As GTCO Retains the most cost efficient
Despite the fact that its gross earnings not the highest Zenith Bank delivered biggest profit and took a lead in earning Per Share in 2023 financial year .
The bank wrenched up bottom line with a deft application of management’s experience beginning from leveraging net interest income
However , GTCO retained its laurel as the most cost-efficient, with the lowest cost-to-income ratio of 29.10%,
The banking industry players saw gross earnings and profitability climb to a record high, benefitting from MPR hikes and naira devaluation. Among the tier 1 banks, Access Holding had the highest gross earnings at N2.59trn, and GTCO had the lowest at N1.19trn, but Zenith Bank took the lead in terms of profit at N795.96bn, ahead of UBA (N757.68bn) and Access Holding (N729.00bn).
The bank’s high earnings made the earnings per share grow to a double-digit, with Zenith Bank taking the lead at N21.55k while Access Holding had the lowest at N17.23bn. This implies that Access Holding incurred high operating costs, eating deep into the profit compared to Zenith Bank. However, Access Holding retained its position as the highest customer depositor at N15.32trn ahead of UBA and Zenith, while GTCO had the lowest at N7.41trn.
Similarly, the banks’ financial ratios had a positive outcome, with GTCO having the highest net interest margin, return on equity, and return on assets. Also, GTCO was the most cost-efficient, with the lowest cost-to-income ratio of 29.10%, while Access Holding was the least efficient at 44.69%. The fundamental valuation of the banks showed that GTCO had the highest price-to-book value and price-to-earnings at 0.96x and 2.31x, while Access holding had the least at 0.39x and 1.39x, respectively.
This implies that GTCO’s market value reflected its underlying book value and earnings more than the remaining banks. Despite the high-interest rate environment, GTCO had a 1.80% cost of funds, which was extremely lower than its peers, with access holding at 5.40%. GTCO seems to have better financial health than others based on the financial ratios despite having the lowest gross earnings, profit, and asset size (see dashboard 1 below).
UBA’s diversified structure, foreign asset holdings and off-balance sheet earnings aided its performance in 2023, diluting its exposure in some vulnerable African countries that could harm performance. While there is scepticism about the repetition of the fat non-interest income, analysts are more concerned about the group’s NPL ratio (5.85%) and high forward-looking financial assets and loan provisions. There is a need for the group to tighten its risk management strategies to reduce loan allocation to vulnerable economic sectors. Also, the risks related to African countries, such as currency depreciation, higher interest rates, political uncertainty, insecurity, and debt sustainability, will influence the pan-African bank’s performance in 2024. Still, analysts are modestly optimistic that the diversified structure should absorb any shock
