Abiodun JIMOH
Sterling Financial Holding Company Plc has entered 2025 with one of the strongest upward profit trajectories in the Nigerian banking sector, but the numbers reveal a more complicated reality beneath the surface. The bank has delivered impressive profit growth over the last two years, yet the benefits are not flowing into its earnings per share (EPS) at the same pace. The core challenge is simple: the bank is expanding its share base much faster than it is growing earnings, creating a dilution effect that investors can no longer overlook.
The story of Sterling’s recent financial success began in 2024, a year in which the bank achieved a remarkable 102% year-on-year profit increase, closing at N43.675 billion. This robust performance extended into 2025. By the end of the third quarter, the bank had posted N62.297 billion in profit after tax, a 127% increase compared with N27.446 billion in the same period of 2024. Even more striking is that the nine-month profit already surpassed the full-year 2024 figure by 43%.
With its Q4 2025 forecast projecting an additional N20.696 billion, Sterling expects to end the year with N82.994 billion in earnings. On the surface, these figures paint the picture of a financial institution on an accelerated path toward scale, margin expansion, and stronger shareholder returns. But this is where the narrative becomes more nuanced. The challenge for the bank is not whether it will achieve its forecast—it is whether this profit growth will translate into real value per share in the wake of a massive increase in outstanding shares.
Sterling’s earnings story must now be understood within the context of its capital-raising programme. To meet the Central Bank of Nigeria’s new minimum capital requirement, the bank embarked on a public offer in September 2025, seeking to raise N87.067 billion. The offer involved the issuance of 12.581 billion new shares at N7.00 each. Before the offer, Sterling’s share count had already climbed by 81%, rising from 28.790 billion in the first nine months of 2024 to 51.117 billion in the first nine months of 2025. If the capital raise is fully allotted, outstanding shares will rise further to 64.698 billion.
This sharp increase in outstanding shares is at the heart of the bank’s earnings dilemma. Despite posting 127% profit growth, Sterling recorded only a 35% increase in EPS, which rose to N1.28—just slightly below the full-year 2024 figure. When viewed in isolation, the bank’s nine-month EPS appears solid. Yet the picture changes when the expanded share base is fully factored into the full-year projections.
Based on the current forecasts and enlarged share structure, Sterling’s earnings per share for 2025 are projected to close around N1.60. This represents a decline from the trailing twelve-month EPS of N1.85, a drop of 13.5%. This outcome underscores a central theme: although the bank’s profit is increasing significantly, its earnings per share—the key metric investors use to assess value—is moving in the opposite direction. In essence, the profit pie is growing, but it is being divided into many more slices.
This dynamic has several implications for the bank’s valuation. At a share price of N7.40, Sterling currently trades at a price-to-earnings (P/E) ratio of 4.03, already above the banking sector average of 2.82. If earnings per share decline to the projected N1.60, Sterling’s forward P/E will climb to about 4.63, making the stock appear even more expensive relative to its peers. Should the market choose to reprice Sterling in line with the sector average, its fair value could drop to roughly N4.51. This introduces valuation risk and heightens the urgency for the bank to deliver stronger earnings in the final quarter of the year and beyond.
The bank’s Q3 performance offers insight into its potential to close this earnings gap. Sterling recorded N20.522 billion in profit for the quarter, outperforming its forecast of N18.257 billion by 12.41%. This signals operational strength and suggests that management is capable of exceeding expectations even amid challenging macroeconomic conditions. If Q4 follows a similar pattern and surpasses the projected N20.696 billion, the full-year EPS could rise above N1.60. This would strengthen the bank’s forward valuation metrics, restore investor confidence, and narrow the gap between earnings capacity and share expansion.
Still, Sterling faces several pressure points that could influence its ability to convert topline growth into stronger earnings per share. Funding costs have risen sharply, with interest expenses expanding by more than 50% year-on-year. While interest income continues to grow, the speed of expansion in funding costs is eroding net interest margins. Operating expenses have also risen faster than income, a trend that becomes more significant when viewed through the lens of share dilution. With more shareholders coming onboard through the capital raise, Sterling must maintain strict cost discipline to prevent rising expenses from suppressing earnings.
The Alternative Bank segment—Sterling’s large non-interest financial services arm—also plays a critical role. This segment holds significant working-capital assets that must be converted more efficiently into income-generating activity. If these assets remain slow-moving, they risk dampening group earnings at a time when the bank needs to accelerate every possible revenue stream to protect EPS.
In addition, the broader macroeconomic climate presents challenges. Interest rates remain high, foreign exchange volatility continues to influence cost structures, and intensified competition in Nigeria’s retail and SME segments is placing pressure on loan pricing. Sterling has historically thrived in niche markets such as agriculture, renewable energy, and health—areas that continue to offer growth opportunities. However, to protect earnings per share, the bank must deepen its presence in higher-margin segments while enhancing cost efficiency across its operations.
Sterling’s ability to manage its new capital efficiently will ultimately determine the trajectory of its earnings. The capital raise provides the bank with stronger buffers, enabling it to meet CBN requirements, expand lending, and invest in technology and digital infrastructure. But this capital must generate returns quickly so that the bank’s earnings can grow at a pace that keeps up with—or surpasses—the expansion in share count. Otherwise, shareholders may find themselves owning a larger number of shares that deliver a smaller proportion of earnings.
Another important consideration is investor perception. Even though short-term dilution is common during capital raises, investors expect a bank to demonstrate a clear path toward restoring and expanding EPS after issuance. Sterling’s communication strategy will therefore play a crucial role. The bank must articulate not only how it intends to deploy new capital but how this deployment will translate into superior earnings growth. Stronger investor engagement could help sustain market confidence during this period of transition.
Looking ahead, the focus for Sterling should be on accelerating income expansion through both interest and non-interest activities. The bank’s digital platforms, especially in payments, micro-lending, and digital commerce, offer promising avenues for fee-based income growth. Enhanced risk management and prudent loan underwriting will be essential to protect asset quality and ensure that the bank does not incur impairments that could eat into earnings.
Ultimately, Sterling Bank’s central challenge for 2025 is not simply achieving N83 billion in profit. That figure, while impressive, does not capture the full earnings story. The true test lies in generating enough income to offset dilution, expand earnings per share, and protect shareholder value in an increasingly competitive and capital-intensive banking environment. The coming months will determine whether Sterling can convert its robust financial momentum into sustainable earnings strength, positioning it not just as a fast-growing bank, but as one capable of delivering consistent long-term value for investors.
