GTBank: impressive profit to boost shareholders’ returns

Segun Agbaje, MD GTBank


Flowing from the impressive profits and growth in key financial parameters for the Nine month’s of 2017, shareholders of Guaranty Trust Bank plc (GTBank) are on red alert on improved dividend payout for the financial year..

The bank had in the unaudited nine months ending September 30, 2017 maintained an impressive leap in profitability, and assets quality to reaffirm its position as one of the most profitable and well managed financial institutions in the country.

Historical, GTBank crossed a N150 billion mark in profit before tax, behind Zenith Bank that reported N152 billion in the period under review.

Specifically in the last four years, the lender has maintained robust dividend payment to shareholders on its soaring profits and assets quality despite severe domestic and global macro economy challenges.

For example, in 2012, when the bank reported a Profit After Tax (PAT) of N87.3 billion, N1.55 per share was paid out as total dividend.

Between 2013 and 2014, the bank reported N90.02 billion and N94.40 billion in PAT respectively and pay final dividend of about N1.70 and N1.75 respectively.

Between 2015 and 2016, GTBank profit after tax gained 33 per cent to N132.3 billion in 2016 from N99.4 billion reported in 2015.

For the year ended December 2015, the Bank management total dividend per share (DPS) was N1.77 comprising of N0.25 interim dividend and final dividend of N1.55.

However in 2016, the management of GTBank paid a dividend of N1.75 in addition to interim dividend of 25k per unit of ordinary share bringing total dividend for 2016 financial year to N2 per unit of ordinary share

On the heels of 2017 unaudited results for nine months ended September 30, 2017, the bank reported a stronger performance across most indicators on the back of sustained cost efficiency, effectively risk management and improved profits.

Analysts at Cordros Capital have predicted that GTBank management will delights shareholders by improving on its dividend payment policy, although the management last year paid interim dividend of N0.25.

They predicted a total dividend of N2.30 per share by financial year ended December 31, 2017 as board of directors will be meeting this week to consider the audited financial statements for the year ended December 31, 2017 issues relating to full year dividend may also be discussed at the meeting.

 GTBank is an internationally focused commercial bank, providing a wide range of banking products and services to corporate, commercial and retail customers in Nigeria, W/Africa and Europe.

The Bank’s management was able to grow margin and improve key ratios despite the prevailing tight liquidity and harsh regulatory environment that was expected to impact negatively on the financial performance of most listed financial institutions on the Nigerian Stock Exchange (NSE).

Sustained growth in NII reflects tough operating environment

For the unaudited results, GTBank reported a drop of 5.9 per cent too N309.9 billion as against N            329.3 billion reported in nine months of 2016.

The Bank reported N248.27billion Interest Income in nine months of 2017 as against N181.91billion in nine months ended September 30, 2016.

Key contributors are Trading Income that closed nine months at N9.94billion from N3.01billion in nine months of 2016, an increase of about 229.7 per cent over improved System foreign exchange liquidity which led to increase in foreign exchange trading volumes.

Also, impressive yields in the Fixed Income Market provided the necessary stimulant for increased trading volumes of Treasury bills transacted during the period.

Net interest margin remained strong at 10.50 per cent as against 8.22 per cent reported in nine months ended September 30, 2016.

GTBank reported non-interest income of N72.6 billion for the year ended December 2015 from N77.9 billion in the corresponding period of 2014.

Increase in profitability

Despite higher operating expenses, GTBank maintained a stronger operational efficiency that underlines its tradition.

The Bank has been able to consistently sustain its effective cost management strategies and hence profitability. Despite running a lesser branch network, the Bank conveniently generates more competitive profit year after year.

However, Profit before tax stood at N150.03billion from N137.99bnillion in nine months of 2016, an increase of 8.73 per cent enhanced by 36.48 per cent growth in interest income. Profit after tax for the period of N125.58billion from N117.08 billion to leverage Earnings per share of N4.44kobo in nine months of 2017 from N4.14kobo per share reported in nine months of 2016. GTBank maintained its leading position in terms of margin and cost efficiency. The Bank value creation for its shareholders, recorded growth as Return on Average Equity (ROAE) closed at 30.81 per cent from 34.58 per cent reported in nine months of 2016.

Resound growth in assets

Total assets of N3.213trillon, up 3.10 per cent from N3.116trillon reported in 2016 resulting from 7.76per cent growth in Investment Securities.

Net loans and advances down by 10.18 per cent to N1.428trillion in nine months of 2017 from N1.590trillion in 2016 was a result of its conscious effort to de-risk the balance sheet and unwinding of trade obligations.

Customers Deposits closed at N1.898trillion from N1.986trillion, down by 4.46per cent as a result of increased customers’ appetite for Treasury bills investment as well as utilization of naira deposits by customers to clear pent up foreign exchange obligations.

This brings the bank loans to deposits to 72.47per cent from 75.31 per cent in nine months of 2016.  The Bank continued to maintain a disciplined and prudent approach to loan growth in line with its Risk Management framework.

The Bank’s Non-Performing Loans (NPL) ratio remained low at 3.93 per cent; up slightly from 3.66 per cent in the comparative period of 2016.

In addition, despite the increase in operating expenses, the Bank’s cost to income ratio increased to 37.59 per cent from 37.43 per cent in nine months of 2016.

Liquidity ratio and Capital Adequacy Ratio (CAR) were above regulatory requirements of 30 per cent and 15 per cent respectively. GTBank liquidity ratio closed the period under review at 49.75 per cent from 42.19 per cent reported in nine months of 2016 while CAR moved from 19.79 per cent to 22.90 per cent.

Analyst review

Analysts at Cordros Capital said, “While noting the (1) limited room for any significant growth in FX trading and revaluation gains with the relative stability of the naira and (2) impact of the adoption of IFRS 9 from 2018F, which should drive 49 bps expansion in cost of risk, we believe GTBank’s long position in fixed income securities will drive growth in interest income over 2018-2019F, with estimated average growth of 7.89per cent.

“We raised our target price marginally by 86 basis points to N42.81 (previous: N42.45) and rolled forward our valuation to 2018.

“Our current 12-month TP implies upside potential of 2.62per cent from current levels; consequently, we recommend a HOLD on the stock. Guaranty is currently trading at 2017F P/BVPS of 2.1x (above peer average of 1.0x and a 5-year average of 1.9x) and 2017 FP/E of 7.2x (above peer average of 4.9x and a 5- year average of 6.8x).”