GTB Revenue Heading For Worst Growth.
Guaranty Trust Bank faced a worse revenue picture in the second quarter than the tight situation it experienced in the first quarter. Gross earnings reversed a 1.3 percent upward creep in the first quarter to a 2.7 percent decline at half year operations in June 2019. The bank is unable to push up revenue for the third year running and gross earnings seem to be headed for the worst growth record in three years at the end of this year.
The bank’s management is however maintaining and even reinforcing its strategy of squeezing costs to defend profit. That has been its response to revenue weakness since 2017 when it lifted net profit a clear 27 percent from a flat growth of 1.1 percent in gross earnings. The same happened in 2018 when profit grew by 10 percent from a 3.8 percent gain in revenue.
Decelerating profit is however the price the bank is paying for inability to achieve a healthy growth in revenue. Profit improvement has slowed down further to 3.7 percent as at the end of June 2019. This presents a warning signal that slowing profit may soon swing to the other side of a drop if the revenue weakness persists.
Cutting costs is increasing the ability to convert revenue into profit. The bank’s net profit margin reached a rare record in the world of banking at 44.7 percent at the end of the first quarter. It pushed it up further to a new high of 45.6 percent in the second quarter. This is the only way for management to keep profit from falling in the constrained revenue situation facing the bank.
Revenue weakness continues to come from interest earnings – the main revenue line of the bank. Continuing the drop recorded in the first quarter, interest income went down by 8 percent year-on-year to N149 billion at half year. This means a loss of N13 billion in earnings over the review period. The weakness has been on since last year when interest income went down by 6 percent.
Fees/commissions and other incomes remained the revenue stabilizers for the bank at the end of half year operations. Fees/commission income accelerated from 22 in the first quarter to 29 percent at half year but other income slowed down considerably from 67 percent to 13 percent over the same period. The slowdown accounted for the shift from a marginal improvement in gross earnings in the first quarter to a decline at the end of half year operations.
The bank’s half year audited accounts show gross earnings of N222 billion – which represents a decline of 2.7 percent year-on-year. The full year revenue expectation is N427 billion for GTB in 2019 – an expected decline of about 2 percent. Gross earnings had improved by 3.8 percent to N435 billion at the end of 2018.
Interest cost has reinforced the favourable behaviour observed in the first quarter. It extended its year-on-year drop from 23 per cent in the first quarter to 25 percent at half year – more than three times the drop in interest income. The drop almost neutralized the impact of the drop in interest income on the income statement of the bank.
The proportion of interest income claimed by interest expenses remained down from over 27 percent at the end of 2018 to 22 percent at the end of June this year. This again prevented a wide decline in net interest income at the end of the period.
A major development in the second quarter is that a sharp drop of over 60 percent in loan impairment charges in the first quarter has changed to a growth of 8 percent at the end of the second quarter. GTB recorded sharp drops in loan loss expenses for the last two years but the prospects for another drop this year have dimmed.
The bank closed half year trading with an after tax profit of over N99 billion, making an uptick from a 3.6 percent improvement in the first quarter to a 3.7 percent growth year-on-year at the end of June 2019. This remains a continuing slowdown from annual growth records of 29 percent in 2017 and 10 percent in 2018. Despite the slowdown, the bank is managing to keep profit improving against a decline in revenue by holding costs under control.
Full year profit outlook for GTB is unchanged from the region of N200 billion earlier projected for the 2019 financial year. It is expected that profit would step up further in the course of the year to 8 percent from the closing after tax profit of N184.6 billion in 2018.
Management tightened total operating cost in the second quarter from a 9 percent increase in the first quarter to a flat position at under N70 billion at the end of half year operations. The development reduced the operating cost margin from 32.5 percent in the first quarter to 31.5 percent at the end of June 2019. This compensated for the initial cost savings from loan impairment expenses that was lost in the second quarter.
The bank closed the first half of the 2019 operations with earnings per share of N3.50, against from N3.38 per share in the same period last year. The full year outlook of N7 per share for GTB in 2019 is unchanged. The bank has announced an interim cash dividend of 30 kobo per share, closing on 2nd September and to be paid on 11th September 2019. The bank paid a total cash dividend of N2.75 per share for the 2018 operation.
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