GTCO’s cost of funds increased by 20bps year on year to 1.2%

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The management of Guaranty Trust Holding Company (GTCO) released its half of the year, 2022 audited results through the floor of The Exchange(NGX) on August 5, 2022. In the report, it showed the group recorded 11.0% growth in Pre-tax profits while Net profits declined by 3.0% in the period and Cost of funds increased by 20bps year on year to 1.2%.


According to the report the Q2 2022 standalone showed Pre-tax profits grow by 24.4% year on year while Net profits rose to 0.9% year on year. Also, EPS grew to N2.79, the board proposed an interim dividend of N0.30 (flat year on year, in line with our expectations. This implies an interim dividend yield of 1.5% on the stock’s last closing price.

While, on balance, earnings were weighed by increased Tax expenses, following the expiration of the tax exemption period for government securities. When annualised, Net profits were behind our and consensus forecasts for Full Year of  2022 by 19.8% and 17.6%, respectively, owing to negative surprises on the Tax expense and Other income lines.

“Loan growth, improvement in loan yield boosts NII, Interest income grew by 16.7% year on year in six months of 2022 and was primarily supported by a 13.1% year on year on Q2 2022  grew by11.4% year on year growth in Interest earned on loans to customers. The rise came as the group recorded a 27bps year on year increase in the average yield on customer loans and growth in gross loans rose by 12.3% year on year and 1.6% year-to-date.


“Interest expense rose by 38.4% year on year in six months 2022, driven by a 44.6% year on year increase in Interest paid on Customer deposits as the group’s Current and Savings Account (CASA) mix deteriorated to 85.9%, compared with 86.7% in six months 2021.

Consequently, the group’s cost of funds increased by 20bps year on year to 1.2%. Nonetheless, Net Interest income grew by 12.9% year on year, while the Net Interest Margin (NIM) compressed slightly by 12bps year on year to 5.8%.

Meanwhile, the increased tax expenses, opex weigh on earnings Non-interest income grew by a decent but lower-than-expected 6.6% year on year in the period under review. The growth was driven by a 33.4% year on year surge in Trading revenues following a substantial rise in Net FX trading gains. However, Other income faltered, declining by 13.7% year on year following a slump in FX revaluation gains.

Elsewhere, Operating expenses (Opex) grew by 11.3% year on year, mainly on Communications, technological related expenses and administrative expenses rose by 36.0% year on year and Occupancy costs jumped by 58.0% year on year.


According to the financials, the former is inclusive of the administrative fee due to the group’s Staff Investment Trust (SIT) for the management of the shares held by the scheme while the latter relates to diesel, fuel, and electricity cost as well as ground rates and water cost. As a result, the group’s Cost-to-Income ratio increased to 48.2% in six months compare to 2021 of 47.7%, reflecting that the bank’s efficiency is still tracking below its historical levels (5-year average: 37.3%).

However, following the larger growth in net revenue than costs, Pre-provision operating profits rose by 9.2% year on year. Further down the P&L, Loan Loss Provisions declined by 25.4% year on year, following an improved outlook for the macroeconomic variables used in the Expected Credit Losses (ECL) model in the period. As a result, the group’s Cost of Risk declined to 0.2% in the period of under review to that of 2021 which stood at 0.5%.

Overall, Pre-Tax profits grew by 11.0%. Notably, the group’s effective tax rate rose to 24.9% to that of 2021 figures of 14.7% within the same period, following the reduction in Tax-exempt income as a result of the expiration of the tax exemption period for government securities. Consequently, this led to a 3.0% decline in Net profits, report stated.

Slight deterioration in asset quality:  Non-performing loans (NPL) ratio rose to 6.2% in H1 22 (FY 21: 6.0%; H1 21: 6.0%) and remained above the statutory limit of 5.0%. Elsewhere, the group’s total capital adequacy ratio closed at 22.0%, significantly higher than the minimum regulatory requirement of 15.0%.

Conclusion, Net interest income was in line with our expectations. However, profits were lower than our and the market’s expectations following higher-than-expected tax charges and operating expenses. We are worried about the slow growth in the group’s loan book, while concerns remain around the elevated operating expense profile. However, we are encouraged by the fact that the group maintained its dividend payout despite the drop in earnings.

In a statement by Analyst, Ope Ani, Senior Analyst at Coronation Research said “On the positive, as we expected, interest rates have risen significantly in recent weeks. As a result, the benefits of rising asset yields are likely to filter through to funded income and support earnings in Q3. In addition, the stock has declined by 23.5% year-to-date and is trading at a deep discount to its peers and historical valuation. This presents an attractive entry opportunity for investors.”


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