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.”