Sterling Bank Plc is facing another year of rising credit losses after it saw the biggest swelling of loan losses in four years in 2020. Loan impairment expenses rose by nearly one-half year-on-year to N1.7 billion at the end of the first quarter in March 2021.
The bank’s management was however able to counter the impact of the loan losses on the bottom line with cost savings from two angles. It cut interest expenses by 15.6 per cent to less than N11 billion and also reduced total operating cost by 4.5 per cent to N15.8 billion.
Another challenge for the bank is that interest income is going down for the second year. A drop of 11 per cent was recorded in interest earnings in the first quarter to close at N25 billion. Interest expenses aren’t going down fast enough to counter the drop in interest earnings.
The bank, therefore, suffered a drop in net interest income, which declined by 7 per cent to N14.3 billion at the end of the first quarter. This is further to a decline of 4 per cent in net interest income at the end of last year.
Non-interest income presents a strong front in revenue performance and this is happening for the bank for the second year. Non-interest earnings rose by 27 per cent to N5.7 billion, which improved operating income marginally to N20 billion over the review period.
The strong growth in loan loss expenses however consumed the gains in non-interest income, Net operating income, therefore, declined by 2.4 per cent to N18.3 billion at the end of the first quarter.
The bank closed the first quarter trading with a modest profit improvement, which was made possible by the decline in total operating expenses. After-tax profit amounted to N2.4 billion for Sterling Bank for the first quarter, edging up from N2 billion in the same period in 2020.
Last year, the bank reduced its customer lending for the second year but it has begun to grow loans and advances once again. An increase of 6 per cent on customer credit was recorded in the first quarter, closing with net customer loans of over N632 billion.
Despite the increased lending, interest earnings dropped while credit loss expenses grew over the period. The growth in non-interest income was insufficient to make up for the drop in interest earnings. This led to a drop of 4.5 per cent in gross earnings to close at N32.4 billion in the first quarter.
Gross income is going down for the third straight year for Sterling Bank after a drop of 7 per cent to close at a three-year low of N143.5 billion in 2020. Against the drop in revenue last year, net credit loss expense on financial assets grew by 31 per cent to N7.9 billion in the year.
This was the most critical factor in the bank’s earnings story for the year. It claimed cost saving realised from a drop in interest expenses and a strong growth in non-interest income, resulting in the lowest profit improvement for the bank in four years.
Sterling Bank closed the first quarter operations with a balance sheet size of roughly N1.4 trillion, which is an increase of over 7 per cent from the 2020 closing figure. Its key assets are customer loans and advances of N632.5 billion, cash and bank balances of over N318 billion and investment securities of N264 billion.
The bank’s assets are built on customer deposits of over N1 trillion or 75 per cent of total assets. This is supported by borrowings of N146 billion and equity capital of less than N132 billion or a little over 9 per cent of the size of the balance sheet.
The bank closed the first quarter with earnings per share of 8 kobo, a slight improvement from 7 kobo per share in the same period last year. It closed 2020 financial with earnings per share of 39 kobo and gave out a cash dividend of 5 kobo per share to shareholders.
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