GTCO Half Year 2023: When Revaluation Gains Become A Game Changer
For the shareholders of Guaranty Trust Holding (GTCO) the current financial year is a year of celebration galore ;everyone with a proof of ownership of its stock is now smiling broadly to his her bank.. Behind this new mood is the bank’s price per share that is now heading to the rooftop daily and delivering bumper harvests in terms of capital gains ; its shareholders are now enjoying the mouthwatering returns for the investment.
The share price which dropped as low as N17 late last year is now selling at N 39.40 per share .By the above scenario, this bank has made so many of its shareholders millionaire overnight already from the capital gain alone .
Details of GTCO share price movement confirm this already .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%.
But the above fortune delivered so far may just be a tip of an iceberg going by current half year result released recently which promises a bigger harvest of returns on investments from the bank”s dividend at the end of the current financial year.
. This expectation may not be farfetched . Barring any unforeseen circumstance , GTCO , an iconic brand ,may overtake its closest rivals and become the most profitable in the current financial year 2023 as its profit before tax in the first half year rose by 217% to N327.39bn from N104b and its Profit after tax by 261% to stand at N280.48bn .These results are more than the double of its full year profits at pre-tax and post tax levels in 2022 . .
This feat is in spite of the fact that its Net Interest Income, generated from lending activity and interest-bearing assets ,was threatened by heavy loan impairment charges to the tune of N83b in the first half of the current financial year
Asides the loan impairment charges, another potential spoiler came from the trading income as Net trading gains on financial instruments held at fair value slumped to from N23.6b to N16b
But the forces from loan impairment charges and trading income segments were not strong enough to stop GTCO superlative profit indicated above
In other words , those threats notwithstanding, GTCO with its robust business model considered to be very difficult for its competitors to replicate , still turned the table around to its advantage and nailed the above potential spoilers to deliver an outstanding bottom-line
.However , this is not to say it was easy .The feat was achieved amidst big challenges with inclement macroeconomic environment giving all the players a very tough time
Athough the bank expanded its interest income impressively, caging the rising interest rates to gain positive outlook driven by its low cost, revenue efficient model that relies less on manpower but more on prudent risk asset allocation and cheap deposits, its net interest income outlook was negative after loan impairment charges ,
To frustrate the above potential spoilers . GTCO, Nigeria’s most efficient bank , wrenched up bottom line with a deft application of management’s experience by leveraging non interest income and the foreign exchange revaluation gains . By this it grew its gross earnings by 181.1% from N239.29bn to N672.60bn
The above growth in its earning ,however , was not accidental. The first observation is the surge in its loan portfolio . The Group’s loan book (net) Increased by 22.8% from ₦1.89trillion recorded as of December 2022 to ₦2.32trillion in June 2023 ; other earning assets grew heavily too . If anything, a racy earning assets figure should result in more robust earnings except may be spreads or the difference between interests earned and interests paid are not quite attractive
. In the face of higher interest rate environment, high loan growth, and increment in capital ,GTCO needed benign funding cost, asset quality improvement, lower provisioning, and resilience in non-interest revenue (NIR) to boost its earnings.The racy earning assets figure above ,indeed ,resulted in more robust earnings due partly to the bank’s ability to prevail on the high interest rate environment . The bank’s interest income inched up by approximately 54% to N226b in the first half of 2023 from N147 b in the corresponding period of 2022 . However , this became a tug of war as interest expense equally became leggy. Interest expenses increased to N48.5b or 84% jump from the former N26.4billion resilience in non-interest revenue (NIR) will be central to earnings
But while the bank won the interest rate despite the challenges from the deposit rates , the credit risk battle proved to be a hard nut difficult to break leading the N83b provisioning in the first half of 2023 Consequently , its net interest income after impairment assumed a negative outlook .
But negative impact from the loan impairment charges started to give way with the increase in commissions from non interest dependent transactions. Its Net fee and commission income grew by 9% to N51.6b from N47.4b
The real game changer ,however , was the stupendous forex gains that averted a repeat of the negative impact of Ghana’s debt restructuring saga which led to a whopping N35.6 billion impairment loss at the end of the 2022 financial year; it drove its half year 2023 profit after tax to a supersonic height of N280.5b from N77.6b in the corresponding period of 2022
The first half year result is the beginning of another attempt to wring good profit reaffirm leadership of the sector. , and wipe out the misfortune of last year attributed to large provisioning made against the negative impact of Ghana’s debt restructuring saga
Last year, the bank’s profit before tax (PBT) was N214.2b billion, down by 3% per cent from N221.5 billion in 2021 ; while profit after tax (PAT) was N169 billion in 2022 , down by 3 per cent from N174.8 billion in 2021 , in a somewhat fragile economy .
To cement its place as the most efficient bank, overall, the group continues to post one of the best metrics in the Nigerian Financial Services industry in terms of key financial ratios i.e., Pre-Tax Return on Equity (ROAE) of 61.4%, Pre-Tax Return on Assets (ROAA) of 8.8%,
The bank’s balance sheet was robust as the loan to deposit ratio, liquidity ratio and capital adequacy ratios were all well above the regulatory threshold. Total assets in the Segun Agbaje led bank zoomed by 32% 8.5trillion N6.5trillion in the first half of 2022 .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.
Full Impact Capital Adequacy Ratio (CAR) remained very strong, closing at 24.7% compared to 22% in 2022 , while asset quality was sustained as IFRS 9 Stage 3 Loans improved to 4.6% in June 2023 from 5.2% in December 2022.
However, Cost of Risk (COR) closed at 3.7% from 0.18% in June 2022 owing to worsening macros which caused a significant increase in ECL variables.
Commenting on the results, the Group Chief Executive Officer of Guaranty Trust Holding Company Plc (GTCO Plc), Mr. Segun Agbaje, said;“Our half-year audited results reflect the strong business fundamentals underpinning the GTCO franchise, the quality of our past decisions in future-proofing our balance sheet for challenging times and the sound practices that guide our day-to-day operations.
Despite the challenges in the business environment, notably inflationary pressures, and exchange rate fluctuations, we are starting to see the gains in the transformation of our businesses following our transition to a Holding Company structure.
Improved profitability and solid performance across key metrics reflect efficiencies and justify the investments we continue to make in technology, product development and our people.
He further said;We recognize the impact prevailing economic and market conditions have on people and livelihoods and we remain committed to seeking better outcomes for our customers, by ensuring that our products and service offerings support our customers and their businesses through their evolving realities, whilst also taking every opportunity to optimize stakeholder value.
GTCO is a leading financial services group with banking operations in Nigeria, West Africa, East Africa, United Kingdom alongside new businesses in Payment, Funds Management and Pension Fund Administration.
