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WHEN STANBIC BANK BECOMES UNSHAKEABLE .

Invincible and unassailable, two key words associated with warriors of inestimable power and qualities , no doubt, better describe the exploits of Stanbic-Ibtc  Bank Plc in the first half of its  ongoing financial year of 2020.

The rationale behind the above remark may not be far to seek .Major macroeconomic indices were deleterious and virtually all the economic agents were almost on their kneels during that period;  Gross  Domestic    Product, GDP, growth rate  was -6.1 percent in the second quarters as against 1.8 percent in the first quarter. Consequently, stagnant growth, declining margins and falling profits littered the corporate landscape. However, for this bank, it was a different story as it navigated the terrain almost unhurt .

The bank pushed against harsh economic headwinds induced by Covid19 pandemic to present a sterling H1 2020 financial performance despite the clear weakness of the underlying local economy. At both top and bottom lines its performance metrics moved sharply positive. Gross Earnings grew by 7.84 percent ,cost-to-income ratio declined to 45.2% ,profit Before Tax grew by 17.38 percentto N52.41bn and earnings per share increased by 22.5 percent from 342 kobo 419 . Although this may not be seismic, but by the industry average it could be adjudged highly impressive.

Sequel to the above feat ,some stakeholders have started reaping the fruits . In appreciation of their shareholders values and contributions, the bank dished out appreciable interim dividend. The directors offered an interim dividend of N4.2bn or 40 kobo per share, from the N4.19. This is higher than any bank offered in the first half of the year . Payment according to them will be done electronically on Wednesday, September 30, 2020, to the bank accounts of those shareholders on the register as of September 15, which will be closed between Wednesday, September 16 and 23, 2020

The impressive performance ,in spite of the inclement environment,was not achieved on a platter of gold . It involved serious mental and strategic architecture and decisions executed with strong business acumen.Number one: when yields on earning assets are low or there is interest rate volatility a good manager of a financial institution or bank usually revs up non interest income items of its  balance sheet because it holds the key to stabilizing earnings at that time . That was exactly what the management ofStanbic-Ibtc     bank did to outsmart the low and risky yields season in the first half of the year . The bank’s  non interest revenue increased by 27.1 percent jumping from N54.85 billions in the first half of 2019 to N69.8 billions at the end of June ,2020.

Detailed analysis of the bank revenue book in the non interest department revealed while fee and commission income fell slightly to N36.697bn from N37.707bn; fee , commission expense dropped slightly also from N1.738bn to N1.644bn, resulting in net fee and commission revenue of N35.053bn, as against the previous N35.969bn.

Trading revenue however soared by N16.657bn or 94.63% from N17.603bn in the first half of 2019 to N34.26bn, just as other revenue dipped by 62.26% from N1.28bn to N483m. resulting in Non-interest revenue of N69.796bn.

Further details revealed the non interest revenue for the current half year was specifically lifted by the N42.774bn from corporate & investment banking, up from N27.431bn; followed by wealth management with N23.366bn from N 20.853bn though the contribution from personal & business banking slipped from N8.069bn in the 2019 half year to N5.745bn.After interplay of forces, it registered a positive outlook .

Beyond the above wisdom, the management’s unmatched skills and capabilities to control costs transmitted positively on the bottom line . Its cost to income ratio was among the industry best ,next only to that of GT Bank . It registered 45.2 percent in the first half of 2020 from 53.2 percent recorded in the corresponding period of 2019 . This could be traced partly to the decline of its operating expenses which was down by 3 percent ,other operating expenses by 5percent due to saving on premises and communications expenses as well as staff cost which stood flat during period under review.

However, the above narrative does not indicate that the bank abandoned the core banking or maturity transformation out of fear .As opposed to this impression the bank displayed a large heart for risk indulging in this terrain boldly .Given several virus-related business challenges particularly, production, distribution, and supply chain disruptions, it was expected that banks would become conservative with their loan books and claw back lending, but Stanbic   IBTC thought differently ; its loans to customers for H1 2020 rose by 20.10 percent. It rose to N573.9bn in H1 2020 from N455.1bn in H1 2019. This translated to 75 percent loan to deposits ratio as against 67.6 percent in the corresponding period of 2019 . The implication of this was the increase in risk for the bank .

But the desire to jerk up its loan portfolio may not be  a cause for any  alarm. .Its customer’s deposit as of H1 2020 stood at N769.3bn as against N693.5bn in H1 2019. During a crisis, the volume of bank transactions and activities often dip, bank customers tend to hold more cash and spend more on purchasing essential items rather than saving. But as  opposed to this understanding, some  customers banking on the bank as a safe haven took a safety flight to the Stanbic Bank Plc .

 Unfortunately ,  the bank earnings assets ,expectedly, witnessed a low yield season as well as high risk compounded by the pandemic created a serious threat for the bank bottom line  ; it became a potential spoiler .Interest income fell by N5.654bn or 9.3% from N60.784bn to N55.13bn, despite the fact that interest expenses were  kept low, dropping from N21.474bn to N17.581bn.Consequently, its net interest income fell marginally from N39.31bn to N37.549bn.A breakdown of which showed that corporate & investment bank contributed to bulk of N20.346bn, up from N18.151bn; followed by personal & business banking, which dropped from N17.726bn to N14.971bn. At the end , income before credit impairment charges stood at N107.345bn from N94.162bn.

However , the most herculean task and very hard nut  difficult for the bank to crack was the challenge of impairments. The bank’s net impairment charge on financial assets skyrocketed to N6.404bn compared to the N557m reversal of prior half-year between 2019 and 2020 .The lion’s share of the impairment was the N3.93bn from corporate & investment banking, as against the prior N1.962bn credit impairment reversal; N2.47bn in the personal & business banking segment, an increase from N1.44bn in 2019. This left income after credit impairment charges at N100.941bn from N94.719bn.

A plausible reason for the rise in impairment costs could be the increase in provisions by the bank to mitigate future losses that may arise as a result of an inability to recover some loans due to business disruptions caused by the corona virus.But a 94.63% leaping trading income mitigated the effects of the spike in a net impairment charge on financial assets in the period under review.Operating expenses stood at N48.535bn, a slight drop from N50.069bn, the bulk of which was the N28.628bn other operating expenses, down from N30.184bn

 The above equally slowed down the negative impacts .No doubt , the above provisions slowed down the bank’s bottom line . Though the bank’s profit before tax jumped many paces by 17.38 percent in the first half of 2020 to hit N52.41 billions from N45.65 billion in the corresponding period of 2019, its Pre tax margin dropped marginally from 44.7 percent to 41.4 percent in the first half of 2020.Equally the capability of the bank to translate its assets and equity to profit was frustrated by the impairments .Though its total assets skipped by 61 percent to N3,o22,277from 1,876,456,however returns assets and returns on equity slumped from 1.9 percent and 28.5 in the first half of 2019 to 1.5 percent and 28.3 percent respectively.

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But as its income tax expense dropped slightly to N7.202bn from N8.405bn and net profit for the period improved by N8.959bn or 24.72% from N36.245bn to N45.204bn ,the net income margin was positively impacted .Perhaps for the slight drop in income tax in the first half of 2020 ,net income margin improved from 30.8 percent to 35.7 percent in the first half of 2020 .Globally banks have seen their earnings and profits squashed in H1 2020, a trend that has been ascribed to production disruptions and supply chain pullbacks. To make matters worse lockdowns have meant a pummelling of consumer spending resulting in a major drop in retail activities. Nevertheless, Stanbic Bank in the half-year dodged this particular bullet , held profits up as the real sector gasped for breath

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