Investor/Analyst Presentation FY 2015

Transcription

1 Investor/Analyst Presentation FY

2 Agenda 1. Overview 2. Operating environment 3. Funding and liquidity 4. Credit risk and asset quality 5. Profitability and capital 6. Outlook 2

3 Overview Overview 3

4 Sterling Bank at a glance National Commercial Banking License Branch Network A3 BBB A2 BBB+ Short term rating Long term rating Short term rating Long term rating Business Focus 187 Branches 840 ATMs >1,600,000 Customer base >2,600 Professional Employees B2 Long term rating Retail, Commercial & Corporate Clients 4

5 Milestone The Birthing Process Our Heritage The result of the low retail penetration was a high cost of funds which impaired growth and profitability. Sterling Bank Plc was born out of a merger of five other Nigerian banks in a bid to achieve compliance with the regulatory requirement mandating a N25 billion minimum capital base for Nigerian banks. Magnum Trust Bank Low Branch Network Weak Customer Base We navigated through these years to: Establish a foothold for better scale in the market Enhance brand visibility for both our corporate and retail clients Improve our technological capabilities to enable us segment and create unique experiences for our customers Fund deposit book predominantly from the retail segment Invest in our people by encouraging a learning and Knowledge driven organization NAL Bank Plc Low Brand Visibility Integrate our people following from the M&A Trust Bank of Africa Ltd. Deposit Book Concentration Create a distinct brand identity. Indo-Nigeria Merchant Bank NBM Bank Ltd. Low Capital Base Sustainable solutions to reposition us as a key competitor Adopt social media to deepen customer interactions These banks were predominantly investment banks with little retail footprint. Given this fact, the business of commercial banking was somewhat new to Sterling Bank with challenges Beef up capital to enable us achieve better scale. Grow our retail footprint by investing in technology and service channel network growth i.e. branches, ATMs, internet and mobile banking, network upgrade and other technology infrastructure. 5

6 Milestone The Growth Years 2011 In furtherance of the retail growth strategy, in 2011, the Bank consummated a business combination with Equitorial Trust Bank. This was to position the enlarged entity to benefit from the significant commercial opportunities in the emerging banking landscape and the Nigerian economy in general. We re-launched our brand promise in 2009 with 'the one-customer bank' slogan 2015 Capital Base As at the end of 2015, our capital base was about N100bn allowing us make the necessary investments for our growth plans N100b Over the last five years we have received ISO certifications for our information assets Although still navigating the tides in our current regulatory environment, we have a resilient model as we have been since the first merger. Our capital adequacy ratio is currently 17.5% above the regulatory benchmark of 10%. Our capital programme raising plan commenced in 2013 at which point we had over N50bn Capital Base N68b Received PCIDSS Certification for all our cards We have publicly declared our ratings from internationally acclaimed rating agencies Moody's, Lafferty and GCR who have given external and independent validation of our journey and vision. Our bank as well as its management have received local and global awards on innovation, leadership and service to the community. Our journey has been eventful and fulfilling. As an institution we are committed to being the financial institution of choice and continue to navigate our way to deliver on this promise. 6

7 Our Strategy F Our Strategy - Build a sustainable and systemically important bank Manage risk, balance sheet and capital to deliver superior returns to shareholders. Create a learning organization to optimize productivity. Optimize operations and technology to drive better control, manage costs, complexity and risk Deliver excellent customer service and drive efficiency and sales through robust digital and payments capability

8 Awards and Recognition Lafferty Bank Quality Ratings Top 10 in the world, top 3 in Africa, and 1st in Nigeria among 100 banks rated worldwide The Banker Africa Award Most Innovative Bank The Banker Africa Award Best Corporate Governance Bank Nigeria Technology Award Best Bank Website of the Year Barbara Abike Epperson Award Certificate for Excellence in CSR EFMA/Accenture Award Most Disruptive Technology/Innovation 8

