GTBank LDR At 57%; To Grow Loans By N50bn To Meet CBN 60% LDR Limit

August 21, 2019

By CardinalStone Research

Guaranty Trust Bank Plc (GUARANTY: TP 41.96 – BUY) recently held a conference call following the release of its H1 2019 results. The following are some of the highlights from the session with management:

Management revealed that the banks LDR is currently at 57.0%. It also noted that the bank is on track to grow loans by about N40 – N50 billion to meet CBNs 60.0% LDR limit by the 30 September 2019 deadline. According to management, an application of the 1.5x multiple on target sectors in the computation process could even drive GUARANTY LDR above the new regulatory limit

In addition, GUARANTY is ramping up efforts to grow its digital loan book, with related exposures now at c.N25.0 billion and NPL ratio at 0.07%. Targeted sectors for loan growth are manufacturing, retail, consumer lending and telecommunications

On its oil and gas loans, management noted that it is more concerned about its downstream exposures than it is on its upstream and midstream exposures. Specifically, downstream exposures now account for 9.0% and 59.0% of total oil and gas exposures and NPLs respectively

On non-interest income, the bank disclosed that it is yet to really scratch the surface on lines such as transaction-related fees. It plans to boost its fee income to make up for lost revaluation gains. In addition, it sees recoveries as a key part of its strategy for boosting non-interest income at least until FY’20. These recoveries relate to the initial IFRS 9 write-offs, part of which the bank expects to write back.

Impairments spiked in Q2 2019 because the bank took prudent measures on exposures that do not appear to be performing. It is likely that the bank will pursue recoveries on these exposures

On the mid-to-long term growth prospects, the bank noted that it is open to exploring inorganic growth avenues that may also include potential acquisitions outside of Nigeria

On regulatory concerns, management expects the CBN to use more moral suasion than fiat to drive lending. As a result, the bank does not anticipate a ban on banks investments in treasury securities or other measures that will destabilize the banking system. Overall, management does not see the policies of the CBN as negative for the revenue generating capacity of the bank

The bank is about $1 billion long on its balance sheet and currently has no swaps

Management expects the licensing of PSBs to increase competition in the retail space. It, however, believes that its brand, strong retail base, and digital offerings will support its market position 


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