Guaranty Trust Holding Company Plc: Thriving in the Face of Headwinds 

Guaranty Trust Holding Company and other Nigerian banks walked murky waters in 2021, with the return on equity receding, even as they surmounted the coronavirus pandemic headwinds that tipped the country into its second recession in less than six years in 2020.

Of course, the low yield environment significantly undermined net interest margins, and this coupled with reduction revaluation gains laid bare the punitive regulatory environment that lenders operate in.

Banks saw income from treasury yield slump on the back of the central bank’s decision a few years ago to bar individuals and domestic firms from its Open Market Auctions which sent net treasury yields crashing.

Also, the regulator’s downward revisions to fee revisions to electronic banking charges, which took effect in January 2020 and were designed to ensure the protection of consumer rights as more individuals are financially included, have had a negative effect on banks’ fees and commission income.

More importantly, profitability has come under pressure due to the high cash reserve ratio at 27.50 percent, which is one of the highest in the world. The CRR requires banks to park an increasing amount of local-currency deposits with the central bank, and restricts their ability to lend as these reserves are only available for intervention funds.

Nigerian banks, over the decade, have been struggling with sluggish economic growth, rising inflation, and low per capita income. The sudden crude oil crash of mid-2014 that tipped the country into its first recession in 25 years in 2016 stoked deteriorating asset quality that spooked investors.

The dollar crunch brought on by the regulator’s inability to formulate transformation policies as well as capital control measures that prevent foreign direct investment has made Nigerian banks the cheapest in the world as investors continue to dump their shares.

In spite of the challenges and headwinds presented by the operating and regulatory environments in 2021 which affected businesses and households, Guaranty Trust Holding Company (GTCO) Plc was able to navigate efficiently, deploying appropriate strategies to deliver Post-tax Return on Average Assets of 3.37 percent and Post-tax Return on Average Equity of 20.60 percent.

GTCO was able to post profit after tax of N174.89 billion as at December 2021. And its net income is the second largest in the industry.

The lender realised N106.79 billion in noninterest revenue, which represents a 2.20 percent increase from 2020’s N104.49 billion as at December 2020.

Net fees and commission income surged by 39.88 percent to N65.65 billion in the period under review from N46.93 billion as at December 2020.

It closed the 2021 financial year with total Assets of N5.44 trillion, which represents 9.9 percent growth from 2020’s N4.95 trillion.

Across all its Banking jurisdictions in West Africa, East Africa and United Kingdom, the GTCO continues to maintain a well-structured and diversified Balance Sheet with Earning Assets constituting 63.2 percent of Total Assets whilst Loans and Advances, Fixed Income Securities and Money Market Placements accounted for 33 percent, 24 percent and 6 percent of Total Assets respectively.

Earning Assets increased by 17 percent to N3.43 trillion in the period under review from N2.93 trillion the previous year. This strong growth is underpinned by the Group’s well diversified and improved Funding base which comprises Customer Deposits, Customers’ Escrow Balances and Equity.

Interestingly, GTCO’s net Loans of N1.80 trillion benefited from the depreciation of the naira, however, the growth in the Naira Loan book (with a gross increase of N113.1 billion) exceeded the N26.70 billion increase recorded on the FCY Loan Book.

Also, the increase in the LCY loan book was principally driven by increased credit flows to the Corporate (Manufacturing, Telecoms & Oil & Gas) and Retail Sectors. The LCY Loan growth and the impact of Management’s decision to de-risk the FCY component of its Loan book (in view of the difficulty experienced by one key Obligor in meeting its repayment obligation) was significant to improve the LCY/FCY Loan mix to 51 percent:49 percent from 45 percent :50 percent recorded in FY-2020.

Customer Deposit Liabilities grew by 14.3 percent (N503.0bn)  to N4.01 trillion in December 2021 from N3.509 trillion in 2020. Low cost funds increased by 10.2 percent (N318.2 billion) to N3.43 trillion in 2021 from N3.12 trillion in 2020, resulting in Low cost deposit mix of 86 percent from 89 percent in full year 2020.

The growth in deposit base was underpinned by the articulate execution of the Group’s Retail strategy in the face of a challenging operating environment and increased competition from Fintechs and Tier 2 Banks who offered higher interest rates.

As a result of the impact of rising headline inflation and exchange rate movement at the official market which precipitated an increase in general prices of goods and services, GTCO’s operating expenses (OPEX) grew by 10.1 percent to N162.30 billion in December 2021 from N147.40 billion the previous year.

Operating cost was largely impacted by increased Regulatory Costs – 27.3 percent growth in AMCON expenses and 21.5 percent increase in Depreciation Expenses.

Continued utilization of the Group’s dollar liquidity enabled seamless repayment of maturing FCY borrowings thereby reducing pressure from exchange rate movement which would have led to increased interest expense from translation impact of depreciation of the Naira against USD as at December 2021.

Repayment of FCY borrowings therefore contributed to the sustenance of Cost of Funds (CoF) at 0.88 percent in FY 2021.

Guaranty Trust Holding Company (GTCO’s) pension and asset management acquisitions are still pending regulatory approval, while its payment subsidiary is awaiting one final approval from the CBN. The bank is targeting a contribution of 30% to group PBT from its non [1] banking subsidiaries in the medium-to-long term.