GUARANTY Shares Rated Neutral; Reports Significant Increase in Loan Loss Provisions in Q3'16 Results

Proshare

Wednesday, October 19, 2016 6:03 PM / FBNQuest Research

Event: GT Bank reports Q3 2016 results

Implications: Positive reaction by the market likely

Positives: Strong non-interest income of N46.3bn, up +184% y/y

Negatives: A significant increase (+662% y/y) in loan loss provisions

GT Bank’s Q3 2016 results which were published today showed a very strong PAT result of N46bn, up 97% y/y, off the back of a PBT result of N49bn, up 71% y/y. PAT growth was stronger y/y due to other comprehensive income of N4.3bn, which was up 172% y/y. OCI was boosted by fx translation gains.

The market had been expecting tangible fx gains in GT Bank’s results in recent weeks. Similar to Q2, although the fx revaluation gain will be welcomed by the market, the scale of the provisions, though down q/q, will likely concern investors. Nonetheless, the underlying numbers were quite strong enough to provide an offset, with both funding income and non-interest income up, by 34% y/y and 184% y/y to N53.6bn and N46.3bn respectively.

The strong income lines offset negatives for both opex and provisions. While opex was up 25% y/y to N31bn, provisions grew by 662% y/y to N19.5bn. Sequentially, a -42% q/q decline in non-interest income and a 33% q/q rise in opex more than offset any benefits coming through from a 40% q/q growth in funding income and a -43% q/q decline in provisions. As such, PBT declined by -19% q/q.

Compared with our estimates, Q3 PBT beat by 18% on the back of positive surprises on both income lines while PAT was ahead by 22%. Funding income and non-interest income were both ahead by 29% and 53% respectively to more than offset negatives on both the opex and provision lines.

Provisions negatively surprised by around 230%. On an annualised basis, GT Bank’s 9M 2016 PBT tracks ahead of both full year consensus estimate of N151bn and management guidance of N125bn. Additionally, 9M 2016 PAT of N129bn is in line with management’s ROE guidance of “above 25%”.

Our takeaway is that the market is likely to have a positive reaction to these numbers. Our estimates are under review. We rate GT Bank shares Neutral.  

GT Bank Q3 2016 results: actual vs. FBNQuest Research estimates (N millions)



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