October 17, 2018/Cordros Report
GUARANTY released 9M-2018 results earlier on Wednesday, showing post-tax profit for Q3-18 grew by 11% y/y, but dropped 8% on a q/q basis, to NGN46.64 billion.
- Gross earnings for the quarter stood at NGN110.59 billion — 16% above similar period last year, but 6% lower compared to the previous quarter. Interest income declined in the quarter by 7% q/q, as against the marginal growth recorded in Q2. The uptick in fixed income yields (Q2-18: 12.97% vs. Q3-18: 13.25%) is yet to impact, as interest earned on investment securities was down 6% during the quarter. Also, interest on customer loans in the Q3 declined by 4% q/q, amidst the continued decline in the bank’s loan book. Coupled with an increased interest expense (+3% y/y, flat q/q) in the quarter, net interest income was lower by 9% q/q and 12% y/y, while NIM printed at 9.03% — 147 bps lower than 10.5% recorded in FY-17.
- Meanwhile, growth in non-interest income for the quarter turned negative, as NIR dropped 6% q/q (Q2-18: +31%q/q), while it surged 169% on a y/y basis. The q/q decline was largely on the back of 14% decline in other income. Meanwhile net fees & commission income rose 4% q/q, but the disappointing performance in Q2 muted the growth, leading to a flat y/y performance in the 9M-2018 result.
- On the positive, loan recoveries in the quarter led to a net gain in loan impairment charges, even as the bank’s loan book (-2% q/q) continued to contract. Cost of risk in the 9M-18 accounts stood at 0.12%, compared to the 0.76% recorded in FY-17. Also, NPL ratio decreased to 5.57% vs. 7.66%. It is also worth stating that the continued decline in loans (-12% YtD), coupled with sustained increase in deposits (+9%), has contributed to the decline in loan-to-deposit ratio to 48.21% vs. 58.91% in FY-17.
- Total operating expenses was lower by 12% q/q, amidst absence of AMCON charges in the quarter which had been deducted in H1. However, in the 9-months accounts, total opex is up 13% y/y, while cost-to-income ratio stands at stands at 38% (vs. 9M-2017: 36% and FY-17: 37%).
- Overall, GUARANTY’s performance in the Q3-18 period was impressive, with top and bottom lines posting 16% and 11% y/y growth, respectively. The NGN142.2bn net profit reported as at 9M-18, on an annualized basis, is above consensus’ estimate for the full year by 7%. GUARANTY’s stock closed positive in today’s trading session, but has lost 10% YtD. We do not expect negative reaction to the bank’s result in tomorrow’s session. GUARANTY remains among our top picks, with a TP of NGN52.45 – 42% above today’s closing price of NGN37. Our estimates are under review.
| Income Statement (N’bn) | 9M’18 | 9M’17 | y/y | Q3’18 | Q2’18 | Q3’17 | Q3’18 q/q | Q3’18 y/y |
| Gross earnings | 337.22 | 309.16 | 9% | 110.59 | 117.66 | 95.70 | -6% | 16% |
| Interest income | 237.55 | 248.27 | -4% | 75.66 | 81.11 | 82.39 | -7% | -8% |
| Interest expense | (66.90) | (58.70) | 14% | (22.95) | (22.87) | (22.36) | 0% | 3% |
| Net interest income | 170.64 | 189.57 | -10% | 52.71 | 58.24 | 60.03 | -9% | -12% |
| Fee and commision income | 40.35 | 39.68 | 2% | 12.99 | 12.13 | 15.96 | 7% | -19% |
| fee and commision expense | (2.51) | (1.70) | 48% | (1.06) | (0.71) | (0.73) | 50% | 45% |
| Net fee and commision income | 37.84 | 37.98 | 0% | 11.93 | 11.42 | 15.23 | 4% | -22% |
| Non-interest income | 97.17 | 59.19 | 64% | 33.86 | 35.84 | 12.58 | -6% | 169% |
| Total Operating Income | 267.81 | 248.75 | 8% | 86.57 | 94.08 | 72.61 | -8% | 19% |
| Loan impairment charges | (1.74) | (8.36) | -79% | 0.30 | (0.39) | (1.14) | -175% | -126% |
| Total Operating Expenses | (101.83) | (90.36) | 13% | (32.26) | (36.68) | (22.54) | -12% | 43% |
| Profit before Income tax | 164.25 | 150.03 | 9% | 54.61 | 57.01 | 48.93 | -4% | 12% |
| Income tax expense | (22.02) | (24.45) | -10% | (7.97) | (6.10) | (7.03) | 31% | 13% |
| Profit after Tax | 142.22 | 125.58 | 13% | 46.64 | 50.91 | 41.90 | -8% | 11% |
