Sterling Bank Plc has cut down non-performing loans by almost two-thirds this year as increasingly efficient credit risk management, aggressive retail banking drive, operating cost efficiency and strategic focus on growth sectors of the economy strengthened the overall resilience of the commercial bank to global and macroeconomic disruptions.
Key extracts of the interim report and accounts of Sterling Bank for the nine-month period ended September 30, 2020 showed non-performing loan (NPL) ratio of 2.9 per cent in third quarter 2020 compared with 7.4 per cent recorded in third quarter 2019. Actual NPL, which stood at N48.8 billion in third quarter 2019, dropped from N55 billion recorded at the beginning of 2020 to N18.5 billion by September 2020. With growing retail banking franchise driving low-cost deposits, cost of fund declined by 120 basis points to 5.1 per cent while net interest margin improved to 8.0 per cent in third quarter 2020.
Management’s focus on cost efficiency dropped operating expenses by 3.3 per cent, despite uncontrollable increases such as in fees related to the Asset Management Corporation of Nigeria (AMCON) and deposit insurance. Current and savings (CASA) deposits rose by 26 per cent, supporting total customer deposits to N951.8 billion by September 2020. Thus, cost-to-income ratio (CIR) improved to 73.4 per cent by third quarter 2020 while the liquidity position of the bank expanded further with capital adequacy ratio (CAR) of 16.11 per cent by September 2020.
The bank reported a trading income of N7.1 billion for the third quarter 2020 compared with N1.9 billion for the corresponding period of 2019, representing an increase of 264.7 per cent. Gross earnings stood at N106.07 billion in 20202 as against N109.66 billion in 2019. Net interest income rose by 3.5 per cent from N47.53 billion in third quarter 2019 to N49.21 billion in third quarter 2020. Pre-tax profit rose to N8.02 billion in third quarter 2020 as against N7.65 billion recorded in comparable period of 2019. After taxes, net profit closed third quarter 2020 at N7.37 billion as against N7.58 billion in third quarter 2019.
Total assets rose by 10.3 per cent to N1.30 trillion by September 2020 compared with N1.18 trillion recorded by December 2019. Shareholders’ funds also increased by 6.4 per cent from N119.6 billion in December 2019 to N127.2 billion in September 2020.
The third quarter performance came on the background of prevailing uncertainties that characterised the macro-economic environment in the wake of the outbreak of the COVID-19 pandemic and the attendant fiscal reforms by the Federal Government.
Managing Director, Sterling Bank Plc, Mr. Abubakar Suleiman explained that a 26.2 per cent dip in fee income occasioned by the downward review of electronic banking fees, and slower loan origination due to the protracted lock down was moderated by the 264.7 per cent spike in trading income.
He noted that the growth in balance sheet was driven by a 26.5 per cent growth in low cost funds, which saw the bank’s CASA mix improve to 71 per cent from 60 per cent, delivering a 6.6 per cent growth in customer deposits.
regulatory reserves while interest income also declined by 6.7 per cent, which was offset by a 17.0 per cent decline in interest expense. This delivered a 120 basis points drop in cost of funds and, consequently, a 100 basis points increase in net interest margin.
He pointed out that the bank was able to maintain a strong capital and liquidity position of 16.1 per cent and 32.5 per cent respectively above regulatory benchmark.
He said the overall performance in third quarter 2020 continued to reflect positive results of the bank’s strategic decisions and investments in focus areas as it continued to record significant improvement in both funding and operational costs.
According to him, with economic activity picking up in the third quarter, following the gradual ease in the nationwide lockdown, the bank had continued to leverage on its existing remote work policy to enhance workforce productivity while ensuring uninterrupted service delivery to both existing and new customers.
Growth and diversification
Sterling Bank’s growth outlook is anchored on long-term sustainable partnership in identified major growth sectors of the Nigerian economy. The sectors- Health, Education, Agriculture, Renewable Energy and Transportation, formed the nucleus of the bank’s HEART strategy, win-win value-based strategy that focuses on long-term value creation through investments and financial supports in sectors considered as critical to the well-being of Nigerians and Nigerian economy.
Sterling Bank has also commenced the process to obtain final approval to transit to a holding company structure, after the Central Bank of Nigeria (CBN) granted approval-in-principle for the restructuring. A group structure, as against the current standalone commercial banking structure, will allow the bank to grow its burgeoning alternative finance market and take advantage of emerging opportunities in ancillary financial services, fin-tech and the capital market. The holdco structure may herald the return of its strong capital market brand, one of the flagships of the then investment banking space. Sterling Bank had divested from its non-bank subsidiaries in line with the banking regime which requires banks with non-bank subsidiaries to either divest from such subsidiaries or adopt holdco structure.
