In the first nine months of the 2024 financial year, GTB delivers values to its shareholders at a Cost to Income Ratio of 19.4 percent to generate earnings per share of 3,841k and pretax profit margin of 67% , a feat no other bank has ever achieved in history.
One of the biggest lessons taught by Henry Chesbrough, a leading expert in innovation ,is the Power of a solid business model . Although the world today is constantly bombarded with new inventions and ideas that promise to revolutionize human lives, however, to him , “having a great idea or technology is not enough to guarantee success in the marketplace”. Instead, “what really matters is having a solid business model to take those ideas to market.”
His view may not be farfetched. “From identifying its target customers to generating revenue and creating value,a well-crafted business model sets a company on a path to success, provides a clear framework for decision-making and helping to ensure that resources are used effectively” .
This is where the importance of a strong business model , the way in which a company generates revenue and profits from its products or services and the roadmap that guides a company’s decisions and actions, from product development to marketing and sales, comes in .
Without a doubt, a sound business model has taken GTB very far . The bank operates a low cost, revenue efficient model that relies less on manpower but more on prudent risk asset allocation while attracting cheap deposits.Corroborating the above view , a financial analyst noted : “for most banks, it will take years to replicate and possible billions spent in restructuring to achieve this.” .
How far has this model taken GTCO? The answer simple . This could be ascertained by looking at its profit engine in the business and management of banking believed to be coterminous with risk management .
In managing risks ,a bank has to satisfy five main or critical constituencies considered as the core critical success factors . One is the surplus units from which it borrows .These units demand the best possible term in rates of interest and maturity structures and the maximum liquidity to enable them to have the funds back when they want them , or as agreed .
The second constituency is the deficit units which borrow from the banks . They want to borrow when they need the funds and as cheaply as possible .Like the lenders ,the borrowers also impose the obligation of maximum liquidity on the banks to enable them to obtain funds when they need them .
In addition to satisfying the surplus and the deficit sectors ,the shareholders must also be satisfied .These require maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed .
To this is added the fourth constituency , the regulatory authorities ,whose interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements
There is , finally the community at large. As the provider of the environment within which it operates . the bank owes an obligation to the community to be a good corporate citizen, capable of maximizing the exploitation of the opportunities available and minimizing the threats in the environment .
While all the above constituencies are considered critical success factors and must be satisfied , delivering maximum or adequate returns to the shareholders remains the ultimate .And this is where GTCO rules its industry without any controversy .
Delivering the Best-in- Class Returns to Shareholders
GTB has confirmed this belief with facts and figures over the years with its highly efficient profit machine . It consistently reported a cost to income ratio of about 45% and even beat that record some years back to post a CIR of about 34%. In the first nine months of 2024 financial year, this bank has achieved what proved this belief further . GTB delivered values to its shareholders at a CIR of 19.4 percent .Only a super bank with an efficient profit machine could deliver this feat in an inclement operating environment like Nigeria .
With this CIR , its Profit before tax of ₦1.219tr relative to N433.2b recorded in September 2023 , an increase of 181.5%; its Profit after tax also increased by 195.3% to ₦1.085tr from N367.4bn as of 30 September 2023 .This pushed its Earnings per share to an unusual height of 3,841kobo compared to 1,298kobo per share as of 30 September 2023. This helped to shoot up pretax profit margin to 67.8 percent, up from 51 percent. With that rise in pretax profit and net profit indicated above its net profit margin equally rose to 60.3 percent from 43.2 percent.
To cement its place as the most profitable bank,post-tax return on equity (ROAE), and return on assets (ROAA), improved to 70.4% per cent and 11.4% per cent in 2024 from 44.5% per cent and 6.5% per cent respectively in 2023; at pre-tax , ROAE were 79.1% and 12.8% in 2024 and 52.4% and 7.7% respectively in 2023.
The positive impacts of the bank’s efficient profit machine are clearly visible on its stock . (NGX). However, the year 2024 has not been as sizzling as 2023 when its share price gained 76%, closing at N40.50 ; however, the current has been equally impressive. its share price was up 34.8% year to date in 2024 ,making it one of the best-performing FUGAZ stocks this year; it closed at 54.60. GTCO last trading day (Friday, November 22, 2024) per share on the Nigerian Stock Exchange per share. This elevated its share market capitalization to N1.1 trillion, ranking it the second most capitalized banking stock.
Despite currently trading below its 52-week high of N53.05 (reached on April 2, 2024), GTCO is still above this year’s average price of N42 and its 5-year average of N28. This performance suggests strong investor confidence and positive sentiment towards the stock, primarily based on its financial performance.
