GTCO released its H1-22 audited financials on Monday (5 September), which showed that the HoldCo recorded a decline in profitability, despite an increase in its top line.
The Holdco’s decline in profitability (-2.3% y/y) is attributed to the rise in tax expenses (+38.4% y/y) that outweighed the earnings increment (+14.9% y/y) recorded in the period. Consequently, the bank recorded a decline in EPS to NGN2.70/s (-3.2% y/y vs H1-2021: NGN2.79/s).
Experts at Codros Capital say the Holdco’s interest income grew by 16.7% y/y to NGN147.20 billion, propelled by all contributory lines. On a nominal basis, the most significant contributions during the period came from income from loans and advances to customers (+13.1% y/y to NGN103.30 billion), investment securities (+26.0% y/y to NGN40.39 billion), cash and balances with banks (+15.5% y/y to NGN2.68 billion) and loans and advances to banks (+145.9% y/y to NGN832.04 million).
The bank recorded a higher interest expense (38.4% y/y to NGN26.35billion) during the period, driven by a significant spike in the cost of deposits from customers (+44.6% y/y to NGN24.31 billion) amid a decline in expenses incurred on financial institutions’ deposits (-21.6% y/y to NGN59.60 million). The increase in the cost of deposits from customers can be attributed to the increase in deposit from customers by 6.2% to NGN4.26 trillion in the year-to-date, combined with the marginal deterioration of the Holdco’s current and savings account (CASA) mix to 90.7% in H1-22 from 90.9% in 2021FY. However, given that the increase in interest expenses ran behind interest income growth, in nominal terms, net interest income settled higher by 12.9% y/y at NGN120.85 billion. In addition, the reduction in credit impairment charges (-25.4% y/y) ensured the net Interest income ex-LLE settled 14.6% y/y higher at NGN117.33 billion.
Also, non-interest income (NII) increased by 6.2% y/y to NGN85.38 billion, supported by income growth from foreign exchange trading (+34.0% y/y to NGN20.52 billion), net fees and commission income (+7.9% y/y to NGN29.70 billion), and net gains on investment securities (+29.7% y/y to NGN3.08 billion). These offset the lower income FX revaluation gains (-39.2% y/y to NGN8.20 billion). This growth in non-funded income in conjunction with the funded income growth recorded, led to an 11.1% y/y expansion in operating income.
Operating expenses increased by 11.3% y/y to NGN99.46 billion in H1-22, with the most pressure exerted by deposit insurance premium (+20.0% y/y to NGN7.10 billion). Overall, the increase in operating income (+11.1% y/y) compared to OPEX led to the bank’s cost-to-income ratio (ex-LLE) staying at 49.1% YTD.
Overall, profit-before-tax was 11.0% y/y higher at NGN103.25 billion but further weighed down by higher income tax expense (+88.3% y/y to NGN25.69 billion). Consequently, profit-after-tax declined (-2.3% y/y to NGN77.56 billion).
Comment: Cordros Capital avers that the continued deterioration of the bank’s profitability is a cause for concern, and we attribute this to the higher income tax expenses the bank had to incur following the implementation of the 2021 Finance Act. On the positive, the growth from core banking operations is impressive; this growth trajectory should be sustained through the year, given the higher yields expected for the rest of the year. We remain cautiously optimistic and will seek management guidance regarding the year’s pressure points so far. Our estimates are under review, however.
