GTBank Gets Boost from Cost Efficiency

Goddy Egene writes that the improved performance   of Guaranty Trust Bank Plc in the half year ended June 30, 2018, partly resulted from consistent improved cost management efficiency

 Guaranty Trust Bank Plc last week recommended an interim of N8.8 billion dividends for the half year ended June 30, 2018.

The dividends, which translated to 30 kobo per share, was recommended following improved bottom-line posted by the bank. While the bank grew its gross earnings by 5.6 per cent, profit after tax (PAT) grew faster by 14.2 per cent as a result of cost efficiency.

Specifically, GTBank posted gross earnings of N226.6 billion, showing an increase of f 5.9 per cent from N226.6billion in 2017.

Profit before tax grew by 8.4 per cent to N109 billion, compared with N101 billion in 2018, while profit after tax (PAT) grew faster by 14.2 per cent from N83.679 billion to N95.582 billion.

However, the bank’s loan book dipped by 10.8 per cent from N1.449trillion recorded as at December 2017 to N1.293trillion in June 2018, while customers’ deposit grew by 10 per cent to N2.269trillion from N2.062trillion in December 2017.

Its balance sheet remained strong with a 5.9 per cent growth in total assets of N3.549 trillion and shareholders’ funds of N497.1 billion.

In terms of assets quality, non-performing loan (NPL) ratio improved to 5.8 per cent  in June 2018, from 7.7 per cent in December 2017.

Its capital remained strong with capital adequacy ratio (CAR) of 22.04 per cent  in spite of the implementation of IFRS 9.

On the backdrop of this result, post- tax return on equity (ROAE) and return on assets (ROAA) closed at 34.1 per cent  and 5.5 per cent respectively

MD explains performance

 Commenting on the financial results, the Managing Director/CEO of GTBank, Mr. Segun Agbaje said, “In spite of declining yields and the challenges in the operating environment, we have delivered a decent half year result. The quality of this result is built on the strength of our businesses as well as the success of our digital-first customer-centric strategy in delivering financial services that are simpler, cheaper and more valuable to our customers’ everyday lives.”

He further stated that, “We will continue to focus on consolidating our leading position in all the economies in which we operate by staying committed to building a business that is both nimble and efficient whilst strengthening relationships with our customers and creating business platforms that provide them with additional benefits beyond banking.”

According to him, GTBank continues to be best in class in terms of all financial ratios posted by financial institutions in the industry as indicated by its post-tax return on equity (ROE) of 34.1 per cent, post-tax return on assets (ROAA) of 5.5 per cent, cost to income ratio of 38.8 per cent, NIM of 9.6 per cent and PBT margin of 48.4 per cent. “These ratios are testament to competent and experienced management and work-force, efficient balance sheet structure complemented with operational efficiency of the bank.

In recognition of the bank’s bias for world class corporate governance standards, excellent service delivery and innovation, GTBank has been a recipient of numerous awards over the years. These include Africa’s Best Bank for SMEs and Best Bank in Nigeria from Euromoney Magazine, African Bank of the Year from African Banker Magazine, Best Banking Group and Best Retail Bank from World Finance Magazine, Best Bank in Africa for Corporate Governance from Ethical Boardroom Magazine,” the bank said.

 Analyst Assessment

Assessing the results, analysts at WSTC  Securities Limited said  the bank  posted a six  growth  in  gross  earnings  from  N214.1 billion  in 2017 to  N226.6 billion  in  2018.

Interest income declined by two per cent, while non-interest income grew significantly by 34 per cent during the period.  PBT increased by eight per cent from N101.10 billion to N109.6 billion in 2018, as well as PAT, which grew by 14 per cent from N83.7 billion to N95.6 billion in  2018.

 According to the analysts declining loan book weighed on interest income.

“Loans and advances for  the  period contracted by 11 per cent  to N1.29 trillion  due  to repayments  of foreign  denominated loans,  as  well  as the  impact  of  IFRS9. Consequently, interest from loans and advances  declined  by  seven per cent.

“However, the bank continued to shore up investment in government securities as interest income from risk-free assets rose by 18 per cent to N51.1 billion in 2018.” Nonetheless, the seven per cent decline in interest income from loans and advances offset the increase in interest income from government securities, and this resulted to a marginal decline of two per cent in total interest income to N161.9 billion in 2018 from N165.9 billion in 2017,” they said.

 The analysts noted that interest expenses grew by  21 per cent,  driven  by  33 per cent   increase  in  interest  expense from customer deposits.  The latter was due to  a 10 per cent  increase  in  customer  deposits  to N2.3 trillion with significant contribution coming from current deposits from corporate clients.

“Corporate  clients accounts,  which contributed  51 per cent  of  total  deposits, increased by 11 per cent. The sharp increase in interest expenses, coupled with a decline in interest income, resulted  to  a decline in net  interest  income by   nine per cent   year-on-year. Cost of funds inched up to 3.1 per cent compared with 2.5 per cent in 2017, resulting from intense competition for deposits among banks and other financial institutions.  Hence, GTB’s net interest margin contracted to 52 per cent,” they said.

 GTBank’s  credit impairment charge reduced  by  72 per cent   primarily   due   to   reduction   in   gross   non-performing   loans of   the bank. Consequently, the non-performance loan(NPL) ratio went down 190 basis points to 5.8 per cent, highlighting the  bank’s prudency and adequate provisioning.

Also, there was strong growth in non-interest income, which supported earnings Buoyed by162 per cent increase in foreign exchange gains to N9 billion in  2018  from N3.6 billion in  2017, net  trading  gains  on  financial  instruments grew  by 123 per cent.

“Also, other income rose by 31 per cent, driven by dividend income of N2.7 billion during the period as against N106.5 million in 2017, and a 21 per cent  increase in foreign exchange revaluation gains to N17.4 billion  in 2018 from N14.4 billion in 2017.

“Increases in  various  components  of  non-interest income resulted to a 34 per cent increase in non-interest income from to N48.264.8 billion in 2018 to N64.8 billion in 2017,” the analysts said.

In terms cost efficiency, GTBank’s   cost-to-income ratio stood at 39 per cent  in  2018, an improvement from 40 per cent recorded in the corresponding period of the previous year, despite a  three per cent increase  in operating expenses, which emphasises on the efficiency of the bank.

“Operating income grew by six per cent   to N179.9 billion, from N168.9 billion in 2017, while operating expenses grew to N69.6 billion in the first half of 2018, from N67.8 billion in 2017. The faster growth in operating income relative to operating expenses resulted to an eight per cent increase in PBT to N109.6 billion.

PAT stood at N95.6 billion in 2018 from N83.8 billion, representing a 14 per cent   increase,” they added.

The analysts said they expect an improvement  in  interest  income in the second half of  2018 on  the back  of  improving macro-economic fundamentals.

“Also, we expect a sustained growth in non-interest income to keep supporting gross earnings.  We have a forward earnings per share (EPS) of N6.24  and a fair value estimate of N47.13 for group.

“At the current market price of N38.05, the stock is trading at a 24 per cent  discount to our fair value estimate. Hence, we have a BUY recommendation for the stock,” they stated.