Sterling Bank Plc’s (Sterling) FY 2018 results showed that Gross Earnings grew 14% y/y to N152.2bn, slightly below our FY 2018 estimate of N153.2bn. Pre-tax Profit also increased 17% y/y to N9.5bn, albeit it was significantly below our 2018 estimate of N12.4 bn, mainly due to the higher than expected increase in Operating Expenses as well and  higher Impairment Charges compared to our estimates.

The growth in Gross Earnings was on the back of an increase of 21% y/y in Interest earned on Loans and Advances to customers, reflecting the growth in its loan book (+4% y/y to N621.0bn) and the growth of 16% y/y in Non-Interest Income driven by higher Fee and Commission Income (+18% y/y) and a significant increase in Foreign exchange trading gains (+119% y/y to N7.6bn).

Interest Income grew 13% y/y to N125.2bn, driven by the growth of 21% y/y in Interest earned on Loans and Advances to Customers. On the other hand, Interest Expense rose 16% y/y to N69.9 bn in FY 2018 from N60.1bn in FY 2017, on the back of the growth in Customer Deposits (+11% y/y) which fuelled the 32% y/y growth in Interest paid on Customers Deposits.

Despite the growth of 32% y/y in interest paid on customers deposits and the significant increase in interest on debts issued (+378%y/y), cost of funds remained flat at 7.4% in FY 2018 (FY 2017; 7.4%). Net Interest Margin however declined to 6.6% (FY 2017; 6.9%) on account of lower yields on earning assets due to the moderation in yields on money market instruments.

Although Impairment charges declined significantly by 52% y/y to N5.8bn, it came in higher than  our forecast of N4.7bn. Nonetheless, cost of risk (COR) declined by 167bps to 0.9%, albeit it was below our 2018 COR estimate of 0.7%. We believe the deterioration in asset quality underscored by the NPL ratio of 8.7% in FY 2018 compared to 6.2% in FY 2017 is largely responsible for miss in both items when compared to our estimates.   

Further down the income statement, Operating Income grew by 12% y/y to N82.3bn in FY 2018. Operating Expenses however grew faster by 26% y/y to N66.9bn, which came above our 2018 estimate of N63.9bn. The faster growth in OPEX when compared with Operating Income led to a 914 bps increase in cost to income ratio ex-provisions to 81.4% from 72.2% in FY 2017, above our 2018 estimate of 78.9%.  

The bank’s Capital adequacy ratio (CAR) improved to 13.3% (FY 2017: 12%), which is above the regulatory requirement of 10% for banks without international subsidiaries.

Pre-tax Profit grew 17% y/y to N9.5bn while Profit after tax rose by 15% y/y to N9.2bn. EPS came in at N0.32 in FY 2018 compared to No.28 in FY 2017. RoAE also improved to 9.2% compared to 8.6% in FY 2017.

Deal book 300 x 250

We have a target price of N2.75/s for Sterling with a Buy recommendation.

Standard chartered


Member of the Nigerian Stock Exchange,

First City Plaza, 44 Marina,

PO Box 9117,

Lagos State,




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