This impressive growth mainly stems from a 67.09% rise in net interest income, driven by increased interest earnings from loans and advances to customers.
Interestingly, interest income made up 79% of total gross earnings, highlighting a strong dependence on their core lending operations.
When looking at the key financial figures for 2024 compared to 2023, there’s a clear trend of significant growth across various performance metrics. Gross earnings climbed by 54.21% to N328.349 billion. Interest income saw a notable increase of 67.09%, reaching N260.830 billion, while interest expenses also rose by 76.67% to N128.473 billion, leading to a 58.73% boost in net interest income, which totaled N132.357 billion.
Additionally, net fees and commission income grew by 24.15% to N32.410 billion, contributing to a 42.56% increase in operating income, now at N199.876 billion. The net impairment loss on financial assets dropped by 19.51% to N9.929 billion, and income after impairment charges rose by 48.55% to N189.947 billion, with total expenses increasing by 38.05% to N145.194 billion. Profit after tax surged by 73.84%, reaching N37.522 billion, while earnings per share jumped by 72.00%.
The fact that interest income constituted 79% of gross earnings, with loans and advances making up 68% of that, shows that Sterling Financial is effectively using its lending operations to boost revenue.
However, there’s been a shift in income sources. Interest income from loans and advances grew by 45%, but its share of total interest income fell by 13%. On the other hand, interest income from securities skyrocketed by 128%, now accounting for 27% of total interest income.
This indicates that the bank is increasingly turning to fixed-income securities for revenue, likely due to the attractive yields on government securities.
Customer deposits jumped by 39.37% to N2.568 trillion, showing a solid liquidity position.
On the flip side, interest expenses on these deposits shot up by 74% year-over-year, meaning the bank is shelling out more to draw in and keep those deposits. This could be a result of rising interest rates or stiffer competition in the deposit market. Even with the significant increase in interest expenses, their share of total interest costs dipped slightly by 2% year-over-year, hinting that other funding sources like interbank deposits, borrowings, or debt securities might be playing a bigger role in the overall expenses.
Notably, the interest expenses tied to the bank's deposits skyrocketed by 403% year-over-year, raising their share of total interest expenses to 17%. While the growth in deposits is a good sign, it’s crucial to keep an eye on net interest margins (NIMs) to see if the higher funding costs are eating into profits.
If funding costs keep climbing, it could squeeze earnings unless the bank adjusts loan pricing or invests in higher-yield opportunities.
The 23% increase in loans and advances to customers indicates that Sterling is ramping up its lending, which could boost interest income and profitability if handled properly.
Additionally, the drop in loan impairments shows that asset quality is improving. A 33.36% decrease in loan impairments to N8.028 billion points to better loan performance, enhanced risk management, or a more favorable economic climate that’s lowering default rates. This suggests that the bank’s asset quality is on the rise.
While the reduction in impairments is a good thing, investors should consider whether this is due to real credit improvements or just less provisioning. If loan growth outstrips risk assessment, future impairments could increase if the economy takes a downturn or if credit standards are loosened.
The combination of robust loan growth and decreasing impairments is promising for both profitability and asset quality.
Total expenses jumped 38% year-over-year to N145 billion, taking up 76% of net operating income after accounting for impairments.
This points to significant cost pressures that, if not managed, could impact profitability even with revenue on the rise.
While the increase in costs might be tied to business growth, it's essential to focus on strategic cost management and improving operational efficiency to maintain long-term profitability.
On a positive note, despite the higher expenses, earnings per share (EPS) soared 72% year-over-year to N1.29, showcasing a solid bottom line and indicating that Sterling has the capacity to reward its shareholders.
Shareholders’ equity climbed by 55%, highlighting the bank’s financial strength. Notably, retained earnings surged by 69% to N71.76 billion, creating plenty of opportunities for either dividend distributions or reinvestment in growth initiatives.
After an impressive 206% year-to-date return in 2023, the stock increased by 30.54% in 2024 but has experienced a slowdown in early 2025, with only a 3.57% return by the end of January.
Investors should consider whether this growth trend can continue in light of shifting market dynamics.