Despite some challenges in the operating environment , GTCO remains a bank that has shown an unusual and unmatched capability to expand and grow profit .Its profit before tax grew to N433.20b from N169.72b , an increase of 155% in the third quarter of 2023
Nigeria’s economy has been on the descending lane in the last few financial years. Consequently , the operating environment’ was fraught with plenty of hick ups in the last fiscal year creating little or no leeway for corporations to head north in their financial performance.But the leadership of Guaranty Trust Holding Company ,GTCO,defies the inclement operating environment and delivers seismic profitability and Mouthwatering values to its stakeholders.
Specifically , the economy took sluggish strides. As suggested by leading indicators Nigeria Gross Domestic Product (GDP) grew by 2.51% (year-on-year) in real terms in the second quarter of 2023. This growth rate is lower than the 3.54% recorded in the second quarter of 2022 ; inflation Rate in Nigeria increased to 26.72 percent in September from 25.80 percent in August of 2023. Inflation Rate in Nigeria is expected to be 28.00 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations In fact, Nigeria emerged among the worst performing frontier market with uninspiring ratings by the trio of S&P, Fitch and Moody’s.
The above scenario, indeed, prompted the regulatory authorities to go on rescue mission .In a bid to tame the skyrocketing inflation the Central Bank of Nigeria Monetary Policy has continued to raise its Monetary Policy Rate,MPR. Its Monetary Policy Committee on July 24 and 25, 2023 raised the MPR from 18.5 per cent to 18.75 per cent; adjusted the asymmetric corridor to +100/-300 basis points around the MPR; retained the CRR at 32.5 per cent; and the Liquidity Ratio at 30 per cent
Some critical outcomes of the above inflation taming decision are the high interest rate environment and high cost of doing business . In the face of higher interest rate environment, the tendency for loan and capital growth is usually the case.
But higher funding cost, poor asset quality, higher provisioning remain the potential threats that confront each player in the industry .Only a bank that can achieve higher non-interest revenue (NIR)benign funding cost, asset quality improvement, lower provisioning will exploit that opportunities and outperform competition
Despite these challenges ,GTCO has proved it has what it takes to navigate this ugly terrain in the first nine months of 2023. I The bank has shown an unusual and unmatched capability to expand growth to supersonic height from the year before .With the release of the third quarter result for 2023 ,the bank achieved the milestone in its profitability figure hitting a rooftop leaving glimpses of what is possible within the bank with vision of leadership in efficiency,resilience and resourcefulness .This leaves investors craning to take another look at the bank’s performance. The firm performance is a harbinger of a juicier outing in the 2014 financial year.
Practically all other performance metrics looked up in the third quarter of the year .The bank delivered a highly inspiring Profit before income tax and Profit after tax.While its profit before tax rose to N433.20b from N169.72b , an increase of 155% leaving the bank’s profit before tax margin at 50.9% from 46.6 %
Also, its profit after tax grew year on year by 181.87% to N367.42 billion from N130.35 billion reported the previous year while its net income margin hit 43.6%% from 35.8%
To cement its place as the most efficient bank, at post-tax level , its return on Average equity (ROAE), and return on assets (ROAA), improved to 44 per cent and 6.5 per cent in 2023 from 19 per cent and 3.1 per cent respectively in 2022 while its return on Average equity (ROAE) and return on assets (ROAA), at pre tax level improved to 52per cent and 7.7 per cent in 2023 from 25.8per cent and 4.0per cent respectively in 2022
This bank is not only very profitable bank, its capability for delivering the best value for money to its shareholders is what giving it an edge over its closest rivals in the industry . This could be pinned down to its savvy for cost optimization
With its strategic capability or the resources and competences, the bank has continued to survive and prosper. With distinctive or unique nature of these capabilities which its competitors find difficult to imitate it has continued to gain competitive advantage and outperform them. This advantage could be pinned down more to its core competences or skills and abilities by which resources are deployed through an organisation’s activities and processes
The above is the unique strength of GTCO. Its shareholders are equally benefitting from its cost efficiencies in terms of better value for money . Not only the shareholders are benefiting ,the management of its cost base has become the basis for achieving competitive advantage .Competitive rivalry continually requires the driving down of costs because competitors will be trying to reduce their cost to outperform their rivals while offering similar value .
