Sterling Bank Plc will consider acquiring another commercial bank with potential to add value to its business and help drive its strategic growth objectives, the management of the bank has said.
In response to a question by The Nation on the prospects of mergers and acquisitions in the growth strategy of the bank, Managing Director, Sterling Bank Plc, Mr Yemi Adeola, said the bank would consider a good opportunity for acquisition as it seeks to deliver sustainable growth to its shareholders.
According to him, while the bank is focused on implementing its organic growth plan, it will consider opportunistic acquisition that adds value to its business.
“It will be opportunistic, if we get the right opportunity to acquire, we will acquire and it must be at the right price,” Adeola said.
The Asset Management Corporation of Nigeria (AMCON) intends to sell its wholly-owned banks – Enterprise Bank, Keystone Bank and Mainstreet Bank. It recently placed advertisement for expression of interest in Mainstreet Bank. AMCON had earlier indicated it intended to conclude the sales of the three banks by the third quarter of the year.
Sterling Bank is raising new capital to boost its capital base and strengthen its capacity to take on new businesses and emerging opportunities.
Adeola said Sterling Bank would complete its capital raising circle of $400 million, which it successfully started last year with the first tranche in forms of an oversubscribed rights issue.
According to him, the capital raising exercise of the bank was premeditated few years ago, when it set out to raise $400 million in three classes-rights issue, private placement and tier two capital. The rights issue was successfully completed in December 2013 with the bank raising N12.9 billion and it is currently undertaking the second stage of private placement of about N18 billion. It will follow these with the tier two capital issue.
“All these will give us about $400 million – about $30 million will go into delivery channels-banking, Automated Teller Machines (ATMs), Point-of-Sale (POS) and so on; about $40 million to $50 million will go towards information and communication technology (ICT) and the rest will be working capital to enable us lend to our customers and do more business because the single obligor limit would have gone up by the time the capital is increase by $400 million,” Adeola said.
He said Sterling Bank is poised to surpass its 2013 performance in the year and continue to deliver improved returns to shareholders citing the impressive start in the first quarter when the bank delivered a pre-tax profit of N3.5 billion.
“Things can only get better the way I see it, whenever you have laid a solid foundation, the house will stand,” Adeola assured.
He however noted that Sterling Bank’s growth model is premised on steady and sustainable growth pointing out that the bank will year-on-year deliver improved returns while not being unmindful of the future sustainability of its operations.
“The truth is that in banking, the best type of growth is steady growth, any growth that is aggressive will lead to crash, we in Sterling Bank will pursue steady growth,” Adeola said.
Two weeks ago, shareholders of Sterling Bank increased the authorized share capital of the bank by 33.3 per cent from N12 billion to N16 billion, creating headroom for the bank to issue new shares in the event of any decision to raise new equity funds.
At the April 30 annual general meeting, shareholders unanimously created new eight billion ordinary shares of 50 kobo each to increase the authorised shares of the bank to from 24 billion ordinary shares of 50 kobo each to 32 billion ordinary shares of 50 kobo each.
The decision strategically positioned Sterling Bank to respond to opportunities that may require issuance of shares. With 21.59 billion ordinary shares issued and outstanding on the stock market, Sterling Bank’s authorised share capital, prior to the increase, had unissued share capital of only 2.41 billion ordinary shares of 50 kobo each. The increase added 8.0 billion shares and raised the share issuance capacity to 10.41 billion ordinary shares of 50 kobo each.
The increase came as the bank reaffirmed that it would realise other components of its $400 million three-tier capital raising, which had been approved by the shareholders last year. Shareholders had also urged the directors of the bank to consider further issuance of shares to existing shareholders in the event of any future share issuance. They said the bank has proven to be investors’ friendly, citing steady increase in dividends and above-average growths in key indices.
First-quarter report and accounts of the bank for the three-month ended March 31, 2014 showed that gross earnings rose by 24.1 per cent while profit before tax increased by 17.2 per cent. Sterling Bank’s first quarter report is a positive contrarian to the general banking industry trend, with most results in the industry either showing a decline in the top-line or the bottom-line.
