GTBank 2019FY First Glance: Industry-Best Efficiency Supports Performance

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GUARANTY recently released its audited FY-19 numbers, which were in line with the performances posted right through the quarters of the year. EPS settled 6.4% higher year-on-year at NGN6.96/s. The performance was supported by moderate growth in both interest and non-interest income, alongside industry-best efficiency. Also, the bank proposed a final dividend of NGN2.50/s, which translates to a dividend yield of 11.0%, based on the last closing price of NGN22.70 (2nd March 2020).
Interest income growth moderated for FY-19, declining by 3.5%y/y to NGN296.20 billion, as the bank recorded declines across all major contributory lines – income from loans and advances (-4.8%y/y to NGN181.62 billion), and investment securities (-0.8%y/y to NGN103.69 billion). We note the strong growth recorded in risk asset creation (19.2% y/y to NGN1.50 trillion), as the bank looked to expand its loan book in the face of the minimum LDR requirement.

On the other hand, interest expense pared by 23.3%y/y to NGN64.84 billion, despite an increase in deposits by 11.4%y/y to NGN2.53 trillion, as the bank improved it’s CASA (low-cost deposits: current and savings accounts) mix during the year, in the face of weaker income growth. Consequent on the strong balance sheet management, net interest income growth settled in the positive region, expanding by 4.0%y/y to NGN231.36 billion.

Non-interest income grew by 8.0%y/y to NGN136.23 billion, supported majorly by net fees and commissions growth during the year (+17.8%y/y to NGN59.44 billion). Given the positive growth in both interest and non-interest income, as well as muted expansion in loan loss expenses, the bank recorded an expansion in operating income of 5.8%y/y.

Operating expenses growth was muted, expanding marginally by 3.0% y/y to NGN130.97 billion, with the most pressure exerted by personnel expenses (+1.2% y/y to NGN37.28 billion); which constituted 28.5% of Opex. Consequent on the muted Opex growth relative to operating income growth, cost-to-income ratio (ex-LLE) settled lower at 36.1% relative to 37.1% in the prior year. Consequently, profitability was stronger, with profit-before-tax settling 7.5% higher year-on-year, while profit-after-tax settled 6.6%.

Comment: As expected the bank recorded a strong performance for FY-2019. From the numbers posted, we’ve started to see the impact of much increased risk asset creation, most of which came in over the last quarter of the year. We note that the timing of risk assets growth was why there was no attendant impact on LLEs. We expect pressure on that line in 2020, even without significant impairments growth. All in all, we expect strong efficiency and balance sheet management will continue to support the bank’s performances. Our estimates are under review.

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