2016 HALF YEAR RESULTS Presentation to Analysts and Investors July 2016 1
section page 1 Business and Operating Highlights 3 2 H1 Financial performance 8 3 Outlook & Strategy 19 2
H1’2016 HIGHLIGHTS Continued growth recorded on growing the retail space N24.3bn Earnings BBB- (short term rating) 16.65% A3 (long term rating) Card Credit Giving customers total BBB-(national long term rating) control of their Payment Control Ratings F3 (long term rating) cards BBB-(stable) 1.7 million Customer Base Improved ATMs 246 Alternate Service POS 5,359 Channels Branches 142 Rating Branch Growth ISMS ISO certified National License 3
Overview of Operating Environment The following changes in the operating environment impacted performance in H1’2016 • Growth in developed economies remains slow; US Global developments continue to have an numbers however show some resurgence. Brexit impact on local economy - Brexit fears impacted on Eurozone exchange rates. Political implementation, slowing growth in Asia stability has improved outlook. • Slow pace of implementation of fiscal initiatives and budget spend impacting on economic growth. GDP Implementation of Fiscal policies have has declined in consecutive quarters. Economic impacted on money supply and economic activities expected to pick up in 3 rd -4 th quarter. growth • Oil production continues to be affected by disruptions. However, price has stabilized in recent months. Oil Price & Output and Exchange rate Exchange rate has remained volatile. The new rate stability regime is still being implemented. Stability expected by end of Q3. • The Monetary Policy Committee has decided to Regulatory policies and impact on industry increase MPR given the impact of depreciated growth exchange rate on inflation and consumer prices. Additional requirements on capital adequacy also expected. • Inflationary pressure has affected disposable income Reduced disposable income and slowing and this will invariably impact the level of savings. consumer demand Exchange rate impact has also affected discretionary spending. 4 4
Updates on 2016 Commitments OBJECTIVES TASK • Grow the Franchise Grow Deposit volumes within Retail segment of market through campus storms, prepaid accounts, partnership with telcos on agency and mobile banking o (Customer Deposit improved 17% (Y-o- Y) from ₦237.43 billion in the previous period to ₦277.87 billion in H1 2016; however, there was a decline of 2.49% in comparison to ₦284.98 billion in Dec. 2015.) • Expand branch network in new markets and additional branches in existing commercial hubs o Opened new branches in Lagos, PH & Abuja, also opened Lokoja branch • Enhance Asset Improving capital and funding o Quality and Capital Awaiting final SEC clearance for Tier 2 Capital. o Consistent repayment of existing Tier 2 capital • Improving efficiency Improved operational efficiency through better use of technology o OPEX growth of 2.7% in 2016 below H1 inflation average of circa 9.2% o Net Interest Margins of 6.71%. o Cost to income ratio of 89.8% still below target of c. 75%-80%. • Improve Improved service rating across the Bank by iimplementing the Purple Rules (service Organizational delivery) Charter. Industry rating improved from 19 th to 13 th , expected to reach top-10 next year o Capability • Continued deployment of alternative channels – POS, ATMs and mobile applications Deploy alternative o channels ATM deployment increased by 17.14%; o POS increased by 17.78%; o Number of active cards increased by 26% 5 5
INCOME STATEMENT HIGHLIGHT Gross Earnings ( ₦’bn) PAT( ₦’ bn) PBT( ₦’ bn) H1 2016 24.3 H1 2016 1.1 1.3 H1 2016 GROWTH GROWTH GROWTH H1 2015 20.9 H1 2015 16.27% 0.99 H1 2015 1.2 11.11% 8.33% Operations Income ( ₦’ bn) Interest Expense ( ₦’ bn) Operations Expense ( ₦’ bn) H1 2016 12.69 H1 2016 11.63 11.4 H1 2016 GROWTH INCREASE INCREASE H1 2015 12.27 H1 2015 3.42% H1 2015 37.96% 8.43 2.70% 11.1 Impairment ( ₦’ bn) Interest Income ( ₦’ bn) Non-interest Income ( ₦’ bn) H1 2016 0.062 H1 2016 20.2 4.1 H1 2016 DECLINE GROWTH GROWTH H1 2015 (0.171) H1 2015 135.94% 15.43% 17.5 H1 2015 3.4 20.59% 6 6
section page 1 Business and Operating Highlights 3 2 H1 Financial performance 8 3 Outlook & Strategy 19 7
