GUARANTY TRUST BANK PLC H1'19 Earnings - Superior Profitability Maintained
Superior profitability maintained
GUARANTY closed the H1’19 period with impressive scorecards across key profitability metrics. The Bank achieved Gross earnings of ₦221.8 billion for the period, 2% lower y/y and 1% behind our forecast. This was due to the bank achieving interest income of ₦74.5 billion in Q2’19, flat q/q but 1.7% shy of our Q2’19 estimate. Net interest income of ₦58.1 billion also came in flat q/q, albeit 7.5% above our Q2’19 estimate following lower than expected cost of funds. For H1’19, Net Interest Margin (NIM) dipped marginally y/y to 9.55% from 9.61% in H1’18 (Q1’19: 9.9%). The other contributor to topline - Non-interest income (NII) was up 3.6% q/q in Q2’19 to ₦37.1 billion; H1’19 NII also increased 13% y/y in line with our estimate, to contribute 32.9% to Gross Earnings from 28.6% in H1’18. Growth in NII was driven by y/y increments of 29% and 13% respectively in Fees & Commissions and other income which offset the 25% decline in net gains on financial instruments in H1’19. Consequently, Operating Income grew 1.3% q/q and 3.7% y/y to ₦95.3 billion in Q2’19 and ₦189.4 billion in H1’19.
The 1.6% YTD growth in net loans achieved in Q1’19 moderated to 1.0% by H1’19 from ₦1.262 trillion as at December 2018 to ₦1.274 trillion, as the bank’s retail penetration strategy was constrained by the operating environment during the review period. We believe the bank will struggle to attain the 10.0% y/y loan growth target and have revised our expectation downward to 5% y/y with greater optimism on an improvement in FY’19 asset quality via recoveries. H1’19 NPLs reduced to ₦91.6 billion (FY’18: ₦99.4 billion), moderating the bank’s NPL ratio by 50bps to 6.8% with declines across major sectors excluding general commerce, manufacturing, services and individuals. As such, we project a FY’19 NPL ratio of 5.8% for the counter, supported by the aforementioned recoveries from the telecoms sector which are scheduled to berth by September 2019.
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