STERLING HOLDINGS’ : CAPITAL IS NOT ENOUGH WHEN THE REAL BATTLE IS RISK

Sterling Financial Holdings made N75.3 billion profit after tax on N454.9 billion gross earnings and now controls N5.09 trillion in assets. It raised N94.4 billion in fresh capital, grew deposits by N857 billion to N3.84 trillion, and grew loans by N446 billion to N1.81 trillion. The numbers look like a finished job. They are not. According to Johnson and Scholes, critical success factors are those components of strategy where an organization MUST excel to outperform competition. Strategic success is identifying those factors and setting performance targets linked to them. For a bank, that critical factor has never been capital. It is the loan portfolio.

Like capital, reserves and investments, the importance of the loan portfolio derives from the functions lending performs for banks, and it is very critical for its survival. In Sterling’s case, this truth is visible. At the end of September , 2026, Sterling Bank. interest income of N353.7 billion, a 34.8% year on year, is the engine. Net interest income of N205.8 billion, up 44%, is the spread between what it pays depositors and what it charges borrowers. That spread is the main source of profitability and remains so even as the bank offers more services. No doubt, a good banker is still defined as a shrewd lender, one who lends safely and profitably. Sterling tried to be that. It grew earning assets massively, debt instruments at fair value through other comprehensive income up 79% to N1.15 trillion, debt at fair value through profit or loss up 160% to N192.7 billion, loans up 28.8%. But this is where the paradox that defines banking hits Sterling directly.

While being the highest earning asset, the loan portfolio is also the most illiquid and most risky of bank assets. A banker has the statutory right to call in loans after three days notice, but operationally any attempt to enforce this will be interpreted as serious weakness or will chase the customer to a competitor. Sterling’s N40.28 billion credit loss expense, up 398% from N8.08 billion last year, proves this paradox. In Q3 alone it provided N16.4 billion versus N2.8 billion last year. Its non-performing loan ratio improved to 4.6% from 4.7%, which the bank will celebrate as being below the 5% regulatory threshold, but absolute NPLs grew to about N83.6 billion from N66.4 billion because the book grew. The provisioning consumed 13.1% of operating income versus 3.6% last year. Sterling borrows short, N3.84 trillion in deposits that can leave, and lends long, N1.81 trillion in loans that cannot be called. When borrowers fail to repay, it prejudices the bank’s capability to honour its own obligations. The fresh start forced recognition of this.

This is why bank management is coterminous with risk management. Although the number of services a modern bank offers has increased immensely, risk taking, which is the fundamental nature of banking, remains unchanged. It is inherent in maturity transformation. Sterling’s management of this transformation is visible in its loan-to-deposit ratio of 47.3%. It is extremely conservative versus industry average of 65%. It kept N1.5 trillion headroom, holding funds in securities rather than loans, to satisfy the first constituency banks must satisfy: the surplus units, the depositors who demand maximum liquidity and best terms. Cash and cash equivalents fell to N501.7 billion from N799.5 billion, cash with Central Bank fell to N725 billion from N761 billion, because it used N479.6 billion in investing activities to buy securities, N513.9 billion of FVOCI instruments alone. It chose liquidity.

But in doing so it created conflict with the other four constituencies. The second constituency, the deficit units, the borrowers, want funds when they need them as cheaply as possible. Sterling gave them N446 billion new loans but at high rates, hence interest income growth of 34.8%. The third constituency, shareholders, require adequate returns. Sterling gave them 21% profit growth, but earnings per share fell to N11.35 from N12.82 because of dilution from the N94.4 billion share issuance. Share capital up 25.2% to N34.2 billion, share premium up 62.6% to N227.2 billion, retained earnings up 88.8% to N124.3 billion, total equity up 38.8% to N595.1 billion. Capital now covers losses, but return on equity is 12.7% for nine months, about 16.9% annualized. The obligation of maximum profitability to shareholders conflicts with maximum liquidity to depositors, because cash has nil return.

The fourth constituency, the regulatory authorities, want no excessive risks and prudent operation. Sterling satisfied this by raising capital to meet CBN’s new N500 billion threshold for international banks, by keeping NPL ratio at 4.6%, by increasing contingency through other components of equity of N209.2 billion, and by aggressive provisioning. But risk minimization limits ability to pay high returns to depositors and to lend cheaply to borrowers, and limits ability to earn spread. Interest expense up 23.9% to N147.8 billion, interest paid on deposits N134.3 billion versus N104.2 billion last year, shows depositors are demanding higher rates.

The fifth constituency, the community at large, expects the bank to be a good corporate citizen maximizing opportunities and minimizing threats. Lending to agriculture or housing may contribute optimally to development but is long-term, illiquid, costly and considered unprofitable. Lending to trade or commerce may be profitable and liquid but may not contribute to development. Sterling’s choice is clear: property, plant and equipment up 37% to N95 billion, investment property up 20.7% to N14 billion, other assets up 82% to N473 billion. It is investing in infrastructure and branch re-engineering, but disclosure on branch spread, service management framework and re-engineering initiatives is absent from this report, with only three directors named. For a holding company whose principal activity is investing as approved by Board, with three subsidiaries – Sterling Bank, Alternative Bank, a non-interest bank, and SterlingFi Wealth – investment in subsidiary up to N314.8 billion from N261.8 billion, governance disclosure is thin.

So what is the judgment through the CSF lens? Sterling identified the right critical success factor: loan portfolio as highest earning asset. It set a target: grow loans 28.8% while keeping NPL under 5%. It excelled at funding that target: gross earnings up 33.1%, operating income up 38.1% to N307 billion, pre-tax profit up 37% to N97.2 billion, pre-tax margin up to 21.4% from 20.7%, cost-to-income improved to 55.2% from 64.4%. It neutralized the N40.2 billion bad loan shock with N62.8 billion extra net interest income and N19.6 billion extra other operating income up 95.3%. It neutralized interest rate volatility with diversification: net fees and commission up 10.4% to N39.6 billion, trading income N21.3 billion.

But it has not yet resolved the inherent conflict. Profit growth of 21% lags asset growth of 30.3%, showing scale without full efficiency. Cash burn of N297 billion year on year shows liquidity versus profitability tension. Personnel expenses up 33.6% to N54.2 billion shows inflation and HoldCo overhead eating the spread. The fresh start is working because capital without control is just cash in the wind, and Sterling is now trying to build control. Capital absorbs losses after they happen. Risk management stops losses from happening at all. The N40.2 billion provision is capital absorbing past losses. Whether the N1.81 trillion loan book is now under control will determine if the next nine months produce 20% plus ROE or another N40 billion shock.