September 10, 2021/CSL Research

Guaranty Trust Bank Plc, now known as Guaranty Trust Holding Company Plc’s H1 2021 AUDITED results showed a significant decline of 18.0% y/y in Interest Income mainly due to a significant dip in interest income on investment securities as portfolio yield on treasury bills closed at 4.1% in H1 2021 from 14.2% in H1 2020. Q/q however, Interest Income was up 9.1%. Net Loans and Advances to Customers declined marginally, down 1.8% in H1 compared with December 2020. Interest Expense, on the other hand, declined 27.0% y/y but was up 41.8% in Q2 compared with Q1. Customer Deposits were up 3.3% in June relative to December 2020. Overall, Net Interest Income was down 16.1% y/y but was up 4.2% in Q2 compared with Q1. NIMs down to 7.0% in H1 2021 compared with 9.7% in Q1 2020.

Net Fee and Commission Income grew significantly, up 53.4% y/y, buoyed by significant growth in Q2, up 52.3% q/q. While all the Fee lines grew y/y, the major drivers were a 40.8% y/y increase in Account Maintenance Charges,  38.3% y/y increase in Credit Related Fees, 59.9% y/y rise in E-business Income, 60.2% y/y increase in account services, maintenance and anciliary banking charges and a 41.3% y/y growth in transfers related charges. We note the growth in E-banking Income, which implies increasing transaction volumes to make up for the regulatory induced decline in E-banking fees. 

H1 2021 (Nm)

Source: Company’s Financials, CSL Research.

Other Income (Net gains on financial instruments held at FVTPL, Other Income and Net Impairment on other financial assets) was down 10.3% y/y and 47.3% in Q2 relative to Q1. The y/y decline was mainly on the back of a net impairment (charge) on other financial assets of N341m compared with a reversal of N3.2bn in June 2020. The q/q decline was due to a 92.1% decline in FX trading gain in Q2 compared with Q1 and a 29.6% decline in Other Income Q/q. 

OPEX was up 7.2% y/y but grew significantly within the quarter, up 24.6% in Q2 compared with Q1, resulting in a steep deterioration of Q2 cost to income ratio ex-provisions to 54.0% compared with 41.7% in Q1. A 47.0% q/q growth in Other drove the q/q growth Operating Expenses, 15.9% q/q growth in depreciation and right-of-use asset depreciation of N1.7bn reported in Q2 compared with N711.1m in Q1. The y/y growth in OPEX, coupled with a 6.3% y/y decline in Total Operating Income led to a deterioration in the bank’s cost to income ratio ex-provisions to 47.7% in H1 2021 compared with 41.7% in H1 2020.  

Capital adequacy ratio for the group declined to 24.0% from 25.9% in December 2020 with full IFRS impact, while CAR of 23.13% was reported for the bank, which is well above the 15% regulatory minimum. The bank’s capital ratios remain strong, and we see no threat to capital in the near term.

Impairment Charge of N4.7bn was down 30.3%y/y in H1 2021, bringing H1 2021 annualised cost of risk (COR) to 0.5% compared with 1.2% reported for FY 2020. With NPL ratio of 6.0% and coverage ratio (with Reg. Risk Reserves) of 146.7%, the bank’s asset quality remains sturdy in our view. 

Overall, PBT was down 15.2% y/y, while Net Profit declined 15.8% y/y to N79.4bn in H1 2021, bringing H1 2021 annualised ROAE to 19.7% compared with 26.8% for H1 2020. 

We have a Buy recommendation on the stock with a target price target of N47.74/s. Current Price N27.10/s. Our estimates are being reviewed. 

The bank’s management proposed an interim dividend of N0.30/s, the same as was paid in June 2020.