FSDH Initial Reaction: Guaranty Trust Holding FY23 results
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April 15, 2024/FSDH Research

Key Performance Highlights:

• Guaranty Trust Holding reported stellar FY23 results despite the challenging operating environment, with Gross earnings more than doubling (120.0% YoY) to N1186.5 billion. The robust growth was majorly driven by a 6.5x rise in Other income (37.9% of Gross Earnings) on account of Foreign exchange revaluation gain to N441.8 billion from N57.9 billion. Besides this, a 69.3% YoY increase in Interest Income (46.4% of Gross Earnings)  to N550.7 billion, coupled with an 18.1% YoY rise in Fee and Commission Income (10.5% of Gross Earnings) and a 54.4% YoY increase in Net gains on financial instruments held at FVPL (5.2% of Gross Earnings) also fueled the Gross Earnings growth. Guaranty recorded an impressive 219.0% YoY jump in Profits, reaching N539.6 billion in FY23, compared to N169.2 billion in FY22.
   
• In FY23, Interest Income surged 69.3% YoY to N550.7 billion, compared to N325.4 billion a year ago, primarily driven by higher Loans and advances to customers, cash and cash equivalents, and Investment securities. This was partially offset by a 72.6% YoY increase in Interest Expense to N114.0 billion, as customer deposits rose to N102.7 billion from N59.7 billion a year ago. The loan impairment charges shot up to N102.9 billion from N12.0 billion in FY22, resulting in a 34.9% YoY rise in Net Interest Income after loan impairment charges to N333.7 billion.
   
• Fee and Commission Income increased 18.1% YoY to N124.2 billion, driven by higher Commissions on foreign exchange deals, transfer-related charges, E-business Income, and Account maintenance charges. Further, Fee and Commission Expenses were up 12.0% YoY to N14.7 billion compared to N13.1 billion in the previous year, reflected by higher bank charges. Consequently, Net Fee and Commission income increased 19.0% YoY to N109.4 billion, Vs. N92.0 billion in FY22. The Net gains on financial instruments held at FVPL increased 54.4% YoY to N62.2 billion in FY23. The Net Impairment charges on other financial assets increased 164.3% YoY to N95.0 billion from N35.9 billion in FY22. Further, Personnel expenses increased 25.0% YoY to N45.1 billion during the year. Also, Other Operating expenses saw a rise of 31.6% YoY to N166.2 billion in FY23, primarily reflected by increased outsourcing services, Communications, administrative and technology-related expenses and Provision for litigation.
   
• Subsequently, Profit Before Tax spiked by 184.5% YoY to N609.3 billion in FY23. While the Company reported an effective Tax rate of 11.4% (FY22: 21.0%), Income Tax expense increased to N69.6 billion from N45.0 billion in FY22. Finally, Profit for the year rallied 219.0% YoY to N539.6 billion in FY23, compared to N169.2 billion in the previous year. Earnings per share significantly advanced to N19.06 from N5.95 in FY22. The Group’s loan book (net) Increased by 31.5% from N1.89 trillion recorded as of December 2022 to N2.48 trillion in December 2023, while deposit liabilities grew by 63.7% from N4.61 trillion in December 2022 to N7.55 trillion in December 2023. Although the Full Impact Capital Adequacy Ratio (CAR) declined YoY, it remained very strong, closing at 21.9% (FY22: 24.1%), and asset quality was sustained as IFRS 9 Stage 3 Loans improved to 4.2% in December 2023 from 5.2% in December 2022. However, Cost of Risk (COR) closed at 4.5% from 0.6% in December 2022 owing to worsening macros, which caused a significant increase in ECL variables.
   
• The Group reported solid growth during 4Q23, with Gross earnings rising 92.2% YoY to N336.1 billion, driven by higher Interest Income (up 89.6% YoY), Net gains on financial instruments held at FVPL and Other Income. 4Q23 profitability also increased siginificantly by 343.6% YoY to N172.2 billion.
   
• The Board recommended the payment of a final dividend of N2.70 per ordinary share of 50 Kobo, bringing the total dividend for FY23 to N3.20 (FY22: N3.10). The dividend will be payable on May 9, 2024, to shareholders whose names appear in the Register of Members at the close of business on April 26, 2024.

Market Reaction: Investor reaction to the FY23 results was subdued as the stock fell 10.0% to close at N41.40 versus a 0.71% decline for the All-Share Index (12/4).

Guaranty Trust Holding FY23 Earning Highlights

Source: FSDH, Company data