MON 07 MARCH, 2022-theGBJournal- GTCO released its 2021FY earnings after the close of trading on Friday, showing a steep decline in the top and bottom-line earnings, in line with the performance recorded through the year.
The pressured interest income segment dampened the performance alongside higher operating costs. On the EPS of NGN6.14 (-13.6% vs 2020FY), the board has proposed a final dividend of NGN2.70/s (unchanged from 2020FY), which equates to a yield of 10.4% based on the last closing price of NGN26.00/s as of 4th of March, 2022.
Interest income declined by 11.3% y/y to NGN266.89 billion, driven by lower income from loans and advances to banks (-44.7% y/y), investment securities (-38.7% y/y), cash (-5.5% y/y), and assets pledged as collateral (-4.3% y/y). All of these masked the higher interest income from loans and advances to customers (+5.5% y/y), likely attributable to the acceleration in risk assets to customers (+8.4% y/y to NGN1.80 trillion).
Elsewhere, interest expense continued on a positive trajectory as it pared by 1.7% y/y to NGN46.28 billion, despite an increase in deposits by 14.3% y/y to NGN4.01 trillion, as the bank’s CASA (low-cost deposits: current and savings accounts) mix improved to 90.9% (2020FY: 88.9%). Following the faster decline in income than funding cost reductions, net interest income declined by 13.0% y/y to NGN220.61 billion. However, the significant decrease in credit impairment charges (-53.6% y/y) moderated the impact on net interest income ex LLE (-9.4% y/y).
Growth in non-interest income (NII) was strong during the period, edging 13.4% higher y/y to NGN171.68 billion, despite a decline in gains from investment securities (-45.9% y/y) and lower FX revaluation income (-20.5% y/y), given substantial growth in net fees and commission income of 39.9% y/y. COnsidering the impressive support from NII, operating income settled marginally lower by 0.5% y/y to NGN383.76 billion.
Operating expenses expanded by 10.1% y/y to NGN162.27 billion, with the most pressures exerted by regulatory charges – NDIC insurance premium (+43.9% y/y to NGN12.24 billion), AMCON levy (+27.3% y/y to NGN21.89 billion) and non-cash expenses (+21.5% y/y to NGN35.30 billion).
Consequent to the OPEX growth relative to operating income decline, the cost-to-income ratio (ex-LLE) settled higher at 42.3% (relative to 38.2% in 2020FY). All in, profitability was weaker, with profit-before-tax settling 7.0% lower year on year. Profit after tax also dropped further lower (-13.2% y/y to NGN174.84 billion), given the higher income tax expense (+27.3% y/y to NGN46.66 billion).
Cordros Research analysts view is that GTCO remains the most efficient bank in Nigeria despite recently weaker financial performances.
They say they are positive on the long-term outlook, as the performance reflects the challenging operating environment, which should reverse as the economic situation improves and the bank can accelerate risk asset creation.
‘’We are also optimistic about the transition to the Holdco structure and view the widening of the bank’s offerings as the driver of growth beyond the trajectory of the traditional banking sector.’’
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