9 Performance Highlights 9

10 Management Metrics Guidance Performance Revenue growth Earnings rose 6.3% to N113.2bn (2014: N103.6bn) (Due to impact of regulatory and macroeconomic headwinds from decline in global commodity prices ) X Cost-to-income <75% Cost-to-income of 72.2% (2014: 73.6%) Pre-tax Return on average Equity (ROAE) >20% Pre Tax Return on average equity of 12.2% (2014: 16.6% 2 ) X (Due to pressure on earnings arising from macroeconomic headwinds) Dividend per share = 6k (Dividend policy) NPL ratio >3% Dividend per share of 9 kobo (2014: 6 kobo) Non-performing loans ratio of 4.8% (2014: 3.1%) (Due to the challenging operating conditions) X Net loans growth >20% Net loans grew -8.8% to N billion (2014: N bn) (Due to the repayment of State Government loans (Adjusted growth,14.4%) X Deposit growth >25% Deposits grew -9.9% to N billion (2014: N655.9bn) (Due to the implementation of the Treasury Single Account (Adjusted growth, 12.3%) X 10

11 Operating Environment Overview 11

12 8.2% 8.4% 8.5% 8.7% 9.0% 9.2% 9.2% 9.3% 9.4% 9.3% 9.4% 9.6% Macro Profile Global Crude oil supply glut persisted in the last quarter of the year, exerting downward pressure on prices The plummeting commodity prices impacted negatively on large emerging markets like Russia and Brazil, some other emerging economies recorded strong growth and India became the fastest growing major economy in the world Employment growth in the US prompted the Federal Reserve to tighten monetary policy for the first time since 2006, while the Euro zone, with a lift in credit growth and declining unemployment, continued its recovery with a 1.9% growth rate Domestic Q GDP came in at 2.1% y-o-y (Q %), 70 basis points lower than 2.8% in Q3, 2015 Foreign reserves was down 15.6% to US$29.1 in December 2015 from US$34.5bn as at December 2014; and fell further to US$27.86bn in March Headline inflation rate trended upward to close the year at 9.6%; 60 basis points above CBN s target of 9% The CBN retained exchange rate at N197/US$ and implemented various foreign exchange policies to reduce demand pressure on the Naira 48 Brent Oil Price Trend-(US$) JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 32.4 Foreign Reserves Position (US$ bn) JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Headline Inflation Rate 12

13 Regulatory Environment Key Regulatory Actions A revised guideline on BASEL II implementation covering Pillar 1 (minimum capital requirement), Pillar 2 (ICAAP) and Pillar 3 (disclosure requirements) with accompanying reporting template Rationale To strengthen the capital position of banks Extension of cashless policy to other States in the country To reduce cost of cash management and currency outside the banking system To improve Know Your Customer (KYC), Biometric Verification Number (BVN) Enrolment support retail lending and minimize money laundering activities Ban on 41 items from accessing foreign exchange at the official To reduce demand pressure on the Dollar market and conserve foreign exchange Restructuring of State Government loans by conversion to To improve liquidity and capital adequacy FGN 20-year bonds ratios Implementation/Enforcement of Treasury Single Account (TSA) which requires Federal Government Ministries, Departments and To provide transparency in Government Agencies to transfer their funds to the Consolidated Revenue revenue management system Account (CRF) Reduction in Monetary Policy Rate (MPR) from 13% to 11% and a To encourage lending to the real sector conditional decrease of CRR from 25% to 20% Increase in general provisions on performing loans to 2% (from 1%) To strengthen the capital position of banks Prohibition of foreign currency lending to customers without To mitigate foreign exchange risks foreign currency receivables 13

14 14 Funding and Liquidity

15 Assets growth trend N B Cash & short term investments Fixed Assets Other Assets Government Securities Loans & Advances % -3% Comments Total assets grew at a compound annual growth rate of 12% (CAGR: ) but declined in 2015 by 3% to N798.4 billion as we prioritized balance sheet efficiency We also maintained a very liquid balance sheet position despite the implementation of the Treasury Single Account (TSA) by the FGN with liquid assets accounting for over 40% of total assets Growth in Government securities due to the liquidation of State Government loans in exchange for Government securities Reduction in cash & short term investments due to the reduction in Cash Reserve Requirement 15

