Sterling Bank: The NIB Leverage | Independent Newspapers Limited
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Sterling Bank: The NIB Leverage

Posted: Jun 26, 2015 at 12:33 am   /   by   /   comments (0)

By Andy Nssien,  Lagos


Sterling Bank Plc was shrewd and forthright two years ago when it took advantage of the cavernous non-interest banking (NIB) space to apply for Islamic banking licence which was granted  it by the Central Bank of Nigeria (CBN).

With that development, Sterling Bank, a leading tier 2 bank in the country, emerged the pioneer national commercial bank to fully explore the non-interest banking space as an effective means towards achieving wholesome financial inclusion in the country.



The CBN had earlier opened the banking space for non-interest banking to all deposit money banks operating in the country given its numerous benefits as presently practiced in other economies around the world such as, Asia and Europe as well as other economies traditionally favoured by Muslims requiring banking services that are compliant with the principles of Sharia.



Before the CBN approval, Sterling Bank  had been investing in human and material resources to justify its clamour for this specialized banking service, and when it finally commenced its operation last year, it hit the ground running.

The non-interest banking income gave an accretion  of N66.2 million to the bank’s total revenue in 2014 which shot up by 11 per cent to N77.9 billion when compared with N69.9 billion registered in the previous year.

Profit before tax increased by 15.4 per cent to N10.7 billion from N9.3 billion in 2013, while gross earnings grew by 13.0 per cent  to N103.7 billion from N91.7 billion in 2013. Also, total assets increased by 16.5 per cent from N707.8 billion to N824.5 billion, while customer deposits grew 15.0 per cent to N655.9 billion from N570.5 billion achieved in the previous year..


Loans And Advances

Another aspect  of operation which the bank has made noticeable improvement is in the area of loans and advances. Even so, while some sectors enjoyed improved loan allocation, some others were stifled. For instance, loans and advances to the agriculture sector rose from  N12.4 billion in 2013 to  N16.1 billion; communication  from N10 billion to N12.2 billion;  finance and insurance, from N9.8 billion to N16.6 billion; government from N18.4 billion to N33.9 billion while customers on non-interest banking in a debut operation enjoyed N39.5 million credit. Also in the bank’s good book was the power sector which credit facilities jumped from N8.2 billion to N13.7 billion in 2014. However, some other critical sectors were not so favoured. Total loans and advances to the manufacturing sector was down by 22.6 per cent to N14.7 billion from N19 billion in 2013, just as transportation fell 26.9 per cent to N9.5 billion from N13 billion in the previous year. Hardest hit was other public utilities segment which loans and advances tumbled from N1.8 billion in 2013 to  a paltry N442,000 last year.


Performance Indicators

No doubt, the bank has achieved  measures of success as captured by some performance indicators. For instance, the lender has improved on its market share by asset, which rose from 2.8 per cent in 2013 to 3 per cent last year, while net interest margin was good at 55.2 per cent, up from 51.2 per cent of the previous year.  However, the bank needs to roll up its sleeves in order to halt the dwindling earnings growth which dropped from 33.1  per cent in 2013 to 13 per cent in 2014, just as dividend per share nose-dived  from 25k per share in the previous year to 6k  last year.

Also. the bank should sit up if it has to avoid being in a collision course with the regulator, especially on the issue of non-performing loan ratio. Even as the lender engages in efforts to bolster its risk assets, it should strive to ensure the quality of its loans and advances. Last year, Sterling Bank non-performing loans and advances increased to 3.I per cent from 2.1 per cent recorded in 2013.

Albeit, the bank’s total qualifying capital rose by 25 per cent to N78.4 billion due to a 33 per cent growth in Tier 1 capital arising from the successful completion of a US$120 million private placement with net proceeds of N18.5 billion, there was a 50 per cent reduction

in Tier 2 capital.     This was traceable  to the CBN’s policy guideline which excluded non-distributable regulatory reserve and other reserves in the computation of regulatory capital. In this regard, the bank should rise to the occasion and take steps to strengthen its capital position.



On its part, the bank appears to be suffocating under interest payments arising from facilities it obtained from other banks and international institutions over the past years which shot up to N45 billion from N38.7 billion in the previous year.

