August 17, 2016/Cordros Research

Guaranty Trust Bank Plc (GUARANTY) just released its HY’16 earnings report. Annualized earnings per share was N5.48 (HY’15: N3.76), significantly higher than both consensus and our estimates of N3.58 and N3.67 respectively. The bank also declared an interim dividend of N0.25 (HY’15: N0.25) with a closure date of September 1, 2016 and a payment date of September 9, 2016.

Net income fell by 1.3% y/y and 6.1% q/q majorly on the back of weaker interest income which fell by 3.6% y/y. The decline in interest income stemmed from a drop in income from investment securities (-31.6% y/y). Interest expense also fell during the period, dropping 0.2% y/y. Net loans and customer deposits expanded by 13.9% YTD and 22.5% YTD, mainly driven by the impact of the naira devaluation on foreign currency assets and liabilities.

Non-interest income was the major catalyst for the upsurge in earnings, expanding by 160.3% y/y after benefiting from foreign exchange revaluation gains which boosted earnings by N61 billion (vs.  N6.1 billion in HY’15). The gains stemmed from GUARANTY’s positive net foreign currency exposures.  Following significant increases in both collective and individual impairments, loan loss provisions increased by 530% y/y. NPLs increased to 4.39% from 3.21%. Operating expense fell marginally (-0.2% y/y).  Consequently, PBT came in 44.8% higher year on year.

Overall, the result was positive with the increase in bottom-line helping douse the impact of a jump in risk weighted assets (due to an an expansion of FCY assets) to boost capital adequacy ratio to 18.25% from 18.17% in FY’15.