16 Funding mix N B % 1.0% 5.0% 1.0% 5.0% 1.0% 5.0% 1.0% 7.5% 8.0% 4.0% 5.0% 8.0% 9.0% 4.0% 10.0% 4.0% 6.0% 12.0% 81.0% 80.0% 81.0% 80.0% 74.0% 100% 0.6% Comments Deposits remained the major source of funding at 74% of total assets (Dec 2014: 80%); reduction in deposit contribution due to the implementation of the TSA Equity contribution increased by 200 basis points to 12% due to profit accretion 2011 Borrowings Debt Securities Other Liabilities Equity Deposits Funding from StanChart, Islamic Corp. and AFREXIM amounting to US$70 million provided additional dollar liquidity for the Bank Borrowings Growth Citibank 19,138 16, % Goldman Sachs International 8,261 7, % Bank of Industry 4,197 7, % CBN Agric Fund 14,750 13, % Standard Chartered Bank 4,867 - Islamic Corporation 5,972 - AFREXIM 2,966 - CBN - MSME NEXIM Total 60,286 45, % 8.1% 4.9% 9.9% 0.2% 24.5% 7.0% 31.7% 13.7% Citibank Goldman Sachs Bank of Industry CBN - Agric-Fund StandChart Islamic Corp. AFREXIM CBN - MSME 16

17 Deposits N B +10% -10% Comments Time Savings Others Current Deposits grew at a compound annual growth rate of 10% (CAGR: ) but declined 10% YoY to N590.9 billion due to the implementation of the Treasury Single Account (Adjusted growth 12.3%) 2011 Deposit Mix Deposit by Business Segments Current account deposits were the most impacted leading to a 19.2% reduction to N361.7 billion; % 0.1% Dec % 7.1% 40.1% 0.7% Dec % 34.2% Savings deposits rose by 27.8% to N41.7 billion supported by the on-going expansion of our distribution channels However, wholesale deposits increased by 8.8% resulting in a 90 basis points increase in cost of funds to 6.6% Time Savings Current Others Corporate & Investment Retail & Consumer Commercial & Institutional 17

18 Liquidity N B Cash with CBN 68.8 Investment Securities Split 67.3 Due from banks Treasury bills Government bonds Euro bonds Corporate bonds Comments Liquid assets (excluding Pledged) accounted for 44.3% of total assets (Dec 2014: 41.1%) due to increase in investments securities Increase in cash and balances with CBN due to the apex bank s policies on Cash Reserve Requirements Investment securities grew to N billion with 70% in available for sale securities and 27% held to maturity % 3% Dec % 2% Dec % Overall, liquidity ratio was above regulatory benchmark of 30% at 43.5% (Dec. 2014; 34%), while net loan to deposit ratio was 57.3% (Dec. 2014; 56.6%). 70% Held for trading Available for sale Held to maturity 18

19 19 Credit Risk & Asset Quality

20 Loans by business segment Loans and advances N B Gross Loans Net loans % -9% Comments Gross loans declined by 6.9% and net loans declined by 8.8% to N354.5 billion and N338.7 billion respectively However, both grew at a compound annual growth rate of 20% (CAGR: ) Reduction in gross loans was as a result of the liquidation of state government loans 23.7% 10.1% 66.2% 51.9% 6.5% 39.7% Commercial & Institutional Retail & Consumer Corporate & Investment Non-interest Following the reclassification of our loans in line with our new operating structure, Commercial & Institutional Banking accounted for 52% of loans, Corporate & Investment banking accounted for 40% while Retail & Consumer Banking accounted for 6.5%. 0.0% 1.9%

21 Loans and advances by sector Sector (N millions) 2015 % of Total 2014 % of Total Growth Agriculture 13, % 16, % -18.5% Capital Market % % -74.2% Communication 29, % 12, % 142.2% Consumer % 8 0.0% na Education % 1, % -27.5% Finance & Insurance % % -22.4% Government 35, % 33, % 3.1% Manufacturing % % -45.7% Mining & Quarrying % % 19.9% Mortgage % % -18.8% Oil& Gas - Upstream 65, % 55, % 18.4% Oil & Gas Downstream % % 11.4% Oil & Gas Services 32, % 36, % -12.4% Others % % -29.5% Power 14, % 13, % 8.6% Real Estate & Construction % % -50.5% Transportation 16, % 9, % 72.1% Non-Interest Banking % % % Total 354, % 380, % -6.9% 21

