With profit after tax of N142 billion, total assets of N4.6 trillion and shareholders' funds of N755.5 billion for the nine months ended September 30, 2020, Guaranty Trust Bank Plc has recorded an impressive performance, writes Goddy Egene
Shareholders of Guaranty Trust Bank (GTBank) Plc heaved a big sigh of relief last week after the bank announced its nine months results ended September 31, 2020. The bank reported a performance that was commendable considering the operating environment that prevailed in the review period.
The economy has suffered from the COVID-19 induced lockdown and companies operating are expected to feel the negative impact. Hence, there were apprehension over what the financial results of listed companies, including banks, would look like at the end of third quarter (Q3).
However, GTBank reported a resilient results, showing growth in most performance metrics. The bank recorded a net income of N188 billion, up from N173 billion in the corresponding period of 2019. Net fee income stood at N33 billion, compared with N47 billion in 2019. Loan impairment charges soared by 267 per cent from N2.762 billion to N10.145 billion in 2020.
GTBank ended the nine months with a profit before tax (PBT) of N167.352 billion as against N170.652 billion in 2019, and profit after tax of N142.283 billion compared with N146.989 billion in 2019.
Loan and deposit book grew by 4.5 per cent and 25.1 per cent from N1.502trillion and N2.640 trillion recorded as at December2019 to N1.569 trillion and N3.303trillioninSeptember 2020 respectively.
GTBank's balance sheet remained well structured, diversified and resilient with total assets and shareholders'funds printing at N4.574 trillion and N755.5 billion respectively. Full impact capital adequacy ratio (CAR) remained very strong, closing at 23.9 per cent. Similarly, asset quality was sustained as non-performing loan(NPL) ratio and cost of risk (COR)closed at 6.5 per cent and 0.6 per cent in September 2020 from 6.5 per cent and 0.3 per cent in December 2019 respectively.
In all, GTBank Plc continues boast of the best performing indicators in terms of all financial ratios including: post-tax return on equity (ROAE) of 26.3 per cent, post-tax return on assets (ROAA) of 4.6 per cent, and cost to income ratio of 40.2 per cent.
Commenting on the performance, the Managing Director/CEO of GTBank Plc, Mr. Segun Agbaje, said: "Our third quarter (Q3) 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 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."
According to him, as an organisation, "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."
Assessing the results, analysts at FBNQuest Research said GTBank's 9M PBT of N167bn implies that the bank will have to deliver Q4 PBT of N68 billion to meet its full year guidance of N235 billion.
"While this is not impossible, we believe that it would be a stretch given the prevailing macroeconomic and low yield environment. Management was unwilling to revise its guidance on its Q2 2020 conference call. As such, it appears the bank's current run-rate is more in line with our N229 billion full year PBT forecast. Further down the profit and loss (P&L), PAT missed by 12 per cent, largely because of a negative result of -N4.4 billion in other comprehensive income (OCI). Despite this, the bank's PAT still implies a healthy annualised ROAE of 28.9 per cent, ahead of its full year ROAE guidance of over 25 per cent. We expect a neutral reaction from the market following the limited surprises on the results," they said.
Speaking only on the third quarter(Q3) result, FBNQuest said Q3 PBT grew five per cent to N57.6 billion on the back of six per cent increase in pre-provision profit and two per cent reduction in operations expenses(opex). Pre-provision profit growth was driven by 10 per cent increase in funding income, thanks to a sharp reduction in interest expense.
In bid to sustain its impressive performance and deliver returns to shareholders, the bank is proposing to diversify into payment service banking (PSB), asset management business and pension administration among others. This the bank hopes to achieve through the adoption of a holding company (HoldCo) structure.
The Central Bank of Nigeria (CBN) has given the bank an approval-in-principle to commence the transform into HoldCo structure. According to the bank, reorganisation is expected to be implemented by means of a scheme of arrangement with its shareholders pursuant to the Companies and Allied Matters Act.
Agbaje explained that the competitive landscape as it were for the non-core banking businesses didn't warrant the bank retaining the subsidiaries and pushing it into adopting the HoldCo model.
He said: "We got our universal banking license in 2001. But you will remember that when the financial crisis happened, universal banking license was cancelled and the CBN decided that you either stay as a bank, or you went into a holding company structure.
"At the time, because the competitive landscape was very different from what it is today, we decided that we were going to focus on our banking business, and it was the right decision for us then. Because we went from number seven in profit to number one, some years, we have been number two, but basically, we have been number one most of the years."
The MD/CEO said while it was the right decision to take at that time, he added that the competitive landscape today has necessitated diversifying the banking earnings, hence, the decision to go the HoldCo way.
"When you look at what is happening to banking, or you look at what I've been describing to you, and the people who are basically looking to take banking income, it is time to diversify our earnings. The only way you can legally diversify your earnings in Nigeria today is going into a holding company structure, because as a pure bank, you cannot do more than banking," he said.
According to Agbaje, the bank proposes to diversify into payment service banking (PSB), asset management business and pension fund administration (PFA). He explained that this diversification would not distract its core banking business.
It envisages to go greenfield with the PSB while seeking to acquire an asset management company and a PFA. Nevertheless, if acquiring these companies are expensive, the bank has the option of going Greenfield with them. And for now, is not looking the way of insurance business, even though it is not foreclosing the idea of operating the business in the future.
Agbaje stressed that poised to take advantage of opportunities inherent in the HoldCo arrangement, GTBank has therefore looked at some sectors that "create great synergies for it to create great opportunities."
"We looked at some sectors, which we think today create great synergies for us and create great opportunities. The first one is payments. We love the payment landscape, you can see what is happening with FinTechs, we think we should compete with the FinTechs, we think we should grow the business, and that it is definitely a business for the future. And so it's a place we would like to play to diversify the earnings base of the bank. We like asset management. The reason we like asset management is that it complements our business, we've grown a very good retail business today. Sometimes when people want a higher yield, then we lose that money to other institutions. But, we will create our own asset management company so that when the retail money looking for yield leaves us, it goes to someone that is in our ecosystem, and we consolidated profit and loss. A system where you can do payments, you can do asset management, once you come into your bank ecosystem is what we are beginning to build," he said.
Talking on the PFA, Agbaje said the PFA business is continuing to grow. Hence the need to focus on it and benefit from it.
"And essentially what we are trying to do is do as much as we can for the customer base that we have. And we think that this is a good place to start and that this will diversify our earnings base and create value. The go to market plan for this is very simple. I have started to tell you about the first one, which is the diversifying to what we think of complementary businesses and services, payments, asset management, and PFA for today, there might be other businesses, the people like the one I always hear about is insurance. But I think that if we are going to be dominant in the businesses that we have picked, it is better we focus and we stop with those. And then maybe one day down the road if we're very successful with everything else, we can look at insurance. We are also going to face our core banking business we are never going to let that drop because GTBank Nigeria continues to be the mother ship for us, and apart from our corporate business which is very strong, which will continue to hold, we will make sure that we continue to deepen our retail and SME business," he said.