From its inception as a product of the banking consolidation, SterlingBank, an amalgam of some weaklings of the Nigerian banking industry like NAL Bank,Indo-Nigeria Merchant Bank, Magnum Trust Bank, NBM Bank and Trust Bank of Africa ,was believed to be lincesed to save those banks from extinction by the regulatory authorities.
Sequel to the less impressive status of the merging banks , pessimism surrounding its survival then waa deep seated .For this belief and fear , it was certain that Sterling Bank was not a bank a dillitante could handle, if truly turnaround is needed .
A relief ,however, come when Yemi Adeola was appointed Managing Director of Sterling Bank in 2007; the hope over its survival was rekindled. Indeed , analysts reviewed their feelings and views against the bank .Some analysts and industry observers viewed him as an ideal candidate for that position in Nigeria’s high-pressure banking sector.
He was believed to have gathered impressive operational skills that could lead to significant improvements in both the bank’s top-line and bottom-line performance. Consequently, there was a widespread belief that Sterling Bank was in capable hands. Yemi Adeola’s curriculum vitae is indeed intimidating, showcasing the credentials necessary to succeed and elevate any bank to great heights in the corporate world. Academically, Yemi Adeola is exceptionally well-qualified.His extensive experience reinforces the views of his admirers. With years of experience in banking, finance, law, and corporate consultancy, he possesses a unique blend of skills.
Given the above impressive pedigree, Yemi Adeola was believed to be well-equipped with analytical, experiential, and innovative perspectives to develop insightful strategies that could deliver competitive advantages for Sterling Bank.
But after more than a decade at the helm, the hope appeared to have collapsed . Sterling Bank has remained a laggard displaying uninspiring and lethargic performance, staying on the treadmill perpetually as a glorified community bank after eighteen years of its existence.
Even, the takeover of the distressed Equatorial Trust Bank by it did not help its case . Till today , the inability of its successive leaders to turn it around and to create better competitive values has continued to raise serious concerns among its stakeholders; and it seems no hope yet to shake this toga off .
The bank’s current struggles have proven the optimists wrong. Sterling Bank’s continued lethargic status is becoming increasingly worrisome. Its uninspiring performance over the years is evident when comparing the bank’s actual performance to the promises made by its leadership to stakeholders, particularly shareholders, as reflected in the value delivered.
Wide Gap Between Strategic Purposes and Strategic Position
A detailed analysis of the bank’s strategic purposes and its impaired strategic position relative to peers confirms this view. The bank’s mission is to consistently deliver products and services that enhance customers’ financial success, provide solutions that increase stakeholder value, and meet the needs of each customer in the communities it serves.
Its vision is to become the financial institution of choice, the preferred destination for investment capital, promote sustainable investing, advance an inclusive and resilient economy, and positively shape Nigeria’s financial landscape. The bank’s core values of customer focus, integrity, teamwork, and excellence are equally impressive.
Despite their appeal, the bank’s strategic objectives have remained elusive. The most glaring indicator of this are the bank’s stunted growth and the grossly inefficient status .When measured against sector indices, Sterling Bank emerges as a struggling laggard.
As of the end of the 2024 financial year, Stanbic IBTC’s gross earnings were N823.3 billion, Fidelity Bank’s were N1.043 trillion, and FCMB’s were N794.8 billion while Stanbic IBTC reported a post-tax profit of N225.311 billion, Fidelity Bank saw a post-tax profit of N278.106 billion, and FCMB Group reported a post-tax profit of N107.9 billion. In 2024, Sterling Bank’s gross earnings N328b billion, while its profit after tax reached N37.522 billion. Two things are responsible for the above miserable performance of Sterling Bank relative to its tier two peers : the leadership inability to grow its resources and absence operational efficiency. The picture becomesabsence even more dismal when evaluated against best-in-class indicators, highlighting the bank’s significant underperformance.
The story of Sterling Bank has been one of disappointment and frustration, a narrative of missed opportunities and stunted growth, with the bank’s shareholders bearing the brunt.Moreover, the hope of its turnaround remains uncertain.
Depreciating Trust and Confidence of Stakeholders.
