HI 2022: Sterling Bank grew PAT by 40% but earned less on revenue.

Sterling Bank Plc, a full-service national commercial bank has since released its 2022 financial year results, which showed that the bank reported a profit before tax of N20.76 billion in 2022 representing 29.2% YoY growth.

 in the first half of the year, representing a 40.8% improvement on the corresponding period in 2021, however, the bank recorded an +10% net profit margin.  This means that for each N1 of revenue, it earns N0.10 in net profit

How much a company earns on its total revenue is measured by net profit margin and is one of the biggest indicators of a company’s financial health. Net profit margin assesses how efficiently a company is being managed and predicts how profitable it will be.  A low-profit margin may be an indication that the company is not efficiently managed and/or not profitable.


Coming to the full financial performance highlights, according to the bank’s H1 2022 financial statements, the lender’s gross earnings grew by 16.53% to N78.4% billion as against the N67.3 billion reported in H1 2021. The growth was a combination of a 48.2% increase in non-interest income and an 8.8% growth in net interest income.  The growth in non-interest income was buoyed by an impressive 216.56% year-on-year growth in net trading income.  There was also a 43.45% growth in other operating income and 25.49% year-on-year growth in net fees and commission income.

Despite the boost to gross earnings from non-interest income, the low 8.91% year-on-year growth in interest and similar income contributed largely to the 8.77% year-on-year growth in net interest income though rose to N33.702 billion in H1 2022 from N30.986 billion in H1 2021. Interest income still accounts for 75% – 80% of the bank’s gross earnings and in H1 2022, 79.674% of the bank’s interest income came from loans and advances to customers, which marginally rose by 7.8% to N47.038 billion from N43.604 billion in H1 2021.  So expanding the loan books through the creation of low-risk assets should be a top-notch priority.  This will help increase the interest margin, which dropped to 7.3% in H1 2022 from 7.7% in H1 2021, and thus increase the net profit margin.

The bank could only increase its loans to customers by 2.3% (N18 billion) in six months as loans and advances to customers rose to N729.9 billion from N711.9 billion as of December 31, 2021.  And given that the bank’s loan-to-deposit ratio (56%) as of June 022 is still below CBN’s threshold of 65%, there is much room and the need to increase its loan book.

Also, a cursory review of the company’s financial statements revealed that cost profile was another defining factor. Due largely to macroeconomic pressures, the bank’s OPEX grew by 18.04% to N40.331 billion in H1 2022 from N34.168 billion in H1 2022.  The growth was on the back of 26.75% year-on-year growth in operating expenses and a 23% growth in general and administrative expenses.  This impacted on the bank’s cost-to-income ratio, which closed at a high 76.1% in H1 2022; suggestive of a faster growth in expenses and inefficiency in managing costs.  The cost-to-income ratio gives a clear view of how efficiently a bank is being run. Typically, the lower the ratio, the more profitable the bank is.

Also, impacted by the higher growth in OPEX and slower growth in interest income is the return on average assets which though increased by 12.5% to 0.9% from 0.8% in H1 2022 is lower than the industry average.  Return on assets is another profitability ratio that shows how efficient a company is in using its assets to generate profit.

However, the balance sheet puts the bank on a better footing. Overall, the bank grew its balance sheet by 11.4% to N1.8 trillion and maintained a strong capital and liquidity position recording 14.4% and 31.3% respectively above the regulatory benchmark.

Also, the non-performing loan ratio though increased to 1.1% from 0.7% in H1 2021, is relatively low compared to CBN’s prudential limit of 5% and to some banks. For instance, in H1 2022, Ecobank and FBNH reported an NPL ratio of 15.5% and 5.4% respectively.

The bank’s total deposits grew by 1.6% to N1,277.7 billion from N1,208.8 billion in H1 2021 and 8.7% YtD growth in low-cost funds (CASA) to N895 billion from N823.6 billion in H1 2021, which improved the bank’s CASA mix to 72.9% from 68.1% (FY 2021).  This is encouraging.

CASA is a non-term deposit Current Account Savings Account aimed at combining the features of savings and checking accounts to entice customers to keep their money in the bank. Being a cheaper way for a bank to raise money than issuing term deposits, because it pays very low or no interest on the current account and an above-average return on the savings portion, it is expected to help generate a higher profit margin, and thus increase net interest income.

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