GT Bank: THE MOST EFFICIENT BANK OF YEAR

33 minutes read

The Tough Still Gets Going

BY AMOS ADETUNI

The ongoing financial year 2020 ,without any doubt, is stormy . This is particularly more so for the banks with large exposures to the oil and gas sector . The COVID-19 pandemic put a lot of pressure on Nigeria’s banking sector in both Q2 and Q3 2020, with the sector shrugging off its lethargy in Q3 as the economy restarted after three months of partial lockdown imposed .

However, for GT Bank Plc ,the driving spirit remains , “when the going gets tough, the tough get going’’. Moreover, the bank still retains its laurel as the most efficient bank in Nigeria . The current share price of Guaranty Trust Bank is NGN 33.15. The GUARANTY stock closed its last trading day (Wednesday, December 9, 2020) at 33.15 NGN per share on the Nigerian Stock Exchange. GUARANTY began the year with a share price of 29.70 NGN and has since gained 11.62% on that price valuation, ranking it 44th on the NSE in terms of year-to-date performance.

The beauty of GT . Bank lies in its efficiency and it has continued to sustain the feat over years . Despite the fact that the name of this bank is missing among the five biggest banks by asserts , its profit level is on bomber to bomber with that of Zenith Bank . One of its unique selling points is that the bank is working with lesser assets than other tier one banks yet delivering outstanding profit than others in that club except Zenith Bank through its skillful use of meager resources. It has been able to sustain leadership in this area because of its capacity to reinvent itself again and again building new competencies, pioneering new product concepts and alliances . A look into the industry in the first half of 2020 confirmed this again. All banks listed on the Nigeria Stock Exchange (NSE) recorded an increase in their total assets in H1 2020. The top five banks with the highest total assets as of H1 2020 were ETI N9.39trn, Access Bank N7.77trn, Zenith Bank N7.58trn, FBNH N7.13trn, and UBA N6.8trn. Also , all banks listed on the NSE recorded improvements in their shareholder’s funds except for Unity Bank. The top five banks with the highest shareholders funds were Zenith Bank N988.98bn, ETI N742.74bn, GT Bank N720.93bn, FBNH N704.1bn, and Access Bank N670.36bn.. In spite of having the least assets among tier 1 banks its capability to make more from less is unrivalled . Nigerian banks among the thirteen (13) banks listed on the Nigeria Stock Exchange recorded an increase in profit before tax . The top five banks with the highest profit before tax were Zenith Bank N114.12bn, GT Bank N109.71, Access Bank N74.31bn, ETI N64.13bn, and UBA N57.13bn .The ability of GT Bank to overcome the curse of resources is driven by its cost control skill among others. The GTB Group recorded 43.2% in its cost-to-income ratio for H1 2020 against 37.63% recorded in H1 2019 . Its highest cost-to-income ratio of 43.75% was recorded in H1 2015 while the lowest cost-to-income ratio of 37.63% was recorded in H1 2019 . Between 2015 and 2017 its CIR ranged 43 39 in 2015 to 40 in 2016 , 38.82 in 2017 to 37.63 percent in 2018 year on year basis

The above facts have given the bank an edge over its competitors in profitability and efficiency ratios . As a very profitable bank, return on equity declined to 26.8% in H1 2020 from 33.65% recorded in H1 2019. The highest return on equity of 34.07% was recorded in H1 2018 while the lowest return on average equity of 26.8% was recorded in H1 2020. The decline could be plausibly attributed to the downturn in economic activities this was majorly driven by Y-o-Y ( +19.76%) . In spite of this no bank in Nigeria has overtaken it with better ratios related to efficiency

, No doubt, Guaranty Trust Bank Plc is one of the major targets of the stock investors . Recently, overwhelmed and excited by its howling performance in the market , some investors simply tagged the stock recession proof ; to some , however ,it is a premium stock . But the consensus and the most important is the belief that it delivers mega buck. . And for this ,it remains their sure haven of investments. The question remains, what actually drives this stock ?

Truly , these investors are not driven by fantasy. GT stock is among the few stocks that could translate the destiny of a sagacious investor from penury to affluence overnight. In the last one year ,its price per share oscillated between N16.7 and N38.50 .That translates to 130.5 percent returns .Within a month it delivered 23.39 percent return .Its 7 days return was 8.7 percent and one year return was 44.3 % .

Within that one year period GT Bank’s market capitalization also hit a milestone . It stands at 1.07 trillion last week at the current price of 36.40 per share with outstanding shares of 29.43 billions compared to N 491,4818nillion at a price of 16 .7 with the same outstanding share number a year ago ..By the above ,the bank has gained N490.41 billion within a year .The continuous and impressive upswing in the price of GT Bank’s share price underscores investors and analysts belief in the growth potential of the bank .Investors are not fools . It was not a knuckle of luck . The bank’s fundamentals and investors’ sentiment are the powers behind it

Moreover , Guaranty Trust share price has been adjudged by analysts to be less volatile than 75 % of the stocks on the Exchange and has been stable over the past one year on weekly basis.

The bank’s PE ratio of 5.68 times multiples indicate that investors are willing to part with more to own its stock. Moreover, its Earnings Per Share at N6.46 is a demonstration of a strong earnings power. It is difficult not to do so since delivered high returns on equity, assets and capital over time .

