BY PETER EGWUATU

Vetiva Capital Management has said that non-interest income lines uplift Stanbic IBTC earnings for the first quarter ended March 2011.

The result shows a 5 per cent Year on Year( YoY) growth in gross earnings relative to the 2010 corresponding period performance.

According to Vetiva “ it is worth mentioning that the N15.2 billion top-line is relatively bolstered by the strong performance of the non-interest income lines.

Splitting the beans, we observe that the non-interest income lines contributed 39.4 per cent of the earnings, thus underscoring our position that Stanbic-IBTC has less option outside the Holding structure, given the leadership brand and startling prospect of the non-core banking subsidiaries. We believe the overall earnings of IBTC will continue to ride on this non-interest income support from the subsidiaries, to weather the thinning asset yields  and consequential weakness of the interest income lines.”

Vetivat stated that short term cost structure weighs down profit, “ The first quarter 2011 profit numbers of IBTC justifies our outlook on the bank’s near term cost structure. The Profit Before (PBT)- and After- Tax came in at N3.6 billion and N2.6 billion respectively (5 per cent YoY growth in ( PBT) but flat Profit After Tax t (PAT).

Besides the impact of the higher effective tax rate on profitability (28.7 per cent effective tax rate in Q1’11 Vs. 24.9 per cent  in 2010 corresponding period), we assert that the core drag on the bottom-line is the inevitably soaring cost structure of the bank.

On the back of higher depreciation cost on infrastructures (largely Property, Plant and Equipment) and increased operating expenses arising from the new branches (we recall that the bank doubled its network in 2010 from 70 to 142), the bank’s cost to income ratio (CIR) settled at 75.5% (far beyond our presupposed bearish full year (FY’) 2010 estimate of 70 per cent)”.

While analyzing the result , Vetiva asked “ aggressive risk absorption, how far can IBTC go?” Just as the bank rode on its low base to record an outstanding growth in balance sheet in fulFY’10, especially the loan book component, IBTC kicked-off the year in a similar mood.

Incited by its huge capital buffer (capital adequacy ratio of 30 per cent as at end- first quarter 2011), the bank’s risk absorption appetite remains on the uptick, as reflected in the 13.2per cent Quarter on Quarter ( QoQ )growth in net loan book.

“ The bank’s current liquidity ratio of 50 per cent,  coupled with its improved deposit mobilization network (QoQ deposit growth of 26 per cent will provide support for the risk asset growth momentum. The current leverage ratio of 20per cent justifies the new strategy of the bank as this will ensure value accretion to the shareholders of Stanbic-IBTC” Vetiva noted.”

“we reiterate that IBTC’s valuation is rich at current price: We maintain our target price of N10.02 on the shares of IBTC, a marginal upside of 3.2 per cent  based on today’s (Wednesday) close price of N9.71″ it added.