September 6, 2022/CSL Research
GTCO’s H1 2022 audited numbers showed a 16.7% y/y growth in Interest Income to N147.2bn driven by growth in both interest income on Loans and yields on fixed income instruments. Q/q, (Q2 2022 compared with Q1 2022), Interest Income was up 8.4%. Net Loans and advances to Customers grew 6.7% in Q2, bringing H1 2022 net loan growth to 1.7% compared with December 2021. Net Loans were down 4.7% in March 2022 compared with December 2021. On the other hand, Interest Expense growth moderated, up 38.4% y/y to N26.4bn. Q/q, Interest Expense was down 3.9%. We had modelled a gradual increase in cost of funds through the year and forecast funding cost of 1.8% for FY 2022 from 0.67% in June 2021. We however expect growth in funding cost to significantly lag growth in assets yield for banks like GTCO with a high proportion of cheap deposits. Customer Deposits grew moderately, up 6.2% in June compared with December 2021. Overall, Net Interest Income grew 12.9% y/y.
Net Fee and Commission Income grew moderately, up 7.9% y/y. Q/q, (Q2 2022 compared with Q1 2022), Net Fee and Commission was up 12.0%. The major drivers were a 20.9% y/y increase in Account Maintenance Charges, a 224.7% y/y rise in corporate finance fees, and a 28.6% y/y increase in account services, maintenance, and ancillary banking charges.
| H1 2022 (Nm) |
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Source: Company’s Financials, CSL Research.
Other Income (Net gains on financial instruments held at FVTPL, Other Income and net impairment charge on other financial assets) was up 5.6% y/y but declined significantly in Q2 2022 compared with Q1 2022, down 34.9% q/q. The group reported revaluation gains of N8.2bn in H1 2022 compared with N13.5bn reported in June 2021. However, significant growth in Net foreign exchange trading gains in H1 2022 cushioned the impact. The q/q decline was mainly due to a 45.7% decline in Net gains on financial instruments held at FVTPL and a 21.3% decline in Other Income in Q2 compared with Q1.
OPEX grew moderately, up 11.3% y/y and 6.8% q/q. The slightly higher y/y growth in Opex, compared with a 10.2% y/y growth in total Operating Income led to a deterioration in the bank’s cost to income ratio ex-provisions to 48.2% in H1 2022 compared with 47.7% in H1 2021. Major drivers of the growth in Opex were regulatory charges (NDIC and AMCON charge), administrative, Communications, technological related expense, and administrative expenses.
Impairment Charge of N3.5bn was down 25.4% y/y, bringing H1 2022 annualised cost of risk (COR) to 0.4% compared with 0.5% reported for FY 2021.
Overall, PBT grew moderately, up 11.0% y/y but declined 9.8% q/q while Net Profit declined marginally, down 2.3% y/y to N77.6bnbn, bringing H1 2022 annualised ROAE to 17.9% compared with 20.6% for FY 2021.
The bank’s management proposed an interim dividend of N0.30/s same as was proposed last year.
Capital Adequacy Ratio (CAR) remained strong at 22.0% compared with current regulatory minimum of 16.0%.
We have a Buy recommendation on the stock with a target price target of N43.04/s. Current Price N19.90/s.