Its shareholders returns on weekly ,yearly and over five years duration have been its beauty that attracts attentions of investors. It outperforms the industry’s 23.2 % with its 25percent one year return and its 68.6 percent return stands above the industry and market returns of 43.5 % and 0.04 percent respectively.

With its Price to Book ratio of 1.2x as against the industry 0.5x and the market 0.7x shows its share is selling at premium.

Asides its rich potentials for capital gains, investors are equally excited by the bank’s dividend payment tradition With its dividend paymentsout at 41 percent payout to shareholders and the fact that its dividends have increased in the last ten years, GT Bank’s stock remains the cynosure of the existing and potentials investors .Its current dividend yield of 7.72 % is in line with the industry average but higher than the bottom 25 % dividend payers .

The bank is already outperforming the analysts forecast future Return on Equity of 24 percent for three years time . Its earnings and revenue are forecasted to grow annually at 3.8 %and 6.8 percent respectively. Though its EPS as at June ,30th this year was N6.783 ,analysts forecast shows it is likely to stay between N6.966 and N7.000 by December, 2020 .

This may not be farfetched as its past performance was highly competitive .GT’ s current profit margins at 51% is the best among its peers and the quality of its earnings is outstanding. Moreover, ,its ROE at 26.6 percent and ROA at 4.2 % outperformed both the industry at 12.1 % and 1.1 % respectively. Its debt to equity at 63.4 is good for a bank like that is highly efficient and well capitalized.

Moreover, its assets to equity at 6.3 times multiple, which represents how much it is financing its operations through debt versus its wholly owned fund is considered low and less risky by analysts. .

This is more so with the bank’s low risk liabilities at 81 percent as a source of funding in addition to its loan to assets ratio of 36percent and loan to deposit ratio of 53 % ..

GT Bank is a market leader in its own right and arguably the most efficient bank in Nigeria .

GT Bank recently posted its 9 months 2020 results, recording improved performance across broad financial matrices although growth seems to have slowed amidst tough economic headwinds in 2020 majorly caused by industry and trade dislocations related to the global COVID-19 pandemic; the bank, however, appears to be pushing forward. Gross earnings for GT Bank increased marginally by +1.23% year-on-year (Y-o-Y) from N324bn in 9months 2019 to N328bn The slim growth could be attributed to it’s fairly large exposures to the oil and gas sector .

Tier 1 banks such as GT Bank have fairly large loan exposures to the oil and gas sector which has been troubled in 2020 as market conflicts between Russia and China in Q1 2020 were quickly followed by COVID-19-induced demand reversals at the end of the first quarter which was made worse in the second quarter as cases of the coronavirus escalated globally.

The result also demonstrates the Group’s ability to deliver optimal pricing for its interest-bearing assets and liabilities in a declining yield environment .To mitigate the negative impacts of the above circumstances, GT Bank reached out to what it knows how to do better than its peers ,cut down its interest expenses and wrenched up interest incomes . The bank’s interest income went up by +79.60%while interest expense dropped by -24.90%The bank’s foreign exchange revaluation gains grew by +74.02% year-on-year (Y-o-Y), . while other income increased by +3.46%. There were potentials spoilers within the period under review along its cost chain . Operating expense increased by +9.92% Y-o-Y . Growth in operating expenses was driven by a +235.38% rise in finance costs just as AMCON expenses, deposit insurance premiums, and administrative expenses also increased by +11.06%, +31.0%, and +17.27% respectively .

Expectedly , the rising in risk potentials, put banks managers between the devil and deep blue sea ; dispensing loans was imperative as their core business yet the environment was not conducive for it . GT Bank’s loan book grew by 4.5% from ₦1.502trillion recorded as of December 2019 to ₦1.569trillion in September 2020 . Impairment charges worsened over the period; the group recorded a +67.35% increase in impairment charges from a loss of N2.76bn recorded in 9months 2019 to a loss of N10.14bn in 9months 2020. Non-performing loan (NPL) ratio for the group was 6.5% it remained unchanged from financial year end (FY) 2019This was a big spoiler to the bank’s efficient cost machine .

In spite of this its cost-to-income ratio (CIR) increased only to 40.2% in 9months 2020 from 36.9% in 9months 2019. By this the bank got expended N40 from every N100 that came in during the period under review .

After the interplay of forces particularly the onslaught from impairments on the bank’s profit profile was minimal ; the Group reported Profit before tax of ₦167.4billion, representing a decrease of 1.9% over ₦170.7billion recorded in the corresponding period of September 2019 and an improvement on the 5.2% dip posted in H1-2020 relative to H1-2019 while profit after tax (PAT) declined by -3.20% from N167.35bn in 2019 to N146.99bn in the 2020 .

The 3rd Quarter result shows improved performance across key financial metrics, reaffirming the Bank’s capability to navigate the current economic challenges occasioned by the impact of COVID 19 on World economies. The performance reflects its position as one of the leading and best managed financial institutions in Africa.

