Skye Bank Plc. (6 months ended June 2015)
- Skye Bank Plc (Skye) released H1 15 unaudited results wherein gross earnings rose 33% YoY to
N85.2 billion, while both PBT and PAT rose 47% YoY toN10.7 billion andN8.6 billion respectively.
Strong interest income helps offset decline in NIR
- Looking at Q2 performance, cutback in NIR (-49% QoQ to
N6.1 billion) tempered impact of a 20% QoQ expansion in interest income toN36.5 billion, resulting in only 1% QoQ rise in gross earnings toN42.8 billion. Similar to other banks during this reporting season, NIR contraction largely reflects impact of CBN restrictions on currency trading following introduction of order based 2WQ system in February on FX income. On the other hand, interest income strength partly reflects higher asset yields (+80bps QoQ) and expansion in interest bearing assets (+3% QoQ) which mirrored growth of similar magnitude in loans toN657 billion.
Impairments and opex pressures swing earnings lower
- In a departure from pattern across banks thus far in Q2, Skye reported 5% QoQ contraction in interest expense to
N15.5 billion. The moderation largely reflects cutback in deposits (-4% QoQ) and borrowings (-49% QoQ) which underpinned shrinkage in funding base (-16% QoQ). - Nonetheless, gains from tamer funding costs were offset by developments on opex and provisioning. On the former, opex rose 6% QoQ to
N19.3 billion, pushing CIR 2pps QoQ (+3pps YoY) to a four quarter peak of 71%. Similar to marked trend of rising impairment charge across coverage banks in Q2 15, provisioning more than doubled QoQ toN3.6 billion driving 50bps QoQ increase in cost of risk to 1.6%. - Largely reflecting the jump in impairments and elevated opex, PBT and PAT both declined 29% QoQ to
N4.5 billion andN3.6 billion respectively. Correspondingly, PBT and PAT margins are 5pps and 4pps lower QoQ at 10% and 8% respectively. YoY, PBT and PAT margins are 300bps and 200bps lower respectively.
Asset quality concerns and capital raising remain central to outlook
- As with the rest of the sector, the weak economic landscape should induce caution towards loan origination over H2 15 which together with NIR weakness speaks to softer top-line outlook. In addition, renewed weakness in oil price and CBN administrative measures on FX should test asset quality raising scope for further uptick in provisioning. Overlaying these fundamental concerns with Skye’s plan to raise capital (
N50 billion) via a rights issue in Q3 15 and integration problems at Mainstreet acquisition, we see scope moderation to our FVE post revisions to our estimates. Skye currently trades at P/E of 2.2x and P/B of 0.2x which are both at discount to respective peer averages at 4.5x and 0.6x.
SOURCE: ARM RESEARCH
