NIGERIA| BANKS|GUARANTY TRUST HOLDING COMPANY 

GTCO's FY 2021 AUDITED numbers showed an 11.3% y/y decline in Interest Income to N266.9bn, mainly on the back of a decline in yields on fixed income instruments. This came in 3.0% below our estimate of N275.2bn. Q/q, however, Interest Income grew marginally, up 4.2% in Q4 compared to Q3. Net Loans and Advances to Customers grew moderately, up 8.4% in December 2021, compared with December 2020. On the other hand, Interest Expense declined 1.7% y/y to N46. 3bn (4% above our estimate) but increased 8.7% in Q4 compared with Q3. We had modelled a gradual increase in cost of funds through the year and forecast funding cost of 1.8% for FY 2022 from 0.67% in June 2021. Customer Deposits grew strongly in Q4, bringing total deposit growth up 14.3% y/y compared with 6.7% in September 2020. Overall, Net Interest Income was down 13.0% y/y but was up 3.2% in Q4 compared to Q3. 

Net Fee and Commission Income grew significantly, up 39.9% y/y but slightly below our estimate. Q/q, however, Net Fee and Commission declined, down 7.7% in Q4 compared with Q3. While all the Fee lines grew y/y, the major drivers were a 33.5% y/y increase in Account Maintenance Charges, a 79.1% y/y rise in E-business Income, and a 146.4% y/y increase in account services, maintenance and anciliary banking charges. We note the strong growth in E-banking Income, which implies increasing transaction volumes to make up for the regulatory induced decline in E-banking fees.

Source: Company's Financials, CSL Research.

Other Income (Net gains on financial instruments held at FVTPL, Other Income and Net Impairment on other financial assets) surprised positively, up 1.5% y/y but grew significantly within the quarter, up 65.4% in Q4 compared with Q3 mainly on the back of significant growth in FX revaluation gains in Q4. The group reported FX revaluation gains of N29.5bn in Q4 compared with only N2.0bn in Q3.

OPEX grew 10.1% y/y and 12.0% in Q4 compared with Q3. The y/y growth in Opex, coupled with a 3.2% y/y decline in Total Operating Income led to a deterioration in the bank's cost to income ratio ex-provisions to 41.4% for FY 2021 compared with 36.4% in FY 2021.

Capital adequacy ratio of 23.8% was reported for the group compared with 25.90% in December 2020 with full IFRS impact, which is well above the 15% regulatory minimum. The bank's capital ratios remain strong, and we see no threat to capital in the near term.

Impairment Charge of N8.5bn was down 56.4% y/y, bringing FY 2022 cost of risk (COR) to 0.5% compared with 1.2% reported for FY 2020.

Overall, PBT was down 7.0% y/y but grew 18.2% q/q, while Net Profit declined 13.2% y/y to N174.8bn for FY 2021, bringing FY 2021 ROAE to 20.6% compared with 26.8% for FY 2020.

The group's management proposed a final dividend of N2.70/s, bringing the total dividend for the year to N3.00/s and implying a dividend yield of 11.5%.

We have a Buy recommendation on the stock with a target price target of N43.04/s. Current Price N26.00/s.

Kind regards,

Gloria Fadipe