GTB builds profit from volatile earnings

Guaranty Trust Bank raised after tax profit by 13% to over N142 billion at the end of its third quarter operations in September 2018. The profit was built in the volatile earnings environment that has been ruling the banking business for the sixth year running. Interest income – the main earning line of the bank, fluctuated violently from the strongest growth in six years last year to a decline at the end of the third quarter.

Against the decline in interest income, interest expenses grew by 14% to claim a significantly increased proportion of interest income. A decline in net interest income indicates that the bank was unable to deliver any profit from core lending and investing operations at the end to the period. The high points on the bank’s income statement that produced the profit at the end of September were a drop of 79% in loan impairment charges and improvement in fee-based earnings.

Gross earnings amounted to N337.28 billion for GTB at the end of the third quarter, an increase of 9% year-on-year. The increase came mostly from other income – which changed direction from a drop last year to a 120% advance to N39.31 billion at the end of September. This was supported by a 102% leap in net gains on financial instruments.

Also with an increase of over 19% in fee and commission income, non-interest income provided the strength to level up the decline in interest income and register an improvement in gross earnings at the end of the third quarter.

The bank is expected to maintain the revenue growth to full year with gross earnings projected to be in excess of N450 billion at the end of 2018. This will mean stepping up revenue from a flat growth in 2017 when the bank closed with a gross income of N419.23 billion.

At N142.22 billion, GTB grew after tax profit ahead of revenue 13.3% year-on-year at the end of the third quarter. The full year outlook indicates after tax profit in the region of N192 billion for GTB in 2018. The bank closed its 2017 operations with an after tax profit of N170.47 billion, an increase of 29%.

The strength to grow profit ahead of revenue came from both the strong performance in non-interest income and a sustaining drop in loan impairment charges. The drop in loan loss expenses saved cost of close to N7 billion for the bank at the end of the third quarter. This is further to the drop of 81% in loan impairment charges in 2017 that saved cost of over N53 billion for the bank.

Interest cost is the only main expense line of the bank that appears to be out of control so far this year. It grew by 14% to about N67 billion at the end of the third quarter and claimed over 28% of interest income against 23.6% in the same period last year. That resulted in a drop of 10% in net interest income over the review period. Interest expenses also grew rapidly last year at 20% but the more rapid growth in interest income diffused its impact on the accounts.

Total operating cost grew by 12% to N102 billion during the review period and claimed an increased share of revenue at over 30%. That remains one of the lowest cost margins in the banking industry.

The bank improved profit margin from 40.5% in the same period in 2017 to 42.2% at the end of the third quarter, beating the historic mark of 40.7% the bank registered at the end of 2017. GTB holds the record of the highest profit margin in the banking industry – the ability to convert revenue into profit.

The bank ended the third quarter operations with earnings per share of N5.03, up from N4.44 in the same period last year. It earned N6.03 per share at the end of last year and paid a total cash dividend of N2.70 per share. It also paid an interim cash dividend of 30 kobo per share at the end of its half year operations in June 2018.