Julius Alagbe

Guaranty Trust Bank Plc is showing more interest in ramping up its retail loan book, said its customers base at the end of first half of 2019 was more than 16.4 million and 50% of the deposit base is retail.

At the end of first half 2019, the bank profit after tax, the highest in the banking sector pitched at N99.1 billion.

Analysts said that the GTBank brand has come to dominate the Nigeria’s banking space as both profit and cost leader. Having pulled significant chunk of the industry’s profit, its cost of funds settled at 2.8%.

Analysts’ observations show that its performance signals positive drive towards building retail loan book.  The bank claims that more than 85% of its deposits base attracts low interest.

Speaking at earnings conference with analysts, Segun Agbaje, the Group Managing Director/Chief Executive Officer said: “If you ask me to describe our business today, I would say it is about 60% corporate, 40% retail.

“It’s a journey where we’ve been deemphasizing the corporate business over the last 7-8 years”.

Agbaje who was appointed to lead GTBank in July 2011 also spoke about his succession plan.  He said: “I think it is in progress, you’ve got to trust us that we know what we’re doing.

“We’ll look at different options. We’ll look at different models. I can assure you that succession and the continuity of the long-term sustenance of the organization is in good hands and will be in good hands”.

Meanwhile, the management gets the words out that the bank will compete effectively with any Fintech operators, Telcos and other Banks. The reaction was informed on the back of threat of the new entrants into the banking space put forward as result of the Central Bank of Nigeria’s licenses to Telecoms.

Agbaje however said: “Telecoms coming into the banking space, of course, will increase competition.

“But I don’t want to use the word threat, I mean, threat is always negative. Competition is positive. So the coming of the telcos will increase competition in the financial services space. Yes, we’ve got to be ready for more competition”, he added.

The bank chief said: “I’d like to believe that GTBank is a very strong bank. It has a strong retail base. It’s very innovative and will compete very effectively with anybody – whether bank, telcos, Fintech and any other space”.

It was learnt that GTBank might be looking at making acquisitions outside Nigeria to bulk up in certain regions.

Confirming this, Agbaje said: “We are looking at our bank strategy. But I think it would be wrong to say at this point that we will not consider other options, we want to continue to grow”.

On the group result, analysts noted that non-interest related incomes has been on the ascendancy and wondered how the bank is leveraging on its retail end of the market.

The bank chief said: “If you look at the books, 50% of the deposit base of this bank today is retail. Yes, 11% is loans and 20% is profit.  But I think that we have diversified the business enough where the reliance on the wholesale business is not as much as it used to be”.

GTBank also stated that its annual Food and Drinks event has impacted its business, as SMEs today is at 12% of the group deposit base.

“I think that in terms of awareness and the fact that we’re ready to pay SME, the event has opened a lot more SME businesses for us”, the management said.

Speaking further, he said: “Mobile banking has grown at about 60% year-on-year.  The bank said it is doing a bit more trade because we’re not as shy to do letter of credit business anymore.

“The size of the digital loan book today is over N25 billion, and the NPL is 0.07% having noted that the bank has 16.4 million customers in the first half”.

While responding to analysts request on funding cost sustainability the management said what happens in the environment really dictates.

“If suddenly we start going up in terms of the macros interest rates environment is going up, then our cost of funds would go up because everybody will reprice their deposits, the clamor for deposits will go up.

“Yes, we like our cost of funds to be down, which is why we have a mix of 85% low interest bearing and 15% high interest bearing.

“But our major concern is what happens to the net interest margin. So, what we will make sure is that even if the cost of funds goes up, the asset yields will go up, and we will try to preserve the net interest margin”, the GMD/CEO said.

According to the bank chief, retail loan NPLs is less than 1%. If you take that in the retail segment, there’s no cause for alarm.

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“Even if you see an increase in classification, in terms of the total loan book, which is today over N130 billion, we are very happy with our retail loan book, and we will continue to grow consumer loans in the way we’ve been doing.

