October 24, 2023/Cordros Report

Guaranty Trust Holding Company Plc (GTCO) published its 9M-23 unaudited results today (24 October), reporting a 185.3% y/y increase in EPS to NGN12.98 (9M-22: NGN4.55), supported by the sturdy growth across the group’s core (+61.1% y/y) and non-core (+231.1% y/y) income lines.

In 9M-23, GTCO reported a 61.1% y/y growth in interest income to NGN374.56 billion, driven by the impressive income from key contributory lines. In nominal terms, the group generated higher revenue from loans and advances to customers (+32.8% y/y to NGN212.30 billion), investment securities (+78.8% y/y to NGN112.51 billion), and placements with other banks (+414.1% y/y to NGN49.74 billion). We highlight that the increase in income from investment securities was driven by the combined impact of elevated rates in the fixed-income market and increases in the holdco’s investment securities (+52.8% YTD to NGN2.24 trillion).

Elsewhere, interest expense surged by 79.9% y/y to NGN77.02 billion, triggered majorly by the elevated interest rate environment which passed through to increased funding costs. As a result, the Holdco’s interest costs on customers’ deposit holdings rose by 76.9% y/y to NGN3.53 billion despite the improvement in its funding mix – (CASA 9M-23: 98.7% vs FY-22: 87.1%). At the same time, costs of borrowing advanced by 48.9% y/y to NGN2.98 billion. Consequently, the net interest income rose by 56.9% y/y at NGN297.54 billion. Eventually, the net interest income (ex-LLE) settled 11.9% y/y higher to NGN208.07 billion, following the loan impairment charges (NGN89.46 billion) taken in the period.

Non-interest income (NII) grew by 231.1% y/y to NGN407.83 billion, spurred primarily by the revalution gains of about NGN306.96 billion recorded in Q2-23 (Q3-23: NGN49.35 billion | 9M-22: NGN334.35 billion). Aside from revaluation gains, the rise in the income generated from fees and commission (+41.5% y/y to NGN82.48 billion) was sufficient to outweigh losses in investment securities trading (-NGN55.62 billion). This expansion in NII, alongside the growth in net interest income, led to a 99.2% y/y increase in operating income to NGN615.90 billion.

Further down, GTCO’s operating expenses grew by 31.0% y/y to NGN182.70 billion, with the most pressure stemming from personnel expenses (+23.0% y/y to NGN37.58 billion), deposit insurance premium (+18.1% y/y to NGN12.69 billion), and AMCON levy (+17.8% y/y to NGN27.43 billion). Nonetheless, the group maintained impressive operational efficiency as the cost-to-income ratio (ex-LLE) settled at 29.7% (9M-22: 45.1%).

Overall, profit before tax advanced by 155.2% y/y to NGN433.20 billion, while profit after tax grew faster by 181.9% y/y to NGN367.42 billion, after accounting for NGN65.79 billion income tax expense.

Comment: We like GTCO’s financial performance in the period with a standalone EPS of NGN3.04 in Q3-23 (vs Q3-22: NGN1.85), reflective of the elevated interest rate in the environment amid the group’s operational efficiency. Overall, we expect GTCO to close the year positively, supported by consistent growth across its core and non-core income and effective cost management strategy. Our estimates are under review.