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Earnings Pressured by Lower Interest Income

Guaranty Trust Bank (GUARANTY) released its third-quarter result for 2019 in which it reported a slump in gross earnings

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Guaranty Trust Bank (GUARANTY) released its third-quarter result for 2019 in which it reported a slump in gross earnings, and marginal growth in profit. Consistent with the theme for much of the year, interest income remained a drag on revenue and earnings, causing a 3.33% drop in gross earnings.

The dip in Interest income (-5.62%) was caused by lower income from loans (-6.27%) and investment securities (-8.66%). Non-interest income line fared a little better, advancing by 2.13% YoY, although compared with Q3 last year, non-interest income in the third quarter fell by 17.17%.

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The bank benefited from strong growth in the fees and commission line (+19.90%), along with higher recoveries (+87.13%) and discount and recoverables (+117.95%), which offset the impact of lower FX revaluation gains (-69.64%) and FX trading income (-76.29%). In the last quarter of the year, we see some room for recovery on the interest income line due to the appreciable growth observed in the bank’s customer loan portfolio and a lower earnings base from the corresponding period of last year.

Impressive Cost Control Culture Maintained

GUARANTY impressed yet again with its cost efficiency across all cost centers, posting industry-leading figures. Interest expense declined by 23.40%, largely due to lower interest expense on customer deposits (-20.45%) and an absence of debt securities issued. Thus, the bank’s net interest margin expanded to 9.43% (vs 9.20% in 9M:2018) as net interest income advanced by 1.35%.

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Cost to income ratio declined further to 36.85% (vs 38.27% in 9M:2018), as the bank maintained its tight leash on operating expenses, which fell by 2.19%. With cost firmly in check, the bank was able to record growth in PBT (+3.90%) and PAT (+3.35%).

Customer Loans Climb as NPLs fall

The bank’s asset base expanded by 7.06% to NGN3.52trn, although slightly lower than the previous quarter. There was an appreciable growth in the bank’s loan book during the third quarter, as customer loans advanced by 9.44% to NGN1.38trn. Customer deposits advanced by 5.13% to NGN2.39trn, although on a quarterly basis, deposits dipped by 1.13% from the last quarter.

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Thus, the bank’s Loan to Deposit ratio improved to 53.99%, from 49.94% in H1:2019 and 53.55% in 2018FY. For its Nigerian subsidiary, the unweighted Loan to Deposit ratio improved to 60.68%, from 57.24% in 2018FY, and evidence of the bank’s effort towards compliance with the new minimum LDR ratio of 65%.

The growth recorded in the bank’s credit portfolio in the third quarter puts it in a good position to meet CBN’s new LDR limit before the deadline, should the momentum by sustained in the fourth quarter. However, we opine that the bank would need to maintain its strong credit risk management policy to prevent an uptick in NPLs.

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[READ ALSO: Zenith, UBA, Access dominate industry in H1 govt securities deals]

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We are encouraged by the decline in the bank’s stock of non-performing loans (-18.12%) to NGN81.41bn, despite the growth in its loan portfolio. Thus, the bank’s NPL ratio fell
to 5.61% (vs 7.30% in 2018FY), with cost of risk also declining to 0.20% (vs 0.34% in 9M:2018), evidence of the bank’s impressive credit underwriting policies.

In addition, the bank remains in a good capital adequacy position, with a CAR of 23.56%. Its Liquidity ratio however lower at 36.80% (vs 41.44% in 2018FY).

Recommendation

The company’s performance has largely been in line with our expectations. However, we raise our 2019 target EPS slightly to NGN6.81 (previously NGN6.74), due to our expectations for a recovery in interest income which should trickle down to the bottom line, while we maintain our Target P/E of 5.20x. This brings our Target price slightly higher to NGN35.39.

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1 Comment

1 Comment

  1. Eric

    October 18, 2019 at 7:24 pm

    Fantastic analyses.

