How Banks Stand: 20 years on, GTBank still leads

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GTBankFrom inception GTBank set out to redefine the practice of banking as they met it. Once in existence everybody took notice of it for what it brought to the industry – vision, excellence, innovation and quality service. Its growth was therefore expected and it did not disappoint. With all the turbulence in the industry in the past decade, the bank emerged unscathed – strong and better.

You are lucky for banking with, or investing in Guaranty Trust Bank Plc. Undoubtedly, the bank has a good revenue-profit blend with an averagely impressive stock market performance.

Also, it remains strong in the industry as a result of well integrated operations and branch networking through ICT driven platform, architecture and innovative banking products plus efficient customer service delivery.

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Because of these longstanding desirables, no one including buy side analysts talk about its increasing exposure to energy, power and oil and gas sector.

Nonetheless, the bank continues to trend in the commonwealth of profitable deposit money banks with a well managed income capacity.  But, its risk profile has increased, with the exposure in these volatile sectors.

Not only has it exposed to some volatile sectors in the economy; its credits were comparably impaired by as much as 146% in 2014 as against 2013 result. To stakeholders, that is not a plus for the industry cost leader, and perhaps most profitable bank in Nigeria.

Already in the third generation of its leadership, analysts are beginning to wonder whether the corporate culture that defined the GTBank brand is coming under pressure. The culture of excellence that once exemplified the brand seems to be withering. Frequently, subdued complaints have been heard in the banking hill about unsatisfactory service. Branch expansion has not kept pace with customer growth leading pressure on service delivery.

Although its leadership has witnessed quick succession, luckily, it has been internally generated which ensuring that its vision and corporate culture remain protected. 

GTB infraction

In the recent time, a customer obtained judgment against GTB for illegal deduction from account without customers’ knowledge.

There were two issues, primarily, that arose. According to the dictate of International Financial Reporting Standards, any event after the reporting date requires the bank to provide for contingent liability or disclose the detail.

Well, did the bank management, perhaps its Chief Financial Officer considered this? If yes, bravo! But anything short of a yes may prove grave on the result, the bank itself and the auditor.

GTBank Performance scorecard

In its 2014, the audited financial statement of the Guaranty Trust Bank Plc showed that there was significant level of divestment into foreign currency transactions. Apart from some of its limits, in the banking space, the brand has turned to be the pride of the industry as deposit money bank of value.

Its sterling performance came stronger than expected in 2014, perhaps due to apparent shift in focus into dollar denominated businesses. But analysts observed that there seem to be a general shift in focus across the industry. As well, first quarter result 2015 looks promising that forecasted performance will be achieved.

In 2014, a detail look into the bank’s numbers shows that the bank exposure to upstream, midstream and downstream oil and gas industries accounts for 37% of total loans. This translated to N474 billion while foreign currency loans accounts for more than 51% of the bank total loans. In spite of this, the bank prides itself as having quality assets even while foreign loans exposure raise the dust.

There is a current trend in the operational focus; a shift in strategic lending to dollarised loans was spotted in 2014 result.

This can be considered to be good enough for the shareholders but may be considered bad for the economy and specifically to local industries. However, the spotted trend was general to DMBs, partly because of the need to improve bottom lines.

In its quest to increase the shareholders wealth, the bank earned N3.74 per ordinary share; declared N1.75 per unit of dividend for year 2014 comprising 25 kobo interim and 150 kobo final dividend. This represents a 2.9% increase over N1.70 paid in 2013.

Its profit performance was driven by more than 27% growth in loan book which was premised on growth in deposit liabilities.

It also enjoyed significant increase in transaction volume; thereby raised commission earned in the year. That said, a growth in commission from financial guarantees, foreign exchange trading and e-banking services were noted.

Leadership of the bank

Apart from the bank’s focused leadership and management team, efficient system and robust infrastructure, the result was as well helped by about 12% improvement in income from subsidiaries not to mention sound management of the bank’s foreign exchange position.

“There is consistency, there is focus and market acceptance is strong when it comes to GTBank as a brand. It is a good time to go with GTBank as either customer or investor”, Ogochukwu Ndubuisi, a Marketing Consultant told Hallmark.

Also, some brand experts agreed that the bank has strong brand culture while Broad street analysts see it as the pride of the banking industry. The bank reinforced its leadership role in the banking sector to be the first bank to publish its 2014 result on the floor of the Nigerian bourse.

The analysis of the bank result showed that it has as usual delivered positive growth in both top and bottom lines despite regulatory headwinds and an overall harsh operating environment that have squeezed banks’ earnings in 2014.

