Guaranty Trust Holding Company (GTCO) financial results for 2023

Guaranty Trust Holding Company (GTCO) in its FY23 audited financials reported Pre-tax profits (+184.5%) and Net-profits (220.5%)
growth for the period. Similarly, Pre-tax profits (296.4%) and Net profits (220.5%) for Q4’s stand-alone performance also improved. On
the FY 23 EPS of N18.16, the board proposed a final dividend of N2.70 per share, bringing the total dividend for the period to N3.20 per
share. This implies a dividend yield of 8.9%based on Thursday’s closing price.

FY 23 earnings were driven largely by improvements in Other income, propped majorly by unrealised gains from foreign exchange
revaluation which rose by 662.5%, occasioned by Naira devaluation during the period. Despite the impressive performance, the market’s
focus has been on the bank’s recapitalisation.

Financial Performance
Interest income grew by 69.3% y/y beating our forecast of 54.9%, primarily driven by a 232.5% y/y increase in earnings on Investment
securities. The group’s investment securities portfolio grew 101.9% y/y with much of the growth attributable to Treasury bills and
bonds, allowing the firm an opportunity to take advantage of rising interest rates during the period. The average yield on investment
securities rose by 448bps to 8.5% y/y. Interest expense also rose, expanding 72.6% y/y, as cost of funds rose 38bps to 1.8% following a
72.0% y/y increase in interest paid on customer deposits despite an increase in the CASA mix (88.6% y/y from 87.1% FY 22).
Consequently, Net Interest Income rose by 68.4% y/y with the Net Interest Margin up by 132bps to 7.1%.

Non-interest income grew faster than we expected, increasing by 219.3% y/y in FY23, growth was driven by a surge in Other income
following a substantial rise in foreign exchange revaluation gains which increased by 662.5% y/y on the back of Naira devaluation
against the US Dollar during the period. Elsewhere, Operating expenses (Opex) grew by 26.5% y/y, driven primarily by
Communications, Administrative and Technological related expenses, AMCON expenses, as well as outsourcing services related to
salaries paid to contract staff. However, the cost-to-income ratio declined to 26.0% from 47.0% in FY22 reflecting the group’s effective
cost-efficiency strategy despite high inflationary pressures during the period under review. As a result, Pre-provision operating profits
grew by 215.0% y/y. Loan loss provisions increased by 758.9%, likely due to a poor outlook on macroeconomic variables for expected
credit losses. As a result, the cost-of-risk ratio surged to 4.5% from 0.6% in FY22. Pre-profit tax, however, climbed by 184.5% y/y, while
the effective tax rate declined from 21.0% in FY22 to 11.4% on the back of increases on tax-exempt income forthe year.

Asset Quality
Non-performing loans declined by 100bps to 4.2%, putting the group below the regulatory benchmark of 5.0%. Also, the firm’s capital
adequacy ratio closed at 21.9% (vs 24.1% FY22), well above the minimumregulatory requirement of 15.0%.

Conclusion
The group’s earnings were above our expectations especially reflected in the firm’s cost management style. We expect increased
earnings growth for 2024 hinged on the improvement in yields both in the treasury bill and bond markets which are likely to support
interest income. On recapitalization, the bank has announced its intention to raise US$750.0mn through share issues and bonds to shore up its capital
base. SOURCE: Coronation Asset Management Limited