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STANBIC IBTC HOLDINGS PLC Q1'20 Earnings - Non-Interest Income support y/y PAT growth

Net Interest Income declines 8% y/y
STANBIC released its unaudited Q1’20 earnings, posting a 5% y/y increase in Gross Earnings to ₦61.4 billion (Vetiva estimate: ₦60.7 billion). Interest Income worsened by 12% y/y to ₦27.5 billion (Vetiva estimate: ₦30.9 billion). This was the result of a 31% y/y decline in interest from investment securities to ₦9.9 billion. However, Interest Expense also declined 18% y/y to ₦8.9 billion (Vetiva estimate: ₦11.0 billion); mainly due to a decline in interest paid on term deposits and current accounts. This led to an 8% y/y decline in Net Interest Income to ₦18.5 billion (Vetiva estimate: ₦19.9 billion. Meanwhile, the bank reported a 23% y/y growth in Non-Interest Income (NII) to ₦33.9 billion (Vetiva estimate: ₦29.7 billion), thanks to a 47% jump in fixed income trading revenue to ₦14.5 billion. On the other hand, the bank recorded loan loss provisions of ₦1.9 billion, indicating a Uturn from the previous year’s write-backs of ₦1.4 billion. This, along with a 4% y/y rise in Opex to ₦26.1 billion, led to a 4% y/y growth in PBT to ₦24.4 billion (Vetiva estimate: ₦24.7 billion) and a PAT figure of ₦20.6 billion, 8% higher y/y. This yields an ROAE of 26.4% (FY’19: 27.3%).

Non-core banking activities to support earnings in FY’20
STANBIC reported Non-Interest Income of ₦33.9 billion in Q1’20; this represents 55% of Gross earnings for the quarter (FY’19: 48%). This was despite an 18% q/q growth in Loan book to ₦625.7 billion, further highlighting the bank’s struggle to extract maximum value from its risk assets, with Net Interest margin printing at 3.4% (FY’19: 4.5%) and NPLs worsening to 4.2% (FY’19: 3.9%). Meanwhile, Investments and Fees and commissions were the largest contributors to NII, while the bank made even less profit from FX trading (₦251 million). Going forward, we expect the non-core aspects of the bank’s operations to contribute a greater proportion of FY profits, as the interest rate environment is expected to remain unfavourable through the majority of 2020. Therefore, we have raised our FY’20 Non-Interest income forecast to ₦130.4 billion (Previous: ₦119.1 billion).