For the year 2021, in the midst of plaudit and good performance in some segments, Stanbic IBTC revenue and profit reduced compared to 2020FY. The group’s gross earnings decreased by 12.22% to N206 billion from N234 billion in 2020FY, while profit before tax and profit after tax dipped by 30.32% and 31.54% respectively; consequently earnings per share dipped by 33% to N4.20 from N6.25 in 2020FY.
Nairametrics had a few months ago, highlighted key reasons for the 2021 regression, which include:
- CBN’s policy on CRR debits, which impaired on the bank’s ability to create more risk assets and earn more interest.
- Lower interest rate environment.
- CBN forex policies, which affected foreign portfolio inflows, which in turn led to a drop in trading income.
- Inability to adapt to models that would have driven efficiency and resilience in managing the expense lines, as such expenses increased by large proportions, which ultimately stretched profit.
Coming from negative growth in 2021, in an inflationary and tightening monetary policy environment, to record such impressive growth in gross earnings, earnings, earnings per share and dividend, is commendable, but is the H1 2022 performance, a pointer that Stanbic IBTC Holdings has taken corrective actions?
The group’s H1 2022 financial report shows that gross earnings rose by 45% on-year to N134.870 billion from N92.895 billion in H1 2021 and 66% sequentially, profit before tax increased by 61.81% and profit after tax increased by 36.05% to N30.669 billion from N22.543 billion in H1 2021; but successively by 54%.
Further, the report reveals that the growth in gross earnings was buoyed by a significant increase in interest income, fees and commission income and insurance income. Interest income increased by 54% to N68.25 billion in H1 2022 from N44.23 billion achieved in H1 2021, largely on growth in interest earned on investment securities and loan and advances, while the growth in loan and advances was on the accelerated growth in the volume of loans and advances.
Non-interest revenue increased by 37% to N62.96 billion from N45.91 billion in H1 2021; driven by substantial growth in trading revenue. The growth in net fees and commissions is following a year-on-year growth in assets under management fees, fees earned from new loan bookings, and improved investment banking fees.
The foregoing, notwithstanding, cardinal issues of concern are; the group meeting its set targets, strategic intents and increasing shareholders’ value. One of the group’s key strategic intents according to its H1 2022 financial review report is to be within the top 5 in terms of return on equity (ROE) by 2025. But the group’s return on equity, which nudged up to 15.7% in H1 2022 from 12.1% in H1 2021, is considered low, though it is still higher than the Diversified Financial Industry average 10.6%. Similarly, the group’s return on assets is on a downward trajectory from 4.5% in H1 2020 to 2.0% in H1 2022.
Return on equity and return on assets are key profitability ratios and a dwindling ratio is an indication that the performance obtained on the invested capital is dwindling and consequently may affect the maximum remuneration that can be distributed.
Aside from the group’s strategic intent, to continue to deliver, the impact of macroeconomic factors, the group’s SBUs contributions and sectorial focus, especially on resilient and non-cyclical sectors should be of concern too.
As the impact of a higher interest rate environment unlike the lower interest rate environment prior to H1 2022 continues to assert, expectedly earnings would continue to increase. The growth in net interest income in H1 2022 was attributed to the continued growth in loan yields.
Stanbic IBTC Asset Management is one of top three biggest asset managers in the country by size with N646 billion in assets under management, but the bulk of the group’s earnings and profit came from Stanbic IBTC (the bank) and the Pension Fund Manager. There was a sharp dip in profit after tax year-on-year for the asset management unit; by 61% from N4.1 billion in 2021 to N1.6 billion in 2022.
Sector-wise, though the manufacturing sector contributed about 29% of the group’s loan and advances portfolio, construction and real estate and oil and gas services contributed 11.5% and 9.5% respectively to the group’s high levels of bad loans at 2.6%. A higher bad loan ratio requires greater loan provision and thus dents profitability and return to shareholders.
But one thing that is going for the group is its low-risk liability. 61% of Stanbic IBTC liabilities are made up primarily of customers’ deposits, which is a low-risk source of funding and less risky than borrowing externally. The group’s total assets grew by 15% to N3.15 trillion in H1 2022 from N2.74 trillion reported in the full year ended December 31, 2021, driven by sharp increase in gross loans and advances and customer deposits. While gross loans and advances increased by 16% to N1.09 trillion from N946.26 billion reported in 2021FY, customer deposits increased by 6% to N1.19 trillion as of June 30, 2022, from N1.13 trillion reported in 2021FY.
With the recent CBN hike in the savings rate to 4.2% from 1.4%, expectedly, cost of funds will increase cost of funds and consequently increase interest expense. Interest expense, which grew by 58% majorly due to average growth in term deposits in H1 2022 and is expected to shoot up cost of funds. Already, cost of funds is rising, in H1 2022; it rose to 2.0% from 1.5% in H1 2021.