March 9, 2017/InvestmentOne Research
NIGERIA | EQUITIES | BANKING | GUARANTY TRUST BANK PLC
Q4 2016 results highlight: Weak non-interest income performance weighs on PBT
· Net interest income of N62.7bn, up +16.8% q/q; +57.3% y/y
· Profit before tax of N24.3bn, down -50.9% q/q; -15.2% y/y
· Profit after tax of N12.4bn, down -70.9% q/q; -49.2% y/y
Late yesterday, GTB released its Q4 2016 results which showed PBT down -50.9% q/q to N24.3bn, largely due to the higher base effect of Q3 2016, when the bank reported FX revaluation gains in excess of N30bn.
The Q4 2016 PBT performance was driven by the -92.3% q/q drop in non-interest income. This in addition to the +9.1% q/q increase in opex combined to more than offset the -58% q/q decrease in loan impairment charges and the +16.8% q/q jump in net interest income.
In dissecting the number further, we note that the decline in loan impairment charges was mainly due to the higher base effect of Q3 2016. Loan impairment charges in Q4 2016 took the FY 2016 total to N65.3bn (N12.4bn in FY 2015). While this represents a significant jump y/y, we highlight that c.78% of the FY 2016 total loan impairment charges were for the collective loan book as management took a prudent approach to asset quality deterioration. We add that NPL increased to 3.7% as at Q4 2016 (3.2% as at Q4 2015) while NPL coverage (excluding regulatory risk reserves) stood at c.130% as at Q4 2016.
The q/q non-interest income performance was driven by the N6.4bn loss on FX revaluation compared with the N32.4bn FX revaluation gain in Q3 2016. Also contributory was the N317m loss on net fees and commission in Q4 2016 against the N13.3bn net fee and commission income in Q3 2016. The loss on fee and commission may have been due to a reclassification following the audit of the bank’s FY results.
Compared with other banking Q4 2016 results released so far, we highlight that GTB is the only bank to report a q/q increase in net interest income. This may not be unconnected with the bank benefiting from the high yield and interest environment given its c.N400bn fixed income portfolio as revealed by management during the bank’s Q2 2016 conference call.
On a y/y basis, PBT was down -15.2% due to the -76.7% y/y decline in non-interest income; +110% y/y jump in loan impairment charges and the +49.6% y/y jump in opex, which combined to cancel out the +57.3% y/y increase in net interest income.
Overall, GTB’s Q4 2016 performance was reflective of the high yield and interest rate environment and the continued slowdown in economic activities.
While we expect the bank to continue to benefit from the high yield and interest rate environment in the near term, non-interest income performance may remain less than inspiring in the absence of a further depreciation of the local currency at the interbank market. This combined with the likelihood that loan impairment charges may remain high, given the fragile macroeconomic environment, could be a hindrance on PBT and ROE performance going forward.
The bank proposed a final dividend 175kobo per share representing a dividend yield of c.7% based on yesterday’s close price.
GUARANTY BANK Q4 2016/FY 2016 figures (N’m) | |||||
Q4 2016 | Q/Q | Y/Y | FY 2016 | Y/Y | |
Interest Income | 80,585 | 11.7% | 43.2% | 262,494 | 14.5% |
Interest Expense | (17,933) | -3.1% | 9.0% | (67,094) | -3.2% |
Net Interest Income | 62,652 | 16.8% | 57.3% | 195,400 | 22.2% |
Non-interest income | 3,567 | -92.3% | -76.7% | 148,665 | 113.8% |
Profit before provisions | 66,219 | -33.7% | 20.2% | 344,065 | 49.9% |
Loan Impairment charges | (8,207) | -58.0% | 110.8% | (65,290) | 426.2% |
Operating Expenses | (33,713) | 9.1% | 49.6% | (113,639) | 17.9% |
PBT | 24,299 | -50.9% | -15.2% | 165,136 | 36.8% |
Tax | (11,946) | 70.9% | 174.3% | (32,856) | 54.6% |
Tax rate | 49.2% | 3503bps | 3397bps | 19.9% | 228.3bps |
PAT | 12,353 | -70.9% | -49.2% | 132,281 | 33.0% |
Source: NSE, Investment One Research