22 Loans and advances by currency Sector (N millions) LCY FCY Total % of Sector Loans in FCY Agriculture 13,146-13,146 0% Capital Market % Communication 9,012 20,302 29,314 69% Consumer 4,606-4,606 0% Education % Finance & Insurance 13, ,755 0% Government 22,330-22,330 0% Manufacturing 8, ,487 0% Mining & Quarrying % Mortgage 11, ,011 4% Oil & Gas downstream 39,064 4,893 43,957 11% Oil & Gas - upstream 1,247 64,203 65,450 98% Oil & Gas - Services 11,758 20,519 32,277 64% Others 22,063 1,904 47,935 4% Power ,400 14,920 97% Real Estate & Construction 39,601 12,324 51,925 24% Transportation 6,710 9,771 16,480 59% Non-interest banking % Grand Total 205, , ,475 42% Foreign currency (FCY) loans are largely concentrated in the following sectors oil & gas, communications and power 22

23 Asset quality 4.8% NPL Ratio 4.8% Comments 3.8% 2.1% 3.1% Downstream accounted for the highest sector impairment at 29%; two customers accounted for 80% of the impaired loans Sector Impaired % of Total Agriculture 383, % Capital Market % Communication 345, % Consumer 302, % Education 448, % Finance & Insurance 240, % Manufacturing 1,926, % Mortgage 538, % Oil & Gas - downstream 4,758, % Oil & Gas - Services 362, % Others (General commerce) 3,960, % Power - 0.0% Real Estate & Construction 2,401, % Transportation 222, % Grand Total 15,892, % 2015 A single customer accounted for about 70% of non-performing loans in the manufacturing sector; however, the loans were past due but not impaired Increase in NPL ratio by 170 basis points largely due to the reduction in gross loans, while cost of risk also increased to 2.3% from 1.9% in 2014 Non-performing loans were adequately covered at 99% coverage ratio Oil & gas upstream and services subsector loans are viable at current oil prices, however, we have restructured in most cases to accommodate pressure on cashflows In 2015, total loan recoveries was N3.6 billion out of which N805million was cash recoveries on written-off loans 23

24 Upgrade to risk management systems Implementation of the Basel II & III project in conjunction with KPMG Risk rating models developed for exposures categorized as specialized lending; Object Finance, Project Finance, Commodity Finance, Income Producing Real Estate (IPRE) Market and Liquidity Risk Policy to guide the Bank s Market and Liquidity Risk exposures Stop-Loss Policy 2015 PCI DSS recertification ISO Surveillance Audit Quarterly Vulnerability Assessment and Monitoring 24

25 25 Profitability and Capital

26 Income statement highlights Common Size Common Size % of Gross % of Gross Items (N millions) Growth Earnings Earnings Gross earnings 110, % 103, % 6.3% Interest income 80, % 77, % 3.8% Interest expense -41, % -34, % 18.5% Net interest income 39, % 43, % -8.1% Fees and commission income 15, % 16, % -3.8% Net trading income 10, % 6, % 57.4% Other operating income 3, % 2, % 9.3% Non-interest income 29, % 25, % 13.7% Operating income 68, % 68, % 0.1% Impairment charges -8, % -7, % 10.3% Net operating income after impairment charge 60, % 61, % -1.1% Personnel expenses -12, % -12, % 0.6% Other operating expenses -11, % -9, % 17.8% General and administrative expenses -16, % -19, % -17.8% Other property, plant and equipment costs -5, % -5, % 0.7% Depreciation and amortization -3, % -3, % 23.1% Total expenses -49, % -50, % -1.9% Profit before income tax 11, % 10, % 2.5% Income tax expense % -1, % -58.5% Profit after income tax 10, % 9, % 14.3% 26

27 Non-interest Income Interest Income Revenue evolution./1 Cash & equivalent Investment securities Loans & advances N B % % Other income Trading income Net fees & commission % +14%

28 Revenue evolution./2 N B Gross revenue % 68% Loans & Advances Investment Securities Cash & cash equivalent % 24% 25% 27% 78% 76% 75% 73% 2012 Non-interest income Interest Income Interest income 2015 Gross earnings rose by 6.3% to N110.3 billion representing a compound annual growth rate of 23% (CAGR: ) on the back of increased transaction volumes and activities Earnings were boosted by non-interest income which rose by 13.7% to N29.3 billion on account of growth in securities trading Interest income increased by 3.8% to N80.9 billion and accounted for 73% of earnings Non-interest Income Fees & Commission Trading Income Others Comments 2% 25% 4% 23% 11% 11% % 73% 73% 36% 26% % 28