One of such debts arose from the Naira equivalent of a USD95,000,000 credit facility granted to the Bank by Citibank International Plc, payable in four years commencing October 2008, and interest is payable quarterly at LIBOR (London Interbank Offer Rate), plus a margin of 475 basis points. The facility was renegotiated in 2013 to mature in September 2017 at a fixed rate of 6.2 per cent annually. Another liability represented  a USD50,000,000 facility granted by Goldman Sachs International, London for a period of two years commencing April 4,  2014 to mature April 4, 2016. Interest is payable quarterly at the rate of 3 per cent  per annum.  Also, there is a facility from the Bank of Industry under the  Central Bank of Nigeria N500 billion intervention fund for refinancing and restructuring of the  banks’ existing loan portfolios to Nigeria SME/manufacturing, power and aviation sectors. The facility is administered at an all-in interest rate/charge of 7 per cent  per annum payable on quarterly basis. Specifically, the managing agent (BOI) is entitled to a 1 per cent  management fee and the bank a 6 per cent spread. The loans  have a maximum tenure of 15 years and/or working capital facility of one year with provision for roll-over. The tenure of refinancing  is 15 years not exceeding July 31, 2025.


Regulatory Sanctions

The bank needs to be cautious in its operations to avoid issues with regulatory circulars, infringement on some of  which has cost the bank huge sums of money. For instance, contravention of the Central Bank of Nigeria circular dated July 25, 2013 bordering on under reporting of public sector deposit, cost the bank N50 million as penalty.  Also, the bank coughed out N1.5 million as fine for failing to notify The Nigerian Stock Exchange before publishing the names of the newly appointed board members in May last year.

The bank should also be bothered about the number and amount of customer complaints lodged with the bank. The returns  on customer complaints for the period ended December 2014, indicated that the number of complaints received increased from 3,614 in 2013 to  5,158 in 2014, even though, the amount claimed whittled down from 14.6 million to N3.5 million during the period. In that regard, the bank came off clean, without any refund.   But the lender was not so lucky on the resolution of  complaints. During the period, complaints resolved increased from 3,539 to 5,201, even though, the amount claimed reduced from N12.9 million to N4.8 million. However, in this category, the bank made a refund of N1.2  million in 2013 which rose to N2.7 million last year.


First Quarter Results

The aforementioned hiccups not withstanding,  the bank is forging ahead.  Sterling Bank  has reported a profit after tax of N3.9 billion for the first quarter ended March 31, 2015, showing an increase of 25 per cent from the N3.1 billion recorded in the corresponding period of 2014.

Similarly, Sterling Bank’s profit before tax rose by 14.1 per cent from the N3.5 billion to N4.0 billion, while non-interest income grew by 31.9 per cent from N6.1 billion to N8 billion.

The growth in non-interest income was driven by a 51 per cent growth in fees and commission, which rose to N5 billion. Net loans and advances  increased by 5.7 per cent from N371.2 billion to N392.4 billion, just as shareholders’ funds increased from N84 billion  to N88.4 billion due to profit accretion.   Total assets, excluding contingent liabilities, advanced by 2.1 per cent from N824 billion  to N841.9 billion.

Commenting on the results, the Managing Director and Chief Executive Officer, Sterling Bank, Yemi Adeola, said: “Our first quarter performance was in line with expectations, having recorded a 25 per cent growth in bottom-line earnings. This was driven by non-interest income, which rose by 32 per cent to N8 billion on the back of a 51 per cent increase in fees and commission. We recorded a marginal increase in operating expenses, which was slower than the growth in net operating income resulting in a 14 per cent improvement in profit before tax. Overall, the bank achieved a 19 per cent pre-tax return on average equity (annualised).”



Sterling Bank Plc, ‘the one-customer bank’, is a full service national commercial bank in Nigeria with asset base above $4.9 billion (N824 billion) and shareholders’ funds in excess of $504 million (N85 billion). With the acquisition of the business interest of the defunct Equitorial Trust Bank in 2011, the bank enhanced its position in the hierarchy of major players in the banking sector.