TheCable

Stanbic IBTC Bank has run a three-year growth marathon from 2012 to 2014 but the current financial year looks very much like one of cooling down the bank’s high growth engines. With a net profit of more than N32 billion at the end of 2014, the bank has accomplished one of the longest upward journeys in the banking sector in the past three years from its profit mark of N5.67 billion at the end of 2011. The bullish bank is however headed for a correction this year that is likely to return its profit to the 2013 level.

The bank’s operations as at the end of the second quarter show major cost overruns against moderately improving revenue. The development has increased the cost-income ratio and lowered profit margin significantly. This has changed the performance outlook for the bank for this year, indicating a drastic slowdown in revenue growth and a possible drop in profit.

Gross income amounted to N68.29 billion for Stanbic IBTC Bank at the end of its second quarter operations in June 2015. This represents an increase of 11% year-on-year with interest income leading the growth with 23%. Non-interest income declined during the period. Based on the performance in the first half of the year, full year revenue is projected at N140 billion for Stanbic IBTC Bank at the end of 2015. That would be a significantly decelerated growth of 7.2% compared to a growth of 17.4% in 2014.

The revenue weakness is compounded by soaring cost, which has undermined profit capacity for the current year. The bank ended second quarter trading with an after tax profit of N9.69 billion, which is a drop of 40% year-on-year. The full year outlook indicates after tax profit in the region of N21 billion –about the same profit it reported in 2013. This indicates a full year profit drop of 34.5% for Stanbic IBTC Bank in 2015. The bank had lifted profit by 54.4% in the preceding year.

Two major cost elements are driving the rising cost and falling profit developments that are happening this year. These are interest expenses and impairment charges for credit losses. Interest cost advanced by 78% to N19.58 billion during the review period. This is against the increases of 11% in gross earnings and 23% in interest income. Interest expenses therefore claimed 46.9% of interest income in June 2015 against 32.4% in the same period last year.

Impairment charges had a far greater adverse impact on the income statement than interest expenses. The charges soared by 449% to N7.90 billion at the end of the second quarter, which is already more than twice the charges the bank made in the whole of 2015 financial year. Credit impairment charges claimed 18.9% of interest income, rising from 4.2% in the same period last year.

The outcome of the unfavourable cost-income relationship this year is a drop in profit margin. Net profit margin is down from 26.2% in the second quarter of last year to 14.2% this year. It closed last year with a net profit margin of 24.5%. A sharp slowdown in revenue growth and a big drop in profit margin are therefore the two critical factors that have changed the earnings outlook of Stanbic IBTC Bank this year.

Earnings per share came to 80 kobo per share, a drop from N1.48 in the same period last year. The bank is expected to earn N1.92 per share at full year compared to N2.93 in 2014. It has announced an interim cash dividend of 90 kobo per share, closing on 31^st July to be paid on 6th August, 2015.

Major changes in the balance sheet from the closing figures last year include a leap of 158% in loans and advances to banks at N22.71 billion and a 22% growth in customer deposits to N601.73 billion. The bank’s asset base has crossed into the trillion naira landmark at N1.033 trillion at the end of June.