October 26, 2022/Cordros Report
Guaranty Trust Holding Company Plc (GTCO) released its nine-month unaudited financial statements after market close yesterday, reporting a marginal increase (+0.2% y/y) in EPS for the period under review (9M-22: NGN4.55 vs 9M-21: NGN4.54) as the HoldCo’s higher income tax expense (+74.9% y/y) pressured the bank’s bottom-line.
Interest income grew by 19.2% y/y to NGN232.49 billion, propelled by all contributory lines. Precisely, income from loans and advances to customers (+13.2% y/y to 159.87 billion), investment securities (+26.1% y/y to NGN62.93 billion), cash and balances with banks (+151.0% y/y to NGN9.67 billion), and loans and advances to banks (+35.2% y/y to NGN22.76 million) were the drivers of the growth recorded.
Similarly, interest expense increased by 33.4% y/y to NGN42.80 billion on the back of higher fees expensed on customer deposits (+36.7% y/y to NGN39.35 billion), financial institutions (+8.4% y/y to NGN1.23 billion) and borrowings (+7.6% y/y to NGN2.00 billion). Despite an improvement in the HoldCo’s funding mix (CASA as at 9M-22: 86.6% vs FY-21: 85.7%), the higher cost on customers’ deposits was driven by the CBN’s revision of the minimum interest rates payable on local currency savings deposits from 10% to 30% of the Monetary Policy Rate (MPR). Accordingly, the HoldCo recorded a 16.4% y/y increase in net interest income. Following lower charges for credit impairments (-38.3% y/y), the net Interest income (ex-LLE) settled at NGN185.99 billion, translating to an 18.5% y/y growth.
The HoldCo reported a slight increase in its non-interest income (+3.8% y/y to NGN123.18 billion) due to the (1) gains from FX trading (+43.2% y/y to NGN31.71 billion) and investment securities trading (+36.6% y/y to NGN4.91 billion) and (2) increase in net income from fees & commission (+12.5% y/y to NGN58.31 billion). These were enough to offset the lower income from FX revaluation (-25.2% y/y to NGN11.57 billion).
Operating expenses (OPEX) increased by 12.7% y/y to NGN139.44 billion following the increases in deposit insurance premium (+21.1% y/y to NGN10.74 billion), personnel expenses (+8.3% y/y to NGN30.54 billion), and AMCON levy (+6.4% y/y to NGN23.29 billion). Given that OPEX grew faster than operating income (+12.2% y/y), the cost-to-income ratio (ex-LLE) settled at 45.1% (9M-21: 44.9%).
Overall, the HoldCo’s profit before tax was 11.7% y/y higher at NGN169.72 billion, while profit after tax grew by 0.7% y/y to NGN130.35 billion owing to the 74.9% y/y increase in the income tax expense to NGN39.38 billion.
Comment: We like that GTCO could keep its costs at bay, seeing as the cost-to-income ratio expanded marginally by 0.4% amid the inflationary pressures in the operating environment. However, we are concerned about the HoldCo’s marginal growth in its non-funded income and will seek management clarity on this. For the rest of the year, we are optimistic that the HoldCo’s appetite for risky assets and the higher yields in the fixed-income market will support earnings. Although, as we highlighted in our H1-22 First Glance, the higher income tax expense incurred given the implementation of the 2021 Finance Act will continue to pressure the bank’s profitability. Our estimates are under review.