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Business

LIRS further extends deadline for filing annual tax returns by one month

“We constantly debated what other measures could be taken as an organization to support individuals and businesses at this time, hence, the additional one-month extension from June 1, to June 30, 2020.” – Ayodele Subair

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LIRS further extends deadline for filing annual return by one month

The Lagos State Internal Revenue Service (LIRS) has again extended the deadline for filing of Annual Tax Returns from May 31 2020 to June 30, 2020.

This is part of the state government’s effort to provide relief to taxpayers in light of the economic impact of the Covid-19 pandemic. With this development, annual returns for individuals, both employees and self-employed persons, can be filed anytime before June 30, 2020.

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In a press release signed by Monsurat Amasa, the head of LIRS’ Corporate Communications Department, the agency urged taxpayers to take advantage of the magnanimity of the government and file their returns. The LIRS’ Executive Chairman, Mr. Ayodele Subair, explained the extension thus:

“As the Lagos State Government keeps abreast of global best practices in containing the Covid-19 pandemic and eases the effects of an economic downturn on taxpayers and residents of the State, LIRS had initially extended the deadline for filing annual tax returns for two months, from the statutory March 31st of every fiscal year to May 31, 2020.  

“We constantly debated what other measures could be taken as an organization to support individuals and businesses at this time, hence, the additional one-month extension from June 1, to June 30, 2020.”

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(READ MORE: COVID-19: Lagos issues new guidelines, considers full reopening of economy)

He further explained that taxpayers can file the annual returns from the comfort of their homes and offices using the LIRS eTax platforms. They can also generate assessment and payment schedule, and other tax administration matters on the same platform. Updates on business operations and alternative payment platforms are to be found on the verified handles, and the LIRS website.

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Business

Where to invest in May

Post-COVID-19 lockdown, Nigerians need to send their money on the right errands in May 2019, if they will not be caught napping the expected recession.  

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Money

This May, post-COVID-19 lockdown, Nigerians need to send their money on the right errands, if they don’t want to be caught napping during the anticipated recession.

When listing out assets that should make up the ideal portfolio in May 2020, founder of Nairametrics, Ugochukwu “Ugodre” Obi-Chukwu, explained that investors should consider choice stocks in the Nigerian and foreign stock exchanges, as well as investments in money market instruments where some decent profits can be made.

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Ugodre said this during the maiden edition of the Nairametrics Monthly Investment Guide Webinar.

According to him, this will also be the time to look into Agri-Tech investments, using crowdsourcing platforms, after which you can sit back and watch your funds grow over a time span of 5 months to a year.

According to him, it is also important to invest in foreign currencies and crypto-currencies to balance one’s portfolios.

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He noted that foreign direct investments have reduced over the last couple of years due to reduced trust in Nigeria’s economic policies, and the desire of foreign investors to cash out their funds with ease. This also explains why portfolio investments grew by 38% in 2019.

He said, “Foreign investors love portfolio investments because when they put their money in, they can easily take it out as well.”

(READ MORE:   CrowdFunding: Who is qualified according to new SEC Guidelines)

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Finding the right stocks

On the stock market, he noted that quite some stocks improved in the month of April and could improve in the coming months. He listed 20 suggested shares, including six stocks which he described as COVID-19 proof.

Agritech,Errands you can send your money in May 2020  

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Dangote Sugar Refinery, May & Baker Nigeria Plc, GSK, Neimeth International Pharm, Nestle Nigeria, and Cadbury Nigeria Plc are fast-moving consumer goods companies that are expected to be resistant to pressure from the pandemic.

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He advised investors to track stocks that are liquid, have good financials and good corporate governance, in order to limit risks borne by investors. Valuation of the shares, he said, could be done by comparing stock value and earnings per share.

Working around cryptocurrency volatility 

While making a presentation on “Why Bitcoin should be in your portfolio,” Yele Badamosi, CEO of Bundle stated that foremost cryptocurrency, Bitcoin, had maintained a steady appreciation over the last decade giving investors high yields.

