Declining interest income cost GTBank N6.7bn decline in gross earnings during Q1 2021

• Bank’s E-business segment stands as the best performer despite CBN’s NIP charges guidelines in Q4’20
• Posts 7.8%y/y decline in PBT to N53.7bn; 9%y/y fall in PAT to N45.5bn

Charles Abuede

After a blockbuster performance during the fourth quarter of 2020 where it recorded a 19.5 per cent quarter on quarter growth in gross earnings, Nigeria’s tier-1 lending institution, Guaranty Trust Bank Plc has reported a 5.9 per cent year on year decline in gross earnings to N106.2 billion in the first quarter of 2021 from N112.9 billion in the corresponding quarter of 2020. The lackluster growth in gross earnings was primarily due to a 26.8 per cent decline in interest income slightly offset by growth in all the other segments. The interest income slipped in all the sub-segments (except loans and advances to banks), led by an 81.5 per cent year on year decline in income from investment Securities fair value of other comprehensive income (FVOCI) to N3.8 billion in 1Q21, followed by a 4.5 per cent year on year decline in income from loans and advances to customers to N44.3 billion in the review period.

The first quarter 2021 unaudited financial statement filed to the local bourse had GTBank report its profit before tax at N53.7 billion from N58.2 billion in the prior-year quarter (-7.8%) and was largely helped by gains in financial instruments held at fair value for profit and loss (63.5%) and other income (21.8%). Also, the tax expenses remained almost constant at N8.1 billion in the reported period, leading to the profit after tax being reported at N45.5 billion, a 9.0 per cent fall compared to Q1 2020. Furthermore, there was a drop of 38.3 per cent in the interest expense, resulting in an 18.4 per cent year on year fall in net interest income to N52.4 billion in Q1 2021 while the bank’s net interest margin came in at 6.96 per cent versus 9.89 per cent in the prior-year quarter, and then the cost to income ratio stood at 42.56 per cent in this quarter against 40.59 per cent in the corresponding period of 2020.

As a show of resilience in operation, the financial institution has continued to operate above its targeted capitalization range and well over the CBN mandated regulatory minimum of 16 per cent for Domestic Systemically Important Banks. During the quarter, GTBank’s net loans to deposit ratio stood at 44.08 per cent in March 2021 as against 46.05 per cent in December 2020. Furthermore, the cost of risk was a mere 0.11 per cent as against the 1.18 per cent in the last quarter of 2020. Though, the bank’s capital adequacy ratio as of March 31, 2021, was 26.12 per cent from 25.90 per cent in Q4 2020.

Elsewhere, the bank’s fees and commission income continue to be robust, with a 21.5 per cent jump to N17.6 billion in Q1. The Fee and commission income grew 11.4 per cent sequentially, following a 24.5 per cent quarter-on-quarter rise in the prior quarter. However, fee and commission expense also shot up 226.1 per cent year on year to N3.0 billion, resulting in a mere 7.8 per cent year on year growth in net fee and commission income to N14.6 billion in the reported period. However, the bank’s E-business income reported under the fee and commission line was the best performer this quarter with a 54.4 per cent year-on-year surge in income to N3.9 billion in Q1 2020. Although, it is worth noting that GTBank’s E-business was the worst hit in the prior quarter due to the CBN guidelines’ implementation on NIP charges.

On the other hand, the bank’s personnel expenses grew 7.9 per cent year on year to N10 billion, while other operating expenses retreated 4.1 per cent year on year to N22 billion. Also, the loan impairment charges surged 52.1 per cent year on year to N1.9 billion given the weak economic environment, resulting in net interest income after impairment charges at N50.6 billion, a 19.8 per cent year on year drop. However, the impairment charges were subdued compared to the prior quarter, as the charges declined 80.3 per cent sequentially.