NIC Bank Records 3.9 Percent in EPS in 1st Quarter 2017 Results

NIC Bank (NSE: NIC) released 1Q17 numbers marking a 3.9 percent decline in EPS to 1.49 shillings. Though expected, performance was poor evidenced by the 17.3 percent decline in profit before loan loss provision.

The bank witnessed the following positives:

1. Positive balance sheet growth. Loans were up 3.9 percent (+1.6 percent) while deposits rose 6.8 percent (+5.4percent) with numbers coming in stronger than our expectations. Their FY17 loan and deposit growth forecast stand at 2.5 percent and 7.1 percent. As expected, deposits mobilized were mainly channeled to non-loan assets with liquidity rising to 39.03percent in 1Q17 against 31.56 percent in 1Q16. Additionally, allocation of the loan to total assets fell to 66.9percent from 69.6percent in 1Q16 with our FY17 forecast standing at 63.4 percent. Despite NIC already lending below the 14 percent ceiling.
2. 6 percent growth in Non-Interest Revenue (NIR). The bank’s fees and commission income was up 9.6 percent. With close to 50 percent of NIC Bank’s NIR driven by fees and commission income, mainly loan fees, we remain conservative on sustained positive performance on NIR. Overall, our FY17 NIR growth forecast is a decline of 14.3 percent.
3. Non-Performing Loan (NPL) remaining flat at 10.7 percent. This was, however, a 60bps improvement from 4Q17’s 11.3 percent. The regional unit recorded the biggest improvement noting a decline of 14.2 percent in NPLs. The bank’s provision levels (-33.4 percent) opened the year at more aggressive levels than expected. If sustained into 2Q17, their FY17 earnings forecast would be revised downwards.

The negatives witnessed were the following:

1. Net Interest Margin (NIM) fell to 6.9 percent. This compares poorly to our forecast of 7.6percent in FY17 and 4Q16’s 7.3 percent. Whereas our expectation on the cost of funds materialized (CoF was down to 4.3percent from 6.1percent in 1Q16), loan WAIR fell by a wider than expected margin (11.6 percent Vs. 14.3percent in 1Q16). With competition expected to stiffen with banks targeting to capture the small pool of borrowers fitting within the 14 percent risk bracket, this is likely to continue into the year.
2. Cost To Income (CTI) at 39.3percent Vs. 33.7percent in 1Q16. The rise was occasioned by a 9.7percent squeeze on total income coupled with a 5.4 percent rise in total operating costs. We expect the rise in CTI to be reflected across the sector though we expect NIC to continue posting below average CTI. Our FY17 forecast is at 42.4 percent.