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Sterling Bank Improves Core Business, Asset Quality in Q3

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Sterling Bank
  • Sterling Bank Improves Core Business, Asset Quality in Q3

Sterling Bank Plc rode on the back of increasingly better operating and credit management efficiency to build up the quality and profitability of its core banking business in the third quarter.

Key extracts of the interim report and accounts of Sterling Bank for the nine-month period ended September 30, 2016 released at the weekend at the Nigerian Stock Exchange (NSE) showed considerable improvements in key underlying fundamentals of the bank as it continues to grow its main focus of retail banking.

The report showed that net interest margin, which measures the profitability of the core lending business, improved to 8.5 per cent in third quarter 2016 as against 7.9 per cent in comparable period of 2015. The proportion of non-performing loans (NPL) to gross loans and advances, which indicates assets quality and the efficiency of the credit risk management, also improved significantly from 4.8 per cent December 2015 to 2.5 per cent in third quarter 2016. This brings Sterling Bank well ahead of the 5.0 per cent industry thresholds for NPL set by the Central Bank of Nigeria (CBN). The bank’s cost of funds also improved to 5.3 per cent in third quarter 2016 compared with 6.2 per cent in corresponding period of 2015.

Managing director, Sterling Bank Plc, Mr. Yemi Adeola said the improvements in the underlying fundamentals in the third quarter in spite of the depressing effect of the tough macroeconomic conditions on the overall performance of the sector, underlined the resoluteness of the bank in building a sustainable business anchored on effective risk management and a robust retail business.

According to him, a 37.7 per cent growth in net interest income was largely due to a 12 per cent reduction in interest expense, which underpinned the 60 basis points increase in net interest margin.

“Sterling Bank has grown its active customer base by over 40 per cent year-to-date with improved penetration across all digital channels. The non-interest banking business has also witnessed significant growth in deposits and profitability by 87 per cent and 415 per cent respectively. This gives fillip to our resolve to diversify our business significantly over the coming years,” Adeola said.

He outlined that the bank would continue to prioritise operating efficiency and aggressively drive retail funding, noting that these priorities will guide bank’s business in the final quarter of the year and serve as the fulcrum for 2017. He noted that the tough operating environment characterised by foreign exchange supply shortages, rising inflation, negative economic growth and generally recessionary environment has sustained downward pressure on core earnings in the industry.

“Although macroeconomic conditions could witness some modest improvements, the operating environment would continue to be challenging and business confidence somewhat subdued. Nonetheless, Sterling Bank remains committed to building a sustainable business anchored on efficiency,” Adeola assured.

Further analysis of the financial statement showed that net interest income rose by 37.6 per cent from N30.2 billion in third quarter 2015 to N41.5 billion in third quarter 2016. Non-interest income however reduced by 47.6 per cent to N10.8 billion as against N20.5 billion mainly because of 34.2 per cent decline in fees and commission. This moderated the gross earnings to N79.65 billion in third quarter 2016 as against N81.81 billion in comparable period of 2015. With curtailed increase of 5.0 per cent in total expenses in spite of a 17.9 per cent inflation rate year-on-year in September 2016, profits before and after tax stood at N6.07 billion and N5.54 billion respectively in third quarter 2016. Profits before and after tax were N8.30 billion and N7.55 billion respectively in third quarter 2015.

The balance sheet of the bank emerged stronger during the period. Net loans and advances increased by 46.2 per cent to N495.3 billion in September 2016 as against N338.7 billion recorded at the beginning of this year. This was driven primarily by foreign exchange revaluation. Customer deposits also improved from N590.9 billion as at December 31, 2015 to N595.1 billion in September 2016. Total assets excluding contingent liabilities increased by 11.4 per cent to N890.3 billion as against N799.5 billion at the start of the year.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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