GT Bank’s unique philosophy has continued to make the delight of its stakeholders. The Managing Director and Chief Executive Officer of the bank Mr Segun Agbaje has repeatedly emphasized that the bank was not in the race for revenue and asset size but in competition for scaled overall business growth and underlying profitability and this seems to have been evidenced by the character of the bank’s 9 months 2020 . Overall, Guaranty Trust Bank plc continues to be the best in the Nigerian banking industry in terms of all financial ratios ; its Post-Tax Return on Equity (ROAE) of 26.3% and Post-Tax Return on Assets (ROAA) of 4.6%, and Cost to Income ratio of 40.2%. . The above metrics by the bank were still industry best . The goodwill of the bank from its stakeholders particularly the shareholders could be observed on its market capitalization which now hit N1.089 trillion recently. Its share price ranged this year between N16.70 and N38 .45 while earnings per share is N4.83 .Last week it sold N35 per share . Analysts put its share price at N36.02 at fair value and recommended hold for investors.

In spite of the macroeconomics challenges, the bank’s financial position remains highly robust .The group’s total asset has risen over the past few years, for 9months 2020 total assets grew by +29.96% Y-o-Y, from N3.52bn in 9months 2019 to N4.57bn. The major drivers for the growth in total assets were the derivative financial assets, deferred tax, intangible assets, and total loans and advances, they increased by +291.14%, +67.63%, +21.79%, and +13.87%rrespectively . Deposit grew by 25.1% from ₦2.640trillion recorded as of December 2019 to ₦3.303trillion in September 2020 .

GT Bank’s shareholders fund continued to rise, shareholders fund rose Y-o-Y by +18.66% from N636.75bn in 9months 2019 to N755.55bn. The capital and reserves component of the fund drove the growth by +18.79%, while retained earnings bounced up by +38.16% which was responsible for the growth in the bank’s capital and reserves The capital adequacy ratio (CAR) increased to 23.9% as against 22.5% for FY 2019.The liquidity ratio of the bank fell from 49.3% in 9months 2019 to 38.8% in 9months 2020, although still above the regulatory minimum of 30%.

Guaranty Trust Bank’s Balance sheet remained well structured, diversified, and resilient with Total assets and Shareholders’ Funds closing at ₦4.574trillion and ₦755.5billion respectively. Full Impact Capital Adequacy Ratio (CAR) remained very strong, closing at 23.9%, while Asset quality was sustained as NPL ratio and Cost of Risk (COR) closed at 6.5% and 0.6% in September 2020 from 6.5% and 0.3% in December 2019 respectively.

Commenting on the financial results, the Managing Director/CEO of Guaranty Trust Bank plc, Mr. SegunAgbaje, said; “Our 3rd Quarter result is a reflection of how we have appropriately positioned our balance sheet to cope with current economic realities and the challenging business environment. It is also a testament to the enduring loyalty of our customers, the hard work and dedication of our staff, and the unwavering support we continue to enjoy from all our stakeholders in our drive to deliver best-in-class financial services and superior and sustainable returns.”

He further stated that; “As an organization, we will continue to build on our commitment to enriching lives by leveraging our digital-first customer-centric strategy to improve customer experience and maintain a high standard in service delivery, and going beyond banking to create and drive innovative financial solutions that add value to our customers in all aspects of their lives.”

Renowned for its forward-thinking approach to financial services and customer engagement, GTBank was recently ranked Africa’s Most Admired Finance Brand in the 10th-anniversary rankings of Brand Africa 100: Africa’s Best Brands, the pre-eminent survey and ranking of the Top 100 admired brands in Africa. The Bank was also awarded the Best Bank in Nigeria by Euromoney Magazine for a record-extending tenth time and the Euromoney Excellence in Leadership Africa Award for its swift reaction in responding to the Covid-19 crisis and for addressing the impact of the pandemic on its customers and communities.

Half Year 2020 : GT Bank Remains Most Efficient Bank .

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GT Bank Plc, a Nigerian first tier lender, sustained its efficiency leadership in the first half of 2020 recording the least costs to income ratio , a yardstick of efficiency..

The bank recorded a 43 % cost to income ratio followed by Stanbic IBTC bank with 45.2 % while Zenith Bank came third with 54.2 %. The above banks were followed by the United Bank for Africa Plc and Access Bank Plc with their cost to income ratios berthing at 60 % . However, in the same analysis ,three banks of the 13 banks listed on the Nigerian Stock Exchange had their Cost to Income ratios flashing red above 80 %. These include Sterling, Unity and Wema Banks ;others equally battled with high cost to income above 70 % in the same period .

GT Bank and UBN were the two banks that reported the lowest cost-to-income ratio for the year ended December 2019, they recorded cost-to-income ratios of 36.11% and 42.6% respectively.

GT Bank did not lead in the cost to income alone ,it led the pack in the other two metrics of efficiency. Its return on equity , a metric used to measure return to shareholders with 13 percent in the first half of 2020. The fact is that you can post the largest profit but what that translates to in terms of equity capital is more important.

Also , in terms of how a bank is able to run efficiently,converting its assets to profit and using all its resources to generate for profit for its shareholders , GT Bank still topped the table at 2.1 percent .This was far ahead of the next bank on the table with 1.4 percent. Incidentally, it had N4.5 trillion assets based compared to other first tier banks who assets were above N7trillion .

Over the past three years GT Bank, Zenith Bank, and UBN have consistently reported low CIR relative to other banks, with GT Bank consistently recording the lowest CIR among the three big money centre institutions. GT Bank recorded a decline in its CIR to 36.11% in 2019 from 37.09% in 2018 which was as a result of repricing of time deposits, sustained low cost deposit mix, continuous customer acquisition drive and a retail strategy anchored on focused digital solutions to support a low cost deposit drive.

