Guaranty Trust Bank Plc. : Nice performance but NIM concern persists   

19 October 2018 : GTB’s nine-months result came in strong with support coming from FX, trading and commission, as well as sizably lower provisioning, which neutered the effect of funding cost pressure and lower asset yields. Consequently, PBT expanded by 9.0% YoY to N164.3 billion and after-tax profit printing at N142.3 billion (+12.6% YoY) – EPS of N5.06 (9M 17: N4.49). That said, third quarter standalone showed moderation in earnings (-8.3% QoQ to N1.59) for the first time since Q4 2016 as the bank faced pressure from lower asset yield and funding cost, as well as high base for non-interest revenue (NIR) in the prior quarter.

On the NIR leg, the bank saw increase across all lines of its NIR - net fee income (+18% YoY to N5.8 billion), trading income (+101.9% YoY to N10.1 billion) and other operating income (+119% YoY to N21.4 billion). The gains in net fee income mirrored increases in corporate finance fees and commission on FX deals. Elsewhere, growth in trading income and other operating income was on the back of higher FX trading income and FX revaluation gain respectively.

Despite growth in the bank’s deposit (+8.6% YTD), interest- earning assets however stayed almost flat as total loans declined by 12.3% YTD and total investment securities printed flat (+0.8% YTD).Asset quality fared better over the period with NPL ratio moderating to 5.6% in Q3 18 (FY 17: 7.7%). In addition, annualized cost of risk declined to 0.2%(9M17:0.8%) as the bank booked impairment charge of N1.7 billion (-79.2% YoY).


A pause on earnings growth?. Whilst the annualized earnings looked striking on the surface, analysts observed some pressures across key line items in the quarterly numbers. For emphasis, quarterly EPS (- 8.3% QoQ to N1.59) moderated for the first time since Q4 2016 as the bank faced pressure from lower asset yield and weak NIR numbers.

Lower asset yield puts pressure on NIM. Despite moderation in funding cost over the quarter (-37 bps QoQ to 3.5%) with interest expense staying flat QoQ, the impact of lower asset yield (-154 bps QoQ to 10.8%) over the quarter comfortably left NIM 176 bps lower QoQ at 10.0%. Interest income over the quarter moderated 6.7% QoQ to N75.7 billion on the back of lower interest income on loans to customers (-4.3% QoQ to N46.4 billion) and investment securities (-13.2% QoQ to N24.4 billion).

Depressed NIR numbers. Following limited room to booking FX revaluation gains in the quarter, FX revaluation gains moderated 30% QoQ to N8.3 billion bringing other operating income lower by 13.9% QoQ to N14.6 billion. Elsewhere, trading income moderated 1.1% QoQ to N7.4 billion while net fee income stood resilient printing at N11.9 billion (+4.4% QoQ). On balance, NIR declined 5.4% QoQ to N33.9 billion.

On impairments, the bank had a net write back of N295 million compared to an impairment charge of N392.5 million in Q2 18. Elsewhere, OPEX declined 12.1% QoQ to N32.3 billion reflecting lower AMCON charge in the period.

Net impact of lower interest income and weak NIR drove PBT of N54.6 billion (-4.1% QoQ) and EPS of N1.59 (-8.3% QoQ). Overall, ROE narrowed to 36.2% (Q2 18: 39.5%). Capital adequacy ratio moderated to 22.03% (FY 17: 25.68%) but remained well above the minimum requirement of 16%.

Analysts would be seeking management clarity on credit growth, funding cost pressure, higher bank deposit, FX trading gains as well as outlook on loan loss provision.

Analyst's last communicated FVE on GTB is N49.02 which translates to a STRONG BUY rating on the stock. Analysts will revisit their numbers after further discussion with management.

Reporting for EasyKobo on Friday ,19 October 2018 in Lagos, Nigeria

Source: Emmanuel Adeleke from ARM Securities Limited


Copyright @ 2010-2019 by Naija infotech & solar energy ltd. All rights reserved