The most worrisome and glaring issue is the stakeholders’waning trust and confidence on it .Ironically, the banking business is built on trust and confidence . The first strong signal of this is evident in the bank’s stock price over the last two decades.
In other words, the bank’s inability to deliver inspiring values has had direct negative consequences on its stock price, a performance feature driven by trust and confidence.
Notably, its share price has remained volatile but within a narrow range, failing to transition from the lowest -price category to the medium-price tier due to its poor fundamentals; its stock is currently 71% volatile and has a beta coefficient of 2.39 , indicating that the stock’s price tends to move more than the overall market but within lowest price level of the market. The bank’s leadership inability to fundamentally lift its stock price is a clear indication of a loss of investors’ confidence in the company’s ability to generate returns.
According to Rule 15.29 of The Exchange’s Rulebook (2015), a medium-priced stock is defined as an equity priced above ₦5 per share for at least four of the six most recent months of trading. Sterling Bank has failed to meet this criterion and consequently confined to lowest price range .When a bank’s stock price fails to cross over to the medium stage after more than two decades, it indicates a lack of significant growth or progress. This could be due to various factors, such as poor management, inefficient operations, or failure to adapt to changing market conditions.
This has been considered to be responsible for its relatively lower investment, reduced market capitalization, decreased competitiveness, and limited access to capital ; the fact is that, this has continued to limit the company’s access to capital, making it harder to invest in new projects, expand operations, or refinance debts.
The depleting trust and confidence is equally glaringly evident in the attitude of the depositors towards the bank with excessively high and abnormal funding cost .
No doubt, depositors’ trust and confidence on the bank is imperative for boosting deposits volume. Naturally, depositors expect banks to provide optimal interest rates, maturity structures, and liquidity. Although Sterling Bank has provided these, but at threshold level, it is difficult,if not impossible ,for the bank to be competitive.
For instance, although Sterling Bank’s customer deposits grew by 39.37% to ₦2.568 trillion at the end of its 2024 financial year, indicating some level of trust and confidence, this achievement came at a steep cost. The bank’s interest expenses on customer deposits surged by 74% YoY. This suggests that the bank had to pay more to attract and retain deposits, effectively buying stakeholders’ confidence and trust at a higher price. Banks with strong fundamentals are , no doubt, attracting cheaper deposits relatively and without much stress due to stakeholders trust and confidence in such banks as reflected in their fundamentals .
The Heart of Sterling Bank Challenges.
The question remains: what has held this bank back in the laggard camp for so long? To gain insight into a bank’s performance, examining its activities in the five core constituencies of banking services reveals its strategic capability, the key weapon for exploiting opportunities and neutralizing the prevailing threats in the operating environment.
Firstly, a bank is expected to cater to surplus units, which lend to the bank. To deliver this value competitively this constituenciy , a bank must be well armed with certain critical success factors that include competitive interest rates, flexible maturity structures, and maximum liquidity to ensure timely access to their funds. These are what enrich its brand loyalty and give it competitive advantage to outperform competition. The most critical challenge confronting Sterling Bank in the constituency remains its battle with interest rate risk with its relatively higher funding costs driven by its size disadvantage and its inefficiency .This is clearly confirmed by its past records and recently by its 2024 results.
Another key constituency comprises deficit units, which borrow from the bank and seek convenient access to funds when needed, as well as competitive borrowing rates. Like lenders, borrowers also expect the bank to provide maximum liquidity, enabling them to obtain funds as required. Though Sterling Bank has continued to maintain its going concern with adquate liquidity, its battle with credit risk has not been easy just as its limited capital base has constituted a big handicap to its lending capacity and profitability.
Incidentally ,the above two constituencies are the most critical in banking because risk-taking and maturity transformation are the two fundamentals of the banking business. They are critical to gaining industry leadership as bank deposits remain the main source of investible funds, while loans and investments are the primary outlets.
Similarly, while other sources exist, the main source of income and profitability in banking remains the spread or the difference between the rates at which funds are borrowed and the rate at which they are invested or loaned out.
The negative impacts of these challenges have continued to impinge on Sterling Bank’s capability to satisfy its shareholders, another critical constituency that expects maximum or adequate returns on their investments. Shareholders are expected to provide additional resources when needed by banks but a non performing bank may not receive the expected response in term of investments from its shareholders when they are needed .