Zenith Bank recorded a decline in its CIR to 48.8% in 2019 from 49.3% in 2018, part of the strategy it adopted was effective deposit mobilization at the retail end of the market to lend to corporate clients, leveraging the bank’s strong digital platform and emerging technologies

Low yields environment ,regulatory authorities policies slashing fees and commissions as well as economic headwinds compounded by corona virus pandemic have continued to put banks bottom lines under big pressure. The consequences of the recent Coronavirus outbreak have made the search for efficiency even more pressing as banks review growth strategies

GT BANK :RESILIENT IN A ROUGH ECONOMIC SPACE
For the captains of industries the ongoing financial year is a baptism of fire . The operating environment for many economic agents including banks in Nigeria was quite inclement in the first half of 2020; deleterious economic and social environments were compounded by Covid 19 pandemic. Expectedly , these had unsavoury effects on banks’ ability to sustain respectable bottom lines as stagnant growth, declining margins and falling market shares littered the corporate landscape.
.However ,some banks with iron teeth appeared to be proving resilient and minimizing the damage in face of a metaphorical hard nut depicted by the operating clime.
GT Bank Plc ,no doubt, was one of them .The management put up a good fight to weather the storms . Under this stifling environment, the bank still maintained a positive position at the top line albeit marginally. It grew its Gross revenue by 1.5 percent fromN225.14 billion as against 221.87 billion recorded in the corresponding period of 2019.The lethargic pace could be attributed to the challenges of a harsh economic environment, a systematic or economic wide phenomenon resulting from the general lull in country and across the world.
In spite of the fact that the bottom line witnessed a slight decline by 4.9 percent to N94..271bn in the first half of 2020 from N99.333bn in the corresponding period of 2019,underlying performance metrics remained positive. Based on the above ,some analysts noted there is no cause for alarm .
To them since the decline was not seismic to raise any eyebrow ,informed investors and other stakeholders are less bothered by a storm in a tea cup .This may not be farfetched. The bank’s track records in value delivery and skills at work that give the stakeholders a brilliant hope and confidence about the brand remain unquestionable and reassuring. The above facts were confirmed by the Chief Executive Officer of Guaranty Trust Bank plc, SegunAgbaje,. While commenting on the just released financial results , the CEO noted :“ these are undoubtedly tough and trying times for people, businesses and economies the world over. Our financial performance in the first half of the year reflects the quality of our past decisions which have broadened our earnings and strategically positioned us to thrive, thus far, through the current global health and economic crises. Underpinning this financial performance is our commitment to being there for our customers and the communities we serve, and over the past six months we have lent the full weight of our franchise to safeguarding lives and livelihoods of our staff and customers by leading from the front in the fight to curtail the Covid-19 outbreak and offering grace periods on loans to our small business customers.”
.GT Bank has distinguished itself where it matters most .The bank has continued satisfied its five major constituencies including the surplus units from which it borrows, the deficit units which borrow from it , the shareholders, the regulatory authorities and the communities in which it operates as a corporate citizen .
To the shareholders , the bank has a tradition of providing adequate returns .Either by way of capital appreciation or dividend. Sequel this and despite the decline in the net profit , the bank directors still proposed an interim dividend of 30 kobo per share for the half-year period. The dividend is payable electronically on September 21, 2020 to shareholders whose names appear on the register of members when it closes on September 15 and September 3, 2020 for holders of the bank’s Global Depository Receipts (GDR).
. Moreover, GTBank has continued to report the best financial ratios in the industry .In the period under review its Return on Equity (ROE) was 26.8% and cost to income ratio was 43.2%.The above ratios demonstrated and confirmed GT Bank as a brand that sets pace as a mirror of efficiency. From the above it could be deduced that the bank expended N43 for N100 made as revenue. This feat confirms the bank as consistent industry leader in terms of efficiency. The feat could be traced the capability to cut costs when low cost deposits increase ,cost of risk and loan loss expenses are coming down
Besides the above the bank has never reneged its responsibilities as a corporate citizen .Recently, the Bank was also awarded the Best Bank in Nigeria by Euromoney Magazine for a record-extending tenth time and the Euromoney Excellence in Leadership Africa Award for its swift reaction in responding to the Covid-19 crisis and for addressing the impact of the pandemic on its customers and communities.
Moreover , the brand’s forte in risk management is another highlight of its leadership. Banking is coterminous with risk management. The bank’s rare feat managing the traditional risks of mismatches between assets and liabilities and between borrowing and lending rates has become one of its core competencies.This skill is core to its exploits in the business of maturity transformation. A critical analysis of the of the bank’s book in the first half of 2020 revealed a daft application of the management experience beginning with leveraging net interest income by suppressing interest expenses while at the same time guiding the growth of interest income . Interest income for the period stood at N150.486bn, a 2.7 percent up from N146.448bn in June 2019 .The ability of the management to suppress its interest expense exponentially by 20 percent led to a drop to N26.093bn last June from N32.627bn in the corresponding half-year of 2019 .This resulted in net interest income of N127.615bn,a 9
