At its peak on January 19, 2018, GTB was trading at N54 per share or a market capitalization of N1.5 trillion,now it is N26 ,a big downturn
The year 2021 , indeed ,was another tough year for Guaranty Trust Holding Company plc ,GTCO. GTCO, regarded as the most efficient bank in Nigeria could not navigate the troubled waters unscratched ;its net profit crashed by 20% just as its revenue increased only marginally by 1.6%,to mention just a few among other downturns that hit the bank .
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Ironically , it was the same year it changed its corporate status to a holding company when its then MD/CEO of Guaranty Trust Bank ,now its Chief Executive Officer, Segun Agbaje was beating his chest with so many promises . At a media briefing in 2020, Segun Agbaje, was full of spirit and vitality discussing the benefits of transiting to a Holding company; radiating energy and positivity, he assured investors and other stakeholders in attendance of a rewarding future. “I am delighted over the approval by shareholders for the holding company and I assure the investors of a more rewarding future”.
Agbaje explained that the overall strategy was to create an operating model that would profitably grow the bank’s presence in the market for commercial banking and non-banking financial services in order to achieve the aspiration to be the dominant financial services group. The bank ,he said would not embark on any share reconstruction, promising that the same number of shares they had with the bank would be maintained. “Under the new structure, existing shareholders of GT Bank would be migrated to Guaranty Trust Holdings via a share-for-share exchange between the shareholders of GT Bank and GT Holdings, ”he added
But, it was a promise failed for the bank’s share investors . While the bank did not embarked share reconstruction as promised ,the first aspect of the promise is yet to materialize. In the past one year, the bank has continued to navigate through the difficult waters and operating as a holding company without adding any substantial values known with it before the transition ..
Rather than being a rewarding year, the last financial year was a year when GTCO’s fundamentals were weakened embarrassingly, a situation that led its loss of its laurel as the most valuable bank in the industry. The worst losers in the whole year , however, were the shareholders or its stock investors. Stock price of first tier lender, GTCO cascaded compared with its value in the last three years ; most of the shave in price occurred in the last one year .
Nigeria’s so called most efficient bank, Guaranty Trust Holding Company, the owners of GT Bank suffered N80 billion loss in market valuation between the time it transformed into a bank holding company and January 14th this year . GT Bank’s shares price was trading at N28 per share in the weeks leading to its final transformation to a holding company.
Since then, its share price has taken a nosedive ending the year with a 20% drop compared to the banking sector all share index which gained 10% during the year under review . The slide continued this year with the share price falling to N25.45 on Wednesday January 12th. In fact, the bank shares fell to a year low of N23.9 in December before rallying to N26 in December
Those who bought its shares in 2018 are the worst losers .At its peak on January 19, 2018, GTB was trading at N54 per share or a market capitalization of N1.5 trillion. In the same period, During the Covid-19 bull ride of late 2020, GT Co shares recorded a resurgence after its share price rose to as high as N36 taking it to over N1 trillion.
With the drop in GT Co’s valuation , Zenith Bank has overtaken it in terms of the market valuation . This happened when GTB’s share price fell to N25.45 and Zenith rose to N25.5.
Zenith Bank first overtook GT Bank in terms of market valuation on November 19, 2021, when GTCo’s market cap fell to N747.5 billion compared to Zenith’s N753.5 billion. Since then, Zenith has risen past N800 billion while GT CO’s slide continues .Even in terms of profitability in 2021 ,Zenith Bank’ PAT made N244b against its N174b,a longer distance between them ever .
GTCO closed its last trading day on Tuesday, March 8, 2022 at 26.20 NGN per share recording a 0.8% gain over its previous closing price of 26.00 NGN. Guaranty Trust Holding began the year with a share price of 26.00 NGN and has since gained 0.77% on that price valuation, ranking it 63rd on the NGX in terms of year-to-date performance. This current gain is too cold for comfort viewing for from the enormous damage done to its shareholders investments particularly those who bought its shares at the peak of its value three years ago; currently, GTCO’s share price return at 16.3% negative underperformed the banking sector which returned 14.2% positive and the market which returned 14.3% over the past year. The steep losses investors have had to contend with have had the stock underperforming the market by a very wide margin .Most of the affected investors are already gnashing their teeth in regret
It ugly performance may not be farfetched . From the COVID-19 induced macroeconomic challenges in 2020 which was a difficult metaphorical hard nut for many banks to break , they moved into another operating environment in 2021 paved with lower interest rate as another obstacle and a major potential spoiler against their expected fortunes . In such an environment , experts believe ,only a bank with a shrewd management who could be cautious on loan growth, pay special attention to capital preservation, ensure benign funding cost, maintain asset quality improvement, lower provisioning, and resilience in non-interest revenue (NIR) could navigate without much damage .
Unfortunately, not many players in the Nigerian banking industry could pass this litmus test in 2021 .This became clearer after some banks have declared their 2021 results with marginal increase in revenues and less inspiring profitability .The lethargic and less inspiring performance of GTCO in the last few years is ,no doubt, mind-boggling ; the most painful is that its stock investors are at the receiving end ,paying the price as the market is fighting back its non performance
FUNDAMENTALS
The reason for the steep southward movement of it share price and market value is pinned on the bank’s less than inspiring full year run in2021 ;the market ,no doubt , was miffed at the poor run of the bank in the full year of 2021. In 2021,the ominous signals were palpable throughout the year .Indeed , 2021 was its year of many downturns . During its 9 months interim results, the bank reported a 9% dip in pre-tax profits going from N167.3 billion to N151.9 billion. The major reason for this is a decline in its net interest income and a rise in operating expenses.
