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GUARANTY TRUST BANK PLC FY'20 Loan book expansion to drive FY’21 Interest growth

Strong earnings performance across Interest and Non-Interest lines GUARANTY recently released Audited FY’20 results, reporting 5% y/y growth in Gross earnings to ₦458 billion (Vetiva: ₦439 billion). The earnings beat came thanks to 2% y/y growth in Interest Income to ₦301 billion in line with our estimate, while Non-Interest Income grew 13% y/y to ₦158 billion as a result of FX revaluation gains which grew to ₦56 billion (2019: ₦11 billion) after the multiple devaluations in 2020. Meanwhile, Interest Expense declined 27% y/y to ₦47 billion, bringing Net Interest Income to ₦254 billion (2019: ₦231 billion). However, provisions soared 298% y/y to ₦20 billion (Vetiva: ₦13 billion) after the bank restructured loans in Q2, with ₦9 billion of those provisions coming in Q4. Finally, Opex grew 15% to ₦154 billion, limiting PBT growth to 3% y/y at ₦238 billion and PAT growth of 2% y/y to ₦201 billion (Vetiva: ₦194 billion) yielding an EPS of ₦7.11 and an ROAE of 28.8%.

Q4 provisions indicate further loan losses to come in 2021 While NPL’s improved to 6.4% in 2020 from 6.5% in 2021, loan loss provisions rose to ₦20 billion, with 50% of those provisions coming in Q4’20 alone. However, loans and advances from customers grew 11% y/y to ₦1.7 trillion. Looking forward, we expect loan book to grow 5% y/y, while loan loss provisions should remain above 2019 levels (₦4 billion) but moderate below 2020 levels, as economic activities continue to recover from the pandemic-induced recession. Thus, we forecast a slight improvement in NPLs to 6.2% levels. Furthermore, with the CBN slowly raising the yield on fixed income securities, we foresee improved gains from T-bill’s trading, while the potential for further Naira devaluations could improve Non-Interest Income.