STANBIC IBTC HOLDINGS PLC H1'19 Earnings - Half-year profits moderate on slower recoveries

Half-year profits moderate on slower recoveries                                                              

Higher costs outweigh marginal earnings improvement: STANBIC released its H1’19 earnings, posting a 15.9% y/y decline in PAT to ₦35.0 billion despite stronger Gross Earnings for the period. Q2’19 performance lagged the previous quarter across most metrics, with Interest Income declining 4.8% q/q due to the lower yield environment in Q2. Although Interest Expense also moderated 4.0% q/q, Net Interest Income (NII) was down 5.3% q/q; this meant that H1’19 Net interest income came in at ₦39.3 billion, 4.4% below our estimate. The bank however recorded a 9.6% q/q improvement in Non-Interest Income, with the ₦29.6 billion figure coming in 2.0% above our estimate; this was mostly driven by the improved business environment compared to the first quarter. Supported by this, Gross Earnings printed 3.2% higher y/y at ₦117.4 billion, 1.7% below our estimate. Ultimately, due to the decline in write-backs and higher operating costs, PBT declined 10.1% q/q to ₦21.1 billion, translating to a total of ₦44.7 billion for H1’19, 12.0% lower y/y and 2% below our estimate.                                                 

Stronger loan book and lower deposits boosts LDR: The bank was successful in growing its loan book in Q2, with a 12.7% q/q improvement to ₦495.5 billion taking total loans up by 6.0% YTD. This, coupled with a steep 15.0% YTD decline in total deposits, has given the bank a Loan to Deposit Ratio (LDR) of 60.2%, just within the CBN guideline (60.0%). Overall, the bank is in line to meet our FY’19 loan book growth expectation (10.0%), however, the decline in total deposits is a concern for the bank’s cost of funds. We highlight the bank’s stable NPLs, which have remained at 3.9% despite the growth in total loans. This bodes well for the bank’s emphasis on asset quality.