How the key performance indicators fair

The Bank’s gross earnings advanced by 14.8% from N242.7 billion in financial year 2013 to N278.5 billion in 2014, 4.3% slightly higher than analysts at Afrinvest N267.1 billion forecast for 2014. In the same vein, profit after consideration for tax expenses (PAT) also advanced by 9.6% to N98.7 billion in 2014 relative to N90.0 billion in the previous year.

Again, this is 7.7% higher than analysts at Afrinvest N91.6 billion 2014 PAT estimate. However, the bank’s PBT and PAT margins moderated to 41.8% and 35.4% in 2014, lower than 44.1% and 37.1% recorded in 2013 respectively.

 Accordingly, return on average equity (ROAE) and return on average asset (ROAA) weakened to 27.9% and 4.4% in 2014 compared to 29.3% and 4.7% in 2013. Despite the fact that these key performance indicators tapered year on year; they are still higher than Tier-1 Bank average ROAE: 20.2% and ROAA: 2.1%.

Operating expenses grew by 13.85% from N82.64bn in 2013 to N94.08bn in 2014. Operating expense growth was partly attributed to a 17.53% growth in Assets Management Corporation (AMCON) levy which jumped as a result of the growth in the bank’s total assets. This was as a result of certain expenses from the bank newly acquired subsidiaries (including staff salaries) for its Kenyan group.

This is however lower than its close peer – Zenith’s. Cost to Income Ratio of 62.4% as well as industry average of 61.5% in third quarter of financial year 2014.

Net interest margin (NIM) remained pressured; it was down due to reduced profitability as business environment and cost of funds inched.

GTBank’s net interest margin (NIM) deteriorated to 7.5% from 8.2% in 2013 against the backdrop of a significant 20.2% rise in interest expense which doused the 8.2% growth delivered in interest income in 2014.

This substantial spike in interest expense can be attributed to amplified rivalry for deposits, bolstered by the CBN policy that increased CRR on private sector fund from 12.0% to 20.0% and public sector from 50.0% to 75.0% funds.

This is also supported by the marginal increase recorded in its Cost of Funds (CoF) from 3.7% in 2013 to 3.8% in 2014. Nevertheless, this is significantly lower than the Tier-1 Banks’ average of 4.0%, reinforcing GTBank’s brand and vigorous retail franchise to attract cheaper deposits.

The bank’s aggressive loan portfolio development saw that it sustained bullish growth in its risk assets, up by 27.1% as against 28.6% in 2013. In a bid to cover up for lost income as a result of the hawkish CBN policies, the Bank sustained its aggressive loan book growth in 2014.

GTBank’s Net Loans rose by 27.1% to N1.3 trillion in 2014, which is slightly lower than 28.6% growth in 2013.  Meanwhile, the bank recorded a 146.0% growth in impairment charges from N2.9bn in 2013 to N7.1bn in 2014.

The loan book growth performance was attributed to about 57% increase in the bank’s foreign currency loan book. However, the bank claimed that the foreign denominated loan book was made to high quality names in the manufacturing, maritime, oil and gas industries as well as the revaluation factor.

Apparently, the bank funded the growth in dollar denominated loan book with the $400 million Eurobond accessed in 2013. Of the bank’s loan book, more than 51% are in foreign currency while the growth in Naira loan book went down as the bank intentionally divested from state governments’ related loans.

The bank has about 21% exposure to oil sector as percentage of its loan book by industry, follow by 17% to manufacturing concerns. Its non-performing loan (NPL) due from oil sector as percentage to total non-performing loan stood at 8%.

At the end of 2014, NPL ratio berthed at 3.15% as against 3.58% in 2013. Information Telecoms and Transport sectors account for about 34% of the NPL 

Consequently, the cost of risk doubled to 0.6% in 2014 from 0.3% in 2013 probably on the back of Bank’s exposure to battered oil & gas space which accounted for 28.0% of total loan advanced in second quarter of financial year 2014.

In term of size, the Bank’s total assets advanced by 12.0% to N2.4 trillion in 2014, funded primarily by loans which stood at 54.4% of total assets.  That noted, portion of loan covered by deposits -Loans to Deposits ratio -spiked to 77.7% in 2014 from 69.9% in 2013, 2.3% below the CBN statutory benchmark of 80.0%.

That suggests that the mark may limit its latitude to take advantage of future opportunities in creating risk assets, except deposit growth improves significantly in 2015.

The result however shows effectiveness of the management continuous quest to manage operating and financing costs. At the moment, high operating cost is one of the features that characterize the sector. Currently, ability to manage costs remains one of the key performance indicators in the banking sector.

GTBank performance, both in term of service delivery and financial results have been attributed to the vision conceived by its founders.

 

This has always defined the building block for all its business transactions and activities.

To maintain service quality, the management expended significant amount on training and re-trainings its members of staff. To confirm this, the Chartered Institute of Banking of Nigeria recently recognised the bank training school.hallmark.