April 24, 2020/InvestmentOne Report
Net interest income of N64.28billion, up 10.02%q/q , 10.42%y/y
· Non-interest income of 35.83billion, down 3.83% q/q, 0.04%y/y.
· Profit before tax of N58.20billion, down 6.20%q/q, up 1.17% y/y.
· Profit after tax of N50.07billion, down 1.58%y/y, up 0.43%y/y.
Jump in OPEX Drags Earnings lower
Recently, Guaranty Trust bank released its unaudited Q1 2020 result which showed a 6.20%q/q decline in PBT. This was driven by the 26.78%q/q jump in OPEX and 3.83%q/q decline in Non-interest Income which outweighed the 10.02%q/q increase in Net Interest Income (NII). We highlight that the q/q jump in OPEX was driven by zero AMCON charges recorded in Q4 2019 which caused the spike in Q1 2020 (N8.59billion). We believe the improvement in Net Interest Income may not be unconnected to the growth in the company’s loan book (net loan up 8.1%ytd) as interest rates are comparably lower than Q4 2019 levels. Net Interest Margin stood at 9.89% compared to 9.28% in FY 2019 but somewhat stable when compared to 9.90% in Q1 2019. We further highlight that the bank’s margin was better than 6.30% for FBNH in the same period. However, Non-interest income fell in the quarter as trading income dropped by 51.84%q/q to N5.42billion. We are of the view that the recent offshore selloffs in the Fixed Income market could have contributed to the fall in the bank’s trading income in Q1 2020. Similarly, we opine that the bank could have reduced its exposure to government instruments to focus on loan growth as required by the CBN. However, the bank’s Fees and Commission rose by 3.05%q/q in the quarter but fell 22.07%y/y due to the recent downward review of bank charges by the CBN in an attempt to encourage online transaction and support its cash less policy.
Stable y/y Performance
On a y/y basis, Net Interest Income was up 10.42% to N64billion while Non-interest income was somewhat flat at N35.83billion. Resultantly, the bank’s Profit Before Provisions and OPEX rose by 5.46% y/y to N99.20billion. As a result of the 10.86%y/y (up 26.78%q/q) increase in OPEX, cost to income ratio rose by 195bps y/y to 40.59% in Q1 2020. This is just above the bank’s 2020 guidance of 40% for cost to income ratio. Nonetheless, the bank’s Cost to income ratio is still well below peers and below FBNH level of 65.1% in the same period. The bank’s cost of risk remains low at 0.08% from 0.34% in FY 2019. As a result of the jump in OPEX, PBT only rose marginally by 1.17%y/y to N58.20billion in Q1 2020.
Better Asset Quality But Weak Outlook
On a positive note, the bank’s absolute NPL fell marginally YTD, this combined with the increase in loan book to bring NPL ratio down to 5.95% compared to 6.5% in FY 2019. However, this is above the bank’s NPL guidance of less than 5% in 2020. While the current CBN’ s drive to boost credit to the real sector remains, we expect a significant deterioration in asset quality in 2020 given the current pandemic and its attendant effects on the economy particularly on oil price and Oil & Gas sector.
We highlight that overall banking sector loan to Oil & Gas was around 19% while GTB’s exposure to upstream oil and gas was 28% (of its loan book) as at December 2019. As a result, we doubt the bank’s appetite to boost loan book by 13% as stated in its 2020 guidance. We think the bank will rather focus on its risk management strategy in 2020.As such, we think the bank’s current LDR ratio of 56.67% may not reach 63% target of the bank at the end of 2020.
Devaluation Presents Extra Earnings
However, with the recent devaluation, we see potential extra earnings for GTB given its net positive position in major foreign currencies (Net Positive FCY of N532billion based on our estimate from its FY 2019 result). This is better than other tier 1 players except Zenith bank with a net positive position of N698billion (based on its FY 2019 numbers). Similarly, we think the bank’s CAR of 23.52% which is well above regulatory requirement of 16% places it on a strong footing to weather the looming storm.
Overall, while we think the current pandemic is a major risk to banks, we believe GTB is one the quality names in the sector which should thrive as the bank remains resilient (efficiency and strong capital base) in the face of weak macroeconomic environment.
GUARNTY TRUST BANK PLC Q1 2020 (YE: DEC) (N millions) | |||||
Q1 2020 | Q/Q
| Y/Y
| |||
Interest Income | 77,037 | 6.97%
| 3.43%
| ||
Interest Expense | -12,755 | -6.15%
| -21.59%
| ||
Net Interest Income | 64,282 | 10.02%
| 10.42%
| ||
Non-interest income | 35,828 | -3.83%
| -0.04%
| ||
Profit before provisions | 99,201 | 3.68%
| 5.46%
| ||
Loan Impairment charges | -1,223 | -45.89%
| 87.84%
| ||
Total Opex | -39,774 | 26.78%
| 10.86%
| ||
PBT | 58,204 | -6.20%
| 1.17%
| ||
Tax | -8,137 | -27.22%
| 5.92%
| ||
Tax rate
| 14.0%
| -404bps
| 63bps
| ||
PAT | 50,067 | -1.58%
| 0.43%
| ||
Sources: Company financials, Investment One Research
Q1 2020 BANKS COMPARISON SHEET |
|
| |
NGN billion (unless stated otherwise) | GTB | FBNH | |
Key Income Statement Figures | Gross Earnings | 112.86 | 159.70 |
Net Interest Income | 64.30 | 60.30 | |
Non-interest Income | 35.80 | 49.70 | |
Total Expenses | 39.80 | 71.60 | |
Loan Impairment Charges | 1.22 | 9.70 | |
Profit Before Tax | 58.20 | 28.70 | |
Y/Y PBT Growth
| 1.17% | 61.50%
| |
Dividend (Kobo per share) | nil | nil | |
EPS (kobo per share) | 1.77 | 0.69 | |
Key Balance Sheet Figures | Total Assets | 4,057 | 7,023 |
Total Liabilities | 3,396 | 6,343 | |
Total Equity | 661 | 680 | |
Key Ratios | Net Interest Margin | 9.89% | 6.30% |
Cost of Fund | N/A | 3.30% | |
Cost to Income | 40.59% | 65.10% | |
NPL ratio | 5.95%
| 9.20%
| |
Liquidity (bank level) | 45.59% | 30.10% | |
Cost of Risk | 0.08% | 1.90% | |
Capital adequacy ratio | 23.52% | 15.30% | |
ROE | 29.70% | 15.30% | |
ROA | 5.12% | 1.60% | |
Sources: Company financials, Investment One Research
