STERLNBANK: Higher finance cost and impairment charge weaken profitability in Q3'15


Thursday 12 November, 2015, 05:46PM /DLM Research

Sterling Bank Plc recently released its results to September 2015. The unaudited 9M2015 results show an increase in gross earnings to N81.81billion, up by 12.02% compared with N73.03billion recorded in the corresponding period of 2014.

Interest income grew by 11.59% to N61.29billion from N54.93billion in 9M2014 whilst non-interest income rose to N20.52billion from N18.11billion in 9M2014.

The significant increase in interest income was driven by increased financial intermediation activities seen in the rise in income generated from loans and advances to N45.26billion from N39.63billion in 9M2014.

In addition, the 7.49% growth in ‘fees and commission income’ supported the rise in non-interest income. Overall, the contribution of interest income to gross earnings declined marginally to 74.92% during the review period from 75.21% in 9M2014 with the contribution from non-interest income rising to 25.08% from 24.97%.

Net interest income declined on higher interest expense. Interest expense increased significantly to N31.12billion from N24.53billion in 9M2014 thereby erasing the gains of the rise in interest income. We believe this was driven by the higher cost of funds to 6.20% during the period arising from tighter system liquidity.

Consequently, net interest income declined slightly to N30.17billion from N30.39billion. However, net interest margin improved marginally to 9.48% from 9.35% in 9M2014.

Net operating income rose marginally by 0.96% to N45.45billion dampened by the significant rise in impairment charge. Operating income rose by 4.51% to N50.69billion in 9M2015 – which was weak compared to the 21.37% growth seen in 9M2014.

Also, the 50.45% increase in impairment charge further impacted on net operating income which declined to N45.45billion from N45.02billion in 9M2014. We are inclined to highlight the slowdown in net operating income growth on a y/y basis to 4.19% in 9M2015 down from 26.27% and 28.35% in 9M2013 and 9M2014 respectively.

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