Financials: The NIC Group Earning Note for Quarter 1, 2018

NIC Group Plc announced 1Q18 financials marking a 2.3 percent year-to-year growth in PAT to 974 million shillings. 

This was driven by a 5.5 percent y/y growth in Non-Interest Revenue (NIR) and lower loss provisions.

Interest expense growth (35.9%y/y) outperformed the interest income growth (8.2%y/y). As a result, the Net Interest Income (NII) declined by 8.3% y/y to 2.5 billion shillings in 1Q18.

Positives:

58bps decline in the cost of funds (CoF) to 5.5 percent. The bank’s CoF has consistently been high, above 6.0 percent as compared to sub-3 percent in some of its peers.

Liquidity ratio of 48.2 percent in 1Q18 from 39.0. This was driven by huge investment in government securities, coupled with above-average growth in customer deposits.

They were up 76.2 percent y/y to 54.7 billion shillings and 22.1 percent y/y to 143.9 billion shillings respectively. This pushed the liquidity ratio to 48.2 percent against 20.0 percent minimum requirement.

Considering the current debate about the review of the interest rate control regime during the course of the year, a repeal or amendment of any kind would have an edge to the bank, hence utilize this liquidity on lending.

 Negatives:

4.6 percent y/y dip in operating income. Total operating income was depressed by the 8.3 percent y/y decline in Net Interest Income (NII) despite a 5.5 percent y/y growth in Non-Interest Revenue (NIR).

NIR was boosted by fee income and other income which edged up 1.8 percent and 33.1 percent respectively. Interest income was weakened by 8.9 percent y/y slide in interest from loans and advances. In the current interest rate environment, we do not see a positive uptick in interest income unless the current debate of review/repeal of the rate cap comes to fruition. Net Interest margin stood at 5.4 percent from 6.9 percent in 1Q17.

-0.4 percent y/y Loan growth; high Non-Performing Loan (NPL) ratio. The loan book shrunk by -0.4 percent y/y (-3.2 percent q/q) to 115.9 billion shillings. The slowdown in the loan book is driven by 1) rate caps with the bank opting to invest in government securities and 2) rising NPLs (13.7 percent).