GTCO Rises by 18% as Public Offer Plan Boosts Sentiment
The share price of Guaranty Trust Holding Company (GTCO) Plc accelerated by 18% over five trading sessions on the local bourse. The increase in market capitalisation of the financial services boutique comes ahead of the anticipated earnings release and public offer.
Details from the Nigerian Exchange track revealed that the financial institution’s share price increased to N48.45 on Friday. Its shares opened the week at N41.1 before being pushed up by significant transactions conducted on GTCO in the market.
In 2024, the banking sector experienced a material shift in its operating environment. Deposit money banks have seen several earnings dilutive directives. However, a relatively high interest rate condition is expected to keep lenders’ net margins strong.
MarketForces Africa can confirm that the financial services group is planning to raise between N450 billion and N525 billion through a public offer to support the capital base of its banking subsidiary, Guaranty Trust Bank.
The decision to raise capital comes three months after Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), said banks will be directed to recapitalise. The apex bank chief said local lenders are not liquid enough to support $1 trillion economy plan by the current administration.
The last recapitalisation in the banking industry was in 2004, when Charles Soludo, former CBN governor, raised the capital base of deposit money banks from N2 billion to N25 billion.
There is a “strong indication that the bank that will soon be in the market to raise N450 billion to N525 billion through a public offer is Guaranty Trust Holding Company Plc (GTCO Plc)”.
The source said that due to various macroeconomic factors, banks are considering a dilutive or non-dilutive approach to shore up their capital. “The capital will facilitate the enhancement of the bank’s ability to book large ticket transactions, as the effect of devaluation has impacted single obligor limits for most banks and thus their ability to book and participate in large ticket transactions,” the source said.
GTCO’s earnings outlook is positive as the industry’s cost leader. The group banking subsidiary has the lowest funding profile, which has consistently translated to a strong net margin.
Due to the latest development in the economy, analysts said recent directives by the regulator pose a threat to the banking sector’s earnings outlook in 2024.
These directives include the regulator’s requirement that sets a limit on banks’ net open position (NOP) on overall foreign currency assets and liabilities, which should not exceed 20.0% short or 0.0% long of shareholders’ funds unimpaired by losses
The apex bank also discontinued its daily cash reserve ratio debits with the adoption of a structured weekly statutory debit on the increases in banks’ weekly average adjusted deposits
There were also sharp increases in stop rates at auctions, and the 400 basis point increase in the monetary policy rate to 22.75% could bode well for banks’ interest-yielding assets.
Concerning the move to push the cash reserve ratio to 45.0%, Afrinvest said it understands that the CBN is considering refunds to banks with a higher effective CRR while debiting those with a lower ratio. Analysts estimate the cash reserve ratio for Tier-1 lenders at an average of 17.3% based on available information, which could signify debits over the near term.
Afrinvest said that given that nearly half of the deposits will be sterilized, banks would adjust lending rates to maintain their net interest margin. Analysts suspect that banks would have to rely on trading and investment income to support 2024 performance given the heightened risky macroeconomic environment for pricey loans. #GTCO Rises by 18% as Public Offer Plan Boosts Sentiment FEC Adopts Oronsaye Report on Civil Service Reform
