Company Analysis

GTB defending profit from revenue slowdown


A wide swing in revenue from the highest growth in many years in 2016 to a flat growth looks apparent for Guaranty Trust Bank in 2017. Revenue growth has slowed down considerably from the initial force with which the bank opened trading this year in the first quarter. GTB lost revenue at the end of the third quarter and profit improved moderately compared to a big leap in earnings in the preceding year.
Other income, which provided the lead for revenue growth in 2016, was considerably down at the end of September 2017 and a drop also in fee and commission income countered a renewed strength in interest earnings.
Interest income has been growing reasonably well in the past two years at over 14% each year but the strongest growth in many years looks very likely for the bank in 2017. At the end of the third quarter, interest income advanced by over 36% to N248.27 billion. That however could not compensate fully for a drop of 70.5% in non-interest income during the period.
The bank grossed N309.91 billion at the end of the third quarter, a 6% decline year-on-year. This follows a drop of over 87% in other income that spurred revenue growth last year.
The full year revenue outlook has dimmed from the first quarter-based projection. Gross earnings projection is revised down from the initial projection of N432 billion to N416 billion for the bank at the end of 2017. That will be a flat growth on the prior year’s gross earnings of N414.54 billion. GTB had raised gross income by over 37% in 2016 – the highest revenue growth rate in many years.
Interest cost is showing a moderated behaviour at an increase of 19.4% compared to the 36% growth in interest income. That permitted a rise of 43% in net interest income at the end of the third quarter.
The big news for the bank at the end of the third quarter trading is a considerable cut down on loan impairment charges. In 2016, loan loss expenses grew apparently uncontrollably at 426% to N65.29 billion. At the end of September 2017, credit impairment expenses dropped by over 85% to N8.36 billion.
While the high rise in impairment charges in 2016 led to a drop of 11% in net interest income after impairment charges, the figure advanced by over 139% to more than N181 billion at the end of September 2017.
The cost saving success could not be extended to operating expenses during the review period. Total operating cost rose by 9.2% to over N90 billion in September 2017 against the decline in gross earnings. That raised operating cost margin from 25% to 29% over the review period.
The big cost savings achieved in interest expenses and loan impairment charges more than countered the increase in operating cost and enabled the bank to improve profit moderately at the end of the third quarter. Profit margin improved from 35.6% to 40% year-on-year at the end of September 2017.
A gain in profit margin is the strength in GTB’s operations in the current year. After tax profit is projected to be in the region of N170 billion for GTB at the end of 2017. That will be a growth of over 28% from the 2016 figure of over N132 billion. The ability to maintain stability in earnings growth even in volatile earning seasons is a unique operating advantage of GTB that minimizes investment risk.
The bank closed the third quarter with earnings per share of N4.44, improving from N4.14 in the same period in 2016. The full year earnings per share expectation is N5.77 for GTB in 2017.

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