April 19, 2018/InvestmentOne Report
NIGERIA | EQUITIES | BANKING | GUARANTY TRUST BANK PLC
Q1 2018 results highlight: Income from Investment Securities Yet to Taper as NPL Moderates
Mixed net interest income of N59.7billion, up 4.5% q/q; down -9.7% y/y
Profit before tax of N52.6billion, up 4.8% q/q; 4.4% y/y
Mixed profit after tax of N44.7billion, down 0.5% q/q; up 7.7% y/yÂ
Earlier today, GTB released its Q1 2018 results which were reflective on an improvement in asset quality as non-performing loans (NPL) ratio fell to 6.2% as at Q1 2018, from 7.7% as at Q4 2017.
We believe this contributed to the 56.3% q/q decline in loan impairment charges and the increase in NPL coverage ratio to 202.9% as at Q1 2018, from 120% as at Q4 2017.
The decrease in loan impairment charges combined with the 4.5% q/q rise in net interest income and the relative flat opex more than outweighed the 7.7% slide in non-interest income as PBT inched up 4.8% to N52.6billion.
Net Interest Margin still going strong
Dissecting further, we point out that net interest income remained resilient despite the slide seen in yields in the fixed income space and the absence of a substantial increase in gross loans at first glance. Consequently, net interest margin remained above 10% (10.1% as at Q1 2018).
However, the decrease in non-interest income was the result of a N5.5billion FX revaluation gain in Q1 2018, compared with an FX revaluation gain of N13.9billion in Q4 2017 when the bank translated its net long foreign currency position (about USD900million as at Q4 2017) at N330/USD, against N315/USD levels in Q3 2017.
Impact of IFRS 9
While the introduction of IFRS 9 in 2018 is widely expected to result in a one-off increase in loan impairments charges to be deducted from the bank’s equity positon, GTB transferred N52billion from its regulatory risk reserves (excess provisioning taken above IFRS requirements as stipulated by the Central Bank of Nigeria) to balance sheet provisioning. This may moderate the impact IFRS 9 could have had on the bank’s retained earnings and consequently, capital adequacy ratio (CAR).
Nonetheless, IFRS 9 is likely put downward pressure on the bankâs CAR (25.5% as at Q4 2017). However, we expect the bank’s CAR to remain substantially above the 15% regulatory requirement which should be supportive of a noteworthy growth in loan book in H2 2018 as high yielding T-bills mature.
FX revaluation gain key to y/y performance
Compared to Q1 2017, there was a 4.4% y/y uptick in PBT driven by the 57.0% y/y decrease in loan impairment charges, 38.4% y/y increase in non-interest income, which combined to cancel out the 9.7% y/y slide in net interest income and the 3.5% y/y rise in opex.
We point out the main driver of the improvement in non-interest income y/y was the FX revaluation gain mentioned earlier, compared to a FX revaluation loss of N306million in Q1 2017. We plan to engage management on the driver of the FX gains reported in Q1 2018 and its sustainability.
In the near term, we expect GTB’s bottom line performance to continue to see support from stringent cost management an interest income from high yielding investment securities purchased in 2017.
Guaranty Trust Bank Q1 2018 figures Year End 31 Dec (N millions)
Q1 2018
Q/Q
Y/Y
Interest Income
80,773
2.2%
-4.0%
Interest Expense
(21,084)
-4.0%
17.3%
Net Interest Income
59,689
4.5%
-9.7%
Non-interest income
27,461
-7.7%
38.4%
Profit before provisions
87,149
0.3%
1.4%
Loan Impairment charges
(1,639)
-56.3%
-57.0%
Operating Expenses
(32,886)
0.0%
3.5%
PBT
52,624
4.8%
4.4%
Tax
(7,954)
49.6%
-10.8%
Tax rate
15.1%
453bps
-258bps
PAT
44,670
-0.5%
7.7%
Source: Company financials, Investment One Research