In other words, satisfying this constituency depends on what happens primarily in the first two constituencies, specifically how the risk of mismatches between assets and liabilities and between borrowing and lending rates is managed. What exposes a bank performance in the first two constituencies and consequently in the third constituency is its net interest margins.
What happens in the first two constituencies is what the fourth constituency, comprising regulatory authorities, focuses on. Their aim is to ensure the bank operates prudently and within regulatory requirements, preventing excessive risk-taking. Currently, Sterling Bank non performing loan ratio is within the minimum regulatory requirement, however, its bitter experience in the past decade concerning this constituency had damaging impact on its profitability and brand equity with the burden of its toxic loans . Now , its success in this constituency is due to its relatively limited risk that has equally limited its profitability.
The fifth and final constituency is the bank’s responsibility to the community at large, which provides the operating environment. As a good corporate citizen, a bank should maximize opportunities, minimize threats in the environment, and contribute to the community’s well-being and prosperity. Sterling Bank has lived up to its obligation in this constituency but relatively to the resources at its disposal.
In the five constituencies of banking,although Sterling Bank is considered liquid, its funding costs are typically high. This tends to influence its lending rates, increasing credit and interest rate risks. Both have been the key challenges, posing a threat to the bank’s ability to lend profitably and safely.
Overall , the bank”s size disadvantage in terms of deposits and loans, as well as assets and capital at its disposal have combined together to reduce it to the threshold level ; also , its revenue, limited by its resources above relative to its peers and profitability handicapped by the bank’s gross inefficiency compared to its peers has worsened its inability to live up to its strategic purposes.
The Figures Tell the Story
The figures indeed tell a story of underwhelming performance, particularly during Yemi Adeola’s leadership at Sterling Bank from 2007 to 2018. Despite a promising start, with profit skyrocketing from ₦621 million in 2007 to ₦6.5 billion in 2008, the bank failed to sustain this momentum.
The bank’s profitability stagnated in the first five years, with a significant loss of ₦6 billion in 2009. Although it recovered slightly to ₦4 billion in 2010, this was still a far cry from the ₦6.5 billion achieved in 2008. The bank’s profit picked up in 2011, reaching ₦6.6 billion, likely due to the acquisition and integration of Equatorial Trust Bank.
However, between 2012 and 2016, the bank’s growth was sluggish, increasing from approximately ₦7 billion to ₦8.3 billion, ₦9 billion, and ₦10.3 billion, before plummeting to ₦5.2 billion. This lackluster performance raises questions about Adeola’s leadership and strategic vision, despite his impressive professional pedigree.
Under Adeola’s leadership, the bank’s performance continued its erratic trend, with a profit of ₦13.5 billion in 2017, followed by a decline to ₦9 billion in 2018, before he departed from the bank. Similarly, the bank’s total assets, deposits, and shareholder funds also followed a downward trend, characterized by sluggish growth.
Analysts are unsurprised by Sterling Bank’s fate. The bank’s dismal profitability, as evident from the data, can be attributed to its limited influence on the trajectory of industry development. An effective leader strives to maximize their company’s share of influence, recognizing that this is a critical aspect of the competitive battle to secure a larger share of future profits.
Moreover, a successful leader understands that a company’s share of influence and future profits is determined by its ability to access and harmonize complementary resources, build core competencies that deliver customer value in emerging markets, accumulate market knowledge, and establish a global presence to stay ahead of competitors.
Unfortunately, some analysts alleged that Sterling Bank’s leadership under Adeola lacked this level of ambition. The implications of this scenario are indeed alarming. The shareholders have borne the brunt, watching in dismay as their hard-earned investments have become a burden, an albatross of sorts, during his tenure, without receiving any dividends.
A consistent track record of paying dividends makes stocks more attractive to investors.
However, the unimpressive dividend and capital gains available to Sterling Bank stock investors are a glaring stigma that could deter serious investors.
