MON, APRIL. 17 2023-theGBJournal |Guaranty Trust Holding Company Plc (GTCO) published its 2022FY audited financials last Friday (14 April), in which the Holdco reported a 3.1% decline in EPS to NGN5.95 (2021FY: NGN6.14).
The moderation in EPS was triggered by higher impairment charges on financial assets in 2022FY (N35.94 billion vs 2021FY: N760.80 million) following the group’s exposure to the Government of Ghana (GoG) debt. The board proposed a final dividend of N2.80/s (2021FY: N2.70/s), which translates to a dividend yield of 11.5% based on the last closing price of N24.40/s (14 April).
The group’s interest income grew by 21.9% y/y to NGN325.40 billion supported by the income generated from loans and advances to customers (+13.2% y/y to N219.93 billion), investment securities (+26.7% y/y to N85.81 billion), cash and balances with banks (+256.4% y/y to N14.87 billion), and loans and advances to banks (+538.9% y/y to N4.79 billion).
Similarly, interest expense increased by 42.8% y/y to N66.10 billion, driven by the higher costs incurred on deposit from customers (+43.7% y/y to N59.75 billion) and borrowings (+62.2% y/y to N4.46 billion).
We attribute the higher expenses on customer deposits to the revision of the minimum interest rates payable on local currency savings deposits from 10.0% to 30.0% of the Monetary Policy Rate (MPR).
Following the increased income and cost on interest-bearing liabilities, the Holdco recorded a 17.5% y/y expansion in net interest income. After accounting for loan impairment charges (+40.5% y/y to N11.99 billion), net interest income (ex-LLE) settled 16.6% higher year-on-year.
Non-interest income declined by 4.0% y/y to NGN164.74 billion, driven by the impairment charged on investment securities (N35.94 billion) in 2022FY. The aforementioned outweighed the gains generated from FX trading (+104.0% y/y to NGN34.93 billion), FX revaluation (+42.5% y/y to N64.15 billion), and net fees and commission income (+18.0% y/y to NGN77.46 billion) during the period.
Like its Tier 1 peers, GTCO was exposed to Ghana’s debt, which resulted in an impairment charge of NGN35.55 billion on its holdings of GoG debt instruments. For context, the group’s total exposure to GoG investment securities amounted to c. NGN167.56 billion at the end of the period, inclusive of GoG Eurobonds held by its subsidiaries in Nigeria, Sierra Leone, Liberia and Rwanda. Applying the impairment taken by the group in the year, the affected investment securities were revalued to NGN132.01 billion as of 2022FY.
Operating expenses increased by 22.0% y/y to N197.90 billion, with the most pressure exerted by regulatory charges – deposit insurance premium (+17.6% y/y to N14.40 billion) and AMCON levy (+6.4% y/y to N23.29 billion). Notably, the faster growth in OPEX relative to operating income (+7.4% y/y) caused the deterioration in the group’s operational efficiency – cost-to-income ratio (ex-LLE) settled at 48.0% (2021FY: 42.3%).
Overall, profitability was pressured as the Holdco’s profit before tax slowed by 3.3% y/y to N214.15 billion. Likewise, profit after tax moderated by 3.2% y/y to N169.17 billion, despite the 3.6% y/y decline in the income tax expense.
”We like that GTCO maintained a high dividend payout (52.1%) in 2022FY, considering the pressures on its earnings due to the GoG debt exposure,” says Cordros Research in their review of the earnings result.
”For 2023E, we believe the group will deliver a strong financial performance, supported by its sustained cost efficiency and expansion of its business.”
The group will hold a conference call on Wednesday (19 April) at 3 pm Lagos time to discuss the results.
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