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GUARANTY TRUST BANK PLC FY'19 Earnings - Profits improve y/y despite flat Earnings

Profits improve y/y despite flat Earnings                                                  

Earnings flat despite decline in Interest Income

GUARANTY recently released Audited FY’19 results, reporting flat y/y Gross earnings of ₦435.4 billion (Vetiva Estimate: ₦438.1 billion). The Gross Earnings miss was due to the 4% y/y decline in Interest Income to ₦296.2 billion (Vetiva Estimate: ₦298.9 billion). However, the bank also managed to reduce Interest Expense significantly by 23% y/y to ₦64.8 billion (Vetiva Estimate: ₦72.4 billion), this was thanks to a 21% decline in Interest paid on deposits to ₦53.8 billion. Consequently, Net-Interest Income grew by 4% y/y to ₦231.4 billion (Vetiva Estimate: ₦226.5 billion). Meanwhile, Non-Interest Income grew by 9% y/y to ₦139.2 billion, in line with our estimate, thanks to a 19% jump in Fees and Commission Income. Furthermore, the bank recorded flat Provisions y/y of ₦4.9 billion (Vetiva Estimate: ₦4.3 billion), while limiting Opex to ₦133.9 billion- a 3% y/y growth. Overall, the bank recorded a 7% y/y growth in PAT to ₦196.9 billion (Vetiva Estimate: ₦195.0 billion), yielding an EPS of ₦6.64 and an ROAE of 31.1%.

                                                           

NPLs to improve, remain above 5% amid slower loan-growth in FY’20

GUARANTY’s loan book grew by 15% y/y in FY’19 to ₦1.6 trillion, while the bank’s NPL ratio improved to 6.5% from 7.3% in FY’18. The bank has maintained the lowest cost of risk (0.2%) among Tier-I peers and is set to improve asset quality in FY’20. However, the bank is unlikely to repeat the double-digit loan growth of FY’19, due to the competitive lending environment. We however still expect decent loan growth as management continues to drive credit supply. Moreover, the CBN’s squeeze on banks’ activity in the Fixed income space is likely to continue to push lenders to attempt issuing loans at competitive rates, a scenario which GUARANTY has not had as much joy in. Therefore, we forecast a 9% y/y expansion in the bank’s loan-book, and a 50bps moderation in NPLs for FY’20.