7 percent jump from N116.364bn compared to its 2019 figure . .Net interest income is a guide to how a bank manages the interest it pays on borrowing and lending ,proved the worth and skill of the bank in the core banking business of maturity transformation. This is the live wire of a deposit money bank .This was evidently demonstrated in its asset quality,NPL ratio and Cost of Risk.NPL and Cost to income closed at 6.8% and 0.4% in June 2020 from 6.5% and 0.3% in December 2019 respectively.Though a little bit above the regulatory requirement of 5percent the enough coverage was provided to the tune 118.1 percent. Thisan indication of prudent disposition consistent with the bank’s known records of excellent credit risk management. Overall, its asset quality remains stable .
The bank’s balance sheet was robust as its loan to deposit, liquidity and capital adequacy ratios were well above the regulatory threshold. For instance its capital remains strong with CAR of 22.9% as at the first half this financial year.
On the backdrop of this result and to cement its place as the most efficient bank its Return on Equity (ROAE) and Return on Assets (ROAA) stood at 26.8% and 4.6% respectively.
Meanwhile the robust nature of the balance sheet is another high point driving its capabilities . The Bank closed the half year ended June 2020 with Total Assets of ₦4.511trillion and Shareholders’ Funds of ₦720.9Billion. For such weighty shareholders fund ,it is natural to pull in heft deposits as its total deposits grew by 18.5 percent from N2.532 trillion to N3.001 trillion between the period under review.
Expectedly , so many challenges bedeviled the terrain . With slowed down economic activities and macroeconomic indicators flashing red the risks facing the banking industry became worse .This led to a big jump of 209.6 percent in loan impairment charges within the period from N2.186bn in 2019 to N6.769bn .This suppressed further the net interest income by 5.8 percent after loan impairment charges to N120.846bn, as against the previous N114.178bn
That was not all .While the bank put up a good fight in the core banking area retaining a positive the outlook despite unimpressive earnings yields and heavy risks involved , the non interest income segment unleashed stricter challenges dictated by the regulatory policies that cut back income drivers and potentials. Naturally, a good manager of a bank or financial institution usually rev up non interest income items of its balance sheet because it holds the key to stabilizing earnings especially at the time of interest rate volatility or when unimpressive yields prevailed.
For GT Bank the first half of 2020 proved very tough in this segment as fee and commissions income was dealt a blow by the CBN policy. A look a its performance in this segment showed some mixed feelings . Fee and commission income fell by 30 percent from N35.348bn to N24.729bn, with credit related fees and commissions dropping from N6.564bn to N3.352bn; e-business income from N5.053n to N1.188bn .Commission on foreign exchange deals was marginal, from N3.389bn in the first half of 2019 to N3.042bn , account maintenance banks from N5.709bn to N5.54bn; and banking charges from N3.948bn to N3.063bn; among others.Fee and commission expense inched up by 62 percent from N1.505bn to N2.435bn, of which bank charges soared from N656.854m to N1.6bn.The net fee and commission income declined by 34 percent to N22.294bn from N33.843bn.This set a stage for less than inspiring movements in the bank’s bottom line as pre-tax and net profits slump albeit marginally.
Net gains on financial instruments held at fair value through profit or loss inched from N9.488bn to N10.791bn, lifted by foreign exchange trading gain of N7.65bn, up from N5.329bn.
Other income soared to N35.909bn from N28.039bn,mainly foreign exchange revaluation gain of N21.902bn, a giant leap from N2.66bn in 2019;while recoveries and others slowed down to N3.3bn from N10.44bn Net impairment reversal on other financial assets soared from N108.445bn to N3.18bn.
Personnel expenses was constrained at. N18.775bn from N18.578bn;depreciation and amortization climbed from N10.622bn to N14.024bn; and other operating expenses by 26 percent from N39.439bnhalf year 2019 to N49.548bn in June,2020.
After the interactions between the revenue and cost drivers the bank profit before tax stood at N109.713bn, a 5.2 percent jump as against N115.787bn while income tax expense fell marginally from N16.654bn to N15.442bn.
Net profit for the period translated to Earnings per share of N3.32, compared to the previous N3.50 each.The overall impacts of the above suppressed the bank pretax margin marginally from 52 percent last year June to 49 percent in the first half of this ongoing financial year. That means from every naira the bank earns from a combination of interest assets, fees and commissions before paying the tax man he makes 49k as against 52k in the corresponding period of 2019 .Pretax margins are indications pointing to how well a company manages its financial resources. This development had a contagious effect on the net interest margin which stayed flat at 44 percent probability helped by marginal drop in taxation in the first half of 2020
The bank’s CEO was optimistic of a better service and value delivery in the remaining part of the financial year . He further stated that “Going forward, our focus is not just to survive this pandemic, but to thrive beyond it. That is why we are going ahead with our plans to reimaging how we create value for all our stakeholders. We know that making financial services work for customers goes beyond banking, and in line with our long-term strategy, we will seek to create and drive innovative financial solutions that go beyond banking

