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Stanbic-IBTC 2024 :Displaying Uncommon Resourcefulness

15 minutes read

23 November,2024

Stanbic-IBTC deployed its iron teeth to break the operating environmental metaphorical hard nuts to create the best value for money among Tier 2 banks in Nigeria in the last nine months of 2024.

In the last financial year as it was the one before, and indeed many more years back in time, the competitive and operating space in the financial industry had been paved with serious obstacles, setting up the industry for failure. In the current one, it is not different. Rather, it is becoming more challenging with elevated levels of inflation and hawkish monetary policy from the regulatory authorities.

The challenge of the above inclement operating environment are compounded by the traditinal internal issue of managing the risks faced by every bank management particularly the ardous task of balancing and reconciling the bank’s obligations to the deficit,surplus,regulatory authorities, shareholders and the community at large that is highly complicated and made more difficult by the change in the environment in which it operates.

But the inclement external operating environment where banks do their businesses in Nigeria and some internal challenges notwithstanding , few smart and visionary leaders in the Nigerian banking sub sector appeared to have developed iron teeth to break some metaphorical hard nuts in the operating environment ; all in a bid to satisfy their obligations to those five critical constituencies , they robustly exploted opportunities and heavily minimized the prevailing threats to deliver very inspiring performance in the period under review. . .

.Stanbic-IBTC’s leadership , one of these few , indeed , lived up to this necessity and created better value for money for its stakeholders in the last nine months of 2024 . With its superior strategic capability –unique resources and core competencies —Stanbic-IBTC was able to maintain its competitive advantage and outperformed competitors as reflected in its capability to meet certain critical success factors in the above constituencies.

A detailed analysis of how the above were achieved in the last nine months show the above challenges were merely the opportunities for the bank to turn adversity to some advantages ; indeed, it lived up to its obligations to the key constituencies in banking business with maximum satisfaction

It tackled the surplus units from which it borrows skillfully .With an appropriate strategic capability the bank achieved the best possible term in rates of interest and maturity structures as well as maximum liquidity that gave the depositors the confidence to patronise the bank and assured them of getting their funds back when they want them , or as agree . Sequel to this , it recorded a phenomenal increase in deposits . It also addresed the deficit units which borrow from the banks as it deployed enough funds to that constituency, aided mostly by its maximum liquidity and the desire to deepen its maturity transformation .

.In addition to satisfy the surplus and the deficit sectors ,the shareholders were equally satisfied with maximum and adequate returns on their investments in order to let them remain invested in the bank and to be willing to continue to provide additional resources and when needed .To this is added the fourth constituency , the regulatory authorities ,whose interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements . Finally, its outstanding performance could be associated with its capability to satisfy the community at large . As the provider of the environment within which it operates . the bank lived up to its obligation of satisfying the community as a good corporate citizen by maximizing the exploitation of the opportunities available and minimizing the threats in the environment .

No doubt , the bank achieved resounding successes in the most critical aspects of its business , driven by its strategic capability.

Delivering Better Value for Money

However, while the activities in the above constituencies are critical success factors in banking and contribute to its overall growth and success , a bank ‘s capability to create and deliver better values for money for the shareholders is what separates the champion from the others in this industry . And this is what stands STANBIC-IBTC out from its peers ,driven by its uncommon resourcefulness.

This first confirmation of this is reflected in its superior profitability In the period under review, its Profit before tax inched up by 72% to ₦222.93 billion as against ₦129.46 billion in 2023 while its Profit after tax of ₦182.87 billion, up 67% compared to ₦109.25 billion in 2023 .

Delivering Better Value for Money

IHowever , delivering value for money goes beyond the absolute profit figures highlighted above .For the shareholders, to deliver a better value for money is not restricted to making bigger profits or the biggest profit relative to the competitors but how competent a company is at managing its cost .Moreover , shareholders are not only interested at what cost or how efficiently such a profit is made ,but also how effectively certain product or service features are delivered or its ability to meet its stakeholders requirements on product or service features at a given cost .For Stanbic bank, both expectations were met for its stakeholders .

Though these are usually not without their challenges. To achieve the latter feat , managers of an organization must be clear about which product or service features will be valued in the future and understand the drivers of uniqueness of such products or services within the organisation or value system .A company must also be innovative to sustain what its stakeholders value, since what they value varies with time.

It is as well imperative for its managers to secure core competencies that will allow them to build strategies in new markets through stretching and exploiting of such competencies since such values are likely to attract better for the company in a new environment or market.

