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Analysis: Sterling Bank, too slow to compete

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Tier two banks were badly beaten by the recession and ensuing economic challenges in the country. They typically have higher non-performing loans and lower Capital Adequacy Ratios (CARs) due to riskier lending practices. Here, we look at Sterling Bank Plc and its prospects going forward.

Sterling Bank’s results for the 9 months ended September 2017 show that gross earnings increased from ₦79.7 billion in 2016 to ₦94.6 billion in 2017. Earnings per share increased slightly from ₦0.20 in 2016 to ₦0.21 in 2017.

Steps in a new direction?

Sterling, earlier this year, announced that its current Managing Director, Yemi Adeola, will retire at the end of this month. His successor, Abubakar Suleiman, has also been named. He comes with a background in non-interest banking, a segment which Adeola had signified that the bank would be getting a stand-alone license for.

Data from the bank’s investor presentation for the 9 months ended September 2017 show that non-interest income comprised a greater proportion of the bank’s earnings compared to 2016.

Electronic banking

Banks have largely pivoted towards electronic and USSD banking in a bid to capture a younger generation who do not have the patience to spend hours in banking halls. E-banking is also far cheaper compared to the costs of maintaining physical branches.

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Sterling also stated that it would enhance revenue from its digital and electronic banking. Mobile and USSD banking grew 174% year on year. Internet banking adoption also grew 96% year on year.

Fx exposure to oil sector is quite heavy

While the bank has reduced its loans to the oil and gas sector slightly, it holds a large amount of these exposures in dollars. This leaves the bank vulnerable in the event of a sharp depreciation in the naira.

Delay in making essential moves

The bank’s Capital Adequacy Ratio (CAR) was at 11.39% which is above the regulatory threshold of 10%. Sterling Bank’s ₦110 billion share capital is largely comprised of a share premium of ₦42.7 billion. The bank, in an investor presentation released for its Q3 2017 results last year, stated it was on track to raising ₦35 billion in tier 2 capital sometime this year, but has not shed more light on its plans.

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Other tier two banks have all unveiled various strategies to boost their capital base. Diamond has sold non-essential subsidiaries. Union bank raised N50 billion through a rights issue and is considering raising more funds through a Eurobond.  FCMB is also reportedly considering a Eurobond. Unity bank is reportedly in talks with Milost Global, a private equity, firm for a potential take-over. Stanbic Ibtc gave investors the option of receiving shares in lieu of dividend payments.

Those seeking to raise Eurobonds are doing so in order to take advantage of current interest rates, which could be hiked sometime in the near future. Approaching elections in the country mean that foreign investors would price bonds raised by Nigerian banks much higher.

Valuation

Sterling bank closed at ₦1.80 in today’s trading session, down 4.3%.  Year to date, the stock is up 66% and the bank is currently trading at about 9.4 times earnings. Indicating the stock is currently trading at a high multiple.

Several analyst reports suggest the bank could be restricted to paying 30% of its profits due to revised guidelines by the CBN.

Despite the increase in non-interest income, Sterling’s delay in raising the much-needed capital, and dollar exposure to the oil sector makes the stock a cautious buy at most. Nearly all banks are looking towards electronic and mobile banking income.

Sterling Bank Plc, (formerly known as NAL Bank Plc) was the pioneer merchant bank in Nigeria. It was established on 25 November 1960, as a private limited liability company, and was converted to a public limited liability company in April 1992.

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Sterling Bank Plc (the “Bank”) together with its subsidiaries (collectively the “Group”) is engaged in commercial banking with an emphasis on retail and consumer banking, trade services, corporate, investment and non-interest banking activities.

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via [email protected]

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Cryptocurrency

Crypto robber steals $15 million

Eminence, an upcoming project being built by Yearn’s Andre Cronje has been drained of $15 million.

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Bitcoin robbers move 3503 BTC worth $38.5 million, Twitter cyber hackers gained $100,000 worth of cryptos, SEC warns against illegal cryptocurrency operator and its products, Crypto-Criminals on a rampage, capitalizing on COVID-19 Pandemic

The DeFi crypto community’s strong appetite for unverified code has once again ended in pains for investors, with the losses amounting to millions of dollars.

Eminence, an upcoming project being built by Yearn’s Andre Cronje, has been drained of $15 million.

Eminence is an unfinished “economy for a gaming multiverse.” In a series of tweets, Cronje gave a detailed analysis of the cyber robbery.

“Yesterday we finished the concept behind our new economy for a gaming multiverse. Eminence. As per my usual methodology, I deployed our staging contracts on ETH so we can continue developing on it.”

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He spoke on the operational details of the project:

“These contracts, not the ecosystem are final, yesterday alone you will notice I deployed 2 separate batches of the contracts, this is my usual “test in prod” process.

