GTB: Another year of galloping growth in profit

Guaranty Trust Bank is maintaining an outstanding growth in earnings for the second year after it posted the highest profit advance in four years in 2016. The bank’s first quarter operations ended March 2017 shows a towering growth of 62% in after tax profit year-on-year. This indicates good prospects for another strong profit growth in 2017 after a leap of 33% last year.

There was a renewed strength in revenue growth last year and that is being sustained in the current year. Unlike in the preceding year however, interest income has taken over the lead in revenue growth – showing the strongest growth record in many years. Interest expenses have continued to moderate and impairment charges aren’t yet showing the massive growth pattern of the preceding year.

Operating cost is however on a high speed growth at 24% but profit margin is at a new peak of close to 40%. The bank’s ability to sustain the first quarter profit performance to full year isn’t firm in view of a likely stronger growth in loan loss charges as the year progresses. While impairment charges amounted to only N3.38 billion at the end of first quarter of last year, it soared to over N65 billion at the end of the year.

First quarter operations ended with gross earnings of N104.66 billion for GTB, a year-on-year rise of 38.8%. Interest income provided the drive in revenue growth with an outstanding growth of 50.6% to N84.11 billion at the end of March. Non-interest income improved moderated at 5% to N20.55 billion at the end of the period. This is a reversal of the pattern in the preceding year when non-interest income provided the spur for revenue growth.

Based on the revenue growth rate in the first quarter, gross income is projected to be in the region of N432 billion for GTB at full year. This will be an increase of 4% over the full year revenue of N414.6 billion the bank reported in 2016. Revenue growth is expected to pick up in subsequent quarters, as economic activity gains momentum.

The bank had raised gross earnings by 37% at the end of 2016 – the highest revenue growth rate in five years. A slowdown looks likely in the current year following a slacken performance in non-interest income that contributed 37% of gross earnings in 2016.

Interest expenses are racing up from a decline of 3.2% in 2016 to an increase of nearly 20% year-on-year at the end of the first quarter. The high growth is neither explained by a flat growth of 1.3% in customer deposits nor a drop of 52% in deposits from other banks. With the much stronger growth in interest income however, the bank grew net interest income by 62% to N66.13 billion at the end of March.

Impairment charges grew at a tolerable rate of 12.6% year-on-year to N3.81 billion at the end of the first quarter and claimed a reduced share of net interest income. This isn’t anything to compare with the upsurge of 426% in impairment charges, which amounted to N65.29 billion at the end of 2016. Whether the impairment charges would follow the preceding year’s pattern of rapid growth towards the end of the year is the question mark on GTB’s full year profit prospects in 2017.

Operating expenses grew by 24% in the first quarter to a little below N32 billion and still moderated relative to the faster growth of about 39% in gross earnings. That has reduced operating cost margin from 34% in the first quarter of the preceding year to 30% at the end of the first quarter. Consequently, net profit margin has improved from 33.7% to 39.4% over the review period.

GTB closed the first quarter trading with a net profit of N41.21 billion. This is an outstanding growth of 62.2% over the same period in the preceding year. Profit growth is likely to slow down in the course of the year, as loan loss charges grow. The extent this could happen is uncertain for now and therefore the bank’s full year profit outlook could not be reasonably assessed from the first quarter position.

The bank earned N1.47 per share at the end of the first quarter, rising from 90 kobo per share in the same period last year. It is expected to close half year operations at the end of June with an audited account and an interim dividend.