Banca Sistema: FY17 Result And A Closer Look At Factoring Income
Edison | Mar 16, 2018 06:23AM ET
Banca Sistema (LON:0R9Hmi) reported moderate earnings growth for FY17 with factoring income tempered by mix and price effects while SME loan interest contracted as the book is run off. Positives included strong growth in factoring turnover and pension and salary backed lending with benefits to flow through in FY18 and beyond. Capital ratios indicate good headroom for further growth. The shares are cautiously rated relative to peers and publication of the business plan expected in April is a potential positive catalyst.
FY17 result and a discussion of LPI accounting
BST reported stable net interest income for FY17, with positive influences including an increase in factoring receivables, a higher rate of late payment interest (LPI) accrual and a quadrupling of income from pension- and salary-backed loans. Against this, interest on SME lending declined with the level of loans, factoring income was affected by mix and pricing and there was a 10bp rise in interest expense. The impairment charge nearly halved reflecting a write-back in Q1, while overall operating expenses were stable allowing earnings to rise by 6%. In this note (starting on page 6) we examine the accounting for LPI and its potential impact on reported results. Before June 2016 BST accounted for LPI on a cash basis, but subsequently began to accrue a percentage of LPI. An increase in the rate of accrual augmented the FY17 result but, importantly, the accrual rate at 37% on average still remains well below the 80%+ collection experience indicated by BST’s database. The profile of cash flows is not affected by accrual rates and in time accounting accrual and the level of cash collections should tend to converge, reducing this as a source of volatility and complexity in assessing results.
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FY17 Result And A Closer Look At Factoring Income
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