One of the most popular valuation metrics is the price-to-earnings ratio (P/E), which measures the share price of a stock as a multiple of its earnings. The closer this figure is to one or below one, the cheaper the stock. Using GTCO’s current share price of N47.35 and its trailing twelve months earnings per share (EPS) of N33.27, the stock has a P/E ratio of 1.4x. This compares to the banking sector average of 2.91x.
This lower P/E ratio suggests that the stock is undervalued compared to its peers, indicating that investors are paying less for each unit of earnings relative to other banks. This could be seen as an opportunity for investors if they believe that GTCO’s earnings will continue to grow.
Another valuation metric is the price-to-earnings growth (PEG) ratio, which adjusts the P/E ratio by the stock’s earnings growth. Similarly, a PEG below 1x suggests that the stock is undervalued relative to its earnings growth potential and may offer attractive growth at a reasonable price, appealing to growth-oriented investors.
Boosted by its recent performance, GTCO has a PEG ratio of less than one, making it attractive for growth-hungry investors. Additionally, the group’s strong capital assets appear to be reflected in its higher price-to-book ratio of 0.70, compared to the banking sector average of 0.63.
This suggests that investors value each unit of GTCO’s book value more highly than that of its peers, possibly due to perceived higher asset quality or expectations of better future profitability. The expectation of better future profitability also aligns with its higher price-to-sales ratio of 0.82 compared to the sector average of 0.52x.
GTCO’s valuation metrics, including a low P/E ratio, a reasonable P/B ratio, and a relatively higher P/S ratio, combined with a very low PEG ratio, suggest that it might be an attractive investment, especially for those looking for growth opportunities at a reasonable price. Besides valuation dynamics, GTCO is known for its dividend payouts. In 2023, it paid a dividend per share of N3.2, marking a 3.23% increase from the previous year. The stock currently has a dividend yield of 6% based on its current share price, and this could likely increase as we expect the bank to raise its dividend payout ratio. Continuing this trend, the bank is expected to declare an interim dividend for the recently ended half-year, enhancing its appeal as an investment, especially for income-oriented investors. Today , with this feat , GTCO has remained the best-in class corporate entity .
Behind GTCO Out Efficient Profit Machine .
The question is :how did the leadership of Guaranty Trust Holding Company Plc deliver the above best-in-class returns to its shareholders in a competitive space that is paved with with several challenges that set every player for failure ?
To live up to any critical success factor,every corporate organization, particularly a profit making one , is naturally confronted with the challenges of environmental forces ,strategic capability which composes of the resources and competences ,and finally, the stakeholders’ influences .
However,GTCO’ s ability to respond to the competing pressures from external and internal environments which could be linked to its capability to adapt new strategies to a changing business environment , to stretch and exploit the competencies of an organization and to meet expectations created the regulatory and governance framework ,powerful stakeholders ,ethical considerations and culture. All these are highly imperative and could be linked to the above feat. Moreover , to outperform competition, its possession of unique resources and core competencies in some critical areas are maximally imperative.
GTCO has made the difference with its leadership unusual and strategic thinking that stands it out among its peers. The bank’s Chief Executive Officer , Mr. Segun Agbaje has left nobody in doubt about GTCO;s corporate direction and competitive strategy ; he reiterates this belief at the slightest opportunity : “ we are not in the race for revenue and assets size but in competition for scaled overall business growth and underlying profitability”.
A look into the size of its financial resources of GTCO and its profit margins relative to its peers confirm and shed more light on its unusual competencies . Of all tier 1 banks , it has the least financial asset as well as the customer deposits , the two critical factors that determine how much is allocated to loans the main source of income and profitability in banking and the amount of investible funds available to it .In the period review ,its total assets stood at N15.6trn out of which its Deposit from customers was N10. 7trn while total assets of Access Bank , United Bank for Africa, Zenith Bank and First Bank Holdings were N41.09trn ,N31.80trn , N30.38trn and N27.49 trn respectively. Out of which their customers deposits were N22.28trn ,N22.97trn ,N21.57trn and N16.72 trn respectively.
Yet GTCO delivered the biggest profit and best in class performance compared to its rivals through its competitive strategy that combines low cost and premium service delivery to gain its efficiency leadership in the industry.
