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GUARANTY TRUST BANK PLC - 9M profit performance in line with estimates

Profits come in as expected
GUARANTY released 9M’20 results yesterday, reporting a 2% y/y growth in Gross Earnings to ₦333.1 billion (Vetiva estimate: ₦341.1 billion). As expected, the bank’s Net Interest Income maintained its 10% y/y growth rate from H1, growing to ₦189.7 billion, thanks to a 25% moderation in Interest Expense. Meanwhile, Non-Interest Income grew by 3% y/y to ₦104.8 billion, caused by a 23% y/y decline in fees and commissions income to ₦37.4 billion. We note that this income line has suffered significantly in 2020, but we expect this trend to reverse in 2021 due to the bank’s restructuring. However, we do expect some mild improvements in other Non-Interest items to augment this. Furthermore, provisions rose 267% y/y to ₦10.1 billion, but this was mainly a holdover from Q2’20, as the Q3 figure came in 39% lower q/q. Also, Opex rose 15% y/y to ₦85.7 billion. However, this was once again due to the surge observed in Q2, as Q3 Opex also declined 30% q/q to ₦31.3 billion. As a result of this, PBT came in 2% weaker y/y at ₦167.4 billion (Vetiva estimate: ₦165.6 billion), while PAT printed at ₦142.3 billion, in line with our estimate. This yielded a 9M EPS of ₦4.79.

Q4 performance a preamble to new holding structure performance
With GUARANTY set to finalise its transition to a Holdco structure by the end of the year, the bank’s Q4 performance will likely contain a preview of the bank’s structural operations going forward. With greater emphasis to be potentially placed on subsidiaries that will likely drive increased Non-Interest Income, especially Fees and Commissions and Investment Income. However, the bank’s Q3 performance indicates that, although the bank did not bounce back completely, a return to normal efficiency is on the horizon. Looking forward, we expect the addition of further business units to contribute to the slight improvement in Income fees and commissions and investment income. Furthermore, we foresee a return to the bank’s status quo with regards to loan loss provisions in the final quarter and beyond, with an expected ₦3.3 billion figure in Q4 giving us a ₦13.2 billion provision for FY’20.