GTB: how the godfather of retail banking strategy bolsters earnings, market share

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GTBank

GTB: How the godfather of retail banking strategy bolsters earnings, market share

Julius Alagbe

The struggle to serve its customers and shareholders well has been the top priority of Segun Agbaje, the Group Managing Director and Chief Executive Officer at the Guaranty Trust Bank Plc.

The financial service boutique’s blockbuster earnings performance for 2019 was strongly efficient driven.

The cost cutting strategy is simple, a no-brainer but tough thing to do at a time when average inflation rate steeply moved and a slowly moving gross domestic product.

Again, as usual, Agbaje kept his eyes on the ball irrespective of the economic throw ups in the financial year 2019.

In the period, the management maintained focus on retail end where the bank was able to aggressively build cheap deposits.

Total deposits to customers increased by 11.4% year on year to N2.532 trillion as against N2.273 trillion recorded in the corresponding year in 2018.

Some 85% of the deposits vault were cheap, an unfair advantage GTBank has over its peers.

The management said, GTBank retail strategy was firmly anchored on focused innovative digital solutions which served as catalyst for consistent low cost deposits drive.

Thus, deposit mobilization resulted to 12% growth in customers’ deposits with 85% being low cost.

This cheap deposits translated to quite low cost of funds following a repricing down the year in 2019 as yield on Treasury Bills and other primary market auction (PMA) plunged.

Traded at N29.40 per share, GTBank market capitalisation pitched at N732.836 billion on Thursday on 29,431,179,224 shares outstanding.

The Bank Chief has often told analysts at conference calls that retail is its central focus and for some years, GTBank has been de-emphasising corporate deals.

Investment analysts said more than often, high ticket transactions are often priced low despite the fact that closing few automatically reduce available funds.

“When a ticket transaction delay, or burst the reprisal effect has always been massive and going concern threatens”, a Senior Banker added.

But then, quality of strategy comes to play and that is where GTBank wonder lies. First, a deeper look into GTBank result gives two signs: Efficient cost management and a focus strategy that emphasises retail.

Towards the end of an era

Vision drives GTBank as its founders often held. GTBank keeps breaking record by outperforming analysts’ estimates year on year.

In June, 2021 Segun Agbaje would be stepping down as the Chief Executive Officer as per the CBN 10-years rule.

Meanwhile, under his leadership, the bank has been continued to be dubbed cost leader and most efficiently run financial service in Nigeria.

In 2019, despite tough operating environment, GTB made N231 billion profit and the lender set aside N34.843 billion income tax expenses to the government.

Thus, its unencumbered profit for the year closed at N196.849 billion.

The amount collected as income from interest yielding assets went down 3.5% from N306.963 billion in 2018 to N296.205 billion at the end of 2019.

In 2019, GTBank earned N181.62 billion on its loan book as against N190.80 billion the bank earned in 2018.

Also, investment securities yielded N103.69 billion compare to N104.53 billion it made in 2018. In addition, it raked in N10.89 billion from placements in 2019 as against N11.63 billion in 2018.

However, the amount paid to providers of fund was significantly reduced from N84.53 billion to N64.842 billion. This affirms the bank leading position at the retail end as cost of funds dropped.

Equity research analysts at Coronation Merchant Bank think that GTBank was able to reprice its deposits faster than the contraction on its yield on assets.

Analysts added that the balance sheet flexibility suggests that the bank may be able to sustain superior performance into the early part of 2020.

GTBank increased non-interest income to support reduction in income from interest yielding assets. Net fees and commission expanded by 17.8% from N50.47 billion to N59.444 billion.

This came as the group marginally raised its gross earnings to N435.307 billion in 2019 as against N434.699 billion recorded in the comparable year in 2018.

The gross revenue performance was strongly supported by significant increase in non-interest income as yield from interest earnings assets sloped downward.

But gain on financial instruments plunged by 15% from N24.584 billion to N20.89 billion. The reduction was due to demand for portfolio adjustments in 2019.

Other income line which comprises recoveries, discounts, rebate & mark to market gains on trading investments came stronger, increased by 11.5% year on year from N50.134 billion to N55.894 billion.

The cumulative effect of the bank operating activities before expenses and other claims consideration resulted to a 5.7% uptick in total operating income.

The audited financial statement shows that GTBank operational approaches delivered a total operating income of N367.59 billion in 2019 as against N347.622 billion in 2018.

GTBank operating expenses for the year jerked up 3%, which was a reflection of highly programmed cost and overhead management.

Average inflation rate for financial year 2019 was 11.4%, at the same activity level, operating expenses would have adjusted in that line.

However, operating expenses surged to N130.391 billion compare with N127.128 billion in 2018.

As a result, operating income settled at N236.62 billion as loan loss provision expanded marginally to N4.912 billion compare with N4.906 billion in 2018.

Analysts at Coronation Merchant Bank said declined in cost to income ratio by 94 basis points to 35.6% makes it the lowest in the Nigerian Banking industry.

Coronation research held that the decline was due to 3% growth in operating expenses as balanced against 5.7% surge in operating incomes.

GTBank assets quality improved, the non-performing loan ratio declined to 6.5% compare with 7.5% in the comparable period in 2018.

The cleaner balance sheet resulted to moderate impairment charge on credit losses in the period despite the fact the GTBank booked more credit assets in the period in line with CBN 65% loans to deposit ratio target.

Loans and advances to customers was expanded to N1.5 trillion, coming from N1.259 trillion in the comparable period.

Read Also: Union Bank reflates earnings, to pay first dividend since 2008

“The loan loss provision remained flat despite more than 16% year on year increase in gross loan book in the period”, analysts said.

Return on assets and return on equities came in 31.8% and 5.6% respectively which equity research analysts at Coronation take at the highest in the Nigerian Banking sector.

“GTBank above peer return on equity was largely as a result of low cost to income ratio”, analysts observed.

In terms of capital, GTBank maintained above regulatory requirement capital adequacy ratio in the year. In 2019 audited financial statement, the bank CAR pitched at 22.5% compare with regulatory minimum of 16% for international banking license.

Analysts said the strong capital position provides headroom for GTBank to grow its risk assets to meet the loan to deposit requirement, which settled at 56.9% in 2019.

Over all, equity research analysts at Coronation held that the bank net profit came in line with expectation and 1% below analysts’ consensus estimate in the year.

GTBank total assets closed the financial year 2019 at N3.758 trillion. This was a 14.33% increase on year on year basis when compare with N3.287 trillion in the comparable period.

Meanwhile, analysis of the audited financial statement revealed that 82% of the total assets were partly financed by liabilities.

However, this remained stable year on year. By that, it implies that 18% of the balance sheet size were funded by shareholders equity.

Total liabilities increased from N2.711 trillion in 2018 to N3.071 trillion driven by aggressive deposit mobilisation.

Total deposits expanded by 11.4% year on year from N2.273 trillion to N2.532 trillion in 2019.

Shareholders’ funds expanded by 19.27% from N576.227 billion to N687.338 billion on the back of increased retained earnings and other components of equity.

GTB: how the godfather of retail banking strategy bolsters earnings, market share

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