FINANCIAL HIGHLIGHTS H1’2016 H1’2015 2015FY Financial Gross earnings N24.3bn N20.9bn N45.9bn Highlights PBT N1.3bn N1.2bn N3.1bn PAT N1.1bn N0.99bn N2.3bn CAR 13.36% 18.90% 15.10% EPS 6K 5k 6k Deposits N277.87bn N237.43bn N284.98bn Revenue Loans (net) N172.0bn N134.6bn N185.6bn Generation Interest income N20.2bn N17.5bn N37.1bn Non-interest income N4.1bn N3.4bn N8.7bn Cost-to-income 89.8% 90.4% 88.5% Operating Cost of fund 6.56% 6.28% 5.70% Efficiency Operating expenses N11.4bn N11.1bn N23.4bn Net interest margin 6.71% 7.72% 5.91% Margin & ROAE (annualised) 4.74% 4.51% 5.18% Asset Quality ROAA (annualised) 0.56% 0.55% 0.60% NPL (%) 2.83% 2.90% 2.67% Loan to deposits 61.90% 56.70% 65.13% Coverage ratio (%) 101% 96.37% 109% Liquidity ratio 31.37% 33.20% 33.57% 8 8
IMPROVING EARNINGS TREND 9 9
OPERATING EXPENSES Mitigating external headwinds with internal optimisation COMMENTS Operating expenses grew by 2.61% to N11.39 billion. This was due to the impact of higher energy prices and inflation. Cost-to-income declined by 0.74% to 89.77% (H1 ’ 2016) compared to 90.44% (H1 ’ 2015), as the Bank remained focused on cost management. The deliberate and strategic expansion migration of customers to e-platforms are expected to minimize cost further. Net interest margin declined by 13.2% due to increased cost of funding. Cost of fund increased by 4.46% (YoY) to 6.56% (H1 ’ 2016) from 6.28% (H1 ’ 2015). 10 10
PROFITABILITY COMMENTS In H1 ’ 2016, the Bank recorded the following; Profit before Tax (PBT) increased by 10.26% to N1.29 billion (H1 ’ 2016) from N1.17 billion (H1 ’ 2015). The increase resulted in growth from gross earnings, conscious cost management and improvement in fee based income. Profit after Tax (PAT) increased by 10.62% to N1.10 billion. Effective tax rate for the periods H1 ’ 2016 & 2015 was at 15%. We expect subdued growth in earnings, given the present high interest regime. 11 11
DEPOSITS COMMENTS As at H1 ’ 2016, the Bank recorded the following; Deposits grew by 17.0% to N277.87 billion (H1 ’ 2016) from N237.43 billion (H1 ’ 2015). Growing retail franchise led to an increase in retail deposits from 19% (H1 ’ 2015) to 33% (H1 ’ 2016) and making up for lost public sector deposits (TSA). Going forward, the Bank will continue to grow its retail deposits resulting in lower funding cost. 12 12
LOAN GROWTH AND ANALYSIS Loan analysis H1’2016 BREAKDOWN OF LOANS AND ADVANCES SECTOR H1'2016 2015FY (N'bn) (N'bn) Oil & Gas 32.15 32.24 General 5.67 3.96 Hotel & Leisure 7.23 5.34 Personal and Professional 15.18 14.96 General Commerce 22.4 17.91 Construction 18.52 10.6 Real Estate Activities 17.16 34.93 Manufacturing 12.06 8.89 Government 10.6 10.07 Power and Energy 8.79 3.34 Professional, Scientific and Technical 8.28 11.5 *Others 14.2 19.74 Capital Market - 7.67 Total 172.24 181.15 COMMENT * Capital market activities has been included in “others” (H1’2016), as it accounted for less than 3% of the loan book. * Others comprises of Education, Agriculture, Finance & Insurance, Transportation, Arts & Entertainment, ICT, Water Supply and Sewage Management and Administration. 13 13
NPL by Sectors NPL (N ’mn) Hotel, Leisure and Hospitality 1,060.10 21.79% Retail and Consumer Finance 1,729.63 35.54% Manufacturing 753.76 15.49% General Commerce 635.99 13.07% Power and Energy 192.62 3.96% Oil and Gas 133.14 2.74% Others 360.83 7.42% Total 4,866.07 100.00% COMMENTS Total NPL was N 4.87 billion (H2’2016 from N 3.98 billion (H1’2015). A significant share of this relates to legacy loans 14 14
Asset Quality Efficient Risk Management culture evidenced by low NPL ratio COMMENTS Despite the challenging economic environment, the Bank recorded the following; NPL ratio at 2.83% remains below the regulatory limit (5%) and industry average (10%; Q1 ’ 2016). Liquidity ratio is above the regulatory limit of 30% (31.37%; H1`2016) Coverage ratio stood at 139%, ensuring adequate provisioning for known impairments and losses. 14 15
CAPITAL AND LIQUIDITY COMMENTS As at H1 ’ 2016, the Bank recorded the following; CAR was above the regulatory limit of 10% despite the introduction of regulatory changes. Liquidity ratio was above the regulatory limit of 30%. We note that the Bank’s CAR which was reported as 15.10% (2015FY) declined due to regulatory changes by the CBN and came into effect in 2016. However, H1’2015 H1 2016 2015FY we remain confident that despite the Capital Adequacy 13.36% 18.94% 15.10% current macro economic environment, the Ratio (CAR) Bank remains well positioned weather negative shocks. 16 16
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