With this business model and strategy had gross earnings inched up impressively and wrenched up bottom line with a deft application of management’s experience beginning from leveraging net interest income in 2024 ; it generated a Gross Earnings of N1.798 trillion , up by 111.47% from N850.33 billion recorded the previous year. Out of the earnings ,the Group reported profit after tax of N1.085 trillion for the 9 months period, up by 195.31% from N367.417 billion reported the previous year. Its Earnings per share of GTCO stands at N36.87 and a 60 percent net profit . Earnings per share (EPS) shows how much profit a company makes for each share of its stock while Net profit margin is the percentage of total income you get to keep after all expenses and taxes are paid.
Without any doubt, thinking differently has taken the bank very far since it was established . GTCO remains the most cost-efficient. Today , it has remained the best-in class corporate entity with singular habit
Configuration of GTCO’s Most Efficient Operational Machine.
By hauling up net interest income by 162.7 percent to N 781.48 billion from N297.54 billion, GTCO showed that its unmatched capability the the risk of mismatches between assets and liabilities and between borrowing and lending rates.The growth was primarily driven by growth in Banking Earning Assets (EA) volumes and improved yield recorded by the Banking verticals
Though its interest expense rate was leggy at 158 percent to N198.7b from N77b , by moving up the interest incomes faster to N980.3b by 161.7% from N374.6b , GTCO was able to rein the interest risk environment induced by the skyrocketing inflation and interest environment to inched up its net interest income by 162.7 percent ; this is a guide to how well it manages the interest rates it pays for borrowing and lending. It jumped many paces to give a positive outlook to pre-tax profit. With this feat , its net interest margin to 9.8 percent from 7.8 percent .net interest income,
The bank didn’t only prevail on the interest rate risk , by suppressing the growth of its credit risk with the provision on credit risk loss coming down by 29percent , the bank was able to boost the bottom line by driving up its interest income after impairment by 245 percent to N718b from N208b .
GTCO’s leadership savvy for cost optimization also reflected in its non interest income segment driven by the volume of transactions and cost optimization. Non-interest income increased by 71.9 percent to N817.9 from N475.8b . A detailed analysis of incomes from this segment shows the high pedigree of the bank’s leadership; it revved up some items from this aspect of its balance sheet, stressing that it holds the key to stabilizing earnings especially at a time that the world of interest rates volatility . As much as N180.2 billion was made from fees and commissions and other sundry items by the bank. This is 97.4 better than last year’s N91.billion. The rising figure indicates that the bank is mindful of the deleterious effects of rising interest rates .
This consequently led to a greater Operating income N1.5trn, an increase of 124.3%. This was made possible after an interplay of forces as its Operating expenses rose as a slower by 61.1percent to N294.3b from 182.7 to boost its bottom line aggressively .
The Surplus Units
To boost its bottom line aggressively it has to adequately satisfy the surplus units from which it borrows with the best possible term in rates of interest and maturity structures and the maximum liquidity that enabled depositors to have the funds back when they wanted them , or as agreed .The bank’s customer Total Deposits hit N11.2 trillion, an of +77%, YoY and 49.0% when compared with N7.547trn figure in 31 December 2023.
In the period under review, its Term deposits grew by 11.4 – to hit N1.46trn 13 from N846.09b to contribute 13percent to the customer deposits which grew by28.6% to hit N10.68trn from N7.41trn while its contributed 60.8% to the total as it grew 60% to N6.50trn from N4.44trn just as its which grew by 28.6 % to hit N2.72trn from N2.12trn contributed 26.2% to the total customers deposit.
With only 13 contribution from its term deposit to the total customer deposits of in 2024 compared to 60.8 percent current deposits and 26.2 percent as saving deposits in 2024 , the reason behind its leadership as the most efficient player is settled . In 2024 , the the costly deposits was foregone in favour of cheaper and more stable deposits resulting in a reduction of expensive and shorter dated deposits .
This culminated in the reduction of cost of funds which declined for the year. The results were a testament of the bank’s capability to deepen its roots in the retail segment. This has led, in the main, to a remarkable increase in the volume of transactions across various electronic platforms as well as significant customer acquisitions. This growth in transactions on the bank’s digital channels continues to support the bank’s retail push as fees from e-products increased with retail deposit balances also growing. The bank also stated that it would continue its investment in the retail end of the market to consolidate its leadership in both the corporate and retail segments.
Guaranty Bank remains a clear leader in the digital space, with several firsts in the deployment of innovative products, solutions and an assortment of alternative channels that ensure convenience, speed and safety o transactions.“To continue to cater to the varied appetites of our customers in a constantly changing world and stay ahead of the competition, therefore, we have invested massively in new technologies and innovative solutions in the last financial year. This is geared towards ensuring that we continue to provide best in class quality services that create value for all our stakeholders,” he said, noting that Fidelity Bank made significant progress in the adoption and integration of sustainable banking principles into its business, especially in its credit administration process.
