According to its recently released unaudited 9M 2016 results, Guaranty Trust Bank Plc. GTB’s earnings accelerated further by +60% YoY vs H1: +45% YoY, largely on account of a robust interest income in Q3 16 and continuing strength in FX translation gains.

  • Importantly, despite elevated loan loss charges (9M 16: N57 billion) driven by collective impairments (N48 billion), GTB’s results outperformed management’s updated FY guidance as at H1 16 and should lead to the third upward revision in guidance. Relative to our estimates, and consensus, earnings remain well ahead.
  • Similar to UBA, GTB booked a record high N72 billion in interest income in Q3 16 (+22% YoY, +34% QoQ) largely driven by robust asset yields (+230bps QoQ).During the quarter, loan growth (+5.1% QoQ) was largely driven by naira depreciation (+12% QoQ) given GTB’s FCY share of loans (H1 16: 55% of total loans).
  • Given tamer naira weakness in Q3 16 relative to Q2 16’s 43% depreciation, GTB booked N32billion in FX translation gains (-47% QoQ).  The softer NIR relative to Q2 16 drove an uptick in cost-to-income ratio to 30.9% (9M: 16: 28.8%).
  • Extending the pattern from H1 16, higher loan loss charges stemmed from collective impairments (Q3 16: N20 billion, Q2 16: N24 billion). In our views, the strong earnings growth over 9M 16 provided legroom for GTB to adopt an over-aggressive stance on provisioning as NPL ratio declined 26bps QoQ to 4.13%.  Consequently, coverage ratios climbed 13pps QoQ to 104% (including regulatory risk reserves+15pps QoQ to 185%) which provide more than enough cover over NPL.
  • GTB currently trades at P/E and P/B of 4.8x and 1.4x which are at premium to peer average at 4.6x and 0.4x respectively. In our view, given best-in-class RoAE (9M 16: 34%) vs. sector average of 13%, and continued earnings outperformance, the premium is justified and thus we reiterate our STRONG BUY rating (FVE: N28.89)on GTB.


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