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FEARS,APPREHENSION GRIP GTB AS ITS SHARE PRICE CRASHES FURTHER

Year to date  its share price down by 17.3 %;year on year by 25.3%  

Fears and restlessness may have gripped the management of Guaranty Trust Holding ,GTCO in the last few weeks as stock investors have continued to dump their shares massively leading further crash of the bank’s stock price . This scenario may not be unconnected to the lethargic performance of the bank in the recent time .Stockholders who could not dump their own are on tenterhooks waiting for the management to reverse the misfortune. Some of them bought this bank share at N54 per share in 2018 . With this category of shareholders it is hopeless situation as they may have to wait for a long time to recoup their investments ; their case is very pathetic.

This may not be farfetched . GTCO closed its last trading day (Friday, April 1, 2022) at N21.50 per share on the Nigerian Stock Exchange (NGX), recording a 4% drop from its previous closing price of 22.40 NGN. Guaranty Trust Holding began the year with a share price of 26.00 NGN but has since lost 17.3% off that price valuation, ranking it 138th on the NGX in terms of year-to-date performance.

Guaranty Trust Holding is the fifth most traded stock on the Nigerian Stock Exchange over the past three months (Jan 5 – Apr 1, 2022). GTCO has traded a total volume of 1.1 billion shares—in 22,418 deals—valued at NGN 28.7 billion over the period, with an average of 17.5 million traded shares per session. A volume high of 130 million was achieved on February 17th, and a low of 2.5 million on February 10th, for the same period. Nigerian Stock Exchange

This ugly trend is a reverse of what happened on Friday, March 25, 2022 ,its stock price per share at 23.15 NGN gained 0.7% gain over its previous closing price of 23.00 .

Its stock investors have remained restless with the bank’s raging misfortune in the last one year .Guaranty Trust Holding began the year with a share price of 26.00 NGN but has since lost 11% off that price valuation, ranking it 137th on the NGX in terms of year-to-date performance; its year on year price valuation has been down by 25.3% . Shareholders’ worries are compounded by the fact that GTCO has lost 14% of the stock’s value from February 25th to date.  .

 What , indeed, has befallen Guaranty Trust Holding Company plc, GTCO, ?   Between January 2018 and January 2022, its market value plummeted from  N1.589trillion    to NI.060 trillion in February  2021 .And from  that value it cascaded to toN883b in May to N830 in June and  further down to  N749b in January 2022. To register that big casualty , its share price crashed  from  its peak on January 19, 2018, GTB was trading at N54 per share or a market capitalization of N1.5 trillion to hit its nadir  of N26  in January ,a big downturn .One thing is certain ,there is no smoke without fire .

The year 2021 , indeed ,was  another tough year for Guaranty Trust Holding Company plc ,GTCO.  GTCO, regarded as the most efficient bank in Nigeria could not navigate the troubled waters unscratched ;its net profit crashed by 20% just as its revenue increased only marginally by 1.6%,to mention just a few among other downturns that hit the bank .

This performance has put GTCO in a tight corner  hotly chased by Access Bank and heavily trashed  by Zenith Bank  as it is farther away from its closest competitor  . At the end of the 2021 financial year , GTCO  registered N174b profit after tax compared Access N160b  and zenith’s N244b . Access Bank had never come too close to it while Zenith had never been farther way in profitability ,Moreover , both Access and Zenith are currently comfortably bigger than it in revenue generation, in terms of  assets  as well as in equity size

Ironically , it was the same year it changed its corporate status to a holding  company  when  its then  MD/CEO of Guaranty Trust Bank ,now its Chief Executive Officer, Segun Agbaje  was beating his chest with  so many promises . At a media briefing in 2020, Segun Agbaje, was  full of spirit and vitality  discussing the benefits of transiting to a Holding company; radiating energy and positivity, he assured investors and other stakeholders in attendance  of a rewarding future. “I am delighted over the approval by shareholders for the holding company and I assure the investors of a more rewarding future”.

Agbaje explained that the overall strategy was to create an operating model that would profitably grow the bank’s presence in the market for commercial banking and non-banking financial services in order to achieve the aspiration to be the dominant financial services group. The bank ,he said would not embark on any share reconstruction, promising that the same number of shares they had with the bank would  be maintained. “Under the new structure, existing shareholders of GT Bank would be migrated to Guaranty Trust Holdings via a share-for-share exchange between the shareholders of GT Bank and GT Holdings, ”he added

  But, it was  a promise failed for the bank’s share investors . While the bank did not embarked share reconstruction as promised ,the first aspect of the promise is yet to materialize. In the past one year, the bank  has  continued to navigate through the difficult waters and operating  as a holding company without adding any substantial values known with it before the transition ..

Rather than being a rewarding year, the last financial year  was a year when  GTCO’s fundamentals were weakened embarrassingly, a situation that led its loss of  its laurel as the most valuable bank in the industry. The worst losers in the whole year  , however, were the shareholders or its stock investors. Stock price of first tier lender,  GTCO cascaded compared with its value  in the last three years ; most of the shave in price occurred in the last one  year .

