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Despite daunting challenges ranging from rising inflation, heightened foreign currency risks and punitive regulatory environment, Guaranty Trust Holdings Company (GTCO) Plc delivered record profit as the lender maintained its position as the most efficient Bank in Nigeria.
Without ingratiating magniloquence, GTCO has the healthiest balance sheet that validates an excellent risk management strategy as it has the highest Buy ratings on its stocks by investment houses than peer rivals.
FX gains, high yield environment, cost control underpins profit
For the year ended December 2023, GTCO’s gross earnings surged by 120.02 percent to N1.18 trillion, from N539.2 billion in December 2022, driven by a growth in core banking activities from increased transactional volumes and enhanced Other Income.
Interest income and similar income followed the same growth trajectory as it spiked by 69.25 percent to N550.75 billion as at December 2023, thanks to growth in earning asset volumes (32.8 percent) coupled with a 210 bps increase in yields on Fixed Income Securities.
Net interest income (NII), is the difference between the revenue a bank earns from its interest-bearing assets and the expenses of its interest-bearing liabilities, increased by 68.41 percent to N436.69 billion in the period under review from N259.30 billion as at December 2022.
Just as its peer rivals, GTCO benefitted from foreign exchange revaluation gains led to a 219 percent surge in profit after tax (PAT) to N539.65 billion as at December 2023.
It is important to note that profit also was bolstered by fees and commission come that jumped by 18.97 percent to N109.24 billion as at December 2023.Interestingly, fees earned from the growth in
Asset Management Unit (AuM) of GTFM, GTPM and Habari complemented fees arising from increased transactional volumes in the Digital space -E-Banking income (N40.8 billion vs. N37.7 billion), growth in Credit-related fees -19.6 percent (N9.1 billion vs N7.6 billion) and Commission on trade transactions- 70.3 percent (N14.9 billion vs N8.7 billion).
Efficient Cost Management amid inflationary pressures
Through a well-executed cost control mechanism, the management of GTCO has been able to tame operating costs that supported profit growth.
The lender saw a 26.5 percent growth in Operating Expenses (OPEX), however, it came in below headline inflation rate in Nigeria of 33.15 and average Inflation rate in Ghana of 40.3 percent; the two Jurisdictions that accounts for 81 percent and 88 percent of the Group’s balance sheet and profit before tax (PBT) respectively as December 2023.
It is important to note that the increase in operating expenses were due to growth in regulatory costs- Deposit Insurance Premium and Asset Management Corporation (AMCON) expenses and the impact of depreciation of functional currencies across all Jurisdictions where the lender operates. In Nigeria, the twin impact of devaluation of the Naira and Fuel subsidy removal led to increased Technology, Repairs and maintenance cost and growth in the amount incurred on personnel cost and outsourced services.
All in all, cost to income ratio reduced to 29.13 percent in December 2023, from 48.03 percent the previous year.
GTCO is the stock with highest ROE among peers
GTCO is a lender that provides consistent dividend and stable earnings regardless of economic downturn or over all conditions of the stock market.
Also, the lender has maintained its position as the most efficient bank in Nigeria, as its management is more efficient in generating income and growing its equity financing than peer rivals.
For instance, GTCO recorded a return on average equity (ROAE) of 44.82 percent as at December 2022.
That compares with Zenith Bank, 36.57 percent; Access Bank Holdings, 36.25; United Bank for Africa Plc., 41.17 percent; FBN Holdings, 23 percent; Fidelity Bank, 27.10 percent; First City Monument Bank, 25.93 percent; Stanbic IBTC Holdings, 30.75 percent, Wema Bank, 32.45 percent, and Sterling Bank, 12.78 percent.
Good asset quality validates excellent risk management strategy
The most efficient lender in Africa’s most populous nation has continued to maintain a well-distributed loan book with a specific focus on asset quality across select business segments.
These strategies have yielded fruits as non-performing loans (NPLs) reduced to 4.19 percent in December 2023 from 5.19 percent the previous year.
Exposures to the upstream, midstream, downstream, and natural gas oil & gas sector increased from 30 percent, 9 percent, 2 percent, and 0 percent to 31 percent, 14 percent, 3 percent, and 3 percent, respectively between full-year (FY)-2022 and (FY) -2023.
The total restructured loans stood at N386.2 billion in FY-2023 significantly influenced by naira devaluation increasing from N280.5 billion in FY-2022 and constituting 14.8 percent of the gross loan portfolio. Ninety percent of the restructured loans relate to one obligor and all the restructured loans have been appropriately classified as Stage 2 Facilities.
GTCO shields itself from macro headwinds with strong capital/liquidity ratios
A healthy balance sheet intensified by strong capital and liquidity positions combined with consistent earnings growth means GTCO is impervious to macroeconomic headwinds.
The Group continued to maintain strong capital positions with Full IFRS 9 impact Capital Adequacy Ratio (CAR) of 21.9 percent (Bank: 21.0 percent) based on approved CBN June 2023 capital position, 690 bps above the regulatory minimum of 15 percent (590bps if adjusted for additional 1% loss absorbency ratio).
The paramount significance of a robust capital position provides the Bank with the needed headroom required for future expansion and risk-taking.
It is worth noting that GTCO’s capital has also been sensitized for Basel III compliance at three levels of Naira devaluation: ₦1000, N1300, and N1500/$1 and is robust enough to meet the requirements of additional capital buffers for conservation and counter-cyclical events under Basel III and impact of the expected growth in the value of FCY risk-weighted assets.
The Bank’s liquidity position closed at 31.1 percent in FY-2023 down from 49.9 percent in FY-2022 but above the regulatory minimum requirement of 30 percent.
Improved digital banking performance
GTCO recorded strong growth in both volume and of digital banking, reflecting customers’ preference for online and internet banking.
Mobile Banking value grew from N32.8 trillion in 2022 to N38.4 trillion in 2023 on the back of a 27 percent increase in volume from N625.3 million to N490.6 million from increased adoption. Internet Banking continues to supplement mobile app usage with strong growth recorded in both value (N3.33 trillion vs N2.62 trillion) and volume (N10.9 million vs N8.8 million).
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