“If you look at the quantum of loans you give in the corporate segment, you can imagine how many retail loans would have to go bad before you equal a corporate loan that goes bad.

“So I tend to think that people exaggerate the risk around the retail segment, considering we lose money all the time in the high-end corporates.

“You see what volume it is. Think how many retail loans would have to go bad for you to get to that quantum? So no, we are not concerned about retail loan NPLs, no at this time”, he added.

But analysts expressed worry over assets quality, noted the increased impairment charge on credit losses and increasing retail loan book. In his response, Agbaje attributed the increase in impairment to Stallion facility.

He said: “Total exposure to Stallion is N10 billion. I mean, we’ve impaired it. It’s something that we believe is showing signs of weakness. That’s the growth we saw in the second quarter. We started to see some things we didn’t like around that name, so we’ve impaired that”.

On overall assets performance, he stated that GTB asset quality has actually improved; NPL has gone from about 7.4% to 6.8%   and no particular loan has gone bad.

NPL-to-total-loans ratio that we recalculated is that we use International Financial Reporting Standards, IFRS 9. There are banks in this environment that are still using prudential guidelines, he said.

Agbaje explained that under IFRS 9, you have to put Stage-3 loans into your calculation, which is what we did. So where we sit, asset quality is better than what it was last year.

“I think when you’re comparing our asset quality, our NPL-to-total-loans ratio. With other banks, you should check and make sure that they are using Stage 3 loans”, he added.

On pressure on yield from fixed income market where the bank has invested heavily, he said if you look at what has happened, the portfolio has gone down from 17% to 15%, which is about a 200 basis point hit.

Agbaje said that he doesn’t believe the pressure is going to get any worse.

“My prediction is that if you look at what has been happening to foreign portfolio investment flows, we are probably as low as we can take interest rates. We might have to start to inch upwards in order to preserve the foreign portfolio investment (FPI).

So I think the yield pressure, we’ve seen the worst of it. I expect it to stay where it is, or it will improve”, he said.

On the CBN directive on 60% loan-to-deposit ratio, Agbaje said the Group is actually 49.9%, which is 50%. The Bank as of half year was 55%.

He stated that as of today, it’s 57% and that is without us adding the 1.5% multiple, which we will be giving for retail loans. So we’re not in any sort of panic in terms of our loan-to-deposit ratio as a bank.

“We think we need to grow N40 billion, which we think is manageable. So we’re really at about 57%, like I said, without applying the 1.5% multiple. So we are not in any danger of creating an NPL bubble, in terms of the LDR of 60%, we are in a very comfortable place”, he noted.

For the bank increased non-interest income, he said: “I don’t even think we started to scratch the surface. What has grown is our transactional income. If you take USSD, it is growing about 45%, mobile banking is growing about 60%, account maintenance commissions are growing”.

The CEO said: “So that increase was even despite the fact that NIP charges were cut from N100 per transaction to N50 but could have been N100 to the end of the year, things would have been a lot better. So I think we are pretty optimistic about maintaining that trend”.

On the failure of stock market to reward GTB performance, Agbaje said:  “let me first start by saying that I try not to get very worried about the share price, because I think that if we keep the fundamentals strong that the share price would eventually find its own level”.

“My thought about what you’ve seen in the market today is, I think, there is a sentiment that the economy is not doing very well.  And you started to hear a lot of things like sell Nigeria. I think we could do things to help our financial sector shares even though we are not the only one that are affected.

“I really think that if we looked at some of the charges and bankers tariff, I think that a lot of them can be adjusted, and they would still be better than they are. I think we can work on giving some positive news in terms of revenues for the banking sector”, he added.

Meanwhile, the bank said it will pay shareholders if it makes money. The management said: “What we always promised is that our dividend payout ratio will be around 50% to 60%. Obviously, you have to take out withholding tax to get to that ratio, but we won’t come below that. If we make the money, we’ll pay it out in a rate in the region of 50% to 60%”.