Nigeria’s so called most efficient bank, Guaranty Trust Holding Company, the owners of GT Bank suffered N80 billion loss in market valuation between the time  it transformed into a bank holding company and January 14th this year . GT Bank’s shares price was trading at N28 per share in the weeks leading to its final transformation to a holding company.

Since then, its share price has taken a nosedive ending the year with a 20% drop compared to the banking sector all share index which gained 10% during the year under review . The slide continued this year with the share price falling to N25.45 on Wednesday January 12th. In fact, the bank shares fell to a year low of N23.9 in December before rallying to N26 in December

Those who bought its shares in 2018 are the worst losers .At its peak on January 19, 2018, GTB was trading at N54 per share or a market capitalization of N1.5 trillion. In the same period,   During the Covid-19 bull ride of late 2020, GT Co shares recorded a resurgence  after its share price rose to as high as N36 taking it to over N1 trillion.

With the drop in GT Co’s valuation , Zenith Bank has overtaken it  in terms of the market valuation . This happened when GTB’s share price fell to N25.45 and Zenith rose to N25.5. 

Zenith Bank first overtook GT Bank in terms of market valuation on November 19, 2021, when GTCo’s market cap fell to N747.5 billion compared to Zenith’s N753.5 billion. Since then, Zenith has risen past N800 billion while GT CO’s slide continues .Even in terms of profitability in 2021 ,Zenith Bank’ PAT  made  N244b against its N174b,a longer distance between them ever .

GTCO closed its last trading day on Tuesday, March 8, 2022   at 26.20 NGN per share recording a 0.8% gain over its previous closing price of 26.00 NGN. Guaranty Trust Holding began the year with a share price of 26.00 NGN and has since gained 0.77% on that price valuation, ranking it 63rd on the NGX in terms of year-to-date performance. This current gain is too cold for comfort viewing for from the enormous damage done to its shareholders investments particularly those who bought its shares  at the peak of its value three years ago; currently, GTCO’s  share price return  at 16.3% negative underperformed the banking sector which returned 14.2% positive  and the market which returned 14.3% over the past year. The steep losses investors have had to contend with have had the stock underperforming the market by a very wide margin .Most of the affected investors are already gnashing their teeth in regret

It ugly performance may not be farfetched . From the COVID-19 induced macroeconomic challenges in 2020 which was a difficult metaphorical hard nut for many banks to break , they moved into another operating environment in 2021 paved with lower interest rate as another obstacle and a major potential spoiler against their expected fortunes . In such an environment , experts believe ,only a bank with a shrewd management who could be cautious on loan growth, pay special attention to capital preservation, ensure benign funding cost, maintain asset quality improvement, lower provisioning, and resilience in non-interest revenue (NIR) could navigate without much damage .

Unfortunately, not many players in the Nigerian banking industry could pass this litmus test in 2021 .This became clearer after some banks have declared their 2021 results with marginal increase in revenues and less inspiring profitability .The lethargic and less inspiring performance of GTCO in the last few years is ,no doubt, mind-boggling ; the most painful is that its stock investors are at the receiving end ,paying the price as the market is fighting back its non performance

FUNDAMENTALS

 The reason for the steep southward movement of it share price and market value is pinned on the bank’s less than inspiring full year run in2021  ;the market ,no doubt , was  miffed at the poor run of the bank in the full year of 2021. In 2021,the ominous signals were palpable throughout the year .Indeed , 2021  was  its  year of many downturns . During its 9 months interim results, the bank reported a 9% dip in pre-tax profits going from N167.3 billion to N151.9 billion. The major reason for this is a decline in its net interest income and a rise in operating expenses.

The 2021 full year result has not changed the ugly scenario. Its Gross Earnings dropped marginally by 1.6 % to N447.81b from N455.23b, Interest income by11.3% to N266. 89b from N300.74b .This slim expansion in gross earnings ultimately delivered a lethargic bottom line as its net profit for the financial year 2021 backtracked and fell below its 2018 records  . Profit for the year was N174.84b, a drop of 20% against N201.44b in 2020 ; in 2019 and 2018 respectively  the bank made N215.04b  and  N201.54b. In 2021,Net interest income fell  by13% to N220.61b  from N253.67b, Operating income down marginally by 0.5% to N383.77b  from N385.53b while its profit before tax  dropped by 7%  to N221.50b from N238.10b.

