GTCO H1 2021 Result: Tumbling Earnings Face Slightly Rising Liquidity

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Monday, September 27, 2021/09:05 PM/By Adaeze Nwachukwu, Proshare Research/Header Image Credit: GTCO


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GTCO's H1 2021 Audited result showed that traces of COVID-19-induced operational vulnerability still plagued the Tier 1 financial institution; this appeared in a fall in both the group's top and bottom-line earnings with a marginal improvement in its statement of financial position (balance sheet).

 

H1 2021 Result: Key Highlights

  • Gross earnings fell year-on-year (Y-o-Y) by -7.64% to N207.9bn in H1 2021 from N225.1bn in H1 2020.
  • Net interest income fell Y-o-Y by -16.11% to N107.06bn from N127.62bn in H1 2020
  • Non-interest income was up by +14.57% to N81.8bn
  • Net interest margin dipped to 6.98% from 9.74% in H1 2020.
  • Profit before tax declined by -15.18% to N93.1bn from N109.7bn in H1 2020
  • Loans and advances to customers rose Y-o-Y by +0.55% to N1.63trn in H1 2021 from N1.62trn in H1 2020
  • Deposit from customers grew by +20.79% to N3.63trn from N3.00trn in H1 2020
  • Total assets inched up by +11.22% in H1 2021 to N5.02trn from N4.51trn in H1 2020
  • Shareholder's fund was up +10.63% to N797.58bn in H1 2021 from N720.93bn in H1 2020
  • Return on equity fell to 19.71% from 26.78% in H1 2020
  • Return on assets decreased to 3.19% from 4.56% in H1 2020.
  • The cost-to-income ratio rose to 48.98% from 43.16% in H1 2020
  • The capital adequacy ratio rose to 24.00% in H1 2021, above the regulatory minimum of 15%
  • The non-performing loans ratio of the group improved to 5.99% in H1 2021 from 6.80%.
  • The liquidity ratio edged up to 44.71% from 43.15% in H1 2020

 

Share Price and Index Movement- Uncertain technical

The year-to-date (YTD) share price movement of the HoldCo's equity has a negative return, declining by -16.62% as of 22nd September 2021. The negative return also mirrors the trend in the Banking sector index, which shows a -7.74% YTD return.

 

GTCO's share price movement showed choppiness in H1 2021; this was primarily fuelled by the Bank's market disclosure mainly, the announcement of the operation of the Holding Company structure, also the bank's delisting from NGX and listing the new entity - the HoldCo, on the Exchange.

 

The share price of the HoldCo and the sector's index shows a positive and strong correlation of 0.54; this could be the result of the large market capitalization of the institution (796,113,398,009.20 as of 22 September 2021), which influenced the movement of the sector's index (see chart 1 below).

 

Chart 1: YTD Movement of Banking Sector Index and GTCO's Share Price as of 22nd September 2021

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Source: NGX, Proshare Research



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Profitability- A Whiff of A Downside

Gross Earnings

The gross earnings of the credit lender fell Y-o-Y by -7.64% to N207.9bn in H1 2021 from N225.1bn in H1 2020. Despite a +14.57% increase in non-interest revenue, gross earnings fell as the -16.11% drop in net interest income outpaced the growth in non-interest income (see chart 2 below).

 

The primary driver of the rise in non-interest income was the +44.53% growth in fees and commission, while the -43.98% fall income from investment securities led to the decline in interest income.

 

In US dollar terms, gross earnings had a more severe decline of -18.72% to US$506.91m from US$623.65m in H1 2020. The I & E FX window rates at the different periods were used for the translation.

 

Chart 2: GTCO's Gross Earnings H1 2017 - H1 2021 (N'bn)

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Source: GTCO's Financial Statement, Proshare Research

 

Profit Before Tax

HoldCo's profit before tax (PBT) also towed the same line with its gross earnings.  The decline in gross revenues also translated into a fall in PBT, which decreased Y-o-Y by -15.18% to N93.06bn from N109.71bn in the same period in 2020 (see chart 3 below).

 

The bank's PBT growth had seen a downward trend in recent years, with H1 2017 recording the highest percentage growth of +17.98% while H1 2021 recorded the highest percentage decline.

 

Converting to US dollar terms, PBT dipped by -25.35% Y-o-Y to US$226.88m from US$303.92m in H1 2020.

