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Earnings Constrained by Weak Asset Growth
Sterling Bank’s Performance Surrenders to Pressure in Q1:2020 – Sterling Bank’s gross earnings fell considerably by 6.67% YoY to NGN32.92bn in Q1:2020. Interest income which constitutes a major part of gross income (c.87%) declined by 7.77% YoY to NGN28.40bn. For this, we acknowledge the impact of regulatory headwinds on the bank’s core business earnings however, the decline in interest-earning assets (-13.86% YTD to NGN1.21trn) was also a significant downside factor.
Much of the growth in the bank’s balance sheet was sterilized in additional cash reserves with CBN (totalling NGN71.50bn), as result of the hike in Cash Reserve Ratio (CRR), leaving little room for expansion of interest-earning assets. On the flip side, non-interest income inched upwards (+0.89% YoY) to NGN4.52bn.
This was supported by trading gains (+126.21% YoY), due to the higher prices of its debt securities in the secondary market albeit, the downward revision of bank charges led to a decline (-19.24% YoY) in gross fees and commission income to NGN3.95bn. In view of the significant impediments to topline growth viz. regulatory risks, weak asset growth, and COVID-19-induced recessionary pressures, we project a modest (-1.60% YoY) contraction in gross earnings for 2020FY.
Income Losses Overshadow Cost Gains
Cost of funds declined to 5.10% (vs. 6.60% in Q1:2019), owing to the bank’s growing preference for cheaper funding – CASA mix improved to 64.00% (vs. 60.00% in Q1:2019). The lower funding costs, however, did not translate to an expansion in net interest margin as the fall in asset yield (from 14.40% in Q1:2019 to 12.90%) eroded all gains. Hence, net interest margin contracted to 7.70% (vs. 7.80% in Q1:2019).
Furthermore, the spike (+41.04% YoY) in impairment charges to NGN1.19bn increased pressure on bottom-line performance. It should, however, be noted that higher impairment charges have been observed across the industry in Q1:2020, due to a worsening in the country’s macroeconomic conditions. Operating cost inefficiency remains a major drag on the bank’s performance, as operating expenses (OPEX) advanced further by 8.29% YoY, while Cost-to income ratio also ticked up to 82.90%, from 78.80% in Q1:2019.
Consequently, both Profit Before Tax (PBT) and Profit after tax (PAT) fell by 32.20% YoY and 36.27% YoY to NGN2.22bn and NGN2.07bn, respectively. Going forward, we expect its reduced funding cost and a slightly lower OPEX growth (due to the impact of COVID-19) to offset the impact of depressed earnings and higher impairment charges, which should keep bottom line afloat.
CRR Debits Threaten Liquidity Position
As indicated earlier, the higher CRR debits (NGN71.50bn) incurred during the period significantly raised its effective CRR to 21.55% (from 13.68% in 2019FY) and drove net operating cash flows for the period deep into negative territory (- NGN62.88bn). Consequently, its liquidity ratio fell to 32.10% (vs. 39.50% in 2019FY), marginally above the regulatory benchmark (30%). We view the further decline in the bank’s non-performing loan ratio to 2.00% (from. 2.20% in 2019FY), as a welcome development given the weak economic backdrop. All other prudential ratios stayed above regulatory benchmarks.
Recommendation
We maintain our muted outlook for the bank in 2020FY in view of the anticipated consequences of COVID-19 on the general economy. Its lower earning asset base, tight liquidity position and high operating cost profile do not offer any competitive advantages. Thus, we revise our target P/E for the bank to 4.58x (prev. 4.71x) and its expected EPS to NGN0.36 (prev. NGN0.39). This yields a Target Price of NGN1.65, indicating an upside potential of 28.81%. Thus, we rate the ticker a BUY.
Meristem Securities
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LAVITA TRUST Investment is a company duely registered under the Coporate Affairs Commission of Nigeria and certified fraud free to do business in Nigeria by the Economic Financial Crimes Commission (EFCC). This is a Nigerian network marketing company founded by Ifeanyi Alex Monye with it’s Head Quarter’s. The company takes pride in the fact that it stands out amongst other network marketing companies. It has the best compensation plan, affordable and effective services, systems that keeps her customers coming back for more. When you join this company, you get more than their outstanding services.
