GTCO Plc Releases Dec. 2022 Audited Financial Report, Maintains Due Process On Loan For 2023.

Article summary

• GTCO grew its loans book by 4.61% YoY to N1.886 trillion in 2022; missing its 2022 loan growth guidance by 10%.

• The Group also missed its 2022FY deposits growth (+25%) and loan to deposits ratio (+50%) guidance.

• On the back of the foregoing and coupled with higher growth in interest expense and impairment losses, the Group’s net interest margin printed at 6.68%; about 17% below the 2022FY net interest margin projection.

GTCO Plc recently released its audited financial results for the year ended December 31, 2022 which showed that the Group grew its total loans to N1.886 trillion in 2022, representing about 5% YoY growth, and below its 2022 guidance.

The Group Chief Executive Officer, Segun Agbaje Commented on the Group’s loan growth policy during GTCO’s investor and analyst conference call on April 19, 2023.

He said, “In terms of loan growth, Nigeria is still where the loan growth is still going to come from. We are always very careful even about loan growth in Nigeria because we still believe there are challenges in the environment.

“The loan growth is what we do in terms of deposits and one pulls the other. There is no point in us going with 25% deposit growth if all we are going to do is packaged it into CRR or special bills. So we grew the deposit by 12% and grew the loan book by 5% in Nigeria because that is what we saw in Nigeria. In terms of Ghana, we are not going to change… We are not going to be long.”

In essence, the Group adopted a cautious approach to loan growth to obviate a higher non-performing loan as credit risk heightened across all jurisdictions of operation due to macroeconomic headwinds.

Because looking at the loan growth of other Tier 1 banks, operating in the same environment shows remarkable growth in their loan books in the same period (2022FY). For instance, Access Holdings, UBA and Zenith Bank grew their loan books by 24.98%, 21.36% and 19.61% respectively.

It is then apposite to conclude that there was a sort of trade-off between credit risk and return as reflected in the Group’s cost of risk and net interest margin. While the cost of risk was 0.6% (<10% guidance), the net interest margin was 6.88% (lower than the 8.0% guidance and 2021 6.74%).

Aside from the issue of a loan growth strategy, the low yield environment seen in 2022 that could not outpace the cost of funds contributed to the margin compression. During its 2022 full-year investor presentation, GTCO disclosed this:

• “The Group grew its Investment Securities Portfolio by 9.5% (N124.2 billion) to N1.435 trillion from N1.311 trillion during the same period but this did not translate to the desired revenue, owing to the sub-optimal yield environment that pervaded Nigeria, Gambia, Kenya and Cote D’Ivoire, e.g. GTBank Ltd continued to suffer from huge holdings of the CBN’s Special Bills – N561.5 billion, constituting 56.0% of its Fixed Income Securities portfolio which it held at an average rate of 0.48% vs 1.24% cost of Funds as at FY-2022.”

However, the Group believes that 2023 is likely to present a better net interest margin than 2022, especially in Nigeria on the back of the expected higher fixed-income yield environment and what would be taken out by Cash Reserve Requirement (CRR).

Further, it affirmed that the Group’s funding base remains very strong, increasing by 15.8% to N6.019trn in FY2022, and comprising Customer Deposits (77%) Equity (15%), Customer Escrow Balances (6%) and other Borrowed Funds (2% from 3% in FY-2021).

• backbone architecture to match existing and growing online transactions/pressure.

Valuation

Over the past 5 years, the bank has been recording profits; accumulating N912.013 billion in PAT. However, it recorded the least PAT in 2022 (N169.173 billion) and has a -1.74% CAGR/year.

• Based on its price-to-earnings ratio (4.2x) compared to other Tier 1 banks; Zenith bank (3.07x), UBA (1.62x), and Access Holding (2.23x), indicates that at the current price, the stock appears expensive relative to its earnings potentials and its peers.

• In terms of dividend yield, at the current share price, it offers a dividend yield of 12.40%. But compared to other Tier 1 banks, its dividend yield is lower than Access Holding (15.5%), Zenith Bank (14.58%) and UBA (14.01%).

Overall, the bank missed some of its key 2022 guidance ratios and has provided 2023 guidance. As we wait for the release of its Q1 2023 results, of importance is whether the Group will miss or beat its guidance.

(Naira Metrics)