April 26, 2022/CSL Research

GTCO’s Q1 2022 unaudited numbers showed a 17.1%y/y growth in Interest Income to N70.6bn driven by growth in both interest income on Loans and yields on fixed income instruments. Net Loans and advances to Customers grew moderately, up 4.8% y/y (Q1 2022 compared with Q1 2021) but is down 4.7% in March 2022 compared with December 2021. On the other hand, Interest Expense grew significantly, up 70.7% y/y to N13.4bn. We had modelled a gradual increase in cost of funds through the year and forecast funding cost of 1.8% for FY 2022 from a low point of 0.67% in June 2021. Customer Deposits grew moderately y/y, up 12.2% but is up only 0.8% in March compared with December 2021. Overall, Net Interest Income grew 9.1% y/y.

Net Fee and Commission Income grew significantly, up 28.4% y/y. Q1 2022 Net Fee and Commission came in higher than all the previous quarters of 2021 except for Q2 2021. Save for commission on check points, all other fees and commission lines showed growth. The major drivers were a 23.8% y/y increase in Account Maintenance Charges, a 90.1% y/y rise in corporate finance fees, and a 40.7% y/y increase in commission on foreign exchange deals.

Q1 2022 (Nm)

Source: Company’s Financials, CSL Research.

Other Income (Net gains on financial instruments held at FVTPL and Other Income was down 2.4% y/y. The group reported revaluation gains of N633m in Q1 2022 compared with N4.6bn reported in Q1 2021. However, significant mark to market gains on trading investments in Q1 2022 cushioned the impact.

OPEX grew significantly, up 20.9% y/y. The y/y growth in Opex, compared with a moderate 8.7% y/y growth in total Operating Income led to a deterioration in the bank’s cost to income ratio ex-provisions to 46.4% in Q1 2022 compared with 41.7% in Q1 2021. Major drivers of the growth in Opex were regulatory charges (NDIC and AMCON charge), administrative, communications and sponsorship related expenses and human capital related expenses

Impairment Charge of N1.2bn was down 35.0% y/y, bringing Q1 2022 annualised cost of risk (COR) to 0.3% compared with 0.5% reported for FY 2021.

Overall, PBT grew marginally, up 1.1% y/y while Net Profit declined 5.1% y/y to N43.2bn for Q1 2022, bringing Q1 2022 annualised ROAE to 19.3% compared with 20.6% for FY 2021.

We have a Buy recommendation on the stock with a target price target of N43.04/s. Current Price: N24.25/s.