Business
GTB’s efficiency level boosts performance indicators
By JULIUS ALAGBE
Guaranty Trust Bank Plc has continued to display uncommon resilience and profitability in the face of challenging operational and environmental headwinds that are threatening to unravel the sector. Analysts agree that the bank has been able to maintain a robust and performance trajectory that others could envy because of its capacity to define and determine its operations.
Experts believe that its operational efficiency has become its strength which enabled it to beat market speculations of missing profit target in the first 9-month of financial year 2019 scorecard. The lender maximised opportunity derived from retail end of the market and associated low funding cost.
In the 9-month of the financial year 2019 result, GTB cost to income ratio at stood 36%, which is the best of any bank and reflection of its cost efficiency and cost of funds pitched at 2.6% just as it increased shareholders’ funds. The Group raised net margin to 45.3% as against 42.5% in the comparable period.
At a higher cost of risk, the bank earned more on every share deployed for operation in the first 9 months in the financial year 2019. On the back of increased non-performing loans which caused the bank to book much higher impairment on credit asset losses, cost of risk went up from 0.12% to 0.2% in the period.
Analysis of the Group gross earnings went down by 3.33% to ₦326.03billion from ₦337.27billion in corresponding period of 2018. This came as result of 5.62% decline in interest income. Also, net gains on financial assets dropped by 52%.
Income earned from interest yielding assets went down from N237.5 billion recorded at the end of 9 months period in 2018 to N224.2 billion at the end of 9-month period in 2019. Just as net gains on financial instrument dropped to ₦9.64 billion.
Interest expenses moderated significantly, as the bank paid N51.3 billion on funds at the end 9-months in financial year 2019 as against N66.9 billion paid in the comparable period. This represents 23.4% reduction in expenses on year on year basis.
GTB expended N22.88 on every N100 the bank earned as income from interest yielding assets in the 9-month result in 2019 as against N28.16 used in the comparable period. What this means is that, while earnings miss underscore the period, GTB leverage on its cost leaders strengthen as a buffer.
The net effect of net trading on interest earnings assets was 1.3% increase in net interest margin between the periods.
The bank recorded 59% increase in impairment charge in credit losses; it had booked N1.7 billion as provision in the 9-month period in 2018 but assets quality waned with Stage 3 loans jumpy in the third quarter which pushed impairment charge to N2.8 billion.
At the end of financial year 2018, 5.6% of the GTB’s gross loan books were not performing. This was softened by the Group ability to tame operating expenses, which set in another buffer for improved performance.
In the 9-month, operating expenses went down 2.3% from N101.9 billion to N99.5 billion. Thus, from the cost angle, GTB was able to tighten nose around its overheads and funding mix.
Cost to income ratio went down from 38.27% in 2018 to 36.85% at the end of 9-month 2019. What this means is that, GTB overall cost on every N100 made nosedived. In 9-month of the financial year 2019, GTB incurred N36.85 kobo on every N100 revenue generated, compare to N38.27 kobo incurred in 2018.
Total assets berthed at N3.519 trillion, having expanded by 7.1% from N3.287 trillion at the beginning of the year. Then, 6.3% increase in liabilities indicates that GTB balance sheet expansion was funded more with obligated funds.
Then, the period saw a 10.6% increase in shareholders fund to N636.8 billion compare to N575.6 billion at the beginning of the year. This was driven by 47.44% surge in retain earnings. At about N661.80 billion, GTBank total investment in securities surged from N637.32 billion at the beginning of the year.
Of its N1.451 trillion gross loans, N1.369 trillion is performing while the sum of N81.408 billion has been tagged as non-performing. The bank booked N73.201 billion as impairment on credit losses, significant part of which came from Stage loans 3 thus placed net loans at N1.378 trillion at the end of 9 month in 2019.
GTBank had restricted balances of N438.648 billion with the Central Bank of Nigeria (CBN) as at 30 September 2019 as against N414.667 billion at year end 2018. The CBN debited the bank the sum of N25.147 billion as additional CRR during the period.
Analysts at GTI Securities Limited stated that the increase in the Group’s bottom line within the period under review was jointly driven by a 23% decrease in Income expenses (to ₦51.25bn), 23% growth in Net fees and commission income (to ₦46.50bn), and 12% growth in Other Income (to ₦43.82bn).
The firm also observed that in reaction to new CBN regulation aimed at increasing loan provision to the real sector of the economy, it noticed that the Group’s Loan-to-Deposit Ratio increased sharply to 54% from 48.2% in the corresponding period of 2018.
However, the minimum LDR has been further adjusted to 65% earlier in October; a development that can see the Group’s loan book increase further by end of the fourth quarter 2019, analysts projected. In the third quarter of financial year 2019
Analysts at Vetiva Capital said weaker non-interest income drags operating earnings, as the bank struggled to match its second quarter 2019 operating income scorecards of ₦95.2 billion. In the third quarter of 2019, operating income was lowered by 10.2% quarter on quarter to ₦85.5 billion. This was largely due to weaker Non-Interest Income, which declined 22% quarter on quarter to ₦28.9 billion, missing our third quarter 2019 estimate by 23%.
Given the 7.5% quarter on quarter loan book accretion to ₦1.4 trillion and an improved yield environment during the last two months of the quarter, the bank’s 1% quarter on quarter growth in interest income to ₦75.2 billion seems rather modest, Vetiva analysts noted.
However, it did come in line with ₦75 billion estimated by analysts. Vetiva analysts believe that the bulk of risk-assets created in the third quarter was achieved towards the end of the quarter; hence, the low contribution to interest income from loans.
Meanwhile, a 13.8% quarter on quarter rise in interest expense to ₦18.6 billion spurred a 2.7% in quarter on quarter contraction in net interest income to ₦56.6 billion, in line with analysts’ expectation.
Vetiva stated that looking ahead it expects the bank’s interest income to come in stronger in the fourth quarter 2019 on the back of the improved loan book.
Surprisingly, the bank recorded a 22% slump in non-interest income to ₦29 billion as against ₦37 billion in the second quarter 2019, dragged by respective declines of 97% and 22% in investment income and net fee income; with the large dip in investment income coming as a result of a 15% drop in investment securities.
In the third quarter 2019, as operating expenses declined by 14% between second and third quarter to ₦30 billion. Notwithstanding, operating profit dipped 8% to ₦55.4 billion, Vetiva estimated ₦59.8 billion, a reflection of the lower Non-Interest Income recorded in the quarter.
In a similar fashion, the bank recorded a 7% quarter on quarter decline in PBT to ₦54.9 billion. As such, the bank posted third quarter of 2019 PAT of ₦47.9 billion, down 4% quarter on quarter, resulting in EPS of ₦4.96 in the 9-month of the financial year 2019 compare to ₦4.83 in the comparable period.
Despite its third quarter numbers, GTB’s 9-month performance shows modest year on year growth in bottom-line, with PAT up 3%. Analysts at Vetiva said they have revised projections to reflect the misses in the third quarter. This includes adjustment to estimated non-interest income, downward to ₦139.2 billion compare to previous estimate of ₦150.7 billion.
“Consequently, our financial year 2019 return on average equity projection has been revised to 33.9%, yielding a 12-month price target of ₦47.89 compare to previous estimate of ₦51.49.
The bank’s shares have lost 22.6% year to date and are currently trading at a P/B of 1.3x as against a Tier I peer average of 0.7x.