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GTBANK : A MIRROR IMAGE OF EFFICIENCY

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6 minutes read

When you peep hard into the inner workings ,operations or financial books of Guaranty Trust Bank Plc , what, indeed, do you see ? A financial supermarket ?; a market , profit , product or assets leader? ; a bank with big heart for risk ?;or highly capitalized, liquid and cornucopia of returns ?

Whatever you see , one fact stares you in the face and this is consistent over years : a mirror image of efficiency .And the bank has remained an undisputed industry leader in that regard. In the financial year 2019 it has ,indeed,repeated the same feat.

THE FUNDAMENTALS, THE FIGURES

A detailed and comparative analysis of some first tier banks’ books justifies the above claim

GTB is the most efficient user of resources in the banking sub sector. Its Returns on Average Equity assets (ROAE) of 31.2 percent, Returns on Average Assets (ROAA) of 5.6 percent and cost to income of 36.1 percent are the signals of its leadership in efficiency. .

. The feat reflects the experienced management and efficient balance sheets structures with the operational efficiency of the bank. This is an indication of commendable and effective cost management strategies.

The beauty of GT Bank superior returns becomes more vivid when its equity and total assets relative to its net income are juxtaposed with other first tier players . The bank has always proved and once again has demonstrated that it is not quantity or volume of resources at its disposal that matters but the returns or values wringed out .

The bank, no doubt, has what it takes to overcome resource disadvantage by building positions of leadership and averting the curse of success by rebuilding it over years .

Virtually all the first tier banks which include Zenith bank, United Bank for Africa, First Bank holdings, Access bank and Eco bank have greater assets than it , yet when efficiency is measured as a yardstick of performance GT Bank emerges a clear market leader . Zenith Bank’s total assets at the end of 2019 financial year stood at N6.35 trillion while Access Bank total assets was N 7.147 trillion . Zenith bank and Access Bank equity wereN941.886 and N610 billions respectively relative to GT Bank ‘s total assets at the period was N3.76 trillion while its equity stood at N 687,337 billions.

However, Zenith Bank’s ROAE and ROAA were 23.8 percent and 3.4 percent respectively; its cost to income was 48.8 percent. Even Access Bank , the new leader in terms of assets cannot raise its head when GT Bank roars .Its ROAA fell from 2.1 percent to 1.6 percent while its ROAE slumped to 17.7 percent from 19.1percent between 2018 and 2019 . This was principally due to its inability to control costs .Its operating expenses skyrocketed by 31 percent and its impairment charges rose by 38 percent and its cost to income worsened by 3.0 percent from 62.2 in 2018 to 65.2 in 2019 .For GTB, the above feats may not spring any surprise as it is no doubt a deliberate strategic policy of the bank . MrSegunAgbaje, MD/CEO of the bank once alluded to this strategy. “ We are not in the race for revenue and assets size but in competition for scaled overall business growth and underlying profitability”

Moreover, how the bank survives deleterious environment and other challengesshed more light on its leadership skills and strategic architecture .The bank’s dexterity at upturning the industry threats to its advantage shows its uncanny managerial capabilities

For instance, during the year under review various challenges confronted the entire industry players .Foremost among these was internment Central Bank (CBN) regulatory circulars that continued to disrupt planning and strategy as new circulars constrained operations and set new guideline for lending and use of liquidity. In 2019 , CBN cut back its rate from 14 percent to 13.5 percent .

Furthermore, the decline of economic activities and the challenge of interest rate review by the CBN above boxed many players to a tight corner as they constrained yields ; banks were forced to reprise their earnings assets. This impugned on their performance: stagnant growth, declining margins and falling market share were evident .GT Bank was not an exception. Its interest income cascaded from N307 billion in 2018 to N296 billion in 2019 , a decline of 3.5 percent as a result of 4.8 percent and 1.8 percent drop on loan and advances and investment securities respectively

But these robust skills are usually its saving grace and the stabilizing factors that weather the macroeconomic and regulatory storms .For instance, while the bank’s topline gross earnings growth has been fairly modest over the last three financial years its bottom line numbers have been traditionally pacier. Both Interest Income and Interest expense dipped during the year, but net Interest Expense fell far steeper than Net Interest Income .The faster falling Interest Expense relative to its Interest Income suggests that GTB has strategically pushed down borrowing costs as it expanded its deposit sat lower costs . .Through effective and adept cost management the net interest income indicator moved northward from N222.43 billions in 2018 to N231.36 billions in 2019, an increase of 4 percent though the interest income slumped .

This bank’s leadership started a long time .A similar analysis carried out in 2012 also confirmed GT Bank robust profit engine at work . The bank led the pack with an impressive cost to income ratio of 42.73 percent among other indicators .

The feats is mostly linked to the management rare and uncanny capabilities in risk management .This may not be farfetched.

Bank management is coterminous with risk management. What continues to give the bank a lead is the management ability to skillfully manage risks which is in inherent in maturity transformation. SegunAgbaje is ,indeed , astute banker and a shrewd lender lending safely and profitably. Moreover, although other sources exist ,the main source of banking income and profitability remains the spread between the rate bank borrows funds from depositors and other sources and the rate it loans them out .GT seems to have some edge over its peers and gets a better spread relative to its assets base in this area . It has developed an iron teeth to break a hard nut of credit and interest risks . This evidently manifests in the net interest margin. In the 2019 financial year its NIM remained the industry best at 9.3 percent compared to Zenith and Access banks 8.2 and 6.6 percent respectively. This enhanced the bank capacity to creating better values for the shareholdersIn 2019 N280 was paid as dividend per share aside capital gains from its share price movements during the years .Even its EPS, profit due to each shareholder based on a unit share held by him , stood at 696 k against Zenith’s 665 k and Access’ 300k . This is another confirmation of its rare and uncanny ability to create value for its investors.

GT is not only an industry leader is not limited to the above areas . It is a financial supermarket with a big heart for loans , highly capitalized and customers centric.

