Stanbic IBTC Holdings: Maintaining high growth

Stanbic IBTC Holdings achieved one of the strongest profit advances in the banking industry in 2014. The bank, which also led profit growth in the industry in the preceding year, has maintained an outstanding profit growth for the past three years running.

The bank’s strength in profit performance is coming from both revenue improvements and cost saving success. Over the past three year, the bank has multiplied net profit by more than three and half times. It now ranks among the top banks by profit margin, earnings and dividend per share.

Sola David-Borha (pictured), managing director/chief executive officer of the bank, is beating the competition with the strategy of growing revenue ahead of cost and therefore reducing the cost-income ratio. The two main cost areas of the bank moderated relative to revenue in 2014 and this has lifted profit margin to the highest level since 2009. Increasing asset turnover and increasing profit margin have been the winning formula for David-Borha in the past three years.

In 2014, the bank grew gross earnings by 17% to N130.61 billion, which is one of the growth leading records in the banking industry in the year. It is however a slowdown from the revenue growth of 21% in 2013. All the main revenue lines contributed to the growth recorded in the year with fee and commission income leading the growth by 19%. Trading income grew by 18% while interest income rose by 15% to N72.16 billion.

The bank recorded an asset turnover of 0.14 in 2014, one of the highest in the industry – indicating a strong ability to turn assets into revenue. Its key earnings assets comprise a net credit portfolio of close to N407 billion and an investment portfolio of over N204 billion.

The bank posted an after tax profit of N32.06 billion at the end of 2014, a growth of 54% and one of the biggest profit advances in the banking sector during the year. This is further to an outstanding profit growth of over 134% the bank achieved in 2013.

Given the high rate of growth, Stanbic IBTC Holdings has overtaken some banks by profit numbers such as FCMB, Fidelity Bank, Skye Bank and Diamond Bank. It has also narrowed the gap with some other banks significantly such as UBA and Access Bank.

The impressive profit growth for the bank reflects the improvements in revenue lines as well as favourable cost behaviour. One of the outstanding events on the income statement of the bank in 2014 is a zero growth in interest expenses at N25.50 billion. This is against the 15% improvement in interest income and 18.4% increase in deposit liabilities. This enabled the bank to achieve a 26% leap in net interest income and reduced the average cost of funds during the year.

Another favourable cost behaviour came from operating expenses, which grew by 6% to N61.31 billion in the year, well below the increase in gross earnings. That enabled the bank to reduce its operating cost margin from 52.1% in 2013 to 46.9% at the end of 2014. This remains quite above the best industry cost margins retained by GTB and Zenith Bank.

The favourable cost behaviour enabled the bank to improve profit margin further in the year. Net profit margin improved from 18.7% in the preceding year to 24.5% in 2014. This is one of the highest net profit margins in the banking sector and one of the very few improvements in profit margin in 2014.

The bank raised earnings per share from N1.86 in 2013 to N2.93 in 2014, one of the highest improvements seen in the year. It paid a total cash dividend of N1.25 per share for the 2014 operations. The sustaining high growth in profit and earnings per share has already earned the bank the leadership of the banking sector by share price in the equities market.

Stanbic IBTC Holdings is a candidate to watch on the earnings track this year. If it sustains the high growth rate this year, it is likely to be competing with GTB and Zenith Bank on earnings per share leadership. It is also likely to narrow down further the gap between it and UBA and Access Bank on profit numbers.