April 18, 2023/InvestmentOne Report

• Gross revenue of N539.23billion, up 39.93%q/q, 20.41%y/y.         
• Net interest income of N325.40billion, up 8.93%q/q, 21.92%y/y.
• Profit before tax of N214.15billion, down 215.35%q/q, 3.33%y/y.
• Profit after tax of N169.17billion, down 358.07%q/q, 3.25%y/y.

The highly anticipated FY 2022 financial report for Guaranty Trust Holding Company (GTCO) was released at the tail end of the past week. The report showed a commendable topline performance as gross revenue rose by 20.41% y/y to N539.23 billion from N447.81 billion recorded in the previous year. This was largely driven by a 21.92% y/y rise in interest income to N325.40 billion which was buoyed by the increase in interest income on financial assets from N15.43 billion in 2021 to N30.28 billion in the period under review. Similarly, interest expense surged by 42.82% y/y to N66.09 billion due to the 43.70% y/y rise in deposit from customers to N59.75 billion, while other borrowed funds rose by 62.08% y/y to N4.36 billion. Moreso, non-interest income witnessed an increase of about 16.36% y/y to N200.68 billion for full year 2022. We opine that the aggressive contractionary policy moves by the CBN which has led to higher interest rates and tighter financial conditions, as well as the decline in CASA mix (+93.82% in FY 2022 vs +97.09% in FY 2021) pushed cost of funding higher. Nonetheless, net interest income remained positive and higher for the period by 17.54% at N259.30 billion. 

Moving further down the line, loan impairment charges grew by 40.50% to N11.98 billion, resulting from an increase in loans & advances to banks and customers by 10.17% and 38.17% to N129.44 billion and N11.91 billion, respectively. Furthermore, a significant increase in net impairment charge on financial assets amounted to N35.94 billion, compared to N760.79 million recorded in the previous year. The steep rise in net impairment charge can be mostly attributed to the group’s exposure to securities issued by the Ghanian Government which were hit by substantial losses after the decision to restructure both local and external debt to secure a $3 billion bailout from the IMF. In addition, operating expense (OPEX) was up by 43.44% y/y to N197.89 billion on the back of increases in administrative expenses (+67.11% y/y), general welfare expenses (+76.00% y/y) and customer service-related expenses (+135.06% y/y). Consequently, bottom-line was marginally suppressed due to the expansion in impairment charges and operating expenses as PBT and PAT declined by 3.33% and 3.25% to N214.15 billion and N169.17 billion, respectively. However, the bank declared final dividend of N2.80 (+3.70% y/y) which amounts to a yield of c.11.20% (as at yesterday’s price). 

On a sequential basis, the increase in interest income (+8.93% q/q) and non-interest income (+108.76% q/q) supported gross earnings which grew by 39.93% q/q. However, the 4498.43% q/q and 46.15% q/q rise in loan impairment charges and OPEX weighed on PBT, leading to a decline of 215.35% q/q. Also, the significant jump of 308.39% in tax rate further drove PAT downwards by 358.07% q/q. 

Essentially, the bank recorded impressive topline performance despite the challenging macroeconomic condition and losses on debt instruments which affected bottom-line performance. Nevertheless, we are of the view that Guaranty Trust Holding Company (GTCO) remains one of the key names for opportunities in the banking sector given its strong fundamentals and formidable historical performance.