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Q3 2015 results review: Yet more pain due to asset quality issues

​Yet more pain due to asset quality issues

• Marked cuts to 2015 earnings guidance: On the back of marked reductions by Stanbic IBTC Holdings (Stanbic) management to its 2015 earnings guidance, we have cut our price target (and our 2016E EPS forecast) by around a quarter to N13.1. Management now expects to achieve an ROE of 15% in 2015, well below the 20-23% it was targeting at the start of the year (and 18% after Q2 results). The revision to the guidance comes on the back of a weaker-than-expected Q3 2015 set of results which saw PBT fall by -42% y/y. Asset quality issues have been the major reason behind Stanbic's weak performance all year. Management limited its comments on NPLs to end-2015. It expects the NPL ratio to be “<8.5%” by year-end (8.8% in Q3 2015) vs our estimate of a 4.6% average for the rest of our universe as recoveries offset new NPLs. As for the saga with the Financial Reporting Council of Nigeria, beyond the delay to the bank's proposed capital raise, we expect the impact to be limited on valuation. We retain our Underperform rating.

• Double-digit y/y decline in Q3 earnings due to loan loss provisions: Stanbic's Q3 2015 PBT of N5.8bn was down -42% y/y; PAT was down more, by -55% y/y because taxes and minorities grew y/y. The decline in PBT was driven by a significant increase in loan loss provisions (+702% y/y) due to additional provisions on oil and gas exposures in particular (Afren). We note that profit before provisions (and opex) was down only slightly, by -1.8% y/y. In addition, opex actually declined, by -1.5% y/y. Returning to the profit before provisions line, the -1.8% y/y was mainly due to a weak performance in funding income which fell -8% y/y to N10.8bn as a result of a significant (55% y/y) rise in interest expense. This rise more than offset a 15% y/y growth in interest income. In contrast to funding income, non-interest income grew by 3% y/y. On a q/q basis, while PBT grew by 24% q/q, PAT fell -33% q/q because of base effects on taxes (Stanbic's tax line was positive in Q2). The results were weaker than we expected because of loan loss provisions. PBT and PAT missed by 23% and 27% respectively. Profit before provisions came in 2.6% ahead of our expectation. The better performer was non-interest income which came in 9% ahead of our forecast. This outperformance helped to offset a weaker-than-expected (-5%) result in funding income.