29 4.7% 6.1% 6.3% 5.3% 6.6% Net interest income N B Net interest income Comments +24% -8% % 14.2% 13.7% 11.5% 9.7% 8.1% 8.9% 7.1% 5.0% 5.2% Spread Cost of funds Yield on earning assets Net interest income declined by 8.1% to N billion representing a compound annual growth rate of 24% (CAGR: ) Decline in net interest income due to the moderate growth of 3.8% in interest income which was outweighed by the 18.5% increase in interest expense Interest income was impacted by the liquidation of state government loans in exchange for Government securities; consequently, yield on earning assets moderated to 13.7% Funding costs increased by 90 basis points to 6.6% ( %) reflecting a high interest rate environment, while net interest margin declined by 180 basis points to 7.1% We plan to focus on funding cost optimization in the coming period to improve margins 29

30 Operating Efficiency N B Cost-to-income Net interest income Non-interest income 82% 68% 69% 74% % % % 62% % 61% 45% 39% 38% 37% 43% Staff Depreciation Other Expenses Comments Operating income remained flat at N68.8 billion, but sustained by noninterest income Operating expenses declined by 5.1% to N33.7 billion reflecting progress made in strategic cost management Personnel cost was relatively flat at N12.1 billion Depreciation and amortization increased by 23.1% to N3.9 billion due to the on-going investments in a number of technology-led service improvement initiatives across core and subsidiary systems, and channels optimization. Overall, we achieved 140 basis points reduction in cost-to-income ratio to 72.2% 30

31 Profitability N B Comments Profit before Tax Profit after Tax % +10.5% Sustained profit growth momentum despite pressure on earnings arising from macro economic head winds. PBT rose 2.8% to N11 billion, while PAT grew by 14.44% to N10.3 billion Pre-tax ROAE was 12.2% (post-tax 11.4%) The Bank has paid dividend consistently since 2011 and declared a 50% increase in dividend to N2.6 billion at 9 kobo per share ROAA ROAE EPS 16.7% 17.1% 19.0% 16.6% 53k 44k 52k 42k 36k 11.4% 1.5% 1.4% 1.4% 1.4% 1.3%

32 Capital Items (N'm) Growth Total Tier 1 81,371 73, % Total Tier 2 3,892 3, % Total Qualifying Capital 85,262 77, % Risk-Weighted Assets 487, , % Tier 1 Ratio 16.7% 13.0% Tier 2 Ratio 0.8% 0.6% Capital Adequacy Ratio (Basel II) 17.5% 13.6% Comments Capital adequacy ratio was 750 basis points above the regulatory benchmark of 10% Total qualifying capital rose by 10.3% to N77.3 billion bolstered by a steady growth in shareholders funds at a compound annual growth rate of 23.5% (CAGR: ) Equity % % 95.6 Tier 1 capital increased by 10.2% on the back of retained earnings, while tier 2 capital rose by 13.4% due to fair value reserve of N1.2 billion on available-for-sale securities The Bank plans to raise additional US$200 million multi-currency debt capital to further strengthen our capital position 32

33 Financial ratios Indicator Pre Tax Return on Average Equity (annualized) 17.1% 19.0% 16.6% 12.2% Post Tax Return on Average Equity (annualized) 15.9% 16.9% 13.9% 11.4% Return on Average Assets (annualized) 1.4% 1.4% 1.4% 1.4% Earnings per Share 44k 52k 42k 36k Yield on Earning Assets 11.5% 13.0% 14.2% 13.7% Cost of Funds 6.3% 6.1% 5.3% 6.6% Net Interest Margin 5.2% 6.8% 8.9% 7.1% Cost to Income 81.5% 69.4% 73.6% 72.2% NPL Ratio 3.8% 2.1% 3.1% 4.8% Capital Adequacy Ratio 14.6% 14.0% 14.0% 17.5% Loan to Deposit Ratio 49.5% 56.4% 56.6% 57.3% Liquidity Ratio 67.3% 61.5% 33.6% 43.5% 33

34 34 Management Guidance

35 Management Guidance Guidance Deposit growth >20% Net loans growth <17.5% Pre-tax Return on average Equity (ROAE) >15% Cost-to-income <70% NPL ratio < 5% Cost of funds <5% 35

36 36 Thank you