third quarter against N3.61 in the same period last year and N4.60 per share at the end 2017. It paid an interim dividend of N1 per share with option for scrip in September 2018.
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