Stanbic IBTC 2021FY: Soaring LDR, 44.4% Loan Growth, NPL Ratio Down 47.5%

In this analysis, Investdata Research reviews the performance ratios of Stanbic IBTC Bank Plc, one of two commercial banks operating in Nigeria that is neither classified into the first-tier (First Bank of Nigeria, UBA Plc, Guaranty Trust Bank, Access Bank, and Zenith Bank), nor second-tier banks, considering its recently released unaudited financial reports for 2021.

On Friday, January 28, 2022, Stanbic IBTC published its unaudited financials for the full-year ended December 31, 2021, ahead of the 30-day deadline for filing quarterly reports and unaudited accounts given by the Nigerian Exchange Limited for quoted companies. Among others, the result confirmed the mixed performance of quarterly recovery and earnings decline on yearly basis, and sustained risk management efforts. This was demonstrated by the management’s ability to contain impairment charges over the period under review, notwithstanding the decline on top and bottom lines.

It is noteworthy that the bank was able to maintain assets of high quality, and a robust balance sheet that would support its recovery in the new finanical year as indicated in the Q4 performance in the midst of the challenging operating environment.

Significant also in the scorecard for the period is the 31.5% decline in earnings on the back of a 29.7% drop in Non-Interest Revenue (NIR) that was driven by a 74.5% slump in fixed income and currency trading gains.

We also note the impact of a 12.8% growth in operating expenses, which when combined with the 14.0% weakness in operating income, resulted in a 14.8% expansion in Cost-to-income ratio at 62.1%.

Impressively, however, the bank recorded a net impairment write-back of N1.2 billion, compared to a loan losses of N9.9 billion reported in the 2020 full-year, which becomes even more significant, considering the 44.4% increase in gross loans. This, therefore, signals an improvement in asset quality, just as NPL ratio also moderated significantly to 2.1% from 4.0% in full-year 2020. Overall, full-year 2021 Return on Equity (ROE) and Return on Assets (ROA) fell to 15.12%, from  21.98% recorded in 2020; and 2.07%, compared to the 3.34% posted in the previous year, as shown in the table below. Our analysis suggests that these ratios are the bank’s lowest numbers in the recent years.

Our quarter –on-quarter analysis revealed Stanbic IBTC’s overwhelming reliance on capital markets operations may have led its material exposure to unfavourable macro-economic changes that reflected on the 56% decline in earnings from the Wholesale Clients’ segment at N38.3 billion. The Business & Commercial clients segment, as well as the Consumer & High Net worth Clients’ segment reported earnings of N6.9 billion, an improvement over the loss of N2.4 billion reported in 2020; and N20.1 billion profit that represented 16.2% rise from the 2020 position.

On a positive note, the management has guided that it is reducing its reliance on the volatile parts of the business and focusing on initiatives capable of supporting earnings resilience and sustainable ROE. Consequently, we note the recently onboarded life insurance business (gross premium written in Q4 alone accounted for 50.0% of FY’21 gross premium written), indicating growth opportunities for the business, and the latest announcement of plans to establish a fully-owned FinTech subsidiary. While we expect the ROE impact of these measures to be minimal in the short-term, we believe they portend accretive opportunities over the mid-to-long-term. Elsewhere, we like the fact that the bank’s regulatory capital ratios are sufficiently above BASEL III requirements (including respective buffers). Specifically, CET 1, Tier 1 and Total capital ratios came in at 14.6%, 14.6% and 16.0% compared to regulatory minimums of 7.0%, 7.5% and 10.0%. We also note the leverage ratio of 7.4%, which is above the regulatory minimum of 4.0%.

Source: NSE, Company Report and Investdata Research

The bank’s assets quality remained high, as Assets-to-Equity ratio of 7.3x is low, allowance for bad loans is stable, since it has a sufficient allowance for bad loans at 123%. Its loans-to-assets ratio of 34% is healthy for the bank, looking at the low risk deposits, when considering the 60.07% Loans-to-Deposits ratio as at end of 2021 is not bad at all.

On the shareholding structure of the bank and the relatively low outstanding number of shares that had supported its high Earnings Per Share and pay-outs. The bank’s dividend pay-outs have moved over the past 10 years, despite oscillating for the same period with high pay-out ratios of 97.3%, as the holding company moves to drive income and expansion generating sources. This reflected in the Q4 2021 performance, if that recovery is sustained in 2022. So, we recommend a Buy for short and long term investment.

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