What’s Holding Sterling Bank Back in Laggard Camp ?

For almost two decades, Sterling Bank has been stuck in a rut, operating on a treadmill without making meaningful progress. Despite its efforts, the bank has failed to deliver substantial returns to its shareholders, leaving them with miserable value for their investments.
The bank’s inability to innovate and adapt to changing market conditions has resulted in almost stagnant growth and a lackluster performance. Its struggles are reflected in its financials, with its stock price languishing and failing to inspire confidence in investors.
The lack of visionary leadership and a clear strategy has hindered the bank’s ability to break free from the cycle of underperformance, leaving shareholders to wonder if the bank can ever regain its footing and deliver the returns they deserve; even, the takeover of the distressed Equatorial Trust Bank by it did not help its case.
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.
Depreciating Trust and Confidence of Stakeholders.
The most obvious and far-reaching effect of the bank’s feeble performance is the depreciating trust and confidence of stakeholders that translates into a stunted stock price and an embarrassing high cost of wooing depositors .
Banking businesses are built on trust and confidence that is inspired by the performance of each player in delivering the product or service features that are particularly valued by its stakeholders, what the analysts tagged the critical success factors. Shareholdersl, depositors ,borrowers and other stakeholders must be inspired to be favourably disposed to the products and services of a bank and consequently to gain their trust and confidence.
To live up to the above expectations, each player is expected to acquire the relevant strategic capabilities needed to achieve different critical success factors to satisfy each of the five banking constituencies of the deficit, shareholder,surplus,regulatory authorities and the community at large . This is to deliver the product or service features particularly valued by different stakeholders , not only the threshold level ,but to outperform its rivals , multiply its fortunes or values and consequently gain the trust and confidence of those stakeholders
However , since its inception into the industry,,Sterling Bank has not displayed any capability to outperform competition, but merely delivering values as a threshold player . This has far-reaching negative impacts on the trust and confidence reposed on it by its stakeholders particularly the depositors and shareholders.
Though the bank remains profitable, this has been on a roller coaster and threshold basis.Apart from this , what customers particularly value which is the capability to deliver a better value for money still remains elusive with its recurring display of inefficiency that has led to its miserable shareholder value in terms poor dividend and capital gain delivered.
This situation has continued to erode its shareholders’ trust and confidence the shareholders as evident in its stock price performance since it started its operations almost two decades ago .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.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), to move to a medium-priced stock , defined as an equity priced above ₦5 per share for at least four of the six most recent months of trading has been difficult for it . 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 reduced market capitalization, decreased competitiveness, and limited access to capital .
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 deposit volume. Naturally, depositors expect banks to provide optimal interest rates, maturity structures, and liquidity. While Sterling Bank has provided these, they are only delivered at a threshold level.The implication of this is that it is difficult,if not impossible ,for the bank to be competitive when a bank fails to get relatively cheap deposits to beat down its costs and lend safely and profitably.
As at the end of financial year 2024 ,although Sterling Bank’s customer deposits grew by 39.37% to ₦2.568 trillion , indicating a positivedevelopment, but this achievement came at a steeper cost. The bank’s interest expenses on customer deposits surged by 74% YoY. This suggests that the bank had to pay heavily to attract and retain deposits, effectively buying stakeholders’ confidence and trust at a higher. price.
The negative implications of Sterling Bank’s traditionally higher funding costs relative to its peers become clearer when its performance in the core banking businesses are considered. For the banks with strong fundamentals it is usually a different pall game ; no doubt, those brands are known with the capability to attract cheaper deposits relatively ,without much stress due to stakeholders trust and confidence for such banks .
This ugly scenario is becoming very worrisome and its leadership credibility is no doubt in doubt . Though from its inception, Sterling Bank Plc , now Sterling Holdings, an amalgam of some weaklings in 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 by the regulatory authrities to save those banks from extinction , the appointment of Yemi Adeola in 2007 as its maiden CEO was expected to lead to its turnaround despite its limitations.
He was believed to have the wherewithals to grow its meagre resources then and carry out necessary surgery on its heavy burden of toxic loans, not only to sustain its as a going concern but to make it competitive in the industry.
Some analysts and industry observers viewed him as an ideal candidate for that position in Nigeria’s high-pressure banking sector;his curriculum vitae was , indeed , intimidating, showcasing the credentials necessary to succeed and elevate any bank to great heights in the corporate world. Academically, he was exceptionally well-qualified. With years of experience in banking, finance, law, and corporate consultancy, he possessed a unique blend of skills.
But after more than a decade at the helm of affairs , the hope appeared to have collapsed. 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.Its uninspiring performance becomes more palpable when compared to its peers .
.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.
Not only Adeola ,other senior management and board leaders failed to lift the bank from the treadmill. 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. When that figure is analysed with the current inflation and exchange rates in view , the bank may be judged to be in a mess .
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 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 competitive 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.
The HeartBeats of Sterling Bank Challenges.
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 an operating environment. A bank is expected to satisfy five traditional constituencies which determine where its belongs in the industry.