According to management, the key levers that will continue to drive the growth remain: strong loan growth , focus on cost efficiencies aimed at further reducing its cost-to-income ratio , volume of its non-interest income business, particularly e-payment transactions and , improvement in the performance of foreign subsidiaries.

The management has proved that it has what it takes to lead .It defined its served market appropriately while its value proposition to customers, margin and value added structures are not ambiguous as it has configured assets and skills that yield superior margins and put in place efficient administrative systems .The above together constitute an integral and well turned profit engine .

MrAgbaje once noted ,”at GT Bank , we exist to provide excellent service to our customers and generate the returns that our shareholders expect. Our strong financial performance in 2019 demonstrates that we are delivering on both fronts. We achieved healthy growth across all our major businesses despite varying degrees of uncertainty and volatility, and we are making progress in positioning our business for long-term growth in the face of a rapidly changing competitive landscape.”

He further stated; “Underpinning our strong financial performance is our commitment to being there for our customers when it matters most. Powered by the fundamental strength of our brand, and guided by our strategy of putting our customers at the centre of everything we do, we will continue to design and deliver financial services that not only solves our customers real pain points but also leaves them better after every interaction.”

GT BANK :RESILIENT IN A ROUGH ECONOMIC SPACE

For the captains of industries the ongoing financial year is a baptism of fire . The operating environment for many economic agents including banks in Nigeria was quite inclement in the first half of 2020; deleterious economic and social environments were compounded by Covid 19 pandemic. Expectedly , these had unsavoury effects on banks’ ability to sustain respectable bottom lines as stagnant growth, declining margins and falling market shares littered the corporate landscape.

.However ,some banks with iron teeth appeared to be proving resilient and minimizing the damage in face of a metaphorical hard nut depicted by the operating clime.

GT Bank Plc ,no doubt, was one of them .The management put up a good fight to weather the storms . Under this stifling environment, the bank still maintained a positive position at the top line albeit marginally. It grew its Gross revenue by 1.5 percent fromN225.14 billion as against 221.87 billion recorded in the corresponding period of 2019.The lethargic pace could be attributed to the challenges of a harsh economic environment, a systematic or economic wide phenomenon resulting from the general lull in country and across the world.

In spite of the fact that the bottom line witnessed a slight decline by 4.9 percent to N94..271bn in the first half of 2020 from N99.333bn in the corresponding period of 2019,underlying performance metrics remained positive. Based on the above ,some analysts noted there is no cause for alarm .

To them since the decline was not seismic to raise any eyebrow ,informed investors and other stakeholders are less bothered by a storm in a tea cup .This may not be farfetched. The bank’s track records in value delivery and skills at work that give the stakeholders a brilliant hope and confidence about the brand remain unquestionable and reassuring. The above facts were confirmed by the Chief Executive Officer of Guaranty Trust Bank plc, SegunAgbaje,. While commenting on the just released financial results , the CEO noted :“ these are undoubtedly tough and trying times for people, businesses and economies the world over. Our financial performance in the first half of the year reflects the quality of our past decisions which have broadened our earnings and strategically positioned us to thrive, thus far, through the current global health and economic crises. Underpinning this financial performance is our commitment to being there for our customers and the communities we serve, and over the past six months we have lent the full weight of our franchise to safeguarding lives and livelihoods of our staff and customers by leading from the front in the fight to curtail the Covid-19 outbreak and offering grace periods on loans to our small business customers.”

.GT Bank has distinguished itself where it matters most .The bank has continued satisfied its five major constituencies including the surplus units from which it borrows, the deficit units which borrow from it , the shareholders, the regulatory authorities and the communities in which it operates as a corporate citizen .

To the shareholders , the bank has a tradition of providing adequate returns .Either by way of capital appreciation or dividend. Sequel this and despite the decline in the net profit , the bank directors still proposed an interim dividend of 30 kobo per share for the half-year period. The dividend is payable electronically on September 21, 2020 to shareholders whose names appear on the register of members when it closes on September 15 and September 3, 2020 for holders of the bank’s Global Depository Receipts (GDR).

. Moreover, GTBank has continued to report the best financial ratios in the industry .In the period under review its Return on Equity (ROE) was 26.8% and cost to income ratio was 43.2%.The above ratios demonstrated and confirmed GT Bank as a brand that sets pace as a mirror of efficiency. From the above it could be deduced that the bank expended N43 for N100 made as revenue. This feat confirms the bank as consistent industry leader in terms of efficiency. The feat could be traced the capability to cut costs when low cost deposits increase ,cost of risk and loan loss expenses are coming down

Besides the above the bank has never reneged its responsibilities as a corporate citizen .Recently, the Bank was also awarded the Best Bank in Nigeria by Euromoney Magazine for a record-extending tenth time and the Euromoney Excellence in Leadership Africa Award for its swift reaction in responding to the Covid-19 crisis and for addressing the impact of the pandemic on its customers and communities.

