February 21, 2020/Cordros Report
Interest income declined by 5.6% y/y to NGN491.27 billion, depressed by weaker income from loans to customers (-14.7% y/y to NGN232.95 billion), although income from investment securities grew over the corresponding period of the prior year (+1.8% y/y to NGN155.72 billion). We note, however, that there was a growth in interest income from loans and advances q/q of 29.1%, reflecting the significant expansion in loans and advances (+26.5% y/y | +12.9% q/q) to NGN2.31 trillion, as the bank strived to meet the minimum LDR limit of 65.0%.
Also, interest expense grew by 2.8% y/y to NGN148.53 billion, reflecting the higher cost of deposits from customers (+12.0% to NGN80.58 billion). Similar to interest income, there was significant growth in interest expense q/q by 7.9%. Given this expansion, it is clear that the bank took on higher cost deposits.
Continuing the trend during the year, non-interest income (NII) was strong, settling 29.0% higher y/y at NGN232.12 billion. The strong growth recorded was supported by expansions in fees and commissions income (+22.4% y/y to NGN100.11 billion) and gains on investment securities (+46.9% y/y to NGN117.80 billion). This expansion in NII, offset the decline in net interest income (9.7% y/y to NGN267.03 billion.), and led to an expansion in operating income of 3.9% y/y to NGN353.12 billion.
Operating expenses growth was muted, as the bank continued to focus on cost management in the face of weak income growth. Opex grew marginally by 2.8% y/y to NGN231.83 billion, with the most pressure exerted by personnel expenses (+13.6% y/y to NGN77.86 billion), which constituted 33.6% of Opex. Consequent on the muted Opex growth relative to operating income growth, cost-to-income ratio (ex-LLE) settled lower at 48.8% relative to 49.3% in the prior year. Also, profitability was stronger, with profit-before-tax settling 5.0% higher year-on-year, while profit-after-tax settled 8.0%, on account of a 10.0% decline in income tax expense.
Comment: The bank’s performance remains in line with expectation. The improved growth in interest income quarter-on-quarter is in line with our prognosis, however, we expect pressure on interest expense in 2020, due to the implementation of the higher CRR (although the DCRR may ameliorate this somewhat). We are reviewing our estimates.