The Deficit Units
The deficit units from which borrowed from the banks were equally kept satisfied . . This was made possible by the bank’s capability to build its total assets aggressively over the years .Its total assets grew by 61.1% per cent ₦15.616trn from N9.691trn , 31 December 2023 , while shareholders’ fund grew by 78.2 percent to N2.63trn from N1.48trn . For such weighty shareholders’ fund, it is natural to pull in heft deposits as total customers deposits grew hit ₦11.248trn from N7.547trn in December ,2023, up by 49.0%. This strong balance sheet with more than enough liquidity ratio of 43.5% helped the bank to deploy a Net loans and advances of ₦3.021trn, up by 21.8% compared to N2.480trn in 31 December 2023 ,and consequently, the massive interest income which was delivered .
The Regulatory Authorities
The fourth constituency adequately satisfied by GTCO is the regulatory authorities with its capability to ensure no excessive risks were taken as it operated prudently and within stipulated regulatory requirements . With its Net loans to deposits 26.9% as against 32.9% , Liquidity ratio 43.5% compared to 31.1% and Capital adequacy ratio 39.6% as against 21.9% ,IFRS 9 Stage 3 loans to total loans at 3.1% (31 December 2023: 4.2%), coverage for lifetime credit impaired loans at 331.3% compared to 191.1% as at 31 December 2023 and Cost of Risk driven down to to 2.2% from 4.5% as at 31 December 2023 , GTCO has fortified itself against any unforeseen circumstance of risk .
The bank’s balance sheet was robust as the loan to deposit ratio, liquidity ratio and capital adequacy ratios were 44.2 per cent, 72.0 per cent and 25 per cent respectively, all well above the regulatory threshold. However, there was a moderation in the bank’s capital adequacy ratio (CAR), from 27.0 per cent in 2017 as a result of the initial IFRS9 adjustment for the new expected credit loss (ECL) model for impairment recognition. The bank’s non-performing loans ratio, however, increased marginally to 4.9 per cent in 2018 from 4.7 per cent in 2017. However, this is still within the regulatory threshold and far below industry peers.
The bank has assured shareholders of the bank’s commitment of continuing to deliver superior returns in the years ahead.
| Key Financials (N’ billion) Q3-2024 Q3-2023 ∆% Interest income 980.3 374.6 161.7% Non-interest income 817.9 475.8 71.9% Operating income 1,514.1 675.0 124.3% Operating expenses 294.3 182.7 61.1% Profit before tax 1,219.5 433.2 181.5% Profit after Tax 1,085.0 367.4 195.3% Earnings per share (in Naira) 38.4 13.0 195.9% Q3-2024 FY-2023 ∆% Total assets 15,615.8 9,691.3 61.1% Net loans 3,020.5 2,480.3 21.8% Deposit liabilities 11,247.7 7,546.9 49.0% Key Ratios Q3-2024 Q3-2023 ROAE (post-tax) 70.4% 44.5% ROAA (post-tax) 11.4% 6.5% ROAE (pre-tax) 79.1% 52.4% ROAA (pre-tax) 12.8% 7.7% Net interest margin 9.8% 7.8% Cost-to-income ratio 19.4% 29.7% Q3-2023 FY-2023 Net loans to deposits 26.9% 32.9% Liquidity ratio 43.5% 31.1% Capital adequacy ratio 39.6% 21.9% IFRS 9 Stage 3 Loans 3.1% 4.2% Cost of risk 2.2% 4.5% Coverage (with Reg. Risk Reserves) 331.3% 191.1% Key Financials (N’ billion) | Q3-2024 | Q3-2023 | ∆% |
| Interest income | 980.3 | 374.6 | 161.7% |
| Non-interest income | 817.9 | 475.8 | 71.9% |
| Operating income | 1,514.1 | 675.0 | 124.3% |
| Operating expenses | 294.3 | 182.7 | 61.1% |
| Profit before tax | 1,219.5 | 433.2 | 181.5% |
| Profit after Tax | 1,085.0 | 367.4 | 195.3% |
| Earnings per share (in Naira) | 38.4 | 13.0 | 195.9% |
| Q3-2024 | FY-2023 | ∆% | |
| Total assets | 15,615.8 | 9,691.3 | 61.1% |
| Net loans | 3,020.5 | 2,480.3 | 21.8% |
| Deposit liabilities | 11,247.7 | 7,546.9 | 49.0% |
