Earnings Report /

Guaranty Trust Holding: Q1 20 review – Profit growth slows as fee income shrinks

  • Profits grow by 2% yoy to NGN50mn in Q1 20; fee income contracts as CBN's revised fee charges come into effect

  • Net interest income up 10% yoy supported by growth in loans and investment securities

  • Reiterate Buy with a TP of NGN46.00 (ETR 145%)

Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

Tellimer Research
23 April 2020
Published byTellimer Research

GTB announced Q1 20 results with net profit of NGN50mn (up 2% yoy vs NGN49mn in Q1 19). This relatively weak growth in profits was on the back of lower net fee income (down 25% yoy) due to lower fee charges outweighing a 10% increase in net interest income (on account of double digit yoy growth in loans and investment securities) and impairment recoveries.

Compared with Q4 19, PAT remained unchanged (versus NGN49.5mn in Q4 19) due to weaker fee income and higher operating expenses. This is in contrast to FBNH, which reported lower qoq operating costs due to significant decrease in overhead expense as the lockdown mandated the bank to close half its branches.

Despite the slow down in profit growth, we reiterate our Buy recommendation on GTB with a TP of NGN46.00 (ETR 145%). The stock trades on FY 20f PB of 0.8x, in line with frontier peers. This is due to the bank's strong digital footprint, which translates to superior operating efficiency (it has one of the lowest cost/income ratios within our Nigeria coverage) and relatively cheaper retail deposits.

Key positives

  1. Net interest income was up 10% yoy, attributable to a double digit yoy growth in loans (up 27% yoy) and investment securities (up 26% yoy). However, net interest margin was down 0.2ppts yoy as a 0.6ppts reduction in funding cost was offset by lower yields on earning assets.
  2. GTB maintained its superior operational efficiency with cost/income ratio moderating by 0.2ppts to 41%, despite an 11% increase in operating expenses.
  3. Non-performing (Stage 3) loans fell by 2% qoq (which may be partly due to the 90 day moratorium on SME loans), resulting in a 0.6ppt contraction in NPL ratio to 6.0%, with NPL provisions coverage at 68% (up by 3ppts qoq).
  4. Continued recoveries on loans and other financial assets in Q1 20 brings cost of risk to -0.2%.

Key negatives

  1. Net fee income was down 25% yoy from lower e-banking fees and credit-related income. We think this is on account of the revised banking fee charges introduced in December 2019, which may have offset any volume growth recorded in the quarter from the increase in e-banking volume during the lockdown.
Q1 20 results summary 
NGNmnQ1 20Q1 19yoyQ4 19qoq
Net interest income64,28258,21710%58,42510%
Net fee income13,55418,010-25%12,9465%
Total operating income97,30987,39911%87,12312%
Operating expenses39,77235,87811%31,37227%
Pre-provision profit57,53751,52112%55,7523%
Net impairment charge-669-5,464-88%-5,314-87%
Net Profit50,07149,3032%49,8750%
Net attributable profit49,60348,9131%49,5380%
Net loans1,621,9541,281,45827%1,500,5728%
Total assets4,057,3163,555,91814%3,758,9198%
Net interest margin6.58%6.81%
Cost/income ratio40.9%41.1%
Cost of credit risk-0.16%-1.60%
Provision coverage68%85%
Source: Company accounts, Tellimer research