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“We started releasing some of the art teasers to showcase all the different clans in the game on Twitter. We posted the first clan “Spartans”. And I went to bed.

“Around ~3 AM I was messaged awake to find out a) almost 15m was deposited into the contracts b) the contracts were exploited for the full 15m and c) 8m was sent to my yearn: deployer account.”

However, Cronje later announced that the Yearn treasury would help in refunding users back the $8 million he received from the hacker according to a snapshot of EMN balances prior to the hack.

What you must know: There are multiple protocols providing yield (returns) on the capital that you lend.

These yields vary from one protocol to the next. YFI automates & optimizes lending such that you can earn maximum value on your capital without researching each protocol.

It has two major uses:

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Lend your digital assets: Earn maximum interest among a pool of lending protocols such as Compound, Aave, et. al.

Vaults: Lend your digital assets to yield farming strategists (think hedge fund managers) who deploy advanced strategies leveraging liquidity mining tokens to maximize returns.

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Commodities

Gold prices up, traders focus on President Trump’s debate

Gold futures were up 0.22% at $1,886.50/ounce

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Dollar, Gold soars above $1850, rises to 9-year high

Gold futures prices were up at the reopening of London’s trading session. This was boosted by a weaker dollar, though its upside was capped as traders’ focus is now on the U.S. presidential debate scheduled to hold today.

What we know: At the time this report was drafted, Gold futures were up 0.22% at $1,886.50/ounce. Holdings in SPDR Gold Trust (P: GLD), the largest gold-backed exchange-traded fund worldwide, gained 0.16% to settle at 1,268.89 tonnes yesterday.

President Trump and Democrat’s Presidential candidate, Joe Biden, will take part in the debate, ahead of the Nov. 3 presidential elections.

Joe Biden is hoping to convince people with strong connections to working-class Americans, who had voted for President Barack Obama but switched to President Donald Trump in 2016.

In an Economist/YouGov poll, 39% of Americans predict that Trump will win the debates, while 34% predict that Biden will win.

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On the COVID-19 front, the number of new COVID-19 cases in the world’s largest economy gained for the second week in a row in 27 out of the 50 states, adding to concerns over the health of the U.S. economy.

Globally, deaths from the virus topped one million, with over 33.2 million cases as of Sep. 29, according to Johns Hopkins University data.

In a note to Nairametrics, Stephen Innes, Chief Global Market Strategist at AxiCorp, spoke on the prevailing macros happening in the precious metal market. He said:

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“Gold appeared to put in a good base around $1850 after a reasonably negative September, with the metal averaging a 1-2% move lower during the month in the past five years.

“It is now down almost 5% on the month, and at slightly more compelling levels to enter into longs given positions are much cleaner than ever after last month sell-off.

“Gold is up on a weaker US dollar and more gains could be in the offing as focus shifts to US elections, political uncertainty, and geopolitical risks.

“After being mercilessly hammered lower last week, gold found some decent traction, buoyed by the USD’s retreat.”

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Cryptocurrency

Investor moves $133 million worth of Bitcoins, suspected from Coinbase

An unknown individual(s) moved 12,565 BTC in block 650,441worth about $133million.

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World's biggest sovereign wealth fund now owns cryptos, Investors cashing in big time, as 95% BTC wallets are currently in profit, blockchain technology, Bitcoin giving better returns than the Nigerian stock market, What it will take Bitcoin to hit $100,000?, Buying signal; Bitcoin whales with 1000 BTC or more continue to rise

Large entities are fast increasing their transaction sizes in the world’s most important crypto market at a spontaneous rate.

Data obtained from Bitcoin Block Bot, a crypto analytic tracker, revealed that someone (probably from Coinbase) moved 12,565 BTC in block  650,441, estimated to be worth about $133million, some hours ago.

 

Why it’s happening; It should also be noted that the amount of BTCS on major crypto exchanges has hit its lowest levels in about two years meaning a new generation of investors, crypto traders are putting its money in it for the long term.

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While it is difficult to predict market movements, BTC whales have shown historically that they often determine the BTC trend.

There’s no reason to sell now when you have large institutional investors like MicroStrategy, Grayscale Investments buying the world’s flagship crypto

Quick fact:

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  • At the BTC market, investors or traders who own large amounts of bitcoins are typically known as Bitcoin whales.
  • This means that a BTC whale would be an individual or business entity (with a single Bitcoin address) owning around 1000 Bitcoins or more.
  • As BTC whales accumulate BTCs, Bitcoin’s circulating supply reduces, and this can weaken any bearish trend bitcoin finds itself in.

Meaning that over time, it’s possible that as BTC approaches its fixed supply of 21 million, the price of BTC will go up, with BTC’s present demand factored in.

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