First, a bank is expected to cater to surplus units, which lend to the bank. To deliver this value competitively in 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 a brand loyalty and give it competitive advantage to outperform competition. The most critical challenge confronting Sterling Bank in this 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 with the bank struggling to woo depositors with excessively higher interest rates .
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 adequate liquidity, its battle with both credit and interest rate risks has not been easy just as its limited capital base has constituted a big handicap to its lending capacity and profitability. Most importantly, when a bank pays excessively to woo depositors , its lending rates are driven higher too, with a dangerous tendency for worsening the credit risk .
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. In this regards, Sterling Bank has confirmed its leadership inadequacy.
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 relative to its peers and profitability handicapped by the bank’s gross inefficiency compared to its peers have worsened its inability to live up to its strategic purposes.
Its figures, indeed ,tell a story of underwhelming performance, particularly during Yemi Adeola’s leadership at Sterling Bank from 2007 to 2018.
The Figures Tell the Story
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, under the leadership of Yemi Adeola as its Chief Executive Officer.
The bank’s profitability followed a roller coaster ride 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,possibly due to the acquisition and integration of Equatorial Trust Bank but failed to sustain the momentum
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 raised questions about Adeola’s leadership and strategic vision, despite his impressive professional pedigree.
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 Adeola departed from the bank. Similarly, the bank’s total assets, deposits, and shareholder funds also followed uninspiring trends driven by sluggish growth and operational inefficiency .
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 .xxAlthough , 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 .
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:9
- 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 as analysts are attributing the bank’s underperformance to the poor qualtity of its leadership.
Leadership Questions
What excuse could Adeola and other Sterling Bank leaders offer for the bank’s dismal returns to investors? The only plausible explanation was that the bank’s financial assets were relatively smaller compared to its rivals at the time of the banking consolidation exercise. In other words, their defense was that with more resources, the bank could have performed better. However, analysts found this excuse insufficient.
First, there are so many examples of companies that overcame seemingly insuperable resource handicaps and built positions of global leadership. , Of course, size is an advantage only when there’s a stretching aspiration that engenders great creativity in the use of the firm’s resource endowment.
Moreover , just as bigness without stretch and leverage is obesity, smallness without stretch and leverage is impotence. Foresight, stretch, and leverage provide the energy and rationale for proactive advantage building and industry re-engineering.
Analysts believed , anyone running a small company should be enormously encouraged by the fact that there are so many examples of companies that overcame seemingly insuperable resource handicaps and built positions of global leadership.
However , possession of resources does not guarantee strategic success. Because strategic capability is essentially concerned with how these resources are deployed, managed ,controlled and in the case of people motivated to create competencies in those activities and business processes needed to run the business. The concept of core competencies goes beyond this in a search for those few activities that underpin competitive advantage or demonstrate excellence.
Moreover, while the starting point of successful strategies is acquiring ,retaining, and developing resources of at least threshold standard and the people as a resource, this is not enough to outperform competition.
To survive and prosper an organisation needs to address the challenges of the environment that it faces.In particular it must be capable of performing in terms of the critical success factors that arise from demands and needs of its cus- tomers but the strategic capability to do so is dependent on the resources and the competences it has.
Though the leadership Sterling Bank deserves kudos for sustaining its going with the available resources and competences, however , at a threshold level at which the bank is operating, it could only enable its survival without achieving any competitive advantage delivered by strategic capabilities that its competitors find difficult to imitate or obtain.
In other words , while threshold capabilities are important, they do not of themselves create competitive advantage or the basis of superior performance as these are dependent on distinctive or unique capabilities that competitors find difficult to imitate create competitive advantage or the basis of superior performance.
Analysts argued that the real source of Sterling Bank’s trouble was its leadership’s dominant focus on resource allocation, rather than strategic leverage. This argument has merit. While resources are indeed scarce, making allocation necessary, it is also the top management’s responsibility to creatively leverage resources to multiply the company’s resource base. As one financial analyst noted, “Isn’t leverage just as important as allocation? Why the almost exclusive focus on allocation under his leadership?”
The argument is that when leaders view strategy as a means to stretch and leverage resources, the initial size of resources may not significantly impact the company’s fortunes. Analysts believe that Sterling Bank’s leadership problem is not a lack of resources, but rather too many priorities, insufficient stretch, and inadequate creative thinking about resource leverage. Providing more resources without improving their capacity to leverage them would only offer temporary relief, they explained.
Moreover, some analysts questioned why Adeola and others didn’t grow the bank’s resources competitively, citing examples like Zenith Bank, Access Bank, and Guaranty Trust Bank, which grew from scratch to become industry leaders under their founders’ leadership.
Sterling Bank’s weak profitability, as evident from the data, can be attributed to its limited influence on the trajectory of industry development or ability to shape, drive, or impact the direction, growth, and evolution of an industry through innovation, market leadership , thougth leadership,collaboration and investment. Companies with strong influence on the trajectory of industry development come up with new products, services, or technologies that set new standards or create new markets; they are a pioneer or a dominant player, setting industry benchmarks, and influencing competitors ,share expertise, research, and insights that inform industry trends and best practices; partner with other companies, organizations, or stakeholders to drive industry-wide initiatives or standards and Invest in research and development, talent, or infrastructure that supports industry growth.
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.