Stanbic IBTC leadership is not oblivious of the above and other corporate challenges . It is glaringly clear from its business model that it goes for resourseful over resources, driving its operations efficiently and effectively. And the result is clear : while the bank emerged the most profitable among its peers, the real beauty of its performance lies in its uncommon resourcefulness and the quality of the services and products delivered to its shareholders relative to others .

In other words , the bank is not ignorant of the fact that the shareholders are not only after absolute profit, but the cost at which the profit is secured. This is where Stanbic-IBTC has displayed its resourcefulness better than its peers.

Cost Optimization
With facts and figures over the years Stanbic Bank highly efficient profit machine . It delivered values to its shareholders at a Cost to income ratio of 39.4% compared to 46.9% in the first nine months 2023.

The bank was able to maintain this feat with its capability to leverage its resources to gain better value for money with its core competencies in some strategic areas of its business. The key message from the leadership of this bank to its competitors with bigger financial resources or assets is crystal clear : bigness without stretch and Just as bigness without stretch and leverage is obesity, smallness without stretch and leverage is impotence .Only a super bank with an efficient profit machine could deliver this feat in an inclement operating environment like Nigeria. With this CIR , the bank is not only meeting the threshold level value but outperforming its peers in critical areas .

Certain performance indicators confirmed its uncommon resourcefulness .To cement its place as the most profitable bank, its post-tax return on equity (ROAE), and return on assets (ROAA), improved to 42.9% per cent and 4.1 % per cent in 2024 from 33.2% per cent and 3.9% per cent respectively in 2023.

This profitability translated to Earnings per share of 1,390k from 825k , the value of earnings per outstanding share of common stock of the company and an ndication of a company’s profitability that shows how much money a business makes for each share of its stock.⁸

Stock Price Driven By Efficient Profit Machine

The positive impacts of the bank’s efficient profit machine are clearly visible on its stock.Though its stock has seen a 15% year-to-date (YtD) decline as of September 4, 2024, this is an improvement from the 19% dip recorded in August 2024. This recent recovery suggests that investor sentiment may be stabilizing, providing a potential opportunity for those considering buying the dip.

The significant improvement from August’s dip indicates a positive shift, which could signal a rebound in investor confidence. For context, the stock had previously surged by 108% YtD last year, highlighting its potential for substantial gains. This recent downturn and subsequent partial recovery may reflect broader market adjustments rather than underlying issues with the company itself.

Looking ahead, Stanbic IBTC’s strong financial performance suggests it is positioned well to navigate the current challenges facing the banking sector. The company’s strong growth in earnings and pre-tax profits suggests it has solid fundamentals.

Analysts remain optimistic about Stanbic IBTC’s ability to leverage its strong performance to drive future growth, despite the sector’s recent underperformance.According to the NGX’s brokers’ recommendations of September 2-6, 2024, the ratings vary: Bancorp Securities advises a “Hold,” Afriinvest suggests “Accumulate,” and Meristen provides a “Buy” rating. This range of recommendations reflects differing perspectives on the stock’s potential.

Overall, the ratings suggest a generally positive outlook for Stanbic IBTC, with analysts recognizing its strong financial performance and growth potential. The “Buy” rating from Meristen signifies high confidence in the stock’s future performance, while the “Accumulate” and “Hold” ratings reflect a more cautious but still favourable view.

Similarly, Stanbic IBTC’s first half of 2024 earnings release reinforced its strong position with a notable statement: “Stanbic IBTC retained its Fitch AAA (nga) rating, reaffirming our position as the only financial services provider in Nigeria with the highest rating from a global rating agency for over two decades.”in addition to these strong ratings, it is essential to consider the stock’s trading activity and volatility. Over the past three months (June 5 – September 4, 2024),

Stanbic IBTC Holdings has been the 49th most traded stock on the Nigerian Stock Exchange, with a total volume of 98.9 million shares traded across 3,230 deals, valued at N5.25 billion. This trading volume indicates good investor interest and activity, which often correlates with increased volatility.

While volatility can create opportunities to buy at lower prices, it also introduces risk. However, the stock’s low beta of 0.362 may provide reassurance, as it suggests lower volatility compared to the overall market.This indicates that the stock is less likely to experience large price swings relative to market movements. Consequently, the lower beta can be a sign of stability, potentially mitigating some of the inherent risks associated with the stock’s volatility.

Overall, given Stanbic IBTC’s strong financial fundamentals and recent signs of stabilization, the current dip might present a favourable buying opportunity.The stock is currently trading below its 52-week high of N80, achieved on October 13, 2023, suggesting potential for future gains as market conditions improve. This performance suggests strong investor confidence and positive sentiment towards the stock, primarily based on its financial performance.