 The above ugly performance in its fundamentals  may not be farfetched .It was a year the bank allowed the pace of interest expenses outpace that of interest income while the heavy sliding growth of net income suggests the bank’s failure to attract interest rates that can significantly boost its level of profitability. It also indicates that the bank is prone to interest rates risk. GTCO’s interest income dropped to  N266.89b from N30074b , a fall of 11.3% ; this led to a greater fall in Net interest income by 13%  N22061b from N253.67b

The problem with GTCO is not controlling the interest expenses when its situation is viewed critically because its total interest expenses relative to its interest income is the best by our investigation .However, its inability to boost its interest income in an absolute term was its critical weakness particularly with 11% decrease in 2021 instead increasing . It is not difficult to unravel the weakness or strength of a bank in the core business of lending or maturity transformation as its net interest margin shed better light on this.  This  is where GTCO is not doing well as before ..Its net interest margins  had been under pressure since the first half of 2021 as it cascaded to 6.98%  from  9.26%  in the corresponding period of 2020  due to declining asset yields. According to the bank despite the 52bp improvement  in Cost of Funds (CoF), it was still inadequate to offset the 292 bps decrease in asset yields in the first half of the year ,a situation that continued to the end of the year . This decline was in spite of so many potentials  which the bank could tap to counter the low yield challenge .For instance ,the Group’s well diversified funding base, optimal low-cost deposit mix and brand equity  which drove the 52 bps improvement in (CoF) from 1.51% in HY 2020 to 0.67% in HY 2021 could have rescued the bank . The Group benefitted from its low cost deposit mix of 87% to navigate the low Interest rate environment in H1 2021. In a nutshell, the bank lost the interest rate battle 

Apart from the above inability of the bank’s management to handle the interest rate risk, the other leg of the core banking business which is the credit risk also remains a hard nut difficult for it to break.  Its impairment charges remain high in the period, though inching down   by56.4percent; its Impairment charge was   N8.53b billion in the period compared to N19.57billion the year before.  

 Although it was able to manage down Loan impairment charges this was a major drawback on its bottom line in both 2020 and 2021  This has continued to impact negatively on its asset quality as its nonperforming loan ratio  has been above the regulatory limit of 5% ; its prudential NPLs increased marginally from 6.39% to 6.75% in the first half of 2021 ,a situation the  bank attributed   to the stress noted with certain exposures within the Hospitality, Individuals, Clubs, Co- operative Societies and Union as these group of Obligors were severely impacted by Covid 19.. This contributed in shaving net operating income which also suffered from rising operating cost. Net operating income sank marginally 0.5 percent to N 383.76billion from N385.53  billion, leading to a  marginal increase  in operating margin to  85.7 percent from  84.7percent. Though this means the bank’s operating efficiency improved marginally  in the period relative to the previous year in spite of the above challenges .  

 The downturn in GTCO’s 2021 results could equally be located in the efficiency of its profit machine . Operating expenses  grew by 10%  from N147.44b in 2020 to N266.86b in 2021 due to the impact of rising headline inflation and marginal Naira/US Dollar rate movement in the official market which resulted in the increase in general prices of goods and services.    Operating cost was largely impacted by 27% growth in AMCON expenses, 44% Deposit insurance premium N12.240b from N8 504 b3,62 ,26.5% increase in  Communications, technological related expense and Administrative expense  N18.456b from N14.587b and 21.5% increase in Depreciation Expenses   Overall Cost to Income Ratio closed at 42.3% as at  2021 from 38.2% in 2020 which is above the 35% guidance. But the recorded increase in OPEX by  10% was below headline inflation which closed  at  the end of  year at 15% in December 2021.     

PROFITABILITY

The bank sank by 7% into a pre-tax income of   N221.50bbillion in the period compared to the pre-tax profit of N238.10billion  achieved in the equivalent period last year.  The  decline above culminated in a greater decline  by 20% in net profit to N174.84billion from N201.44bfor the bank  .This led to a decline in its  Earnings per share attributable to the equity holders of the parent entity during ‘the year (expressed in naira per share)  by13.6%  to N6.14 from N7.11 .On a marginal basis, prep-tax profit  margin stood at 49.5 percent compared to 52 percent. It means where the bank used to wring out N52 from every  N100 , it now gained  N49.50K  and a net  profit margin of  39 percent from  44 percent ▪

 The Group Balance sheet remained well-structured and diversified with Total Assets closing at ₦5.43trn in 2021, representing a  9.9 % growth from ₦4.94trn in FY 2020.  

Total Asset was supported by a well-diversified funding base of customer deposits and equity balances .Its total  equity grew by 8.5% to hit N883.23b from  N81440b   

Deposits from banks grew by16.3% to N118 .03b from N101.51b as customer deposit liabilities grew by 14.3% .N4.01trillion from N3.51trillion The Deposit growth ,according to the bank , is reflective of the Group’s retail strategy, the key enabler in the face of the challenging operating environment, increased competition from Fintech’s and customers preference for Treasury Bills, which offered a higher interest rate.

 Despite the challenges posed by the prevailing low yield environment , GTCO had promised to  continue to seek alternative yield optimization opportunities by taking advantage of its transitioning into a full-fledged financial holding company .This will be expedient to save the stock investors that are now badly hit by the decelerating  fortunes of the  so-called   most efficient bank

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