GTBank Nigeria Plc: Efficient balance sheet, strong asset quality underpins profit

Guaranty Trust Bank (GTBank) Plc in its recently released half year results for the period ended June 30th 2018, showed improvement in profitability, assets quality and key performance ratios.

GTBank has maintained its position as the most efficient lender in Africa’s largest economy amid a tough and volatile macroeconomic environment, as it continues to intensify on cost control mechanism.

The Bank’s impressive performance earned it Buy Ratings from analysts at sundry investment house.

Income from fees and commission income, combined with cost control mechanism, are expected to propel future earnings.

Overall, the Bank delivered good financial performance across all key profitability metrics in the period under review. With the Profit before Tax (PBT) of N109.6 billion posted in first half of the year, the Bank is on course to meeting its PBT guidance of N205 billion  for 2018 full year ending (FYE).

Growth in Non Interest Income drives Gross Earnings

Gross earnings for the second quarter increased by 5.51 percent to N226.60 billion from N214.10 billion the previous year; largely as a result of growth in non-Interest Income which compensated for the moderate drop recorded on interest Income line.

Interest income dipped by 2.41 percent to N161.88 billion in June 2018 from N165.88 billion as at June 2017; compelled primarily by declining yield environment in 2018 when compared with corresponding period last year.

Treasury Bills for 91, 182 and 364 days were sold at 10 percent, 10.30 percent and 11.5 percent respectively at Primary market auctions in June 2018 representing a decline of 350 bps, 720 bps and 715 bps from 13.5 percent, 17.5 percent and 18.6 percent respectively in June 2017.

Non Interest Income, which compensated for drop in interest income, surged by 34.24 percent to N64.74 billion in June 2018 from N48.21 billion.

The growth in non interest income was largely driven by a 123.32 percent surge in income on financial assets held for trading to N12.64 billion in the period under review as against N5.66 billion the previous year as the lender continues to  judiciously utilize its Naira and FCY liquidity to take appropriate positions in fixed income and FX market.

Net fees and commission income rise by 13.89 percent to N25.91 billion in June 2018 from N22.75 billion the previous year; driven by increases in advisory services and transactional volumes. 

Interest expense increased by 21 percent to N43.95 billion in June 2018 from N36.47 billion as at June 2017; driven by  intense competition for deposits among banks and other financial institutions and continued customers’ appetite for Treasury Bills which remained above N360 billion levels in both full year (FY) 2017 and half year (HI)-2018

Efficient balance sheet, strong asset quality, and increased transaction volumes underpin profit

GTBank’s profit before tax (PBT) increased by 8 percent to N109.63 billion in June 2018 from N100.51 billion the previous year.

Growth in PBT largely driven by efficient balance sheet, growth in transactional volumes arising from effective delivery of financial services, strong asset quality and moderate OPEX growth.

Moderate Growth in opex validates cost control strategy

GTBank is the most efficient lender in Africa in Africa’s most populous nation as evidenced in moderate growth in operating expenses and an improvement in efficiency ratio amid high inflationary environment and regulatory induced fees.

Operating expenses grew by 2.60 percent in the period under review, well below the inflation of 11.23 percent.

Consequently, cost to income ratio (CIR) remained strong at 38.8 percent representing an improvement of 133 bps from 40.2 percent in as at June 2017.

Personnel expenses were up 13.40 percent to N18.60 billion in June 2018 from 16.40 billion the previous year;

The growth in staff cost was due devaluation impact of translating the subsidiaries staff costs from their original currency to naira  as well as impact of salary reviews in January 2018 in response to the country’s double digit inflation rate.

The Bank’s customer base increased by 11.5 percent to 13.1 million in June 2018 from 11.9 million as at December 2017, thanks to cost efficiency complemented by customer acquisition drive and effective retail strategy.

Banks performance validates improved efficiency ratio

For the second quarter ended June 2018, GTBank’s total assets increased by 6 percent to N3.54 trillion from N3.35 trillion as at June 2017.

The growth in total assets can be attributed to a significant increase in financial assets held for trading and derivative financial assets by 37 percent and 6 percent respectively.

Total loans and advances to customers reduced by contracted by 10.80 percent to N1.29 trillion in June 2018 from N1.49 trillion the previous year.

The contraction in loan book was due to scheduled pay-downs by some FX loan customers on account of improved FX liquidity in the market as well as impact of IFRS 9 implementation.

Total deposit increased by 14.76 percent to N2 billion in June 2018 from N2.37 billion as at June 2017; driven by best-in-class retail strategy. 

GTBank has an excellent strategy management strategy, as evidenced in improvement in assets quality despite exposure to the oil and gas and telecoms industry.

NPL ratio improved to 5.50 percent in June 2018 from 7.70 percent as at December 2017, thanks to assets de-recognition made possible by adequate provisioning and substantial credit risk buffers created in prior years, specifically in 2016 from the huge revaluation gains recorded during that period.

Cost of risk improved to 14 percent in June 2018 from 45 percent as at June 2017.

The significant improvement in impairment charges was due to a faster decline in impairment charges than compared to loans.

Impairment charge fell by 71.83 percent to N2.03 billion in June 2018 from N7.21 billion as at June 2017.

The decline in impairment charges stems from payoff of some of the bank’s loans (particularly in the upstream oil & gas sector), which led to contraction in the loan book, according to analysts at Cordros Capital Ltd in a recent to client. 

“The creative treatment of IFRS 9’s stringent initial adoption adjustments through equities, as opposed to the income statement also contributed to improvement in CoR,” summed analysts at Cordros.

In spite of capital pressures, declining yield regime and non-dissipating customers’ taste for treasury bills investments, GTBank was able to utilize the resources of shareholders in generating higher profit.

Return on equity (ROE) increased to 34.07 percent in the period under review from 32.09 percent the previous year. Return on assets increased by 5.54 percent in June 2018 from 5.27 percent as at June 2017.

However, net interest margin fell to 9.60 percent in June 2018 from 10.40 percent the previous year. The decline in NIM was as a result of increased cost of funds and declining asset yields.

GTBank remains adequately capitalized with CAR of 22.04 percent, which is well above the regulatory requirement of 15 percent (16 percent for DSIB) in spite of the implementation of IFRS 9.

BALA AUGIE