Stanbic’s FY 19 results were flat yoy, but better than expected. Net attributable income rose 1% yoy to NGN78bn, ahead of our NGN67bn forecast. The key reasons for the beat are better-than-expected non-interest revenue (up 6% yoy vs our 2% forecast), reduced operating expenses (down 2% yoy) and lower-than-expected net impairment charge (6ppts lower than our forecast).
Contrary to peers, Stanbic's loan growth was flat qoq, but its loan-to-funding ratio is above the minimum LDR at 67%, on our calculation.
NIM came in lower at 4.4% vs 5.1% in FY 18, on account of lower yields, which outweighed the 0.2ppts decrease in funding cost due to a reduction in deposits. ROE was better than expected at 27.3% versus our forecast 26.4%
Reiterate Buy on Stanbic, which is one of our favoured Nigerian banks, with NGN52.00 TP and ETR of 68%. Stanbic trades at 1.1x FY 19f P/B vs frontier banks at 0.9x, reflecting its highly profitable wealth segment.
Key positives
- Cost/income ratio improved by 2.5ppts to 50%.
- Lower-than-expected effective tax rate (17% vs 20% forecast).
- Lower-than-expected cost of risk (0.2% vs 0.3% forecast).
Key negatives
- Weak balance sheet growth with loan growth flat qoq, as the bank reduced its lending to financial sector intermediaries by 22% yoy, opting instead to grow its retail and household loans in line with the LDR directive. Based on our calculations, Stanbic’s loan-to-funding ratio stands at 67%.
- Deposits also shrunk by 7% qoq as the bank offloaded c50% of its more expensive term deposits, opting instead to grow cheaper savings deposit, which were up 30%.
- Asset quality deterioration that saw the NPL ratio remain flat qoq at 3.9%, but increase by 1.1ppts yoy. Provisions coverage was also down 7% qoq to 112%.
Outlook
NIM will likely remain weak in 2020 as we see increased competition among banks in the retail lending space. Considering the pick-up in retail and household loans is expected to continue, we could see further weakening of asset quality.
| NGNmn | FY 19 | FY 18 | yoy | 9M 19 | qoq |
|---|---|---|---|---|---|
Net interest income | 77,831 | 78,209 | 0% | 58,672 | 33% |
Non-interest income | 108,755 | 102,604 | 6% | 81,939 | 33% |
Total income | 186,586 | 180,813 | 3% | 140,611 | 33% |
Operating expenses | 94,029 | 95,601 | -2% | 71,593 | 31% |
Pre-provision profit | 92,557 | 85,212 | 9% | 69,018 | 34% |
Net impairment | 1,181 | (3,120) | -138% | (90) | -1412% |
Net attributable profit | 75,035 | 74,440 | 1% | 55,552 | 35% |
EPS | 6.92 | 7.04 | -2% | 5.25 | 32% |
Net loans | 535,170 | 432,713 | 24% | 542,453 | -1% |
Total deposits | 637,840 | 807,692 | -21% | 687,878 | -7% |
NII margin | 4.4% | 5.1% |
| 4.5% |
|
Cost/income ratio | 50.4% | 52.9% |
| 50.9% |
|
ROE | 27.3% | 34.5% |
| 27.4% |
|
Cost of funds | 2.4% | 2.6% |
| 2.5% |
|
NPL ratio | 3.9% | 3.9% |
| 2.7% |
|
Provisions coverage | 112% | 148% |
| 106% |
|
Cost of risk | 0.21% | -0.68% |
| -0.02% |
|