The 2021 full year result has not changed the ugly scenario. Its Gross Earnings dropped marginally by 1.6 % to N447.81b from N455.23b, Interest income by11.3% to N266. 89b from N300.74b .This slim expansion in gross earnings ultimately delivered a lethargic bottom line as its net profit for the financial year 2021 backtracked and fell below its 2018 records . Profit for the year was N174.84b, a drop of 20% against N201.44b in 2020 ; in 2019 and 2018 respectively the bank made N215.04b and N201.54b. In 2021,Net interest income fell by13% to N220.61b from N253.67b, Operating income down marginally by 0.5% to N383.77b from N385.53b while its profit before tax dropped by 7% to N221.50b from N238.10b.
The above ugly performance in its fundamentals may not be farfetched .It was a year the bank allowed the pace of interest expenses outpace that of interest income while the heavy sliding growth of net income suggests the bank’s failure to attract interest rates that can significantly boost its level of profitability. It also indicates that the bank is prone to interest rates risk. GTCO’s interest income dropped to N266.89b from N30074b , a fall of 11.3% ; this led to a greater fall in Net interest income by 13% N22061b from N253.67b
The problem with GTCO is not controlling the interest expenses when its situation is viewed critically because its total interest expenses relative to its interest income is the best by our investigation .However, its inability to boost its interest income in an absolute term was its critical weakness particularly with 11% decrease in 2021 instead increasing . It is not difficult to unravel the weakness or strength of a bank in the core business of lending or maturity transformation as its net interest margin shed better light on this. This is where GTCO is not doing well as before ..Its net interest margins had been under pressure since the first half of 2021 as it cascaded to 6.98% from 9.26% in the corresponding period of 2020 due to declining asset yields. According to the bank despite the 52bp improvement in Cost of Funds (CoF), it was still inadequate to offset the 292 bps decrease in asset yields in the first half of the year ,a situation that continued to the end of the year . This decline was in spite of so many potentials which the bank could tap to counter the low yield challenge .For instance ,the Group’s well diversified funding base, optimal low-cost deposit mix and brand equity which drove the 52 bps improvement in (CoF) from 1.51% in HY 2020 to 0.67% in HY 2021 could have rescued the bank . The Group benefitted from its low cost deposit mix of 87% to navigate the low Interest rate environment in H1 2021. In a nutshell, the bank lost the interest rate battle
Apart from the above inability of the bank’s management to handle the interest rate risk, the other leg of the core banking business which is the credit risk also remains a hard nut difficult for it to break. Its impairment charges remain high in the period, though inching down by56.4percent; its Impairment charge was N8.53b billion in the period compared to N19.57billion the year before.
Although it was able to manage down Loan impairment charges this was a major drawback on its bottom line in both 2020 and 2021 This has continued to impact negatively on its asset quality as its nonperforming loan ratio has been above the regulatory limit of 5% ; its prudential NPLs increased marginally from 6.39% to 6.75% in the first half of 2021 ,a situation the bank attributed to the stress noted with certain exposures within the Hospitality, Individuals, Clubs, Co- operative Societies and Union as these group of Obligors were severely impacted by Covid 19.. This contributed in shaving net operating income which also suffered from rising operating cost. Net operating income sank marginally 0.5 percent to N 383.76billion from N385.53 billion, leading to a marginal increase in operating margin to 85.7 percent from 84.7percent. Though this means the bank’s operating efficiency improved marginally in the period relative to the previous year in spite of the above challenges .
The downturn in GTCO’s 2021 results could equally be located in the efficiency of its profit machine . Operating expenses grew by 10% from N147.44b in 2020 to N266.86b in 2021 due to the impact of rising headline inflation and marginal Naira/US Dollar rate movement in the official market which resulted in the increase in general prices of goods and services. Operating cost was largely impacted by 27% growth in AMCON expenses, 44% Deposit insurance premium N12.240b from N8 504 b3,62 ,26.5% increase in Communications, technological related expense and Administrative expense N18.456b from N14.587b and 21.5% increase in Depreciation Expenses Overall Cost to Income Ratio closed at 42.3% as at 2021 from 38.2% in 2020 which is above the 35% guidance. But the recorded increase in OPEX by 10% was below headline inflation which closed at the end of year at 15% in December 2021.
PROFITABILITY
The bank sank by 7% into a pre-tax income of N221.50bbillion in the period compared to the pre-tax profit of N238.10billion achieved in the equivalent period last year. The decline above culminated in a greater decline by 20% in net profit to N174.84billion from N201.44bfor the bank .This led to a decline in its Earnings per share attributable to the equity holders of the parent entity during ‘the year (expressed in naira per share) by13.6% to N6.14 from N7.11 .On a marginal basis, prep-tax profit margin stood at 49.5 percent compared to 52 percent. It means where the bank used to wring out N52 from every N100 , it now gained N49.50K and a net profit margin of 39 percent from 44 percent ▪
The Group Balance sheet remained well-structured and diversified with Total Assets closing at ₦5.43trn in 2021, representing a 9.9 % growth from ₦4.94trn in FY 2020.
Total Asset was supported by a well-diversified funding base of customer deposits and equity balances .Its total equity grew by 8.5% to hit N883.23b from N81440b
Deposits from banks grew by16.3% to N118 .03b from N101.51b as customer deposit liabilities grew by 14.3% .N4.01trillion from N3.51trillion The Deposit growth ,according to the bank , is reflective of the Group’s retail strategy, the key enabler in the face of the challenging operating environment, increased competition from Fintech’s and customers preference for Treasury Bills, which offered a higher interest rate.
Despite the challenges posed by the prevailing low yield environment , GTCO had promised to continue to seek alternative yield optimization opportunities by taking advantage of its transitioning into a full-fledged financial holding company .This will be expedient to save the stock investors that are now badly hit by the decelerating fortunes of the so-called most efficient bank