Suleiman said the bank believes that the proposed structure incorporates efficiencies around operations and financing efforts that will support the individual businesses in reaching full potential through increased portfolio diversification and improved efficiency among others. Under this restructuring, the bank plans to spin off its non-interest banking window which became operational in January 2014 into an autonomous entity.
According to him, holdco structure enables the non- interest bank and other non-core businesses to achieve greater results based on focused management of the distinct businesses while there would be improved efficiency resulting from the consolidation of key functions such as compliance, risk management and other support functions, yielding improved prospects for individual business growth.
Besides, the group would also benefit from enhanced corporate governance which serves to promote a consistent culture across the group and quality of service to customers thereby facilitating sustainability of earnings. Holdco structure would also facilitate better access to capital by leveraging the consolidated financial strength of the group which would have been otherwise difficult for each individual subsidiary company.
“Going into the holding company structure, our desire is to entrench our business model premised on social capitalism where we believe that private sector capital and market-based tools will offer the best types of solutions to Nigeria’s most pressing social and environmental challenges. The holding company gives us the structure to explore our business model further,” Suleiman said.
According to him, the holdco was designed to operate on three major premises of specialization, partnership and digitization. While the conventional bank will focus on building skills and using technology to provide solutions in the areas that are critical to development in the country as encapsulated in HEART, the non-interest bank will focus on building partnerships that connect individuals and businesses leveraging technology to create business optimisation while also solving individual’s daily financial needs. The digitisation drive will create an enabling environment for the separate financial institutions to grow while providing services and support to build efficiencies in different ecosystems.
Continuous innovation to meet the changing needs and lifestyles of businesses and individuals is also expected to help deepen the bank’s performance in the years ahead. While consolidating the success of its instant consumer-loan platform, known as Specta, the bank recently launched ‘Switch’, a new solution that facilitates international banking and allied services for Nigerians in the Diaspora.
Switch, a multi-service platform, enables Nigerians resident abroad to enjoy banking and other allied financial services. Approved by the Central Bank of Nigeria (CBN), the funds domiciled in the bank via the ‘Switch’ app are insured by the Nigeria Deposit Insurance Corporation (NDIC). The new product which is a mobile app is available on Android and IOS stores. ‘Switch’ enables processing of everyday banking and financial services such as bills payment, funds transfer, payment requests, investments, asset financing and insurance services, among others, in their preferred currencies.
‘Switch’, in the tradition of people-centred value creation by the bank, was aimed at solving a nagging problem. Over the years, Nigerians in the Diaspora have often had difficulties funding their Nigerian bank accounts using international bank cards due to high charges, and inability to perform seamless online transactions without recourse to the bank or its agents for money exchange, among others.
With ‘Switch’, customers can undertake several seamless transactions including currency swap, access to asset financing diversified investment offerings and protection from mishaps with various insurance packages.
Beside private customers, Sterling Bank has also stepped up its supports for governments across the tiers to ensure realisation of societal well being, a core pillar of the bank’s philosophy. The bank partnered with Kwara State Government to actualise the Kwara State Health Insurance Scheme (KSHIS), which was moribund despite its inauguration three years ago. The scheme is structured to cover three segments: the indigent people who are the poor of the poorest in various communities in the state who will not pay any premium because of their financial predicament, the informal sector comprising people with daily income, but no structured salary who will pay N6,000 per annum and the formal sector which covers structured salary workers in both the public and private sectors that will pay N9,000 per annum.
The bank said its support for KSHIS was in line with the HEART strategy as the health sector has influence on the overall economy.
The bank also recently partnered with Osun State Government and other stakeholders to launch a tourism master plan known as ‘Culture and Tourism for Sustainable Economy’ (CUTOSEC) for Osun State. CUTOSEC is expected to drive implementation of plans that would make Osun Sterling Tourism Vision (OSTOV) 30-30 a reality. The OSTOV 30-30 involves development of 30 projects, including development of sites and programmes across the state into premium tourist destinations by 2030. This will not only enhance the status of Osun as a leading tourism hub but also create several economic opportunities for the citizens of the state.
Sterling Bank stated that the OSTOV 30-30 initiative aligns with its philosophy of enriching lives through financial intermediation in critical areas that create jobs, enable growth and sustains wellbeing in rural and urban areas.
With stronger underlying business fundamentals, diversification, innovation and focus on key sectors and institutions, Sterling Bank’s business model appears sufficiently inured to withstand headwinds and ensure steady growth in the period ahead.