Guaranty Trust Holding Co. (GTCO),reported a 12% fall in nine-month (9M) profit as its loan book shrank, deposit costs jumped and a heavier tax bill cut into earnings.
The results expose pressure on a business model that now relies more on government securities than on lending.
Profit after tax fell to N614.57 billion in the nine months to September, from N699.64 billion a year earlier, according to unaudited results filed with the Nigerian Exchange on Tuesday.
Earnings per share dropped 19.9% to N16.58. Pretax profit slipped 2.3% to N879.9 billion, while the standalone third-quarter after-tax profit fell 20% to N200.39 billion.
Worry No. 1: A Bank That Isn’t Lending
GTCO’s gross loans fell 4.6% in nine months to N3.08 trillion, even as customer deposits rose 9.4% to N13.73 trillion. The group lent out only 22 kobo of every naira of deposits, down from 26 kobo in December, on MoneyCentral calculations.
Net loans now make up just 16% of its N18.37 trillion of assets. Cash, bank balances and securities account for 63%.
Interest income from loans to customers fell 3.6% to N434.51 billion, and lending now provides only about a third of total interest income. Interest on cash and placements jumped 62% to N319.47 billion.
Rivals meanwhile are expanding their loan books: Zenith grew loans 14% and Wema 21% in the first half, according to earlier MoneyCentral reports.
Worry No. 2: Deposit Costs Rising faster Than Income
Interest paid to customers jumped 42.5% to N325.25 billion as GTCO paid more for term deposits. Those deposits grew 15.4%, against 2.6% for cheaper savings accounts.
Total interest expense rose 27.7%, five times faster than interest income. Net interest income slipped 1.7%, and in the third quarter it fell 10.5% as interest expense rose 34%. CardinalStone Securities estimates GTCO’s net interest margin fell to 9.8% from 11.4%.
The squeeze is worst at home. Interest expense paid in Nigeria rose 66%, while interest income earned outside Nigeria fell 16%.
Worry No. 3: The Tax Bill
The effective tax rate rose to 30.2% from 22.3%, on MoneyCentral calculations. Income tax climbed 31.9% to N265.32 billion and included an N18.3 billion charge for underpaying tax in earlier years.
Current company income tax jumped 41% and this was the main reason pretax profit fell only 2.3% while after-tax profit fell 12.2%.
The new 10% withholding tax on Treasury bill interest hits GTCO especially hard, because it holds so much of its assets in government securities.
ChapelHill Denham in a report said GTCO is rebalancing toward a 70:30 mix of bills and bonds and expects a rate of no more than 31.5% for 2026.
Worry No. 4: Costs Rising Faster Than Income
Operating expenses rose 9.5% while operating income fell about 2%, pushing the cost-to-income ratio to 31.4% from 28.1%, on MoneyCentral calculations.
Depreciation and amortisation jumped 41% to N82.46 billion, with software amortisation up 76%. Directors’ pay rose 72% to N4.45 billion.
The AMCON levy, the statutory charge banks pay to the government’s bad-debt agency, rose 9.8% to N55.86 billion.
Worry No. 5: Profit Quality
Lower provisions and recoveries are propping up earnings. Loan loss charges fell 58% to N29.02 billion. Without that saving, pretax profit would have fallen about 7%, according to MoneyCentral calculations.
There was also an early warning sign in the loan book. The headline nonperforming-loan ratio improved to 4.0% from 5.0%, on MoneyCentral calculations. But impairment allowances on stage 2 loans, which show a significant rise in credit risk but have not defaulted, increased 17-fold to N14.35 billion from N831.7 million in December.
Worry No. 6: Foreign Units and Fees
GTCO earns about a quarter of its pretax profit outside Nigeria, mostly from Ghana, Kenya, CĂ´te d’Ivoire and Liberia. A strengthening naira has reduced the naira value of that business. Currency translation losses of N167.6 billion went through other comprehensive income, which records gains and losses that do not pass through the income statement. As a result, total comprehensive income fell 34% to N495.03 billion.
Fee income was flat at N213.55 billion. E-business income rose 41% to N60.81 billion, but fees on financial guarantees halved and account service charges fell 32%.
Dividend Drains the Holding Company
GTCO paid N429.83 billion in dividends to shareholders this year, against N239.98 billion a year earlier, leaving an impact on Group equity, which rose only 2.1% to N3.48 trillion.
Retained earnings at the holding company fell to N60.29 billion from N453.34 billion, while annualised return on equity was about 24%, on MoneyCentral calculations.
Earnings per share fell faster than profit because there are more shares in issue after its capital raise. The weighted average share count rose to about 36.55 billion from about 33.2 billion, according to Bloomberg data.
Bottom-line
Guaranty Trust Holding Co. (GTCO) used to be seen/known as Nigeria’s most profitable lender a few years back, however the bank seems to have stopped innovating and has let competition from upstarts likes of OPAY, and established names like Zenith Bank and FirstHoldCo to eclipse it.
To be sure there are a few bright spots in the 9-Month results. Assets at Guaranty Trust Fund Managers doubled to N901.3 billion, led by a money market fund (MMF) that more than doubled to N678.65 billion. Integration of the MMF (and other Funds ) into GTCO’s mobile App (GT World) may have helped here.
Customer deposits also grew 9.4%, so the group is not short of funding.
However the real problem for GTCO is a lack of lending as the central bank cuts rates, as well as waning innovation, as you cannot cost cut your way into growth.
No wonder the stock is lagging. It closed trading at N123.20 Per share on Tuesday, well below its 52-week high of N156.95 Per share.
Valuation for the stock has dropped to 1.37x book value from as high as 1.8x recently, while it is now valued at only N4.5 trillion ($3.37 billion), below FirstHoldCo N7.04 trillion, Zenith Bank N4.94 trillion and OPay $4 billion.
GTCO stock will likely keep selling off until investors get a sense of where the next growth phase will come from.
With a small balance sheet that management refuses to deploy into lending, Fintechs like OPAY and MoniePoint eating its lunch, and Tier-One names such as Zenith Bank and FirstHoldCo muscling it out with their bigger balance sheets that they are deploying in loans, investors in GTCO will likely continue to remain in worrying agony for a while, until a new business model is deployed by the bank.
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