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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.

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.

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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.

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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.

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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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Commodities

Gold prices suffer worst two weeks in a row since November

Gold futures prices at their most recent trading session settled at $1,829.90 an ounce, down by 1.2%.

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Nigeria Mining Sector shows growth prospect despite low bank credit provision, Gold hits eight-year high as global recession sentiments strengthened, Gold hits three weeks high, Investors rush to gold, Gold Future Drops to $1727.80 as Tensions Escalate between America and China, Precious metals slump, investors focus on Central Bank’s intervention, FG inaugurates gold refinery project in a landmark event

Gold prices suffered significant losses at their most recent trading session.

The yellow metal lost its shine at the expense of charging U.S dollar, whose surge of late astonished many investors amid the currency debasement expected from the U.S President-elect’s proposed $1.9 trillion COVID-19 support programme.

What you should know

  • Gold futures at their most recent trading session settled at $1,829.90 an ounce, down by 1.2%.
  • Although the yellow metal’s recent loss on a weekly basis moderated to just 0.3% on the week, that loss added to the previous week’s plunge of 3.2% — handing gold its worst two weeks in a row since November.
  • The greenback was an outlier at the last trading session despite drops seen in U.S bond yields associated with the benchmark 10-year U.S. note, whose resurgence in the previous week had been the catalyst for the U.S dollar comeback.

Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave insights on the odds weighing on the yellow metal in the near term.

  • “With short dollar trades tempering over the great US dollar debasement story of 2021, it’s not such an easy glide path for gold to start the year. So, I suspect gold remains tied to the hip of the US dollar fortunes this quarter. The market then morphs into “sell the rally mode” as the US economy recovers tangentially to the vaccine distributions.”

Bottom line

Investors are increasingly confronted with the reality that the pandemic is still far from being under control, thereby flocking back to the safe-haven currency despite the significant progress that was made in the past few months, and several COVID-19 vaccines already in the market.

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Cryptocurrency

$128 million worth of Bitcoin exchange hands, Bitcoin drops to $36,100

Bitcoin traded at $36,262.41 with a daily trading volume of $56.4 billion, down 0.49% for the day.

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Bitcoin, 5 major reasons it's good to buy Bitcoin

Large crypto entities are definitely up to something with the prevailing bullish trend at the world’s flagship crypto. Before dropping to $36,100, an unknown Bitcoin whale moved about $128 million worth of cryptos.

Data retrieved from Whale alert, an advanced crypto tracker, revealed recently, that a large entity transferred 3,510 BTC valued at $128.3 million from an unknown wallet to an unknown wallet.

At the time of writing this report, Bitcoin traded at $36,262.41 with a daily trading volume of $56.4 billion. Bitcoin is down 0.49% for the day.

  • While it is difficult to predict market movements, large owners of Bitcoins have shown historically that they often determine the BTC trend.
  • The timing of this movement suggests that such activity could be linked to an institutional investor amid the bias that of late, a lot of institutional players are flocking into the world’s flagship crypto market at unprecedented levels.

What you should know

  • In the Bitcoin 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), that owns around 1000 coins or more.
  • The flagship cryptocurrency is mainly decentralized, the first of its kind, and created by Satoshi Nakamoto. It was launched around January 2009.

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Cryptocurrency

Very few nations permitted to issue their Crypto – IMF

The IMF says close to 80% of the world’s central banks are not allowed to issue a digital currency under their existing laws.

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International Monetary Fund IMF,Nigeria’s GDP forecast for 2020 to drop - IMF 

While many countries are already planning to or already developing fiat-crypto, the International Monetary Fund’s most recent report has indicated that only a few nations are permitted legally to carry such actions.

“Countries are moving fast toward creating digital currencies. Or, so we hear from various surveys showing an increasing number of central banks making substantial progress towards having an official digital currency.

“But, in fact, close to 80% of the world’s central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is not clear,” the IMF stated.

In the recent post, seen by Nairametrics, the global financial body disclosed various reports suggested a large number of central banks are examining the possibility of having a central bank digital currency (CBDC).

It stated;

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“Still, a majority of such countries have legal structures that do not support the establishment of cryptocurrencies, or in some cases do not permit the development of them

“Any money issuance is a form of debt for the central bank, so it must have a solid basis to avoid legal, financial, and reputational risks for the institutions.

“Ultimately, it is about ensuring that significant and potentially contentious innovation is in line with a central bank’s mandate. Otherwise, the door is opened to potential political and legal challenges.”

What you should know: A digital currency is a cash balance recorded electronically on a store value card or other physical devices, which could someday replace the physical notes.

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  • Digital currencies can be decentralized, that is where the control over the cash supply can come from diverse sources. Digital currencies can also be centralized, where there is a midway point of control over cash supply, just like the way central banks work.

Recall some months ago, the International Monetary Fund (IMF) published a video illustrating what cryptocurrency is.

Besides suggesting that cryptocurrency could “completely change the way we sell, buy, save, invest, and pay our bills,” IMF went on by saying that it “could be the next step in the evolution of money.”

The IMF tweeted the video giving vital details on what cryptocurrency is. Referring to cryptocurrency as “a special currency,” the two-minute video attempts to outline its benefits in payments, such as by removing middlemen, lowering costs, and increasing transaction speed.

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