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GTBank’s Q2 2018 result shows growth in EPS by 20.63% year-on-year

The released Q2 2018 result of Guarantee Trust Bank Plc at the floor of the Nigerian Stock Exchange (NSE) has further shown growth in EPS by 20.63% y/y and 13.97% q/q, to NGN1.73. Annualized, the H1-2018 EPS beats Bloomberg’s polled estimate of NGN5.91 for FY-2018 by 10%. Impressive growth in the NIR (+31.95% y/y, +30.53% q/q) salvaged the top line performance, as it outweighed the continued decline in the interest income. At the bottom line, reduction in the provision for impairment (-89.67% y/y, -76.06% q/q), as well as a close to flattish opex (+1.72% y/y, +11.55% q/q) growth, gave a boost to the bank’s earnings.

Compressed asset yield, and increased CoF, translate to poor performing NIM: Interest income in Q2 (-0.82% q/q, +0.41%) remained suppressed by the lower interest rate environment in the quarter, as well as the continued contraction in the loan book ( -13.25% y/y, -10.77% ytd), while interest expense (+24.50% y/y, +8.46% q/q) was higher, following increased interest on customer deposits (+38.43% y/y, +3.13% q/q), amidst growth in total deposits (+2.48% q/q, +10.02% y/y) during the period.

As a result, NII (-8.15% y/y, -2.43% q/q) was lower.  On our estimates, the annualized asset yield in H1 was lower by 100 bps at 12.5% (vs. FY 2017’s 13.50%), while annualized CoF was flat YtD, at 3.3%, resulting in NIM compression (YtD: -107 bps) to 9.09%.

Impressive NIR in Q2: NIR sustained its growth sustained during the quarter, driven by improved performance on the net trading income (+499.31% y/y, +45.68% q/q), other income (+0.12% y/y, +116.44%), as well as fees and commission income (+20.90% y/y, -20.31% q/q) lines. A surge in foreign exchange gain to NGN6.0 billion, from a loss of NGN21.18 million in Q2 last year, led to the growth in net trading income, while the upturn in other income was attributable to a jump in dividend income from NGN107 million in Q2-2017, to NGN2.68 billion in the current quarter.

While fees & commission income impressed on a year-on year basis (+20.90%), it dropped by 20.31% q/q. The y/y growth was as a result of the increases in E-business income (+21%) and Commission on foreign exchange deals (+397.97%).

Improvement in asset quality: GUARANTY’s annualized CoR in H1 improved by 65 bps YtD to 0.11%, amidst decline in impairment provision (-71.83% y/y) in the half year, as well as the continued contraction in the loan book (-13.25% y/y, -10.77% YtD).

Further decline CAR: GUARANTY’s CAR dropped to 21.89% in H1-18, from 24.57% in Q1-18 and 25.50% in FY-17, following increased deduction for IFRS 9 initial adjustment (unlike in ZENITH’s case, which was a reduction) to NGN148.63 billion, as against NGN134.88 billion reported in Q1-18.

Industry analysts who reviewed the result averred a positive view of GUARANTY’s Q2-18 performance. Together with the higher declared dividend of 30 kobo (2016: 25 kobo) – yielding 0.77% on yesterday’s closing price – experts expect the bank’s stock will attract investor interest in today’s trading session.