Taking a bullet on profits as balance sheet grows 9.94%


Wednesday, March 09, 2022 / 3:55 p.m. / By Adaeze Nwachukwu, Proshare Research / Header image credit: GTCO/Ecographics

Business results for Nigeria’s Depository Banks (DMBs) were mixed in 2021. Coming out of the economic depression in 2020, bank performance in 2021 reflected a V-shaped recovery, with macroeconomic indicators pointing towards the top. However, for most lending institutions, the V-shapes were of different heights. Banks with faster recoveries had steeper Vs, while GTCO, a member of Nigeria’s premier lending elite called FUGAZE (FBNH, UBA, GTCO, Access Bank, Zenith Bank and ETI) took slightly on the wrong foot as earnings growth plateaued.

The senior lender’s audited full-year (financial year) 2021 result saw its top and bottom line profit plummet, following a -13.03% lower net interest income while net fee and commission income increased year-on-year (YoY) by +39.88%.
HoldCo’s financial situation improved with an increase in customer deposits, equity and customer loans and advances.


Result for the 2021 financial year: main highlights

  • Gross revenue decreased year over year (YoY) by -1.63% to 447.81 billion naira in 2021 from 455.23 billion naira in 2020.
  • Net interest income fell by -13.03% to 220.61 billion naira compared to 253.67 billion naira in 2020
  • Net fee and commission income increased slightly by +39.88% to N65.65 billion from N45.94 billion
  • The net interest margin fell to 49.26% from 55.72% in 2020.
  • Pre-tax profit decreased by -6.97% to 221.49 billion naira compared to 238.09 billion naira in 2020
  • Loans and advances to customers increased by +8.41% to N1.80trn in 2021 from N1.66trn in 2020
  • Customer deposits increased by +14.33% to N4.01trn from N3.51trn in 2020
  • Total assets increased by +9.94% in 2021 to N5.44trn from N4.94trn in 2020
  • The shareholder’s fund was up +8.45% to 883.23 billion naira in 2021 from 814.39 billion naira in 2020
  • Return on average equity fell to 26.10% from 31.71% in 2020
  • Return on average assets fell to 4.27% from 5.47% in 2020.
  • The equity ratio fell to 23.83% in 2021, above the regulatory minimum of 15%, compared to 25.90% in 2020.

Classy dividend payout

Analysts do not see strong capital appreciation for Guaranty Trust Holding Company (GTCO) as the bank and group’s share price has steadily declined between 2017 and 2021, however, the new banking group’s dividend yield has experienced a steady increase as dividend payouts increase each year.

GTCO intends to pay a final dividend per share (DPS) of N2.70k in 2021, bringing the total DPS to N3.00k, resulting in a dividend yield on a recent market price of N25.75 at 11.65% as of December 31, 2021 (see table 1 below).

Chart 1: GTCO Dividend Yield 2017 – 2021

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Source: GTCO Financial Statements, Proshare Research

Value investors would likely be pleased with GTCO’s dividend yield, as it nearly matches federal government 10-year Treasury bill coupons of 12.5% ​​and yields of 10.95%.

Financial performance

Gross gains: ride the dips

GTCO’s gross profit fell by -1.63% to 447.81 billion naira from 455.23 billion naira in 2020. Between 2017 and 2021, gross revenue saw its biggest drop in 2021; the trend also shows that although gross income has increased, it has done so at a decreasing rate. Market analysts expect the lender’s gross revenue to continue its descent absent deliberate efforts to boost revenue from deposit expansion. The Holdco may have to work from imagination rather than experience if it is to increase its earnings growth rate.

For example, net interest income decreased by -13.03%, led by a -12.77%
decrease in interest income while interest expenses slightly decreased by -1.67%. Net fee and commission income increased by +39.88% to N65.65 billion in 2021 (see table 2 below).

Chart 2: GTCO Gross Earnings 2017 – 2021 (N’bn)

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Source: GTCO Financial Statements, Proshare Research

In real terms or in US dollars, the group’s gross profits decreased by -17.74%
at US$793.99 million compared to US$965.25 billion in 2020 (using BDC tariffs).

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Profit before tax: a little less sauce

Tier 1 lending institution’s profit before tax (PBT) decreased by -6.97% to 221.49 billion naira from 238.09 billion naira in 2021. Last year’s decline was the largest in the last five years from 2017 to 2021, with 2017 showing the highest percentage growth (see table 3 below).

Chart 3: Profit before tax of GTCO 2017 – 2021 (N’bn)

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Source: GTCO Financial Statements, Proshare Research

When converting to US Dollars, PBT experienced a higher percentage decline, it decreased by -22.21% at US$392.73 million from US$504.85 million in 2020. The larger decline in the US dollar was supported by the depreciation of the national currency against the US dollar.

Financial situation

Total assets: the size game

The HoldCo’s total assets grew year-over-year by +9.94% to 5.44 billion naira from 4.94 billion naira in 2020. Total assets followed an upward trend, although the growth rate in 2021 was lower than that +31.54% posted in 2020. Growth in total assets was supported by a +198.65% increase in marketable securities held at amortized cost and a +25.22%
increased cash and bank balances (see table 4 below).

Chart 4: Total GTCO Assets 2017 – 2021 (N’trn)

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Source: GTCO Financial Statements, Proshare Research

In US dollars, total assets recorded a much slower percentage growth rate of -8.07% to US$9.64 billion in 2021 from US$10.48 billion in 2020.

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Net loans and deposits

In 2021, the net loans to deposits (LDR) ratio continued to decline, from 47.38% in 2020 to 44.93%. Customer loans and advances and customer deposits saw a lower growth rate in 2021 compared to 2020 figures. Net loans and advances increased by +8.41% in 2021 against
+10.81% in 2020, while customer deposits grew by +14.33% at N4.01trn in 2021 lower than previous +38.57% registered in 2020 (see table 5 below).

Chart 5: GTCO loan to deposit ratio 2017 – 2021

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Source: GTCO Financial Statements, Proshare Research

Final Thoughts – The Analyst Mindset

GTCO’s financial position has improved in 2021, its earnings position may have been a little fragile with slowing growth, but lender fundamentals have remained strong. The strength of Tier 1 DMBs is consistent with its consistent track record of growing its operating numbers, the recent slight glitch in the pace of earnings may require lender management to reimagine customer needs and create delivery channels of services that inspire repeat use. The steady growth of banks’ deposit base and number of customers has strained its ability to deliver services, requiring urgent management action. The decline in the group’s capital adequacy ratio (CAR) from 25.90% in 2020 to 23.83% in 2021 has raised some eyebrows, but the lending group’s CAR over the two years has always exceeded the minimum statutory 15% for systemically important banks (SIBs) (see illustration below 1).

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Asset Quality Performance (NPL), Cost/Income Ratio (CIR) and Cost of Risk (CoR) are individual indices to continue to monitor (consolidated annual report), as they tell HoldCo’s sustainability story on its cost containment priorities.

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Related News

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5. Guaranty Trust Holding Company Plc notifies date of board meeting

6. Fitch Rates Guaranty Trust Holding Company “B”; Stable outlook

7. Guaranty Trust HoldCo Plc Announces Third Quarter 2021 PAT of N129 Billion, Unaudited Results, (SP: N28.50k)

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ten. Guaranty Trust Holding Company Plc Approves Audited Second Quarter 2021 Results and Awaits Regulatory Approval

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