There is a clear indication that commercial banks who are creative in their operations recorded impressive half-year (H1) ended June 30, 2019 results and account.
Example of such lender is Guaranty Trust Bank Plc (GTBank) that recorded an exciting performance in non-core banking operations that driven growth in profit and dividend payout to shareholders.
Critically looking at the bank’s financial statement for the period under review, the lender recorded a 13.3 per cent increase in “Other Income” to N28.04 billion in H1 2019 from N24.75billion in H1 2018, while Fee & commission income rose by 29 per cent to N35.35billion from N27.4billion in H1 2018.
In fact, the interplay between Other Income and fee & Commission Income contributed to its Profit before Tax (PBT) by six per cent to N115.8 billion in H1 2019 from N109.6 billion reported in H1 2018, while its Profit After Tax (PAT) rose by four per cent to N99.13 billion in H1 2019 from N95.58billion in H1 2018.
In view of its performance in the H1, the management of GTBank proposed interim a dividend of N0.30 per share in H1 2019 (June 2018: 30k per share) on the issued ordinary shares of 29,431,179,224 of 50k each.
However, the bank was faced with an economy reality in the period under review as gross earnings was pressured but improved profitability.
Interestingly, its management needed to breach up with Central Bank of Nigeria (CBN) new statutory limit for Loan-Deposit Ratio (LDR) of 60per cent.
The bank in the period under review breached LDR, reporting 49.94 per cent as at H1 2019 from 53.55 per cent in full ended December 31, 2018, given by one per cent increase in loans & advances to customers and a six per cent increase in deposit to customers in the period under review.
Slowdown in gross earnings over weaker income from loans to customers, investment securities
GTBank’s Gross earnings growth came in lower by 2.1 per cent, which was expected to N221.9 billion in H1 2019 from N226.6 billion in H1 2018.
Two factors, interest income declined by 7.96 per cent to N149 billion from N161.9billion in H1 2018 due to weaker income from both loans to customers (9.97 per cent) and investment securities (-7.74 per cent).
However, the decline in interest expense by 25.8per cent to N32.6 billion from N44 billion in H1 2018 partly cushioned the impact of weaker interest income and resulted in net interest income declining marginally by 1.33per cent.
Net interest income dropped by one per cent to N116.36billion from N117.9billion in H1 2018, while Non-interest income growth settled at 12.91per cent to N72.9 billion in H1 2019 from N64.8billion in H1 2018, which is running ahead of our 2019 estimate of 10.25 per cent.
This strong growth was supported by fees and commission income growth of 30.63 per cent.
Also, Foreign Exchange trading income has been weak in the year and is expected to remain so. Loans impairment rose by 7.6 per cent to N2.2 billion from N2billion in H1 2018.
Fee and commission income grew by 29.2 per cent on the backdrop of increased transaction volumes across all digital channels.
Also, income earned from growth in volume of foreign exchange transactions and new loan bookings further complemented fees and commission income line.
Other income recorded 13.3 per cent growth as a result of improved earnings from recoveries, gains from investment in foreign currency securities, growth on cross border card transaction volumes and the group’s ability to negotiate and obtain favourable terms from discounts on card-related transactions.
These positives were adequate to offset the material 84.7 per cent dip in foreign exchange revaluation gain in H1 2019.
Consequently, operating expenses growth was muted, settling higher at 0.43per cent to N69.9 billion in H1 2019 in-spite of double digit inflation rate.
This is despite the moderate increase in regulatory costs (AMCON levy: +9.65per cent), as the bank managed other ancillary costs to maintain its cost-to-income ratio at its industry-best level of 37.63per cent (H1-18: 38.82per cent).
The cost efficiency led to 119basis points improvement in Cost to Income ratio from 38.8per cent in H1 2018 to 37.6per cent in H1 2019.
Subsidiaries’ contribution improved by 390basis point from 12.2per cent in 2018 to 16.1per cent in H1 2019 and this complemented the decent performance at parent level.
Stronger balance sheet amid operating challenges
GTBank benefited from optimal use of resources, efficient and well-structured balance sheet with strong earnings capabilities. Interest earning assets and non-interest earning assets closed at 69per cent and 31per cent respectively.
Total assets grew by nine per cent to N3.6 trillion as at June 30, 2019, from N3.29 trillion reported in 2018 Full Year(FY) result and accounts.
The bank in the group under review improved and well-diversified funding base with deposits liabilities and equity accounting for 71per cent and 17 per cent of total funding respectively.
Deposit liabilities grew by 8.3 per cent. This growth enabled the achievement of eight per cent growth in earning assets and 11.4per cent growth in Investment Securities from N688.1billion in 2018 to N766.51billion in H1 2019.
Loan book grew by one per cent to N1.27trillion in H1 2019 from N1.26 trillion in 2018 FY, reversing the 12.9per cent decline recorded in 2018. The uptick in loan growth is largely on the back of improved loan offerings to the retail segment.
GTBank’s deposits from customers rose by six per cent to N2.42 trillion in H1 2019 from N2.27trillion in FY 2018.
Retail strategy underpinned by focused innovative digital solutions served as a catalyst for consistent low-cost deposits drive with resultant 6.3per cent growth in Customers’ Deposits and 110basis points improvement in low-cost deposit mix from 83.9 per cent in FY 2018 to 85per cent in H1 2019.
Liquidity position remained strong at 47.25per cent. Strong liquidity is backed by robust capital buffers with full IFRS 9 Impact CAR of 23.5 well above the regulatory minimum of 16per cent.
The Group’s liquidity ratio remained strong at 47.25per cent in H1 2019 (FY 2018 : 41.44per cent) which is well above the regulatory minimum of 30per cent as a result of strong deposit growth of 6.3per cent.
In spite of the challenging market, uncertainty stemming from 2019 General elections, continuous pressure on Asset yields in H1 2019, GTBank was able to deliver Post Tax ROE of 33.7per cent, Post Tax ROA of 5.8per cent and NIM of 9.6per cent. Low cost deposit mix of 85per cent played vital role at sustaining NIM at 9.6per cent
In conclusion, total equity rose by five per cent to N603billion from N575.57billion in FY 2018.
Improving NPL ratio
For the period under review, GTBank reported an improved Asset quality with very strong coverage for Non-Performing Loans (NPLs). NPL ratio improved from 7.3per cent in FY 2018 to 6.8per cent in H1 2019 largely due to recoveries.
NPLs under IFRS 9 refers to Loans Classified under Stage 3 and this stood at N91.6billion as at H1 2019 down eight per cent from N99.4billion in FY 2018.
In aggregate terms, the Group has coverage of 84.7per cent for NPLs as a result of adequate collateral coverage for Stage 3 Loans and improvement in FLIs.
Commenting on the financial results, the Chief Executive Officer of GTBank, Mr Segun Agbaje, said “We have delivered a good result in spite of a challenging market, characterized by varying degrees of uncertainty and a rapidly changing competitive landscape.
Our strong financial performance is underpinned by our unwavering focus on delivering value for our shareholders and reimagining the role we play in our customers’ lives.”
He further stated that “In a rapidly changing world and increasingly unpredictable environment, we are committed to building a long-term business that is both nimble and focused on flawless execution.
“The progress that we have made over the past six months demonstrates that we have the right strategy and the dedicated team to deliver for all our stakeholders, even in difficult conditions.”
Analysts at Cordros capital said GTBank’s result H1 2019 results is strong, and should lead to the bank posting equally strong financial year ended December 31, 2019.
“We are encouraged that the bank will not be below the statutory limit for LDR at the deadline in September, which would mean that the bank would not have to disrupt its risk management framework to drive business growth.”