8 August 2018

Nigeria: Sterling Bank Sustains Growth Momentum

Goddy Egene writes that the 63 per cent rise recorded by Sterling Bank Plc in the half year ended June 30, 2018 shows that various strategies put in place by the bank has started paying off

Most banks are cautious in creating risk assets due to the high impairment charges they recorded in recent years. The challenging operating business environment made most companies to default in repayment of loans, a situation that forced banks to reduce their level of lending.

However, some financial institutions are gradually raising the level of support for the economy by increasing lending once more.

One of such is Sterling Bank Plc which increased its loans and advances to N628 billion for the half year ended June 30, 2018, up from N598 billion in 2017.

The bank's credit impairment charges fell from N4.081 billion to N1.844 billion, which is a sign of good risk management strategy.

At the end of H1, Sterling Bank Plc recorded significant growth in bottom-line, thereby raising the prospects of higher dividend payment at the end of the year.

Financial Performance

Sterling Bank Plc posted gross earnings of N77.637 billion in 2018, compared with N52.101 billion in 2017. Net interest income stood at N25.547 billion, as against N27.018 billion, while impairment for credit loss declined from N4.081 billion to N1.884 billion.

As a result, profit before tax (PBT) improved 46 per cent from N4.334 billion to N6.363 billion, while profit after tax (PAT) grew faster by 63 per cent to N6.214 billion, from N3.802 billion. More customers are fining the brand appealing, hence a growth in deposits from N684 billion to N690.5 billion.

Commenting on the result, Chief Executive Officer, Sterling Bank Plc, Mr. Abubakar Suleiman said, "We sustained our momentum in the second quarter, delivering solid growth across key financial indices. We also achieved a 35.9 per cent growth in gross earnings to N77.6 billion from N57.1 billion in the second quarter of 2017.

"This was largely driven by a 25.1 per cent growth in interest income and a 56.5 per cent growth in transaction banking revenues, emphasising our commitment to our retail drive."

Suleiman explained that net operating income was up 29.1 per cent, on the back of a 54.8 percent reduction in impairment charges.

"Sterling Bank experienced significant improvement in asset quality as cost of risk declined further by 86 basis points to 0.8 per cent from 1.6 per cent in June 2017, reflecting the strength of our risk management framework.

"Overall, PAT by 64.8 per cent to N6.2 billion resulting in a 370-basis point increase in Return on Average Equity to 12.2 per cent."

On the prospect of the bank for the second half(H2) of the year, Suleiman said Sterling Bank would continue to explore and exploit opportunities already identified across the growth sectors of the economy while actively supporting special intervention and social investment programmes.

Growth strategies

During the review period, the bank launched disruptive market offerings that include Farepay, Specta, and Sterling One Pay. The most recent innovation, One Pay, is an upgrade of the bank's mobile and internet banking solution in line with its digitisation drive and the promise to continuously innovate to meet customers' evolving needs.

One Pay is designed to create an omni-channel experience for users by integrating both web-based Internet and mobile banking solutions.

In addition, the bank's commitment to partnerships also resulted in the deployment of I-invest, a first-of-its-kind investment app that allows for retail customers instant access to treasury bills. I-invest eliminates entry barriers such as lack of education and information to make smart investment decisions and the ability to get a broker and/or time required to visit banks to fill forms for treasury bills.

According to the Chief Marketing Officer of Sterling Bank, Mr. Dapo Martins said the mobile application would provide customer with a secure, fast and convenient way to access investment opportunities hitherto reserved for the elite.

The new application will also provide customers access an array of treasury bill investments to enable them to match their investment maturities with their needs.

Some of the advantages of the application include save time for the customer instead of chasing his account officer around or waiting in the bank. Also, any other bank customers can access the offerings through the application.

For a potential customer to register, he needs to have a BVN number, valid phone number, utility bill, valid means of identification such as driver's license or national identity card or international passport.

The registration process takes less than five minutes to conclude but the potential customer needs to take a picture with his smart phone and upload it.