Sterling Bank Dividend History at a Glance:
The bank’s dividend payments over the years are as follows:
- 2023: 15k
- 2022: 10k
- 2021: 0.5k
- 2020: 0.3k
- 2019: 0.6k
- 2016: 0.9k
- 2015: 0.2k
- 2014: 25k
- 2013: 20k
- 2012: 20k
The bank’s shareholders have been disappointed by the inconsistent dividend payments. The pain of these poor dividends could have been mitigated if the company’s stock price had been growing rapidly. However, this has not been the case, as the stock price continues to oscillate without delivering any impressive capital gains.
Notably, Sterling Bank Nigeria Holdings did not pay dividends in 2018. According to the bank’s 2018 Abridged Report and 9Financial Statements, external consultants recommended that no dividends be paid for the 2018 financial year. Unfortunately, no information is available on the dividend paid in 2017.
Earnings Per Share (EPS)
The bank’s poor dividend, market value, and capital gain are confirmed by some critical performance indices, particularly its Earnings Per Share (EPS). A good way to determine earnings for investors is the EPS, which represents the monetary share value received from declared earnings. The higher the EPS, the more profitable the bank is.
The Full Year EPS for Sterling Bank over the last five years (2019-2023) is as follows:
- 2023: ₦0.75
- 2022: ₦0.67
- 2021: ₦0.52
- 2020: ₦0.39
- 2019: ₦0.37
When factoring in the prevailing high inflation rate, the EPS values indicate a miserable return on investment for investors.
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Return on Assets (ROA)
From the perspective of asset contribution to profitability, Sterling Bank’s Return on Assets (ROA) tells a similar story of underwhelming value. The ROA measures how efficiently the bank uses its assets to generate profits.
For every ₦1.00 in assets owned by Sterling Bank, the ROA values between 2017 and 2021 are:
- 2017: ₦0.82
- 2018: ₦0.86
- 2019: ₦0.89
- 2020: ₦0.86
- 2021: ₦0.83
In 2022, the ROA stood at ₦1.00 but declined to ₦0.85 in the 2023 financial year. This underwhelming performance can be attributed to the significant rise in assets without a corresponding substantial increase in revenue. These ratios indicate a less-than-impressive asset turnover, as the bank generated less than ₦1.00 for every ₦1.00 asset employed, depicting an inefficient optimization of its available assets.
Return on Equity (ROE)
The bank’s Return on Equity (ROE) ratio, which measures a company’s ability to return profits to its shareholders, followed a similar trend. Between 2017 and 2021, the ROE ranged from:
- 8.9% (2017)
- 9.0% (2018)
- 9.4% (2019)
- 8.9% (2020)
- 8.3% (2021)
This trend indicates that for every ₦1 invested in Sterling Bank, investors could expect a return of less than 10% per share. In 2022, the ROE increased to 12.5% but decreased to 11.8% in 2023. As a ratio of paramount importance to shareholders, ROE reflects how effectively a company utilizes its shareholders’ funds.
Analysts believe that these returns may not send a positive signal to investors seeking hidden-value opportunities for their investments.
The above miserable performance scenario has continued to raise serious concerns, with some analysts attributing the bank’s underperformance to Adeola’s leadership.
What excuse did Adeola have for leaving the bank with miserable returns for investors? The only plausible explanation was the relatively smaller size of its financial assets compared to its rivals at the time of the banking consolidation exercise that brought the bank into the system.
In other words, the only defense available to him was that if Sterling Bank had more resources, it could have performed better. However, this excuse is insufficient.
What cannot be disputed is that a corporate entity can only suffer this fate when the dominant strategy framework focuses primarily on resource allocation. While it is true that resources are scarce, making allocation a necessary strategy, it is equally the top management’s responsibility to effectively multiply the company’s resource base through creative approaches to resource leverage.
Isn’t leverage just as important as allocation? If not, why the almost exclusive preoccupation with allocation under his leadership?
The argument against such a strategy is that when a leader views strategy as a means to stretch and leverage resources, the initial size of resources may not significantly impact the corporate entity’s fortunes. Analysts believe that the problem with leaders like Adeola is not a lack of resources, but rather too many priorities, insufficient stretch, and inadequate creative thinking about how to leverage resources.
Providing more resources without improving their capacity to leverage them would only offer temporary relief from frustrations. Moreover, some analysts questioned why Adeola didn’t grow the bank’s resources competitively. After all, Zenith Bank, Access Bank, and Guaranty Trust Bank grew from scratch to become industry leaders under their founders’ leadership.
