GTB released its 2014 FY results beating most analysts estimates and instigating a stock market rally that helped the index close 2.5% higher on Friday. In a financial year, where many (including Nairametrics) thought banks were going to do poorly, the bank posted an earnings per share of N3.35, 9.6% higher than what it posted in 2013. The company also declared dividend per share of N1.5. So what was behind this impressive result considering investors expected a result that will fall short of 2013 performance?
The answer is none other than DEVALUATION. The devaluation of the naira ensured GTB’s foreign denominated lending and balances were now even worth more in Naira than it was just a few months ago. According to notes to its annual report, GT Bank reported an increase in Net gains on financial instruments of 260% to N28.2billion from N10.5billion a year earlier. A further look into this shows foreign exchange gain increased 3 folds to N27.3billion from N8.7billion just a year ago. The bank also makes it clear, the foreign exchange gain includes “foreign exchange revaluation of earnings.” That N18billion gain alone is remarkable and ensures the bank no matter what beat the prior year results and consensus estimates.
It is ironic how something as negative as devaluation of the naira can work in favour of some industries and be calamitous for others. No wonder most banks were silently happy at the outcome of devaluation considering how this benefits them. Surely, not all banks will report such gains and this year may not present such escape routes to profits. The banks are still under strong regulatory headwinds and the danger of a faltering economy still looms. For now, GTB shareholders won’t mind and will bask in this rally of life.