…stronger results expected in FY 2019
By Chioma Obinagwam
The recently released audited half year 2019 results (H1-19 results) of Guaranty Trust Bank (GTB) Plc, which showed robust growth in key financial metrics seem to have beaten the projections of some analysts and have also sparked reactions among them.
Precisely, analysts at Cordros Capital limited, a leading financial services firm duly registered with the Nigerian Stock Exchange (NSE) with a vision for wealth creation and one of the many analysts quite impressed by the bank’s performance reacts.
“The bank recently released its audited H1-19 results), which was generally in line with our expectations of Gross Earnings pressure but improved profitability,” they noted.
“Interestingly, the bank, which was seemingly in breach of the new statutory limit for LDR of 60.0 percent as at first quarter 2019 (Q1-19), is no longer in breach given the new weightings for the Retail and Small Medium Enterprises (SMEs) segment in the calculation of the ratio,” it continued.
Confiance News gathered that results prompted the bank to propose an interim dividend of 30 kobo per share, which translates to a yield of 1.17 percent based on the closing price on the 15th of August 2019 (NGN25.75).
More extracts from the results showed that Gross Earnings growth came in lower by 2.09 percent year on year (y/y), which according to Cordros was expected, as Interest Income declined (7.96 percent y/y) due to weaker income from both loans to customers closed in the negative at -9.97 percent y/y and Investment Securities following similar pattern settling at -7.74 percent y/y.
Nevertheless, the analysts noted that decline in Interest Expense at -25.8 percent y/y partly cushioned the impact of weaker Interest Income and resulted in Net Interest Income declining marginally by 1.33 percent y/y.
“We highlight that the decline in interest expense was due to a moderation of 22.68 percent in the cost of deposits from customers.
“More so, Non-interest Income growth increased by +12.91 percent y/y, which is running ahead of our FY-19 estimate of 10.25 percent y/y. This strong growth was supported by fees and commission income growth of 30.63 percent y/y. Also, as expected, FX trading income has been weak in the year and is expected to remain so.
“Interestingly, operating expenses growth was muted, settling higher at 0.43 percent y/y. This, is despite the moderate increase in regulatory costs (AMCON levy: +9.65 percent y/y), as the bank managed other ancillary costs to maintain its cost-to-income ratio at its industry-best level of 37.63 percent (H1-18: 38.82 percent),” Cordros Capital highlighted.
The results further showed that despite the income recorded, and the growth in expenses, the bank recorded growth in Profit Before Tax (PBT) of 5.61 percent y/y, while Profit After Tax (PAT) settled 3.72 percent higher y/y following an 18.53 percent y/y increase in income tax expense.
FY 2019 looks cheering
Based on the impressive results churned out by the bank, the analysts are optimistic that Full Year (FY) 2019 will sustain the positive status quo and likely surpass its forecast.
“The current run-rate for PAT implies a 6.66 percent y/y expansion, relative to our estimate of 3.70 percent y/y.
“Finally, while a comprehensive document regarding macro-prudential ratios is yet to be provided, we assessed the bank’s numbers in the light of the new minimum LDR ratio of 60.0 percent. Given the proportion of Retail and SME loans in the bank’s assets of 18.0 percent and 4.5 percent(previously 24.3 percent and 5.9 percent), the LDR for the bank settled at 61.92 percent for H1-19, which means that the bank is not in breach.
“Guaranty’s result is strong, and should lead to the bank posting equally strong FY-19. We are encouraged that the bank will not be below the statutory limit for LDR at the deadline in September, which would mean that the bank would not have to disrupt its risk management framework to drive business growth,” the analysts disclosed.”
Loan-to-deposit ratio (LDR) is used to assess a bank’s liquidity by comparing a bank’s total loans to its total deposits for the same period. The LDR is expressed as a percentage. If the ratio is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements.