GTCO’s strategic capability to control its costs and achieve more for less could be said to be responsible for delivering better values in certain areas confirmed by some performance indicators . One of these is its Earning Per Share (EPS) . .A good way to determine earnings to the investor is the Earning Per Share (EPS), which is the monetary share value, i.e., what every share issued by the bank will receive from declared earnings. The higher the EPS, the more profitable the bank is. In the first nine months of the current financial year its Group EPS stands at N12.48
However ,while EPS refers to corporate value, its earnings yield which shows how much earnings per share a company generates from every naira invested in the company’s stock stands at 34.68% at its current price at N36 per share This indicator is typically used by investors in assessing their investment’s rate of return. The ratio can be particularly valuable when comparing potential returns among different securities. This is no doubt very much above the current inflation rate and represent a positive value to its investors .
No wonder , at the current share price of N36 , its stock is regarded as very cheap with big potential for capital gain .This is confirmed by the Price Earning ratio ,P/E ratio, which stands at 2.88x . P.E. is useful in determining how “cheap” or expensive a stock is and relative to the industry and market average GTCO’s stock is cheaper
This current financial year , it has been a rain of fortunes on its shareholders particularly its value investors who took advantage its heavy capital gains potential to emerge millionaire overnight . The share price peaks in the last 52 Weeks at ₦41.80 and hit ₦17.45 as its lowest price with the same period to give 140% capital gain
Its shareholders are now enjoying the mouth-watering returns for their investments at various degrees . .The bank closed its last trading day (Friday, September 1, 2023) at 38.00 NGN per share on the Nigerian Stock Exchange (NGX), recording a 3.5% gain over its previous closing price of N36.70 Guaranty Trust Holding began the year with a share price of N23.00 and has since gained 65.2% on that price valuation, ranking it 50th on the NGX in terms of year-to-date performance; year on year it has gained 90% on year on year basis and in last six months 46%.
The question now is : how did GTCO navigate this terrain to deliver the above mouth-watering values ?
. Foreign Exchange revaluation gain, indeed, played a leading role in helping the local lender, GTCO, to grow income several thousand times in a period that another item equally rose in thousand to play a potential spoiler to the profit engine of the most efficient bank in Nigeria .
Going through GTCO’s results for the third quarter of the financial year 2023 filed with the Nigerian Stock Exchange (NSE) last week one item that , no doubt, sends jitters down the spine of every observer is its Loan impairment charges that grew in thousand paces as well as its Net trading gains on financial instruments held at fair value through profit or loss that backtracked to frustrate its attempt to display yet another savvy and feat in the business of financial intermediation .
However , one could easily heave a shy of relief at a sight of its Foreign Exchange revaluation gain , another item that silenced the above potential spoiler delivering a earth shaking and thunderous income and consequently a profit unmatched by any player in the industry so far in this quarter of the year .
Figures from the bank’s financial statement for the period under review confirm the above narrative.Its loan impairment charges stood at N89.46b ,its net impairment charge on other financial assets was N59.12b and its Net trading gains on financial instruments held at fair value through profit or loss backtracked by 20.3% to N29.19b from N36.62b ,however , its foreign exchange revaluation gain hit N334.35b
From the above, it clear that its foreign exchange revaluation gain outnumbered its loan impairment charges by 125% to frustrate the potential spoiler .
However , the highly impressive performance of GTCO in the last nine of 2023 is more than the issues of a potential spoiler and a game changer indicated above .
