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GUARANTY TRUST BANK PLC Q1'20 Earnings Release - Lower Interest Expense supports mild PAT growth

Lower Interest Expense supports mild PAT growth                                                          

Net Interest Income defies expectations to grow 10% y/y

GUARANTY released Q1’20 results yesterday, reporting 2% y/y growth in Gross Earnings. The bank posted stronger than expected Interest Income of ₦77.0 billion (Vetiva estimate: ₦72.9 billion) a 3% y/y growth driven by higher income from customer loans. Furthermore, Interest Expense declined 22% y/y to ₦12.8 billion (Vetiva estimate: ₦15.5 billion), resulting in Net Interest Income of ₦64.3 billion (Vetiva estimate: ₦57.4 billion). The remarkable growth in Net Interest Income came as the result of a 21% y/y drop in Interest paid on customer deposits, thanks to the favourable yield environment in Q1. Meanwhile, Non-Interest Income remained flat y/y at ₦35.8 billion (Vetiva estimate: ₦37.6 billion). The disappointing performance was due to a 22% y/y decline in Fee income (mostly credit related fees), which offset the 50% jump in foreign exchange trading gains. Also, the bank’s Opex grew 12% y/y to ₦40.7 billion (Vetiva estimate: ₦35.1 billion), while provisions jumped 88% y/y to ₦1.2 billion (Vetiva estimate: ₦1.2 billion). Overall, PAT grew 2% y/y to ₦50.1 billion, in line with our estimate, giving an ROAE of 29.7%.

                                                           

8% growth in both Loans and Deposits leaves LDR at 57%

The bank reported an impressive 8% q/q growth in Loans and advances to ₦1.6 trillion, with a notable 30% q/q increase in bank overdrafts to 129.8 billion. Meanwhile, the bank’s cost of risk improved 26bps q/q to 0.08%, the best in class, while NPLs improved 58bps to 5.95%. Concurrently, the bank recorded an 8% q/q growth in deposits to ₦2.9 trillion, meaning LDR failed to improve, moderating from 56.9% as at FY’19 to 56.7% as of Q1’20 reporting. With the weak economic outlook for the rest of the year, we expect loan book growth to moderate in the near-term, with a contraction likely by year-end. We also expect asset quality to worsen industry-wide. However, we do highlight GUARANTY’s risk management strategy which has kept NPLs stable, albeit above the regulatory benchmark, for the last three years.