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Takeaways from Stanbic IBTC Bank H1 2020 Investors' Conference Call

Stock & Analyst Updates	2100 VIEWS
Stock & Analyst Updates
2100 VIEWS

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

Gross Earnings grew by +7.84% to N126.6bn.
The cost-to-income ratio declined to 45.2%.
Profit Before Tax grew by +17.38% to N52.41bn.
Loan and advances rose by +26.10% to N573.9bn.
Customers Deposits increased by +10.93% in H1 2020 to N769.3.
Return on Equity declined slightly to 28.3% from 28.5% in H1 2019.

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)

Proshare Nigeria Pvt. Ltd.

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

Proshare Nigeria Pvt. Ltd.

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

Proshare Nigeria Pvt. Ltd.

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)

Proshare Nigeria Pvt. Ltd.

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

Proshare Nigeria Pvt. Ltd.

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.