Strong Valuation Power

One of the most popular valuation metrics is the price-to-earnings ratio (P/E), which measures the share price of a stock as a multiple of its earnings. The closer this figure is to one or below one, the cheaper the stock. Using Stanbic ’s current share price of N56.80 and its trailing twelve months earnings per share (EPS) of N16.27 the stock has a P/E ratio of 3.5x. This compares to the banking sector average of 13.9x.This lower P/E ratio suggests that the stock is undervalued compared to its peers, indicating that investors are paying less for each unit of its earnings relative to other banks. This could be seen as an opportunity for investors if they believe that Stanbic ’s earnings will continue to grow.

Another valuation metric is the price-to-earnings growth (PEG) ratio, which adjusts the P/E ratio by the stock’s earnings growth. Similarly, a PEG below 1x suggests that the stock is undervalued relative to its earnings growth potential and may offer attractive growth at a reasonable price, appealing to growth-oriented investors.Boosted by its recent performance, Stanbic has a PEG ratio of less than one, making it attractive for growth-hungry investors.

Additionally, the group’s strong capital assets appear to be reflected in its higher price-to-book ratio of 0.70, compared to the banking sector average of 0.63.This suggests that investors value each unit of Stanbic ’s book value more highly than that of its peers, possibly due to perceived higher asset quality or expectations of better future profitability. The expectation of better future profitability also aligns with its higher price-to-sales ratio of 1.5x compared to the sector average of 0.52x.

Stanbic’s valuation metrics, including a low P/E ratio, a reasonable P/B ratio, and a relatively higher P/S ratio, combined with a very low PEG ratio, suggest that it might be an attractive investment, especially for those looking for growth opportunities at a reasonable price.

Strong Dividend Payout and Yield

Besides valuation dynamics, Stanbic is known for its impressive dividend payouts. For the period ending December 31, 2023, the group paid a final dividend of N2.20 per share to its shareholders, totalling N28.5 billion.

In September 2023, the group had distributed an interim dividend of N1.50, amounting to N19.4 billion, thus reaching a total dividend payout of N47.9 billion for 2023, a 6% rise from the N45.4 billion paid in 2022.

The stock currently has a dividend yield of 7.4% based on its current share price, and a dividend payout ratio 26 % of . Continuing this trend, the bank is expected to declare a better dividend for the financial year ended 2024 , enhancing its appeal as an investment, especially for income-oriented investors.

Critical Success Factors

Living up to the above obligations and delivering mouthwatering returns to its shareholders is not an easy task . It requires the capability for overcome the challenges posed by certain critical success factors, the productor service features that are particularly valued by a group of stakeholders and , therefore where the organisationmust excel to out-perform competition. .These factors which from cost optimization, risk management, liquidity , innovation , capital adequacy ratio , profitability and efficient service delivery are , no doubt, where the champion like Stanbic IBTC is separated from the threshold players .

Thiese are clearly reflected in Stanbic capacity in using technology to improve efficiency, reduce costs, and offer faster and more secure transactions, delivery of high levels of customer satisfaction , high ompliance to the regulatory demands and security , possession of competitive width and depth of a bank’s product and service line , low costs operation , possession of strong reputation , manpower ,financial management and strong physical and intangible asset base

Strategic Capability

The feat highlighted above is not for the dillitantes. Only a company with a strategic capability — an ability to perform at the level required for success —could deliver the above inspiring returns to its shareholders. It is usually about a company that has the ability to come up with the strategies that fit the operating environment ,opportunities and threats in a drive to achieve some critical success factors in the industry ;it is also about changing the strategic capability better to fit the changing environment,

Moreover, only a company with innovative leadership that could leverage its capability to become leading edge of its strategic developments —-all in a bid to create new opportunities and exploit other opportunities by stretching and exploiting its capability either in ways that its competitors find difficult to match or in new directions or both. In a hypercompetitive world , the only enduring capability is the ability to change the strategy as the basis of competition moves on through different phases of the cycle of competition.

Over the years, Stanbic-IBTC has demonstrated the above capability with the necessary unique resources and core competencies to outperform its peers.

OPERATIONS.

The above inspiring returns would have been impossible or difficult without the management core competencies in critical areas achieved as its unique resources were deployed. Stanbic Bank has built its financial resources consistently over the years, but to this bank, asset volume is not enough to generate inspiring values to shareholders , but how those resources are managed; no doubt , the bank has what it takes to deploy its resources for better value creation than its peers .

The bank’s ability to deliver the critical successf actors in various segments of its operations was underpinned its unique resources . How those resources are deployed delivered to it some competitive advantages.

Resources were Deployed.

