Guaranty Trust Bank Plc released its Half-year (HY) 2018 financial statement showing a growth of 5.85% year-on-year (YoY) in gross earnings to ₦226.63 billion, also the Profit After Tax (PAT) grew by 14.22% YoY to ₦95.58 billion. The Management proposed an interim dividend of N0.30 per share which translates to a dividend yield of 0.77% based on the last traded price.
With regards to the income statement we highlight:
Growth in the Non-Interest Income buoyed the Gross Earnings: Despite a decrease in Interest Income by 2.41% due to reduction in loan book by 10.77% and reduction in the Fixed Income Securities, the Gross Earnings rose by 5.85% YoY to N226.63 billion, as a result of increase in the Non-Interest Income. The Non-Interest Income rose by 33.99% YoY as a result of 123.38% increase in Net Trading Income and a significant increase in Dividend Income & Recoveries by 2,443.93% YoY.
Lower Impairment Charges boost Profit Before Tax (PBT) for the period: A decline by 71.82% YoY in the provision for Impairment loss contributed to the PBT positively to grow it by 8.44% YoY. The decline in impairment is attributed to enhancement in asset quality as Cost of risk fell to 0.1% from 0.8% in 31 Dec 2017, Non-Performing Loan (NPL) improved to 5.8% in June 2018 from 7.7% in December 2017 and adequate coverage ratio of 167.5% from 119.6% as at 31 December 2017.
Operational Efficiency remained robust: The reduction in Cost to Income ratio from 40.38% in HY 2017 to 38.82% in HY 2018 coupled with an increase in the Net Interest Margin from 9.6% to 10.4% within the period under review, reflects the company’s improved operational efficiency.
With regards to the balance sheet statement, we highlight:
Increase in cash position: The increase of 29.44% YTD in Cash and Cash equivalent can be attributed to increase of 10.42% in Customer deposit.
Reduction in Loan Book: Due to rising political tension ahead of 2019 general elections, Guaranty Trust Bank’s Loan & Advance fell by 10.77% YTD to N1.29 billion as short-term loan (Overdraft) reduced by 63.36%.
Shareholders’ Equity Declined: Due to the 63.88% decline in Retained Earnings, total Shareholders’ Equity declined by 20.49%.
Decline in the Capital Adequacy Ratio (CAR): Due to the implementation of IFRS 9 on 01 January 2018, the Bank’s CAR fell to 21.89% in June 2018 from 25.50% in December 2017 while the Group CAR stood at 22.04%. This is above the regulatory minimum capital adequacy ratio of 16%.
Leader in terms of Return on Average Equity (ROAE): Guaranty Trust Bank remains the leader amidst its peers based on Returns on Average Equity. For HY 2018, the Bank ROAE stood at 34.07% (vs 30.17% in FY 2017).
Our Outlook for FY 2018
We maintain our BUY rating on GUARANTY with a target Price of N45.71. In a low yield environment, the following are evident of the bank: its operational efficiency; impressive capital and asset quality, the firm’s net long FX position and the bank’s recent drive to grow their Loan Book by focusing on the SMEs and Corporates. Hence, we are optimistic about the FYE 2018 financial result for the Bank.
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