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Monday, September 7, 2020/ 03:00PM/ by TheAnalyst /Image Credit: Ecographics
StanbicIBTC
Bank Plc pushed against harsh COVID-19-induced economic headwinds to present a sterling H1
2020 financial performance despite the clear weakness of the underlying local
economy. The bank's top-line and bottom-line earnings were unaffected by the
otherwise gloomy GDP growth rate of -6.10% in Q2
as against its marginal growth of +1.87% in
Q1 2020. The bank recorded significant improvement in its profit before tax,
gross earnings, and cost-to-income ratio (CIR).
Highlights
Bottom line and Top Line Record Stellar Performance
Despite the adverse effect of the
coronavirus on the domestic economy, Stanbic IBTC
bank recorded improvements both in its gross earnings and profit before tax
(PBT)s. Its gross earnings increased by +7.84% while its profit before tax rose +17.38%. The rise in profit before tax was largely driven by
the increase in non-interest revenue i.e. there was an increase in fee and
commission revenue received. Non-interest revenue increased by +27.1% in H1 2020. Non-interest revenue increased from
N54.85bn in H1 2019 to N69.8bn in H1 2020.
Gross Earnings
Its gross earnings increased by +7.84% in H1 2020. Its gross earnings increased from N117.4bn
in H1 2019 to N126.6bn in H1 2020 (see Chart 1).
Chart 1: Gross EarningsH1 2016 - H1 2020 (N'bn)
Source: Proshare
Research, NSE
Profit Before Tax
Stanbic IBTC
bank recorded a significant rise in its profit before tax by +17.38% in H1 2020. Its profit increased from N44.65bn in H1
2019 to N52.41bn in H1 2020 (see Chart 2).
Chart 2: Profit Before Tax H1 2016 - H1 2020 (N'bn)
Source: Proshare
Research, NSE
Slicing Costs -Reimagining for the New Normal
Cost-to-income Ratio
Stanbic IBTC
Bank cost-to-income ratio improved to 45.2% in H1 2020 from 53.2% in H1 2019. Its operating expenses declined by 3%
year-on-year. Staff cost was flat year-on-year due to lower long-term
incentives. While other operating expenses declined by 5% due to savings in
premises and communication expenses (see Chart 3).
Chart 3: Cost-to-income Ratio H1 2016 -H1 2020
Source: Proshare
Research, NSE
Loans and Advances - Making Customers Smile
Given several virus-related business
challenges particularly, production, distribution, and supply chain
disruptions, it was expected that banks would become hawkishly conservative
with their loan books and clawback lending, but Stanbic IBTC thought
differently, as its loans to customers for H1 2020 rose by +26.10%. It rose to N573.9bn in H1 2020 from N455.1bn in H1
2019 (see Chart 4).
Chart 4: Loans and advances H1 2016 - H1 2020
Source: Proshare
Research, NSE
Stanbic IBTC
Bank loans and advances as of H1 2020 stood at N573.9bn from N455.1bn in H1
2019.
Customers Deposits - Flight to Safety
Defying expectations of a decline in
customer deposits, its customer's deposit as of H1 2020 stood at N769.3bn as
against N693.5bn in H1 2019. During a crisis, the volume of bank transactions
and activities often dip, bank customers tend to hold more cash and spend more
on purchasing essential items rather than saving. The behavioural actions of
economic agents represent what has been called a "flight to safety" (see Chart 5).
Chart 5: Customers Deposit H1 2016 - H1 2020 (N'bn)
Source: Proshare
Research, NSE
Stanbic IBTC Impairment Losses-Fixing the Loan Book
The former merchant bank recorded a
significant rise in its impairment losses as a result of business disruptions
and revenue losses that came about as a result of the coronavirus pandemic in
Q1 and Q2 2020. Stanbic IBTC
impairment loss skipped from N560m in H1 2019 to N6.4bn in H1 2020. A plausible reason for the rise in impairment costs could be the
increase in provisions by the bank to mitigate future losses that may arise as
a result of an inability to recover some loans due to business disruptions
caused by the coronavirus (in compliance with IFRS9 rules) (see
Chart 6).
Chart 6: Impairment Losses H1 2016 - H1 2020
Source: Proshare
Research, NSE
Globally banks have seen their earnings
and profits squashed in H1 2020, a trend that has been ascribed to production
disruptions and supply chain pullbacks. To make matters worse lockdowns have
meant a pummelling of consumer spending resulting in a major drop in retail
activities. Nevertheless, Nigerian banks in the half-year appear to have dodged
this particular bullet as many of them have held profits up (or seen profits
decline marginally) as the real sector gasped for breath.
Editor's Note
In deconstructing
the logic and economic implications of Nigerian bank performance in H1 2020,
Proshare will soon be releasing a comprehensive report on the half-year
performance of Nigeria's banking industry titled "Bank's in H1 2020; Imagining
Beyond COVID-19", explaining how Nigerian banks have bucked the global
trend of massive drops in top-line and bottom-line earnings of banking
institutions despite an implosion of the local manufacturing and trade sectors.
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