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Investors Sour on GTCO as Doubts Emerge Over Agbaje’s HoldCo Strategy

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Investors are not buying the rosy growth picture painted by the Group CEO of Guaranty Trust Holding Company (GTCO) Segun Agbaje, that led to the transformation of the bank into a Holding Company (HoldCo) earlier this year.

GTCO stock is the worst performer year to date among major banks tracked by MoneyCentral, with shares of the lender down 22.72 percent so far this year to (Thursday Nov. 25th), compared to a 7.05 percent increase in the Nigerian Exchange Groups (NGX) all share index in the same period.

“Segun reiterated a number of times that HoldCo was not necessary about decade ago, so what has changed that HoldCo has now become the new opportunity, if not a way to sit tight and maintain control on the bank’s management,” a market source told MoneyCentral on condition of anonymity due to the sensitive nature of the subject.

“The forced exits of Executives who people believe were strong is negative,” the source said.

GTCO’s stock performance compares to Access Bank stock which is up 7.69 percent year to date (ytd), FBN Holdings up 67.83 percent, UBA down -5.78 percent, Zenith Bank down -1.41 percent, Stanbic IBTC Holdings down -13.73 percent and Fidelity Bank up 1.59 percent ytd.

Agbaje in a presentation late last year in which MoneyCentral was present said the erstwhile, Guaranty Trust Bank (GTBank) decided to adopt a Holding Company model that will comprise commercial banking, payment services, and pension fund assets, to diversify its revenue base and remain competitive in the light of the regulatory environment and market dynamics.

There has been however little or no clarity on its plans to diversify its income streams since it became a Holding Company this year beyond acquiring 100 percent shareholding in Investment One Pension Managers., as it continues to struggle to grow earnings.

Investment-One Pension Managers is a fringe player in the Pension Funds industry however, with total assets of just N1.4 billion at the end of 2019 and GTCO is expected to undertake major expenses to grow the business organically going forward.

The firm had market share of just 82,585 Retirement Savings Accounts (RSA), making up 0.9 percent of the 9.3 million RSAs as at the end of March 2021.

GTCO’s net income fell by -9.05 percent to N129.4 billion in the nine months’ period to September 2021.

That compares to Zenith Bank’s 0.80 increase in net income; Access Bank, (+19.15 percent); Fidelity Bank, (+29.92 percent); First City Monument Bank, (-71.45 percent); Stanbic IBTC Holdings, (-26.41 percent); Union Bank, (-10.79 percent), Sterling Bank (28.44 percent) and UBA’s +35.61 percent.

Analysts say GTCO is struggling to grow earnings as pressure remains on its interest income, with banks earning only 0.5% as yields on the Central Bank of Nigeria (CBN) special bills.

“GTCO struggled in the second quarter (Q2) and third quarter (Q3) as interest income moderated. Pressure from the payment service banks (PSBs) will impact on their fee and commission income as well,” said Ayodeji Ebo, Head of Retail Investment at Chapel Hill Denham, at a conference in Lagos last week.

The CBN introduced special bills to banks (which they can tender for cash if need be through the Expanded Discount Window), as a means of refunding excess cash reserve ratio (CRR) debits.

The Special Bills have a tenor of 90 days, subject to rollover at the instance of the CBN.

The CRR is a mandatory cash deposit which should be held with the Central Bank of Nigeria, as a regulatory requirement.

CRR is non-interest bearing and is not available for use in the bank’s day-to-day operations. As at November 2021, the CRR in force was 27.5 percent, compared to 22.5 percent in December 2019.

Nigerian banks’ restricted balances with the Central Bank of Nigeria (CBN) soared by 85 percent to N8.83 trillion (December 2019: N4.75 trillion) as at 30 September 2020, representing the cash reserve requirement (CRR), according to data compiled by MoneyCentral.

GT Holding Company had restricted balances of N908.958 billion with the Central Bank of Nigeria (CBN) as at 30 September 2021.

Beyond the lower interest income, GTCO also had issues relating to higher expense lines on its AMCON charge and administrative expense which rose by 27.2 percent and 131 percent respectively in 9 months 2021.

It’s not all doom and gloom though if GTCO can execute its plans well going forward.

“Owning a robust asset management business will help HoldCos like GTB as they are not exposed to Loan and Deposit ratio or CRR requirements and HoldCos can then sweat those assets,” Ebo of Chapel Hill said.

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