The bank exploited its strong financial position as its Total assets increased by 41% to ₦7.26 trillion compared to its December 2023 total of ₦5.15 trillion.First , the deficit units which borrowed from the bank were kept satisfied ,benefiting from its capability to build its total assets aggressively over the years ; its Gross loans and advances increased by 18% to ₦2.48 trillion realative to its December 2023 amount at ₦2.09 trillion. This was funded mostly by its deposit base.Customer deposits increased by 50% to ₦3.12 trillion (December 2023: ₦2.07 trillion) while deposit mix improved to 81% (December 2023: 72%) of current-and-savings-account.

To achieve the deposit growth , it had to adequately satisfy the surplus units from which it borrows with the best possible term in rates of interest and maturity structures and maximum liquidity ,all of which enabled and assured the depositors the possibility of getting their funds back when they wanted them , or as agreed .It also benefited from other sources to fund its asset base apart from its customers deposits.

Satisfying both the deficit and the surplus units may not be farfetched. Although other sources exist , the main source of investible funds remains the bank deposits ,and loans and investments , the main outlets . It is the spread or the difference between the rates at which the funds are borrowed and the rate at which they are invested or loaned out determines the fortune of the bank.

Competencies Deployed To Gain Competitive Advantages

However, while boosting the loans and deposits are critical to its fortune ,the leadership of Stanbic IBTC is not be oblivious of the challenge of of risk involved as bank management is coterminous with risk management . Indeed , it is the capability for managing the risk of mismatches between assets and liabilities and between borrowing and lending rates that delivers the spread or income in the core banking segment.

Incomes from the core banking segement determines the fortune of any bank than any other sources . World class corporate leaders rarely toy with lending ,the core business of banking.All the technical training a banker receives is heavily geared towards lending .When it is said that one is a good or an astute banker ,what ,in fact , is meant is that one is a shrewd lender . –one who lends money safely and profitably.

In the first nine months of the financial year 2024 ,Stanbic-IBTC’s ,no doubt , engaged its unmatched savvy for managing the market risk ,an essentially interest-rate risk for loans and deposits, that is driven by the maturity structure of the loan book which is imperative for resolving the match (or mismatch) between the maturity of the loans against the maturity of the funding known as the interest-rate gap . .

But this was not without any threat from the highly inflationary environment. Although, its Net interest income which is sensitive to both credit and interest rate risks inched up phenomenally to ₦251.85 billion, up by above 100% from ₦120.50 billion in the corresponding period of 2023, its interest income was hindered from contributing optimally to the bottom-line simply because both interest rate and credit risks became hard nuts difficult for it to break.

While its interest income hit N425.78b from N184.59b , up by 130.7%, its
Interest expenses skyrocketed to N173.93b from N64.09b at a faster pace of 169% threatening its bottom-line dangerously . For a better understanding of the challenge of the rising cost scenario it took the bank N41 to get every N100 of its interest income in 2024 , it only took it N34 in the corresponding period of 2023 .

The excessive growth of its interest expenses was not the only potential spoiler, the bank became almost helpless in its battle of the credit risks as its impairment charges rose heavily to N59.38bi from approximately N10billion .

All the above potential spoilers notwithstanding, the leadership of Stanbic IBTC with deft application of its experience and professionalism boosted its Non-interest revenue by 50.8 percent to N214.01b from N141.96b with Net fee and commission revenue contributing more than half at N124.64b compared to N 79.53b in 2023 after fee and commission expenses of N9.74b and N5.07b of 2024 and 2023 respectively were deducted from its fee and commission revenue of N134.38b and N84.60b between 2024 and 2023 respectively.

Another rescue operation came from the trading segment as this income hit N80.25b from N59.74b . Consequently, its total operating income hit N465.86b compared to the N262.46b while operating expenses rose to N183.55b from N123.05b leading to a decline in its operating profit margin to .71.6% in 2024 compared to 78.9% in 2023 .The bank also witnessed a decline in its pretax profit margin to 34% from 38.9 just as its Net profit margin backtacked to 28% from 32.8% between the same period

The Regulatory Authorities

The fourth constituency adequately satisfied by Stanbic is the regulatory authorities with its capability to ensure no excessive risks were taken as it operated prudently and within stipulated regulatory requirements .
The Group continued to maintain an adequate level of capital during the quarter. The Group’s
total capital adequacy ratio closed at 15.7% (Bank:13.5%) which is higher than the 11%
minimum regulatory requirement.
The Group also maintained a strong and diversified funding base during the reporting period.
The Group’s liquidity ratio closed at 51.15%, above the 30% regulatory minimum requirement while its non-performing loan to total loan ratio of 3.19% (December 2023: 2.35%).