Company Analysis

Guaranty Trust Bank lifts profit with drop in loan losses


Guaranty Trust Bank lifted after tax profit by 29% to N170.47 billion at the end of 2017, just on target with our full year projection of N170 billion for the bank. The profit growth came largely from a drop of 81% in loan impairment charges, as revenue ended flat also as anticipated. The drop in credit losses saved over N53 billion in revenue for the bank and compensated for a drop of 65% in other income that provided the spur for revenue and profit growth in the preceding year.
As expected, the bank recorded a wide swing in revenue from the highest growth of 37% in many years in 2016 to a flat growth of 1.1% to N419.23 billion in 2017. Other income had provided the lead for revenue growth in 2016 with huge foreign exchange gains. A major advance of 117% in net gains on financial instruments to N11.34 billion helped to moderate the impact of the drop in other income.
Net fee and commission income recovered from a decline in 2016 and grew by 9% to N40.73 billion in 2017. That was the strongest growth in transactions income the bank has seen in many years, which again helped to cover up the drop in other income in the year. The bank managed to defend gross earnings at N419.23 billion, just slightly ahead of our projected figure of N416 billion for the year.
As expected, interest income provided the main force on the revenue side of the income statement in the year. At an increase of 25% to N327.33 billion, it was the strongest growth in interest income for the bank since 2012.
Interest expenses changed direction from a decline of 3.2% in 2016 to an increase of 20% to N80.67 billion at the end of 2017. That was nevertheless a moderated behaviour relative to the growth in interest income. That permitted an increase of 26% in net interest income to N246.66 billion at the end of the year.
The sharp drop in loan impairment charges was the big event that made the difference in the bank’s income statement in 2017. With the drop, interest income net of loan impairment charges advanced by 80% to N234.49 billion, up from 12% drop in the preceding year to the strongest growth in many years.
In 2016, loan loss expenses grew apparently uncontrollably at 426% to N65.29 billion. The bank’s management said it was a proactive measure to build a loan loss buffer ahead for future credit losses.
Total operating cost grew by 8.5% to N123.25 billion during the year against flat gross earnings and yet a slowdown from 18% growth in 2016. That raised the claim of operating cost on revenue from 27.4% to 29.4% over the review period.
The big cost savings achieved in loan impairment charges and interest expenses more than countered the increase in operating cost and enabled the bank to raise profit margin from 31.7% in 2016 to 40.7% at the end of 2017. This has beaten the bank’s historic net profit margin of 39.1% registered in 2012.
The gain in profit margin was the key factor in GTB’s performance in 2017. At N170.47 billion, after tax profit grew by 29%, slightly below the increase of 33% in 2016 but stands as the second highest profit growth record for the bank since 2012. The ability to maintain stability in profit growth even in volatile revenue environment is a unique operating advantage of GTB that minimizes investment risk.
The bank ended the 2017 financial year with earnings per share of N6.03, improving from N4.67 in 2016. The board has announced a final dividend of N2.40 per share, up on an interim of 30 kobo per share paid in the course of last year. The bank’ register of shareholders will close on 28th March and payment date is 10th April 2018.

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