Guaranty Trust Bank Plc (GUARANTY: TP 41.96 – BUY) has reported a 3.2% YoY increase in EPS to N5.19 for 9M’19 in its latest filing with the Nigerian Stock Exchange (NSE).
The growth in earnings can be attributed to stronger net fee and commission income (+22.9% YoY) as well as modest improvements in net interest income (1.3% YoY) and operating efficiency (cost to income: -150 bps).
Gross loans to customers grew by 7.8% from H1’19 level to N1.5 trillion in 9M’19. This implies a year-to-date loan growth of 6.8% compared to the 1.0% contraction observed in H1’19. It appears, however, that the size and structure of this loan growth were not enough to enable the bank meet the new LDR requirement of the Central Bank of Nigeria (CBN), given that GUARANTY was one of the banks impacted by CBN’s LDR-related penalty. By our estimate, GUARANTY had an LDR of 63.8% (bank only) as at September 2019. This supports our view that the apex bank may have applied the more stringent loan to funding ratio in its evaluation.
Despite the growth in loans, NPL ratio declined from 7.3% in FY’18 to 5.6% in 9M’19. This eases our initial concern regarding the impact of the CBN’s credit creation drive on overall asset quality.
We note the sustained improvement in cost-to-income ratio to 36.5% in 9M’19 (H1’19: 37.2%; FY’18: 38.3%).
Annualised ROE and ROA, at 32.3% and 5.8% respectively, are currently ahead of FY’18 levels and management’s guidance for FY’19E.
We note the weakness in both net interest income (-2.7% QoQ) and non-interest revenue (-21.0% QoQ) in Q3’19 relative to other quarters.
The decline in non-interest income was largely driven by lower gross fees and commission income (-22.4% QoQ) and weaker net trading income (N155 million compared to N5.2 billion in Q2’19). Interest expense was also higher during the quarter, likely reflecting the 100bps increase in more expensive deposits.
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