Wednesday, April 20, 2016 6:07PM/ FBNQuest

Event: GT Bank reports Q1 2016 results

Implications: Market reaction likely to be neutral to slightly negative

Positives: Limited to provisions coming in 4% lower y/y

Negatives: Significant (N5.3bn) loss on the other comprehensive income line

GT Bank’s Q1 2016 results which have just been published by the NSE show that both PBT of N30.7bn and PAT of N20bn were down y/y, by -6% and -26% respectively. The greater decline in PAT stemmed from a significant loss of –N5.3bn on the other comprehensive income (OCI) line, driven by fair value loss on available for sale securities.

Although this may be linked to yields having inched up on fixed income securities in Q1, the magnitude suggests that some other explanation is probably behind this loss. Returning to the PBT line, although both loan loss provisions (-4% y/y) and operating expenses (-2% y/y) both declined, these were not material relative to a -4.1% y/y decline in profit before provisions.

As to the drivers behind the latter, it was really non-interest income of N19bn that weighed on the result, coming in -18% below the Q1 2015 figure. In contrast, net interest income grew by 4.2% y/y to N40.8bn. On a sequential basis, the OCI loss was responsible for the PAT showing a decline of -12% q/q.

However, PBT grew by 7.1% q/q, reflecting growth of 8.6% q/q in profit before provisions. Q/q growth of 14% in operating expenses was offset by a -13% q/q decline in loan loss provisions. As to contributions from the revenue lines, non-interest income showed a strong 25% q/q growth.

However, this reflects the fact that Q1 is a seasonally strong quarter for non-interest income. Net interest income grew modestly, by 2.5% q/q.

The Q1 2016 PBT figure of N30.7bn suggests that GT Bank has started the year on a good footing. However, since the rest of the year typically sees a reduction in the PBT as non-interest income falls to normalised levels, this implies that the bank will need to deliver stronger than expected q/q growth than we were expecting to achieve its N125bn target for the full year (this is also our published estimate).

Given the continued weakness in the macro environment – and that this has probably worsened since the Q4 2015 results conference call – we suspect that the market will have slight doubts regarding this target. We note that loan growth was -0.7% vs December levels in Q1. Full year guidance by management is ”a maximum of 10%.”

However, given that the ‘underperformance’ of the underlying results relative to expectations was not significant, we do not expect the market to be fixated with this line. In contrast, we expect focus to be on the –N5.3bn loss on the OCI line. We await management’s comments on this.

All in all, we believe that management will continue to reiterate its full year PBT guidance of N125bn despite the slight weakness in Q1. We rate GT shares Outperform.

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Culled—–Proshare