GTB maintains stable earnings growth despite slowdown

Guaranty Trust Bank has reported moderate growth in revenue and profit for the financial year ended 2015, showing a slowdown in the growth rates achieved in the preceding year. The ability to sustain stable improvements in both gross income and profit in the difficult operating terrain in which companies traded last year indicates its relatively low risk exposure for investors. Its stable growth is in the midst of sharp profit drops and rising profit warnings by banks in the industry.

The bank closed the 2015 operations with a gross income of N301.85 billion, which is an improvement of 8.4% over the revenue figure in 2014. This is a slowdown from the increase of close to 15% in gross earnings in the preceding ear.

The bank has maintained a continuing growth in revenue over the years. Interest income provided the strength for revenue growth in the year at 14.3% while a drop of over 52% in other income moderated the overall earnings growth. Decelerated growth in revenue is expected to be the general picture for banks in 2015 in reflection of the loss of liquidity for growing earning assets with the treasury single account policy of government.

While revenue growth was generally stunted in the year, operating costs grew and only exceptionally good management could still achieve any growth in profit in the year.  GTB improved net profit by 5.3% to N99.44 billion in 2015, a slowdown from the increase of 9.6% in the preceding year nevertheless a sustaining growth trend it has maintained for several years.

Costs encroached into revenue in the year from two major areas – impairment charges for credit losses and interest expenses. The two cost elements account for the inability to grow profit as fast as revenue. Loan loss charges were the main culprit; it rose by about 75% in the year to N12.41 billion and therefore claimed a significantly increased share of gross earnings.

Rising credit losses was despite a moderate increase of 7.5% in the bank’s risk asset portfolio to N1,371.93 billion at the end of 2015. Overall credit quality remains good with total impaired loans and advances representing 3.2% of the gross portfolio, virtually unchanged from the position in the preceding year.

Interest expenses rose by 19% to N69.29 billion in the year and also claimed an increased proportion of revenue. Interest expenses therefore grew ahead of interest income during the year, which slowed down net interest income. The rise in interest expenses is despite inability to grow deposits. At N1.61 trillion, the bank suffered a slight decrease in customer deposits, meaning that average cost of funds grew in the year.

Management maintained a reign on operating costs, which provided a compensating impact on the two major rising cost areas. At N96.38 billion total operating expenses increased by 2% and therefore freed some revenue into the bottom line. Operating cost margin went down from 33.9% in 2014 to less than 32% during the review period – one of the lowest cost margins in the business.

In all, the cost-income ratio of the bank went up in 2015, which lowered profit margin. Net profit margin declined from 33.9% in the prior year to 32.9% in 2015. That remains one of the highest profit margins in the banking industry.

The bank earned N3.51 per share in 2015, improving from N3.32 in 2014. It paid a total cash dividend of N1.75 per share for the 2014 operations.