Although the market is highly speculative and unregulated, its high returns and high risk indicate that investors with high-risk appetites could find the market more attractive.

To avoid being on the wrong side, he advised users to consider time-based rebalancing, or tolerance rebalancing to reduce risks and rebalance one’s portfolio.

(READ MORE: AfCFTA delay: A bane to Africa’s $3.4 trillion economic bloc)

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“There are reputable people in the space, but it is important to do your research, start small, and buy regularly. Be wary of get-rich-schemes and unrealistic guaranteed returns,” he advised.  cryptocurrency,Cryptocurrencies and its usage in Africa, Errands you can send your money in May 2020  

 

With applications like Bundle Africa on Google Play Store, buying cryptocurrencies is as easy as selecting the buy button and having it saved in your bundle wallet.

What to expect in Q2 2020

According to Wale, an economist, who also spoke at the webinar, the demand for crude oil will remain low as several countries and businesses are still in lockdown, even though OPEC has cut down production.

Interest rates may remain low, though, despite this, Nigerian business entrepreneurs cannot expect single-digit interest rates.

Foreign reserve and government reserves will remain under pressure in the coming months. The World Bank says that this is the worst year so far, going back to the great depression and this is what I think as well. This is probably going to be the worst economic crisis we have seen,” Wale said.

He added that with the exception of industries in the Healthcare sector, telco companies, digital technology companies, and food producers, other sectors could very well expect a big hit.

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Business

Why risk your life when you can bank with V by VFD (VBank or V)

Unlike other apps that are laced with either unbidden and hidden charges, V is free, as there are no charges for customers whether they are transferring money to another customer of V or another bank.

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VFD MFB closes gap with bank customers, launches new app, Why risk your life when you can bank with V by VFD (VBank or V)

The recent lifting of the lockdown has seen Nigerians rush to the banks to execute banking transactions that they have missed in the last five weeks.

Saying that this action or mis-action contravenes the physical distancing preached by the health agencies and government, is only stating the obvious. By doing this, they endanger themselves, and other family members whom they return to after their day at the bank.
But what if it was possible to do all your banking from your phone?

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V to the rescue
V disrupted the banking industry when earlier this year, it launched a highly optimized virtual bank app that enables users to carry out all banking transactions with ease and from their phones.
Users are able to create and set up a bank account with the app within 5 minutes and start carrying out transactions immediately.
Of course it doesn’t matter if you already have an account with the traditional banks. There’s always room for pleasant disruptions, aren’t there?

What they offer
VBank was launched as Nigeria’s first fully virtual bank to close the gap which hitherto existed between established traditional banks and their customers. That means there are no barriers between the bank and its teeming customers and potential customers.
Unlike other apps that are laced with either unbidden and hidden charges, V is free, as there are no charges for customers whether they are transferring money to another customer of V or another bank.

(READ MORE: VFD Group meets nutritional needs of residents of Olowogbowo community)

According to Azubike Emodi, MD/CEO, VFD Microfinance Bank, experts behind V are taking a consumer-centric approach with an aggressive feedback collection mechanism to build an app that meets the objectives of the customer.
The app, which is available for download on App store and google playstore allows users to monitor expenses and income, categorize budgets, and set spending limits. V is available to download by searching for “V by VFD” on App Store and Google Play store.

Why risk your life when you can bank with V by VFD (VBank or V)
What else could one ask for in a bank?
Another landmark feature of V is referral functionality (Veelage), which is also connected to monthly financial reward. It allows interested users of V to earn income and advance though the V community simply by getting account holders signed up with a unique ID and maintaining an average balance.

About this unique feature, Olukunle Salami, Business Performance Manager, VFD Group Plc would say that It is a 2-way value proposition that ensures individuals can earn consistently for several months beyond the initial referral point.

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Whoever guessed that we could earn from our bank?

 

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