GTBank Gets FX Revaluation Boost – Thisday

Amidst the macroeconomic headwinds, Guaranty Trust Bank rode on the back of foreign exchange revaluation and electronic business earnings to grow its profit by 59 per cent for the nine months ended September 30, 2016, writes Goddy Egene

The Managing Director of Guaranty Trust Bank (GTBank) Plc, Mr. Segun Agbaje had last September assured stakeholders that the bank would maintain its robust dividend policy going forward.

The bank is among those that pay dividend twice every year. GTBank pays about 50 per cent of its profit to shareholders as dividend and it has already recommended an interim of 25 kobo for the half year (H1) ended June 30, 2016.

However, the macroeconomic headwinds have raised apprehensions among stakeholders that some financial institutions may review their dividend pay-outs.

But Agbaje, who spoke during a conference call to review the performance of the bank for the half year ended 30, 2016 and project into the future, assured that GTBank would not change its dividend payout ratio. In fact he restated the bank’s profit before tax (PBT) target for the full year was on course.

He said: “I don’t see any reason in changing what our dividend payout ratio for as long as you have enough capital and (our) capital adequacy today is over 18 per cent. So for as long as capital adequacy remains that high we are going to keep at that dividend payout ratio.

In terms of PBT guidance we are staying at N125 billion, and for us whatever we have made we are not really separating it strategically from our revaluation gains, because at the time we were making revaluation losses, nobody also asked us why this was happening. So these are strategic decisions we have need to make. But for any of the revaluation gains to go away completely we will have to go to Naira appreciating to 200 to 1 which we think the possibility is very low. So what I will like to say is I believe we can make do with N125billion but I would not want to change the PBT guidelines halfway through the year.”

Nine months results

And when the bank released its nine months results ended September 31, 2016, it was obvious that the N125 billion would be met and shareholders would enjoy another bountiful harvest.
The results showed a jump of 59 per cent in profit after tax to N119.9 billion following a boost from foreign exchange (FX) revaluation gains.

Gross earnings stood at N329.284 billion, showing a growth of 43.5 per cent compared with N229.4 billion in the corresponding period of 2015. Net interest income rose by 10.5 per cent from N120.13 billion to N132.7 billion, while net fees and commission income grew by 28.2 billion to N37.5 billion, up from N48.13 billion.

However, net impairment loss on financial assets soared by 570 per cent to N57 billion, from N8.5 billion in 2015. Other income, from FX revaluation gains, jumped up from N6.957 billion to N93.95 billion.
PBT improved to N141 billion, up from N92.1 billion, while PAT rose by 59.6 per cent to N119.92 billion, compared from N75.2 billion in 2015.

Analysts’ Assessment

In their assessment of the results, analysts at Afrinvest Research said the performance was broadly impressive considering the domestic macroeconomic headwinds that have pressured economic activities during the period.

According to them, GTBank successfully navigated the country’s macroeconomic headwinds to post an impressive performance with gross earnings expanding from N229.4 billion in 2015 to N329.3 billion in 2016 majorly driven by 5.2 per cent growth in interest income and massive 161.2 per cent expansion in non-interest income.

The growth in interest income, they explained that it was achieved on the back of 15.2 per cent rise in interest from loans and advances (up from N122.0 billion in 2015 to N140.6 billion in 2016), which accounted for 77.3 per cent of total interest income.

“Notwithstanding 28.7 per cent increase in total deposits from N1.6 trillion in 2015 to N2.1 trillion in 2016, interest expense declined by 7.0 per cent thus moderating annualised Cost of Fund (CoF) to 3.0 per cent from 3.1 per cent in first half (H1) of 2016. The decline in interest expense was broadly due to the lower debt servicing cost of the bank; interest expense on debt securities fell 5.8 per cent as total borrowings declined 0.5 per cent in the period,” they said.

Accordingly, GTBank’s net interest income rose 10.5 per cent while net interest margin (NIM) improved within the period, rising 0.4 per cent to settle at 7.4 per cent in 2016.
“The spike recorded in non-interest income, which rose from N6.8 billion in 2015 to N93.6 billion in 2016, was majorly driven by the 1281.3 per cent surge in foreign exchange gains tied broadly to the flexible foreign exchange framework which was unveiled by the CBN in June 2016,” Afrinvest said.

The analysts disclosed that apart from the FX revaluation boost, GTBank sustained its position as one of the leading banks making significant earnings from electronic business(e-business).

“GTBank sustained its position as one of the leading banks in integration of technologically advanced processes into core banking operations as e-business income jumped 75.1 per cent to N23.2 billion from N13.2 billion in prior period, accounting for the major component of fee & commission income which increased 27.1 per cent from N39.7 billion to N50.4 billion in 2016,” they said.

A further analysis of the bank’s performance indicated that it recorded an uptick in operation expenses (opex), which increased 8.2 per cent 2016. However, considering the fact that inflation in that period hit a record high, GTBank’s opex was still moderate.
Accordingly, Cost to Income Ratio (CIR) improved to 28.5 per cent in 2016 from 41.8 per cent in 2015. GTBank also recorded an impressive double-digit growth in PAT which rose 59.6 in 2016 to N119.9 billion from N75.2 billion in prior period. Consequently, the bank’s annualised return on average equity (RoAE) and return on average asset (RoAA) improved to 31.8 per cent and 5.1 per cent from 28.5 per cent and 4.5 per cent respectively in preceding period.

Loans/advances, deposits grow

Despite the challenges in the economy that have heightened credit risk in the system, GTBank recorded a double digit expansion in total loans & advances, up 19.5 per cent from N1.3 trillion to N1.6 trillion in the period under review.
“The growth in loans may be tied to the bank’s exposure to loans denominated in foreign currency. As a result of the jump in total loans & advances, credit impairment charge also surged 570.3 per cent to N57.1 billion from N8.5 billion in prior period. Consequently, Cost of Risk (CoR) settled at 3.8 per cent in 2016 which is 1.2 per cent higher than the previous quarter.

The bank continued to leverage on its strong retail deposit base as total deposits also expanded within the period, rising 28.7 per cent to N2.1 trillion from N1.6 trillion in 2015 as the bank rallied cheaper deposits,” Afrinvest said.
Looking ahead, the analysts said they remained positive on the performance for the full year ending December 31, 2016.

They said: “We remain positive on the performance of GTBank for FY 2016 on account of the massive gains recorded from FX revaluation as well as the continued focus on driving E-business income northwards through technological innovation.”

Based on the foregoing, the analysts said they have revised their projections upwards. According to their projections, topline to grow 21.6 per cent to N367.1 billion in FY: 2016 while PAT is forecast to expand 35.8 per cent to N135 billion. Loan book is also expected to rise 20 per cent to N1.7 trillion in 2016 given the exposure of the bank to foreign currency loans.