GUARANTY TRUST BANK PLC 9M'19 Earnings - Mixed Earnings Profile Leads To Softer Profits In Q3'19
Weaker Non-Interest Income drags Operating earnings
GUARANTY released its results for Q3’19 yesterday, well ahead of its listed peers. Sequentially, the bank struggled to match its Q2’19 Operating Income scorecards of ₦95.2 billion, reporting a 10.2% q/q decline to ₦85.5 billion. This was largely due to weaker Non-Interest Income, which declined 22% q/q to ₦28.9 billion, missing our Q3’19 estimate by 23%.
Flattish Interest Income despite Loan-book growth
Given the 7.5% q/q loan book accretion to ₦1.4 trillion and an improved yield environment during the last two months of the quarter, the bank’s 1% q/q growth in Interest Income to ₦75.2 billion seems rather modest. However, it did come in line with our estimate (Vetiva estimate: ₦75.0 billion). We believe that the bulk of risk-assets created in Q3 was achieved towards the end of the quarter; hence, the low contribution to Interest Income from Loans. Meanwhile, a 13.8% q/q rise in Interest Expense to ₦18.6 billion spurred a 2.7% q/q contraction in Net Interest Income to ₦56.6 billion, in line with our expectation. Looking ahead, we expect the bank’s Interest Income to come in stronger in Q4’19 on the back of the improved loan book.
Mild q/q decline in profits despite lower Opex, Provisions
Surprisingly, the bank recorded a 22% slump in Non-Interest income to ₦29 billion (Q2’19 – ₦37 billion), dragged by respective declines of 97% and 22% in Investment Income and Net Fee income; with the large dip in investment income coming as a result of a 15% drop in investment securities. As expected, GUARANTY was operationally efficient in Q3, as Opex declined 14% q/q to ₦30 billion. Notwithstanding, operating profit dipped 8% to ₦55.4 billion (Vetiva estimate: ₦59.8 billion), a reflection of the lower Non-Interest Income recorded in the quarter. In a similar fashion, the bank recorded a 7% q/q decline in PBT to ₦54.9 billion. As such, the bank posted Q3’19 PAT of ₦47.9 billion (down 4% q/q), resulting in a 9M EPS of ₦4.96 (9M’18: ₦4.83).
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