 

Chart 3: GTCO's Profit Before Tax H1 2017 - H1 2021 (N'bn)

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Source: GTCO's Financial Statement, Proshare Research



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Impairment Charges

Contrary to expectations, the bank's loan impairment charges fell Y-o-Y by -30.36% to N4.71bn in H1 2021, this was after impairment charges on loans rose significantly by +209.65% in H1 2020.

 

The decline in impairment charges resulted from the -29.07% fall in impaired loans and advances to customers.

 

The growth in impairment charges during the peak of the COVID-19 pandemic was lower than the +531.04% rise during the economic recession in H1 2016 (see chart 4 below).

 

Chart 4: GTCO's Loan Impairment Charges H1 2017 - H1 2021 (N'm)

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Source: GTCO's Financial Statement, Proshare Research

 


Managing Cost

 

The financial institution has been known for being a cost-efficient bank and having the lowest cost-to-income (CIR) amongst Tier 1 banks in the country, which was below 40% for the full-year 2020.

 

In H1 2021, CIR rose to 48.98% from 43.16% in H1 2020. The growth of CIR was because of the +7.24% rise in operating expense and the -3.74% decline in operating income for the period. The increase in operating costs resulted from a +27.3% growth in AMCON expenses (see chart 5 below).

 

 

 

Chart 5: GTCO's Cost-to-Income Ratio H1 2017 - H1 2021 (%)

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Source: GTCO's Financial Statement, Proshare Research


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Statement of Financial Position-Coping with Ambiguity

Total Assets

The growth rate of total assets of GTCO has been unsteady, with H1 2020 recording the highest growth rate of +25.38% and H1 2019 showing the lowest growth over the period.

 

In H1 2021, total assets went up Y-o-Y by +11.22% to N5.02trn from N4.51trn in the corresponding period of 2020


The significant growth in investment securities held at amortized cost and deferred tax asset led propelled the increase in total assets; both grew Y-o-Y +589.78% and +159.07%, respectively (see chart 6 below).

 

Chart 6: GTCO's Total Assets Growth Rate H1 2017 - H1 2021

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Source: GTCO's Financial Statement, Proshare Research

 

Non-Performing Loan Ratio (NPL)

The banks' NPL ratio has steadily been above the regulatory threshold of 5% in recent years, with H1 2017 showing the lowest NPL ratio during the period under review. In H1 2021, NPL improved to 5.99% from 6.80% in H1 2020 (see chart 7 below).

 

The bank's NPL by industry shows "others" accounts for the highest, which includes engineering services, fashion & design, religious organizations, hospitality, etc.

 

NPL by currency shows local currency accounts for 86% of the banks' NPL while 14% comes from foreign currency.

 

Chart 7: GTCO's Non-Performing Loans H1 2017 - H1 2021 (%)

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Source: GTCO's Financial Statement, Proshare Research

 

Shareholders Fund

 

The tier 1 financial institution's shareholders' fund rose Y-o-Y by +10.69% to N797.58bn from N720.93bn in H1 2020. In H1 2018, total equity dipped by -7.45%, and rebounded in H1 2019, although it has been increasing at a decreasing rate.

 

 

The +41.32% rise in retained earnings supported the growth in total equity during the period under review (see chart 8 below).

 

 

Chart 8: GTCO's Growth Rate of Shareholders' Fund H1 2017 - H1 2021

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Source: GTCO's Financial Statement, Proshare Research

 

Investor Returns-Raining on Happinesses Parade

 

Both returns on equity and return on asset declined for the second consecutive time. Return on asset (ROA) fell to 3.19% from 4.56% in H1 2020 and 5.76% in H1 2019, while return on equity fell to 19.71% from 26.78% and 33.65% in H1 2019. This is because of the decline in PBT during these periods (see chart 9 below).

 

 

Chart 9: GTCO's Return on Equity H1 2017 - H1 2021 (%)

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Source: GTCO's Financial Statement, Proshare Research

 

 

Despite declines in the top and bottom-line earnings of the institution, its liquidity position improved as reflected in the growth in its capital adequacy ratio to 24% above the regulatory minimum of 15% and 44.71% liquidity ratio, which was above CBN's 30% minimum requirement.

 

Net interest income fell by -16.11% to N107.06bn, despite a -27.05% decrease in interest expense. The changes in monetary policy rate (MPR) from 12.5% to 11.5% in September 2020 and CBN reviewing interest paid to savings deposit from 30% to 10% per annum of MPR reflected the downward trend of interest expense.

 


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