Nigeria Banking Sector Coverage - December 2011 'Bad ... - Imara

StanbicIBTC’s 9M 11 results to 30 September recorded a
gross earnings increase of 20.62% to NGN 49.6bn. Interest
income increased by 11.90% to NGN 29.1bn, while interest
expense gained 12.79% to NGN 6.4bn, leading to an 11.66%
rise in net interest income to NGN 22.7bn. The increase
came in the context of growth in the loan book, which
was, however, offset by reduced income from interbank
placements. With the CBN tightening its monetary policy
and increased competition for lending, NIMs fell to 6.2%
from 6.9% y-o-y (7.0% at the H1 11), as an increase in NIMs
on the personal and business banking segment was
negated by a drop in NIMs for corporate and investment
banking. Net fee and commission income growth was a lot
more positive at 21.61% to NGN 15.6bn while foreign
exchange income was 127.04% higher at NGN 4.2bn. The
former continued to benefit from scale increases and
growth of the wealth business, while the latter benefited
from exchange rate volatility and forex related corporate
business. Total non-interest income was up 36.27% to NGN
22.20, and operating income gained 22.04% to NGN
43.0bn.
Operating expenses remained under pressure as the
branch expansion continued, (another 23 branches were
added during the 9M period), the result of which was a
cost increase of 24.43% to NGN 30.8bn. Depreciation also
played a role, up 21.61% to NGN 3.8bn, as did the advent
of the 0.3% of assets AMCON levy, which added NGN
838.0m. The cost to income ratio deteriorated marginally
to 71.77% compared with 70.39% y-o-y but was much
improved from 75.18% at H1 11. Loan loss expenses were
up 3x y-o-y to NGN 1.2bn from NGN 370.0m, as the group
continued to grow its loan book, while the mandatory 1%
general provision took effect.
PBT growth was diluted from the top line because of the
increases in provisions and expenses to 9.17%, closing at
NGN 11.0bn, and attributable earnings ended the period
6.47% higher at NGN 7.2bn.
Total assets were up 15.01% y-o-y to NGN 488.8bn, driven
by the increase in loans and advances, with the net
number up 10.72% to NGN 215.5bn, while finance lease
advances were 14.08% higher at NGN 22.5bn. Treasury bill
holdings more than doubled, up 154.15% to NGN 27.2bn.
The NPL ratio improved further to 6.2% from 7.6% at year
end and 6.3% at H1 11. The top 4 group NPLs represented
69% of the total, with the highest single contributor
representing 56% of the total. The bank expected
imminent resolution of that particular NPL.
StanbicIBTC Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10
Net interest income 22 732 20 359
Net fee and commission income 15 636 12 857
Other Income 4 586 1 982
Operating income 42 954 35 198
Non-interest expense (30 828) (24 775)
Allowance for credit impairment (1 151) (370)
Operating profit 10 975 10 053
Attributable earnings 7 175 6 739
30-Sep-11
30-Jun-11
Loans and advances to customers 215 454 163 952
Deposits from customers 228 147 186 466
Total equity 488 751 384 541
Source: StanbicIBTC
Outlook
We expect a relatively flat earnings performance for
StanbicIBTC in FY 11, although ahead of the previous
year courtesy of improved net interest margins given
the monetary tightening and rise in MPR during H2 and
a better deposit mix, steady growth in non-interest
income as well as a declining CIR. We forecast earnings
per share of 51.8 kobo per share, and a dividend per
share of 38.8 kobo. Our +1 RoAE and RoAE numbers
come out at 10.4% and 2.1% respectively. We see
earnings momentum picking up in 2012 and beyond,
however, as the benefits of increased scale begin to
manifest. To truly position itself amongst the top
banks, we think StanbicIBTC may have to look at
merging with/acquiring another player in the sector.
Valuation and Recommendation
While aggressively pursuing its retail expansion
strategy, which should bear dividends in the longer
term, StanbicIBTC’s traditional corporate and
investment banking and asset management bias will
continue to weigh on its performance in the short to
medium term. RoAE continues to lag many of its peers,
while relative PER and PBV ratios are the highest in the
sector. We value the group at NGN 5.32, indicating
29.4% downside on its current price of NGN 7.54. SELL.
Deposit growth was 2.51% to NGN 228.1bn, as the
continued exit from more expensive deposit positions was
offset by the growing branch network. This was reflected
in the positive shift in the deposit mix, with the lower cost
demand/savings/domiciliary deposits now 68% of total
deposits compared with 55% at both FY 10 and H1 11. The
CAR at the end of the 9M period was down to 23.2%, a
result of the growth in risk assets, from 25.9% at the half
year and 32.6% at FY.
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