Rates, Covid hit SBN’s profit

Jo-Maré Duddy – Historically low interest rates, combined with the impact of the Covid-19 pandemic, eroded SBN Holdings’ income for the year ended 31 December 2021 and the locally-listed group reported a profit after taxation of nearly N$421.2 million – a drop of about N$192.3 million or 31.3% compared to its previous book-year.

Releasing its annual results, SBN Holdings – with Standard Bank Namibia as its flagship brand – said a decline of 11.9% year-on-year (y/y) in its net interest income was the biggest contributor to the fall in profit. During the year under review, the prime interest rate in Namibia decreased by 275 basis points.

SBN Holdings earned nearly N$1.18 billion from its net interest income in 2020, some N$158 million less than 2019.

The group said despite the hard lock-down enforced across the country during April and May 2020, as well as other restrictions during the year, non-interest revenue declined by only 5.6%. At around N$1.19 billion, non-interest revenue was about N$70 million less y/y.

SBN Holdings’ operational expenditure increased by 1% to N$1.5 billion.

“This, together with the hefty decline in total income, saw the group’s cost-to income ratio deteriorate from 57.3% to 63.5%. Management attributes the change in operational expenditure to a 7.3% decrease in staff costs coupled with above-inflation IT cost increases,” Cirrus Securities commented.

CREDIT RISK

SBN Holdings provided for credit impairments of about N$253.9 million in 2020, up 6.2% y/y. Commenting on the results, IJG Securities said when normalised for the impairment of one large client in the 2019 financial year, credit impairments for 2020 increased by 48.9% or N$83 million y/y.

According to SBN Holdings, non-performing loans (NPLs) as a percentage of total loans increased at a “manageable” rate to 7.8%. Excluding one large client, the rate increased to 5.3%.

“The difficult macro-economic conditions, worsened by the Covid-19 pandemic, have had an impact on the credit environment, particularly on clients in the tourism, accommodation, commercial real estate and SME sectors,” the group said, adding: “We have continued to follow a cautious risk appetite.”

According to Cirrus, SBN Holdings remains the listed bank with the highest credit risk, evidenced by the increase in impairments and NPLs.

Commenting on the pandemic, SBN Holdings said: “It was imperative that the bank did everything possible to keep the lives and businesses of clients going by providing support and relief to clients impacted by Covid-19. More than 97% of all applications received have been approved, amounting to outstanding capital relief of N$1.7 billion to more than 2 000 clients.”

LOANS, DEPOSITS

IJG pointed out that SBN Holdings’ total assets declined by 6.1% y/y as loans and advances to customers declined by 3.2% y/y to N$22.07 billion, while placements at other banks declined by 21.2% y/y to N$2.23 billion.

At the end of 2020, the group’s assets totalled about N$33.08 billion, some N$2 billion less than the end of 2019.

Cirrus commented that not extending credit in the current heightened credit risk environment is a prudent approach by management.

However, the analysts added: “Worryingly, total deposits also decreased 6.3% to N$26.1 billion. The decreased deposits coupled with the net repayment of advances resulted in SBN Holdings’ loan-to-deposit (LTD) ratio increasing from 92% to 93%.”

OUTLOOK

SBN Holdings declared an ordinary dividend of 14c per share compared to 27.37c in 2019.

IJG said the group’s results should be viewed in the context of the Covid-19 pandemic, the resultant lockdowns and the radical reduction in interest rates. “However, the company’s results were below IJG’s expectations, largely due to top line missing our estimates,” the analysts added.

According to Cirrus, the results are not unexpected, as this includes a nine month period which include the Covid-19 pandemic and subsequent regulations. “The 31.3% decrease in profit after tax, however, creates a low base for the 2021 financial year,” they said.

SBN Holdings said the Covid-19 pandemic is “ever evolving which requires ongoing review of the impact on our operations, clients and business plans”. “We will continuously assess the impact of Covid-19 on product and sector risk appetites, particularly home loans and commercial real estates, and implement measures to minimise credit losses,” the group added.

SBN Holdings is listed on the Local Index of the Namibian Stock Exchange (NSX). It closed at N$7.98 per share on Wednesday. The share price has gained nearly 15.7% since the end of last year.

Both Cirrus and IJG currently have a “sell” recommendation on SBN Holdings.