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Stanbic IBTC may raise Tier1 Capital in 2015

By on November 19, 2014

In compliance with the Basel requirements on operational risk, Stanbic IBTC (bank) could consider a tier 1 capital raise in 2015, likely via a rights issue, a report by Renaissance Capital has revealed.

According to the report, after the N15.3 billion tier 2 capital raised in the third quarter 2014, Stanbic (bank) reported a Basel 1 capital adequacy ratio (CAR) of 15.9 per cent (1H14: 13.5 per cent in the first half of 2014), which droped 300 basis points to 13 per cent under Basel 2/3, as against a regulatory requirement of 10 per cent for national banks.

According to Renaissance Capital, “With credit growth expected to remain healthy at 15-20 per cent over the next two years, on our estimates, we think management could consider a tier 1 capital raise in 2015, likely via a rights issue, while gradually lowering its pay-out ratio. We see equity market weakness and softer liquid asset yields are potentially negative for mark-to-market gains and asset volatility in the funding base and trading income; and better-than-expected impairment charges.”

On the bank’s valuation and returns, it said, given personal and business banking (PBB), solid earnings improvement this year, group return on equity (RoE) improved to 31 per cent in in the third quarter of 2014 (bank 28 per cent), from 21 per cent in the 2013 financial year (bank 16 per cent).

“We have rolled over our forecasts, and given Nigeria’s deteriorating macro environment we have raised our forecasts for cost of return (CoR) and cost on equity (CoE). We maintain our BUY rating and N35.4 trading price. Wealth represents 39 per cent of our valuation, which mirrors its profit before tax (PBT) contribution, “the report said.

It pointed out that PBB has been loss-making since 2010 due to significant infrastructure investments to gain critical mass.
“Customer numbers have now crossed the critical mass target of 1million. Before tax, PBB’s losses declined from N7.7 billion in FY13 to a 9 months 2014 annualised level of N593 million. This has been driven by a combination of growing revenue, cost control and improved asset quality. Management acknowledges PBB is likely to remain loss-making over the next 24 months, as additional investments need to be made, but keeping losses to a minimum will be the key in our view.

“Wealth is the jewel in the crown for Stanbic and we note that to properly understand Stanbic’s earnings and valuation drivers, wealth must be analysed and valued separately. We believe many investors have not performed such a valuation, hence what we see as the market’s misunderstanding of Stanbic’s premium valuation, “the report added.

 

[ThisDay]