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INTRODUCTION
Lavita Ricca International is a company duely registered under the Coporate Affairs Commission of Nigeria and certified fraud free to do business in Nigeria by the Economic Financial Crimes Commission (EFCC). This is a Nigerian network marketing company founded by Mr. Ifeanyi Alex Monye with it’s Head Quarter’s. The company takes pride in the fact that it stands out amongst other network marketing companies. It has the best compensation plan, affordable and effective services, systems that keeps her customers coming back for more. When you join this company, you get more than their outstanding services.
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Note:you get credited in less than 45mins.
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Have you had about *LAVITA RICCA INVESTMENT* ? am not talking about MMM or Ponzi SCHEME
lavita is a matrix system which give you DOUBLE of your CAPITAL back in (45 min) after registration
LAVITA PACKAGES
₦10,000——–₦20,000❌❌❌
₦20,000——–₦40,000
₦40,000——–₦80,000
₦50,000——–₦100,000
₦100,000——₦200,000
₦200,000——₦400,000
₦400,000——₦800,000
₦800,000——₦1,600,000
₦1,000,000—₦2,000,000
NOTE: we credit your account after 45min after registeration.
INTRODUCTION
Lavita Ricca International is a company duely registered under the Coporate Affairs Commission of Nigeria and certified fraud free to do business in Nigeria by the Economic Financial Crimes Commission (EFCC). This is a Nigerian network marketing company founded by Mr. Ifeanyi Alex Monye with it’s Head Quarter’s. The company takes pride in the fact that it stands out amongst other network marketing companies. It has the best compensation plan, affordable and effective services, systems that keeps her customers coming back for more. When you join this company, you get more than their outstanding services.
CONTACT NAME:- ELIZABETH TINA
HOT LINE:+2349036369810
ITS SIMPLE HERE !!!!!!!
We trade with hard currency here like bit coin we make 3tripple of your donation and send you you two part and we benefit one part Example if you invest with 20k within 45mins we make profit of 60k then send 40k to you then profit 20k. This is not mmm where they merge people to donate for each other
You pay directly to us and we credit you directly.
+2349036369810
Note:you get credited in less than 45mins.
CHAT US-UP IF INTEREST FILL YOUR FORM AND START EARNING
NOTE: You can finish reading this and decide not to take the necessary actions, but the next time you want to complain about not having money, just know that you are on your own problem. 🙏 🙏 🙏
GOOD DAY SIR/MA
HAVE YOU HELD ABOUT LAVITA TRUST INVESTMENT…?
LAVITA TRUST INVESTMENT is a matrix system which give you DOUBLE of your CAPITAL back in ( 45 Minutes ) after Registrations
LAVITA PACKAGES
N20,000——N40,000
N40,000——N80,000
N50,000——N100,000
N100,000—–N200,000
N150,000—–N350,000
N300,000—–N600,000
N200,000—–N400,000
N400,000—–N800,000
N500,000—–N1,000,000
NOTE: we credit your account after 45mins of Your Registeration
INTRODUCTION
LAVITA TRUST Investment is a company duely registered under the Coporate Affairs Commission of Nigeria and certified fraud free to do business in Nigeria by the Economic Financial Crimes Commission (EFCC). This is a Nigerian network marketing company founded by Ifeanyi Alex Monye with it’s Head Quarter’s. The company takes pride in the fact that it stands out amongst other network marketing companies. It has the best compensation plan, affordable and effective services, systems that keeps her customers coming back for more. When you join this company, you get more than their outstanding services.
09068834101
ITS SIMPLE HERE!!!!!!!
We trade with hard currency here like bit coin we make 3tripple of your donation and send you you two part and we benefit one part Example if you invest with 100k within 25mins we make profit of 300k then send 200k to you then profit 100k This is not mmm where they merge people to donate for each other
You pay directly to us and we credit you directly
Contact Mrs. FUMI BLESSING
09068834101
NOTE:- YOU GET CREDITED BACK IN LESS THAN 45 MINUTES.
CHAT US-UP IF INTEREST FILL YOUR FORM AND START EARNING
NOTE: You can finish reading this and decide not to take the necessary actions, but the next time you want to complain about not having money, just know that you are on your own problem.