A corporate leader is expected to be both a manager and an entrepreneur, capable of driving growth and leveraging resources effectively. This raises questions about Adeola’s leadership and strategic vision, particularly in comparison to his peers who successfully transformed their banks into industry leaders.
Sterling Bank After Adeola As CEO
The situation at Sterling Bank remains a concern, even after Adeola’s exit as CEO. Under Abubakar Suleiman as the CEO of the bank ,its performance remained uninspiring again . Its gross earnings increased by 14.0% from N133 billion in 2017 to N152 billion in 2018 while its reported a 14.9% growth in profit after tax, reaching N9.2 billion in 2018 compared to N8.5 billion in 2017.
The bank’s gross earnings fell from N150b in 2019 to N135.8b in 2020 and inched up again to N150b in 2021 , N175 in 2022 to N221.8b in 2023 just as its profit after tax were N10.6b ,N11.1b , N15b ,N19.3b and N21.6b between 2019 and 2023 respectively. Its Earnings Per Share too had ranged miserably from 37k,39k ,52k ,67k and 75k between 2019 and 2023 .
The most annoying thing is that Adeola’s appointment as Chairman of the Board of Directors that was expected to bring about a turnaround failed to do so . As Chairman, his key responsibilities include setting the company’s strategic direction, overseeing risk management, and ensuring governance and compliance. However, the bank’s continued underperformance raises questions about his leadership and strategic vision.
Although , Sterling Bank’s financials at the end of 2024 show a market capitalization of ₦247.74 billion, with profit after of ₦37.52 billion and revenue of ₦189.95 billion, when the prevailing inflation and exchange rate are factored in , one may be surprised the progress recorded may be nothing but purely deceptive. The same may be applicable to the bank’s EPS that hit 129k compared to 75k in 2023 .
The most miserable signal that queries the capability of Sterling Bank leadership is the post tax profit margins .Except in the 2024 financial year when it delivered approximately N20 as profit from every N100 made at the top line , the bank had consistently recorded embarrassing figures Between 2018 and 2023 it has recorded N6, N7 ,N8, N10 , N11 and N9.70k respectively from every N100 made at the top line.
The performance of a corporate laggard is not expected to be different from the above. When one peeps into the high-profile initiatives launched recently by a laggard like Sterling Bank, the issues preoccupying its senior management attention, criteria and benchmarks by which its progress is being measured, the track record of its new business creation, dreams and fears on the faces of its employees and its ability to shape that future and regenerate success again and again in the years and decades to come, separate it from a corporate champion
A laggard, like Sterling Bank is known more for preserving the past than creating the future . This is usually the case when a senior management fails to have a clear clear and broadly shared understanding of how the industry may be different ten years in the future ; when its “headlights”are known for not shining farther out than those of competitors or its point of view about the future doesn’t clearly reflect in the company’s short-term priorities ; when its point of view about the future is not competitively unique.
Moreover, Sterling Bank’s current struggles could be traced to a situation where a leadership lacks the capability for setting the new rules of competition within its industry, for regularly defining new ways of doing business, building new capabilities, and setting new standards of customer satisfaction ; its senior executives are not likely to possess a keen sense of urgency about the need to reinvent the current business model or to regenerate core strategies . No doubt, much of its top management attention is focused on the task of reengineering core processes.
In other words, Sterling Bank will remain in the laggard camp in as much as it is more conventional and reactive than distinctive and far-sighted or focuses more on reengineering core processes than on regenerating core strategies; in as much as a smaller percentage of Sterling Bank’s efforts to build advantages focus on creating new industry standards, rather than merely catching up with competitors ; when its transformation agenda is largely set by competitors’ actions, rather than by its own unique vision of the future or its senior managers are more like maintenance engineers, working on the present, rather than architects designing the future.
Consequently, the bank remained less a rule-maker than a rule-taker within its industry with less intent on challenging the industry status quo than protecting it .
Sequel to this , competitors within the industry will continue to view it more of a rule-taker than a rule-maker and see the bank as better at improving operational efficiency than at creating fundamentally new businesses.