In the first nine months of 2023 , the skyrocketing GTCO’s profit is also helped by a hefty assets base . Total assets zoomed to N8.62 trillion from N6.45b , an increase of 33.6% . A puffy assets level could indicate improved strengths in mopping up transactions, including a better position in maturity transformation- the stuff banks are best suited for. It can also mean that the bank has applied some elastic to its wings in the form of more customer touch points, branches and Point of Sale devices. For GTCO, it was all of these and more.
Sequel to the above , during the period under review earning assets climbed impressively . Loans and advances to customers rose by 17.7% to N2.22 trillion from N1.89b while its total investment securities by 71.6% to hit N2.10b from N1.23b ,confirming that indeed the rise in total assets could be due, in part, to a better hold of the job of maturity transformation.
Much of this is seen in how the bank interest income swiftly moved up .However ,the feat can be quickly situated more on the bank’s managerial savvy for achieving more with less or its resourcefulness .GTB’s business model is believed to be one that has been very difficult for a lot of Nigerian banks to replicate. The bank operates a low cost, revenue efficient model that relies less on manpower while attracting cheap deposits. For most banks, some noted it would take years to replicate and possible billions spent in restructuring to achieve this.
Despite the huge impairment which is systemic or industry-wide , the bank re-enacted this capability in the period under review . GTCO, Nigeria’s most bank efficient, had gross earnings increased phenomenally by 133.41% in the 9 months period of 2023 and wrenched up the bottom line by greater paces at 182% with a deft application of management’s experience beginning from leveraging net interest income. This feat was achieved in spite of the 2,319% rise in loan impairment charges
By hauling up interest income many paces by 61% to N374.6.14 billion from N 232.5billion, and increased its Net interest income by 56.9% to N297.5b from N189.7b to give a strong positive outlook to its pre-tax profit, GTCO had demonstrated how well it could manage the interest rates it pays for borrowing and lending. Net Interest income is the live wire of a deposit money bank as it is the mirror of the bank’s ability to perform its maturity transformation function. That is how the bank is able to manage short term and long term interest rates to yield good returns and ultimately affects its bottom line.
This is even as interest expense was hot in chase at an even faster pace to N77.02b ,79.9% growth, from N42.80b The rather exuberant pace couldn’t do much damage because of its Lilliputian stance against the leviathan of interest income. It was a period the bank held steady what it earns from assets and what it pays for them.
By the above scenario, the unique capability of this bank to deliver better value for money is demonstrated by its ability to get N74.00 from N100 interest earned ,albeit lesser than N82.00 in the corresponding period of 2022 .
The profit engine of GTCO also made up for the skyrocketing interest expenses above from the non interest segment , to further grew the bottom line . Although its Fee and commission income jumped only by 16% to N91.32b from N78.70b, its Fee and commission expense increased only 2.4% to N8.84b from N8.63b to deliver 17.7%-Net fee and commission income at N82.48b from N70.07b
The bank’s good showing in operating income would suggest it did well in that department. In a bid to yank up bottom line it would be necessary to tame costs especially in an environment where the cost of doing business is perpetuity; nibbling the fat off hard earned returns
Operating income leapt 118.3 percent to N675.48b from N309.3b ,a rise that is substantiated by the fall in the bank’s cost to income ratio, which dipped to 29.7 percent from 45.1 percent the year before.
Sequel to the above feat , the chain of returns were all trending up in the period . Its operating profit margin moved from 85.9percent to 89.9 percent, suggesting that every naira expended yielded 89 kobo in operating profit.
Commenting on the results, the Group Chief Executive Officer of Guaranty Trust Holding Company Plc, Mr. Segun Agbaje, said; Our 3rd Quarter performance underpins our strategic positioning as a leading Financial Holding Company and reaffirms our strong capabilities to successfully navigate the challenges in our operating environment. Going into the final quarter of the year, we will continue to leverage the strengths within our growing financial services ecosystem to improve our products and service offerings, enhance customer experience, and maximise shareholder value.”
