GT Bank Targets Scale Not Size; H1 2019 Gross Earnings Down -2.1%


Sunday, September 22, 2019 / 04.00PM / Proshare research/Header Image Credit:

GT Bank, Nigeria's most profitable banking franchise by return on shareholders' equity (ROE), had a slow H1 2019. The bank saw its top line income dip -2.1% Y-0-Y (see chart 1 below). The bank equally saw a shaving-off of its interest income which dropped -7.96% and net interest income which rolled down by a further -1.33%. Indeed, H1 2019 has been one of the bank's toughest seasons in recent years.

Weak Top line, But Modest Operating Numbers

GT's operating income rose by +3.60% from N179.20bn in H1 2018 to N185.66bn in H1 2019. GT cost to income ratio decreased to 37.63% in H1 2019 from 38.82% in H1 2018. The bank's Non-interest income rose by +12.72% from N64.75bn in H1 2018 to N72.99bn in H1 2019. On the less savoury side of the bank's profit and loss (P&L) account its Impairment cost increased by +7.58% from N2.03bn in H1 2018 to N2.19bn in H1 2019.

Chart 1 GTB Gross Earnings (N'm) H1 2019

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Source: GTB bank financial statement for H1 2019


The rise in impairment cost is of some concern to analysts as the banking sector generally witnessed a decline in loans and advances and with this fall in risk assets, analysts had come to expect an improvement in banks' impairment numbers, as has been the case with GT Bank since 2017. On the positive side of things GT Banks impairment to loans ratio has actually declined (see chart 2 below).


Chart 2 GTB on Impairments to loan in H1 2019

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 Source: GTB bank financial statement for H1 2019


Growing Assets, But Avoiding Pain

GT Bank's total assets grew in H1 2019 by +9.45% from N3.29trn in Dec. 2018 to N3.60trn in H1 2019. GT Bank's total liabilities rose by +10.45% from N2.71trn in Dec. 2018 to N2.30trn in H1 2019. The Impairment to loan ratio fell from 0.39% in Dec.2018 to 0.17% in H1 2019 (See Chart 2 above). There was a drop in the return on total asset from 6.56% in Dec.2018 to 3.22% in H1 2019. Return on Equity also declined from 37.46% in Dec.2018 to 16.44% in H1 2019. Non-Performing loan declined to 6.8% in H1 2019 from 7.3% in H1 2018. Cost of Risk grew to 0.2% in H1 2019 from 0.14% in H1 2018.

Hard Times, But Steady Bottom line Growth

GT Bank clearly has faced the consequence of a slow-moving economy (GDP growth is 1.94% by recent estimates of the Statistics Bureau, NBS), and a shift in lending from the private sector to the public sector Treasury Bills. The safer T-Bill lending (common to all banks) has meant lower but more predictable interest income. The CBN's directive for banks to maintain a loan to deposit ratio (LDR) of 60% may increase lending to private business but this may not be by much.

Clearly the managers of GT Bank are more concerned about scale of business and profitability than about the asset size of the bank and so full year, FYE result, may mirror closely the outlook in H1. Topline will be hesitant but equity return will be around H1 2019's 16.44%.

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