This afternoon, Guaranty Trust Bank Plc (GUARANTY) published Q3-2017 result wherein gross earnings declined by 19.85%y/y and 12.03% q/q (missed our estimate by 24.27%), with PBT (-1.06% y/y and -3.51% q/q) and PAT (-1.34% y/y and -72 bps q/q) consequently coming in lower (missed our estimates by 11.20% and 3.88% respectively). The key driver of the decline in earnings was a significant contraction in NIR (down 72.80% y/y and 52.75% q/q), which more than subdued the 14.21% y/y (and 74 bps q/q) growth in interest income.
The steep contraction in NIR stemmed from a 107.73% y/y and 18.08% y/y declines in other income and net fee and commission income. The decline in fee and commission income broadly reflected the lower gains on credit related fees and E-business income while the relative stability of the naira – which limited the legroom for any significant revaluation gain – largely accounted for the huge drop in other income. On the other hand, net gains on financial instruments rose significantly, following improved gains on T-bills, bonds, and foreign exchange trading.
Despite a marginal growth in interest income during the period, annualized assets yield expanded by 234 bps y/y to 13.69% reflecting the impressive yield on interest earning assets as the interest rate environment remained elevated. Annualized costs of funds expanded by 25 bps y/y to 3.21%, following a 35.90% q/q surge in interest on deposits, which more than offset the 41.42% q/q decline in interest on borrowings, and a broadly flat interest on debt securities issued. Overall, the higher yields on earning assets more than outweighed the growth in cost of funds, resulting in 228 bps expansion in net interest margin to 10.50%.
Over 9M-17, gross earnings declined by 6.11% (9.09% below our estimate), while PBT and PAT grew by 6.53% and 4.71% respectively. Both miss our estimates by 1.98% and 11.55% respectively. The decline in gross earnings broadly reflects a 59.21% decline in NIR, which muted the 36.48% y/y growth in interest income.
While NPL increased by 27 bps (compared to the level in FY-16) to 3.93%, credit loss provision at N8.38 billion in 9M-17 was 85.36% below the amount reported same period in the previous year, following the recovery of a previously written off loan worth N4.55 billion. Accordingly, annualized cost of risk contracted 313 bps y/y to 0.53% in 9M-17.
On the other hand, opex rose 13.06% in 9M-17, following persisting FX translation impact on operating cost (15.60% y/y), the rise in staff cost (13.12% y/y), and operating lease expense (9.43% y/y). Consequently, cost-to-income ratio (CIR) expanded by 756 bps y/y to 36.33%.