"A customer can either fund his account with a debit card or pay at any branch of a bank and his account will be funded real time. Also, a customer can top up directly from his mobile banking platform.

"If a customer wants to invest, he will select from the list of available securities, enter the amount to invest and confirm the transaction. The minimum amount one can invest is N100, 000. Interest accrues daily, while the investment amount and interest will be credited to the customer's account on maturity.

"Similarly, if a customer wants to withdraw, he will supply his bank details, enter the amount he wants to withdraw, supply the secret answer to his secret question but needs to update his KYC profile," he said.

On the security of the investment in case the phone of the customer is stolen or lost, the bank said I-Invest application installed on a phone is secured and the money is safe.

It also launched a Rent-A-Month Scheme, which creates an opportunity for prospective and existing tenants in well-structured paid employment and self-employed professionals to access rent finance and pay on a monthly basis over a maximum period of two years.

"Rent in Lagos is always paid in advance, either for one year (in the case of sitting tenants) or two years (for new tenants). For some tenants, it is difficult to raise the rent amount when it falls due.

"The Rent-A-Month scheme enables eligible individuals solve their rent problem by taking a facility for the tenor of the rent, which they can then repay on a monthly basis, thus making payment of house rents convenient and affordable," Abubakar said.

Explaining further, the Group Head, Consumer Lending of the bank, Kike Kuponiyi, said the product was introduced in conjunction with RSL Derivatives Global Services Limited, a risk financial consulting firm which ensures the availability of these facilities to eligible customers, while indemnifying the bank against the risk of default.

RSL Derivatives, she said, is also expected to pre-qualify interested customers using agreed standards, to ensure that all recommended customers meet the bank's credit risk criteria.

She stressed that credit relating to the product is processed swiftly and allows quick approval on receipt of full documentation; with convenient and flexible repayment pattern as well as concessionary pricing.

Also, the loan is structured in a way that the repayment does not exceed 33 per cent of the borrower's income at all times.

Kuponiyi, explained further that the bank which started the product in Lagos, plans to extend it to other markets in the future. According to her, the bank will charge an interest rate that is in tandem with the borrower's risk level, adding that such rates will always be competitive.

The Managing Director, RSL Derivatives, Lekan Abiola said the product was developed based on customers' needs. He said the Nigerian housing market needs liquidity and the introduction of Rent-a-Month scheme is expected to provide such succour for the market. He said the product also provides incentives in form of cash-back for the borrower that does not default, which will also stimulate the mortgage market.

Fitch Affirms rating

Meanwhile, Fitch Ratings has assigned a B- and stable outlook to Sterling Bank Plc in its latest ratings. According to the global rating agency, Sterling Bank's Issuer Default Ratings were driven by its standalone creditworthiness as defined by its viability rating.

The rating agency noted that the lender's viability rating was constrained by challenging operating conditions in Nigeria, its modest franchise, developing business model and higher risk appetite than its peers.

Fitch also noted that positively the bank has successfully attracted more stable retail deposits, including strong growth in 'non-interest-bearing' deposits (albeit from a low base), adding that with the rollout of the new strategy and franchise development, they expect any weaknesses in the customer deposit base to be resolved over time.

"In addition to higher retained earnings and by repositioning its balance sheet, the bank is expected to raise subordinated debt in the domestic market (which counts towards Tier 2 regulatory capital) to improve capital buffers," Fitch Ratings noted.

The global rating agency, however, observed that these factors were counterbalanced by Sterling Bank's coherent strategy, especially its business transformation initiatives and strong management team; noting that bank's financial profile is characterised by high credit concentrations, variable earnings and profitability, modest capital buffers based on its risk profile and its funding and liquidity profile.

The analysts were of the opinion that while Sterling Bank's impaired loans ratio and NPL ratio were below sector averages, they believed that its asset quality remained highly sensitive to loan concentrations by industry and obligor, remarking that it was addressing funding and liquidity risks by raising market funding, demonstrating good access to borrowed funds and debt securities issuance.

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