Sterling’s Q1 2020 UNAUDITED report showed a decline in Interest Income to N28.4bn, largely due to a decline in Interest Income on Loans and Advances (down 10% y/y) which mirrors the flattish growth in the loan book (Net loans to Customers declined 0.4% y/y).
Interest Expense on the other hand, declined 18% y/y to N12.9bn, despite the substantial growth in Customers Deposits (up 15% y/y), reflecting improved funding costs. Notably, CASA ratio rose to 64% in Q1 2020 compared to 60% in Q1 2019.
We expect the improvement in the bank’s deposit mix to remain supportive of lower funding cost. Overall, Net Interest Income grew 3% y/y to N15.4bn in Q1 2020.
Despite the modest growth in Net Interest Income, Pre-tax Profit declined significantly, down 32% y/y to N2.2bn in Q1 2020, due to weaker Net Fee and Commission Income (-16% y/y) and weak operating efficiency, given the increase in OPEX (up 8% y/y) compared to the increase in Operating Income (up 3% y/y).
The downward adjustment in fees on banking transactions by the CBN took a toll on the bank’s earnings, as Net Fee and Commission Income declined 16% y/y to N2.9bn.
The decline in Net Fee and Commission Income was primarily driven by a reduction in E-business commission and fees (down 10% y/y; accounted for 35% of Fee and commission income) and Other fees and commission (down 31% y/y; accounted for 32% of Fee and commission income). Going forward, we expect the bank to accelerate the deployment of its digital channels in improving the volume of transactions to partly offset the impact of the regulatory induced fee cut.
However, Other Income grew 61% y/y to N1.6bn, largely due to higher gains from bonds and treasury bills classified as FVTPL.
The bank’s Impairment Charge rose 41% y/y to N1.2bn in Q1 2020, leading to a 22bps rise in an annualised cost of risk to 0.75% in Q1 2020.
Despite the flattish loan book of the bank during the period, we believe the higher loan loss provisioning was due to the deterioration in macro conditions brought by the global pandemic. We expect the uptick in Impairment Charge to persist in the short to medium term.
Overall, both Pre-tax Profit and Profit After Tax declined by 32% y/y and 36% y/y to N2.2bn and N2.1bn respectively. Annualised RoAE moderated sharply to 7.1% in Q1 2020 compared to 12.6% in Q1 2019.
We have a BUY rating on Sterling Bank, with a target price of N2.71/s.
Operating Expenses grew 8% y/y to N16.6bn in Q1 2020. The faster growth in OPEX compared to growth in Operating Income (up 3% y/y) led to a 414bps increase in Cost to Income Ratio (CIR ex-provisions) to 82.9% in Q1 2020.
The increase in OPEX was due to higher regulatory charges emanating from AMCON charges (up 13% y/y) and NDIC premium (up 20% y/y) alongside increased Depreciation and Amortisation (up 42% y/y) arising from higher investment in computer equipment.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission.
Togo, Niger, Benin remit N2.04 billion to Nigeria for power supply
Nigerian Electricity Regulatory Commission says international electricity customers remitted the sum of N2.04billion to Nigeria in three months.
Nigeria’s international electricity customers – Togo, Niger, and Benin, remitted the sum of N2.04billion in the first quarter of 2020, as their outstanding electricity bill to the Market Operator (MO) of the sector in Nigeria.
This was found in the Nigerian Electricity Regulatory Commission 2020 first quarter report, which was released recently.
According to the report, a total of N4.05billion ($13.22million) invoices were issued by the MO to international customers including Societe Nigerienne d’electricite or NIGELEC; Societe Beninoise d’Energie Electrique (SBEE); and Compagnie Energie Electrique du Togo (CEET).
The commission stated that during the quarter, NIGELEC made a payment of ₦1.61billion ($5.27million) as part of its outstanding bills for the energy received from NBET and services rendered by the MO.
It stated, “Similarly, SBEE paid ₦0.43billion ($1.39million) in respect of services received from MO.
“It was noteworthy that tariff shortfall (represented by the difference between actual end-user tariffs payable by consumers and the cost-reflective rates approved by NERC) had partly contributed to liquidity challenges being experienced in the industry.
“The settlement ratio to the expected Minimum Remittance Thresholds, having adjusted for tariff shortfall, indicated that power distribution companies needed to improve on their performance.”
Special customers like Ajaokuta Steel Co. Ltd and others in its environs did not make any payment in respect of the N0.27billion and N0.05billion invoices issued to them by the Nigerian Bulk Electricity Trading Plc and the MO respectively, during the period under view.
Meanwhile, the power distributors failed to remit N119.88billion to the sector within the same period.
“Whereas Discos were expected to make a market remittance of 46.09% during 2020/Q1, only 32.53% settlement rate was achieved within the timeframe provided for market settlement in the Market Rules,” it added.
What it means: The Discos’ remittance level, regardless of the prevailing tariff shortfall, was still below the expected MRT and they are expected to improve on their performances.
#EndSARS: Protests may return if panels do not address all issues in 2 weeks – Former Nigerian Minister
Akinyemi says the #EndSARS protesters would return to the streets if their demands are not addressed in two weeks.
COVID-19: Jason Njoku and wife test positive
iROKOtv CEO and wife have contracted the novel coronavirus.
Jason Chukwuma Njoku, the co-founder and CEO of iROKOtv and his wife has tested positive for COVID-19. However, Mrs. Mary Njoku is feeling well.
Jason, disclosed this via his Twitter handle stating that “My enemies are hard at work in 2020. Mrs. Njoku and I tested positive for Covid-19. I’m not feeling great, but Mary is well. Literally no idea how I caught it. But we shall see this pass too.”
The media mogul did not reveal if his children caught the virus too.
My enemies are hard at work in 2020. Mrs Njoku and I tested positive for Covid19 😩. I'm not feeling great but Mary is well. 😷🤢. Literally no idea how I caught it. 🤷🏾♂️. But we shall see this pass too🙏🏾. pic.twitter.com/tnsP1BCPBB
— JasonNjoku (@JasonNjoku) October 28, 2020