Guaranty Trust Bank Plc. (GTB) released unaudited 9M 2016 results, showing that gross earnings jumped 44% YoY to N327 billion while pre-tax profits rose 53% YoY to N141 billion. Already GTB’s result has beats management’s full year expectation of a profit after tax of N140 billion within the first 9 months of the year. The company is on track to post its highest profits to date.

Despite this fantastic result, the company still managed to report a loan loss (impairment charge) of about N57 billion about 570% higher than the N8.5 billion provisioned the same period last year. The ARM Research team provided a possible reason for the spike in impairments.

According to its analysis of the results, ARM opined that GTB may have decided to be aggressive on its loan provisioning because “the strong earnings growth over 9M 16 provided legroom for GTB” to do so. ARM also opined that the bank’s loan losses might balloon to about N68 billion by the end of the year.

“Given the size of upstream O&G (20% of total loans), we believe the increased collective impairments reflect a conservative stance over the sector following the declines in oil prices and impact of militant attacks on oil pipelines in the Niger Delta region. Largely reflecting aforementioned concerns and GTB’s aggressive approach towards provisioning we raise our estimate for annualized cost of risk 120bps from prior forecast to 4% which translates to 2016E impairments of N68 billion.”

They still went on to place a “strong buy” rating on the stock. GTB share price closed at N24.28 on Friday.


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