Sterling Bank grew gross earnings by 24.1 per cent to N24.6 billion in first quarter 2014 as against N19.84 billion recorded in the corresponding period of 2013. Profit before tax rose from N3.02 billion to N3.54 billion while profit after tax increased from N2.72 billion to N3.14 billion.
Net interest income rose by 58 per cent due to 31 per cent growth in interest income relative to a modest increase of eight per cent in interest expense. This resulted in a 35 per cent growth in operating income to N16.2 billion. The annualised return on average equity was 20 per cent in line with the bank’s medium term strategic objectives.
Adeola said the first quarter was a reflection of the bank’s improving efficiency and robust credit risk management.
“Over the next few quarters, we will continue the upgrade of our physical infrastructure and rollout of conventional and alternative channels in order to deepen market penetration of our products and grow retail deposit market share. Loan growth will remain steady and disciplined with the overall target for the year set at 25 per cent,” Adeola said.
The first quarter report came on the heels of distribution of gross dividend of N5.4 billion for the 2013 business year. Key extracts of the audited report and accounts of Sterling Bank for the year ended December 31, 2013 had shown similar positive trajectory with considerable growths in gross earnings and profitability while the bank’s balance sheet was stronger.
The report indicated that gross earnings rose by 33.1 per cent while pre and post tax profits grew by 24.1 per cent and 19 per cent. Basic earnings per share rose by 18.2 per cent from 52 kobo t0 44 kobo.
A breakdown of the dividend recommendation indicates that shareholders would receive a dividend per share of 25 kobo, 25 per cent above 20 kobo distributed in the previous year.
Gross earnings rode on the back of a 24 per cent and 31 per cent growth in non-interest income and interest income to N91.6 billion last yaer as against 68.86 billion in 2012. Non-interest income, which rose to N21.7 billion as against N15.3 billion in 2012 was largely due to a 139 per cent increase in trading income in addition to a 46 per cent increase in fees and commission; while Interest income rose to N70.0billion compared with N53.5 billion in 2012, driven by a 39 per cent increase in gross loans and advances to N328.7 billion.
Profit before tax rose from N7.50 billion in 2012 to N9.31 billion in 2013 while profit after tax increased from N6.95 billion to N8.27 billion. As a demonstration of confidence in the bank, customer deposits rose 23 per cent to N570.5 billion as against N466.8 billion. This, according to the Bank, also reflects progress in the execution of its retail strategy
Sterling Bank’s total assets including contingent liabilities increased by 28 per cent to N909.4 billion compared with N708.2 billion in 2012, while Shareholders’ funds grew by 36.1 per cent to N63.5 billion as against N46.6billion due to profit accretion and net proceeds of N12.1 billion from the rights Issue.
The report also showed improvement in the asset quality of the bank as the proportion of gross loans to non-performing loan dropped to 2.1per cent in 2013 as against 3.8 per cent in 2012, notwithstanding a 40 per cent growth in loans and advances.
In its medium-to-long term plan, Sterling Bank outlines that it would strive to build a globally competitive financial franchise with strong fundamental performance and sustainable returns to shareholders.
The strategic growth plan details key identifiable goals and parameters for measuring performance of the bank, giving a directional outlook for year-on-year assessment of management performance.
Overall, the bank plans to build a fully scaled business model with institutionalised processes that will endure beyond the stewardship of current owners and management while transforming into a systemically important operator that impacts significantly on all segments of its business over the long period.
Within the immediate future, Sterling Bank fundamental targets include double digit annual growth in gross earnings, diversified income streams with leading positions in all segments of operations as well as a diverse retail funding base.
Besides, the bank will strive to keep non-performing loans below five per cent of gross loans and advances, focus on single-digit cost of funds and consolidate on products and services that would make the bank the consumer banking franchise of choice to customers.
Some of the key performance indices to measure the performance of the bank include return on average equity, non-performing loan/gross loan ration, cost-to-income ratio, revenue growth, loan growth, deposit growth, total assets, sources of funding and capital adequacy among others.
The 2011-2016 medium term plan seeks to deliver 3.5 per cent market share by assets and five per cent by deposits, less than three per cent non-performing loans, investment grade credit rating, diversified funding base, double digit revenue growth annually and leading consumer banking franchise, among others.