Moreover , the brand’s forte in risk management is another highlight of its leadership. Banking is coterminous with risk management. The bank’s rare feat managing the traditional risks of mismatches between assets and liabilities and between borrowing and lending rates has become one of its core competencies.This skill is core to its exploits in the business of maturity transformation. A critical analysis of the of the bank’s book in the first half of 2020 revealed a daft application of the management experience beginning with leveraging net interest income by suppressing interest expenses while at the same time guiding the growth of interest income . Interest income for the period stood at N150.486bn, a 2.7 percent up from N146.448bn in June 2019 .The ability of the management to suppress its interest expense exponentially by 20 percent led to a drop to N26.093bn last June from N32.627bn in the corresponding half-year of 2019 .This resulted in net interest income of N127.615bn,a 9

7 percent jump from N116.364bn compared to its 2019 figure . .Net interest income is a guide to how a bank manages the interest it pays on borrowing and lending ,proved the worth and skill of the bank in the core banking business of maturity transformation. This is the live wire of a deposit money bank .This was evidently demonstrated in its asset quality,NPL ratio and Cost of Risk.NPL and Cost to income closed at 6.8% and 0.4% in June 2020 from 6.5% and 0.3% in December 2019 respectively.Though a little bit above the regulatory requirement of 5percent the enough coverage was provided to the tune 118.1 percent. Thisan indication of prudent disposition consistent with the bank’s known records of excellent credit risk management. Overall, its asset quality remains stable .

The bank’s balance sheet was robust as its loan to deposit, liquidity and capital adequacy ratios were well above the regulatory threshold. For instance its capital remains strong with CAR of 22.9% as at the first half this financial year.

On the backdrop of this result and to cement its place as the most efficient bank its Return on Equity (ROAE) and Return on Assets (ROAA) stood at 26.8% and 4.6% respectively.

Meanwhile the robust nature of the balance sheet is another high point driving its capabilities . The Bank closed the half year ended June 2020 with Total Assets of ₦4.511trillion and Shareholders’ Funds of ₦720.9Billion. For such weighty shareholders fund ,it is natural to pull in heft deposits as its total deposits grew by 18.5 percent from N2.532 trillion to N3.001 trillion between the period under review.

Expectedly , so many challenges bedeviled the terrain . With slowed down economic activities and macroeconomic indicators flashing red the risks facing the banking industry became worse .This led to a big jump of 209.6 percent in loan impairment charges within the period from N2.186bn in 2019 to N6.769bn .This suppressed further the net interest income by 5.8 percent after loan impairment charges to N120.846bn, as against the previous N114.178bn

That was not all .While the bank put up a good fight in the core banking area retaining a positive the outlook despite unimpressive earnings yields and heavy risks involved , the non interest income segment unleashed stricter challenges dictated by the regulatory policies that cut back income drivers and potentials. Naturally, a good manager of a bank or financial institution usually rev up non interest income items of its balance sheet because it holds the key to stabilizing earnings especially at the time of interest rate volatility or when unimpressive yields prevailed.

For GT Bank the first half of 2020 proved very tough in this segment as fee and commissions income was dealt a blow by the CBN policy. A look a its performance in this segment showed some mixed feelings . Fee and commission income fell by 30 percent from N35.348bn to N24.729bn, with credit related fees and commissions dropping from N6.564bn to N3.352bn; e-business income from N5.053n to N1.188bn .Commission on foreign exchange deals was marginal, from N3.389bn in the first half of 2019 to N3.042bn , account maintenance banks from N5.709bn to N5.54bn; and banking charges from N3.948bn to N3.063bn; among others.Fee and commission expense inched up by 62 percent from N1.505bn to N2.435bn, of which bank charges soared from N656.854m to N1.6bn.The net fee and commission income declined by 34 percent to N22.294bn from N33.843bn.This set a stage for less than inspiring movements in the bank’s bottom line as pre-tax and net profits slump albeit marginally.

Net gains on financial instruments held at fair value through profit or loss inched from N9.488bn to N10.791bn, lifted by foreign exchange trading gain of N7.65bn, up from N5.329bn.

Other income soared to N35.909bn from N28.039bn,mainly foreign exchange revaluation gain of N21.902bn, a giant leap from N2.66bn in 2019;while recoveries and others slowed down to N3.3bn from N10.44bn Net impairment reversal on other financial assets soared from N108.445bn to N3.18bn.

Personnel expenses was constrained at. N18.775bn from N18.578bn;depreciation and amortization climbed from N10.622bn to N14.024bn; and other operating expenses by 26 percent from N39.439bnhalf year 2019 to N49.548bn in June,2020.

After the interactions between the revenue and cost drivers the bank profit before tax stood at N109.713bn, a 5.2 percent jump as against N115.787bn while income tax expense fell marginally from N16.654bn to N15.442bn.

Net profit for the period translated to Earnings per share of N3.32, compared to the previous N3.50 each.The overall impacts of the above suppressed the bank pretax margin marginally from 52 percent last year June to 49 percent in the first half of this ongoing financial year. That means from every naira the bank earns from a combination of interest assets, fees and commissions before paying the tax man he makes 49k as against 52k in the corresponding period of 2019 .Pretax margins are indications pointing to how well a company manages its financial resources. This development had a contagious effect on the net interest margin which stayed flat at 44 percent probability helped by marginal drop in taxation in the first half of 2020

The bank’s CEO was optimistic of a better service and value delivery in the remaining part of the financial year . He further stated that “Going forward, our focus is not just to survive this pandemic, but to thrive beyond it. That is why we are going ahead with our plans to reimaging how we create value for all our stakeholders. We know that making financial services work for customers goes beyond banking, and in line with our long-term strategy, we will seek to create and drive innovative financial solutions that go beyond banking