GUARANTY Trust Bank Plc has released its Financial Year 2020 earnings after the close of market Thursday, which showed that the bank recorded growth in earnings.
On the Earning Per Share of NGN7.11 (+2.2% vs 2019FY), the board has proposed a final dividend of NGN2.70/s (2019FY: NGN2.50/s), which equates to a yield of 9.1% based on the closing price of NGN29.80/s as of the close of trading today.
Interest income grew by 1.5% y/y to NGN300.74 billion, supported by growth in income from loans and advances to customers (+3.2% y/y), and investment securities (+6.5% y/y), both of which masked declines across interest income from cash (-56.3% y/y), loans to financial institutions (-57.8% y/y) and assets pledged as collateral (-11.0% y/y). We note that the strong growth recorded in risk assets (10.0% y/y to NGN1.66 trillion) was likely responsible for the acceleration in interest income from loans to customers.
On the other hand, interest expense pared by 27.4% y/y to NGN47.07 billion, despite an increase in deposits by 38.6% y/y to NGN3.51 trillion, as the bank’s CASA (low-cost deposits: current and savings accounts) mix improved to 88.9% (2019FY: 84.9%). Consequent on the strong balance sheet management, net interest income growth was strong, expanding by 9.6% y/y to NGN253.67 billion.
Non-interest income also grew strongly during the period, settling 11.2% higher y/y at NGN151.44 billion, despite a decline in net fees and commission income of 21.0% y/y, given substantial gains from FX trading (+34.6% y/y to NGN16.16 billion) and FX revaluation (+231.9% y/y to NGN56.64 billion). The weak performance in fees and commission income was expected, given revised charges and weaker transaction flows occasioned by the pandemic. Given the income growth, and despite the exponentially larger loan loss expenses (+298.5% y/y to NGN19.57 billion), the bank recorded an expansion in operating income of 6.3% y/y.
Operating expenses expanded by 12.6% y/y to NGN147.44 billion, with the most pressure exerted by regulatory charges – AMCON levy (+11.1% y/y to NGN17.20 billion) and non-cash expenses (+17.1% y/y to NGN29.05 billion). Consequent on the OPEX growth relative to operating income growth, the cost-to-income ratio (ex-LLE) settled higher at 38.2% relative to 36.1% in 2019FY. Consequently, profitability was marginally stronger, with profit-before-tax settling 2.8% higher year-on-year, while profit-after-tax settled 2.3% higher, given the higher in income tax expense (+5.2% y/y to NGN36.66 billion).
Comment: Despite weaker performance recorded through the preceding two quarters to Q4-20, and as the performance came under pressure as expected, the bank managed to record a relatively stronger performance primarily due to a 30.8% q/q decline in interest expense. In conjunction with sustained efficiency and performance across key lines, FX revaluation gains, this strong balance sheet management was responsible for the performance recorded. Our estimates are under review. [Cordros Capital]