Guaranty Trust Bank Plc. (GTB) released unaudited 9M 2016 results wherein earnings accelerated further (9M 16: +60% YoY vs H1: +45% YoY) largely on account of robust interest income in Q3 16 and continuing strength in FX translation gains.

  • Importantly, despite elevated loan loss charges (9M 16: N57 billion) driven by collective impairments (N48 billion), GTB’s results outperformed management’s updated FY guidance as at H1 16 and should lead to the third upward revision in guidance. Relative to our estimates, and consensus, earnings remain well ahead.
  • Similar to UBA, GTB booked a record high N72 billion in interest income in Q3 16 (+22% YoY, +34% QoQ) largely driven by robust asset yields (+230bps QoQ).During the quarter, loan growth (+5.1% QoQ) was largely driven by naira depreciation (+12% QoQ) given GTB’s FCY share of loans (H1 16: 55% of total loans).
  • Given tamer naira weakness in Q3 16 relative to Q2 16’s 43% depreciation, GTB booked N32billion in FX translation gains (-47% QoQ).  The softer NIR relative to Q2 16 drove an uptick in cost-to-income ratio to 30.9% (9M : 16: 28.8%).
  • Extending the pattern from H1 16, higher loan loss charges stemmed from collective impairments (Q3 16: N20 billion, Q2 16: N24 billion). In our views, the strong earnings growth over 9M 16 provided legroom for GTB to adopt an over-aggressive stance on provisioning as NPL ratio declined 26bps QoQ to 4.13%.  Consequently, coverage ratios climbed 13pps QoQ to 104% (including regulatory risk reserves+15pps QoQ to 185%)which provide more than enough cover over NPL.
  • GTB currently trades at P/E and P/B of 4.8x and 1.4x which are at premium to peer average at 4.6x and 0.4x respectively. In our view, given best-in-class RoAE (9M 16: 34%) vs. sector average of 13%, and continued earnings outperformance, the premium is justified and thus we reiterate our STRONG BUY rating (FVE: N28.89)on GTB.
  • Conference call details and more analysis to follow.
Snapshot of GTB results Source: ARM
Snapshot of GTB results
Source: ARM
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  1. I have the belief that both the Guarantee Trust Bank and the Zenith Bank are tested and well organized modern banks in Nigeria. Both Banks have demonstrated a high level capacity management by investing largely on human and technological advancement. The two banks are the only hope of modern banking system in Nigeria and are prepared to compete honourably with their international colleagues. I have no doubt about their competency and knowledge in modern banking. Undoubtedly, both banks will go places with the anticipated economic growth of Nigeria. Both banks are worthy of investments and patronage.

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