BANKS: GTBANK Plc Continues to lead in earnings performance

In recent years the Annual General Meeting of Guaranty Trust Bank Plc have been a celebration of what  remains the most profitable banking operation in Nigeria. This brand equity has been exported to make the bank a successful international brand. At present the number of foreign subsidiaries with the bank’s Group is 10 with total investment of about N40billion. GTB plans to continue with this growing trend in its global strategy. 

Some few years ago, some researchers at the University of Lagos conducted a study to find out if certain corporate governance variables are significant predictors of bank performance in Nigeria. As part of the accompaniments of the research outcome, it was found that Guaranty Trust Bank came out top as one the best governed banks in Nigeria and this was significant in explaining the corresponding top rate performance achieved by the bank over the years.

Remarkably it has continued with this tradition of implementing best practice governance in areas of board composition and oversight, executive compensation, financial reporting, shareholder relations, corporate social responsibility, internal control, procedures and compliance. The Board is composed of very reputable and distinguished professionals including 2 key independent Directors. Three different Committees of the Board are instituted to make policies and oversight the risk Management function alone in a bid to ensure maximum integrity.

A system also exists whereby the control function is decentralized and attached to every business area to minimize incidences of transaction errors and malfeasance. This is complemented by a whistle blowing policy backed with an effective response system. The Board Risk Committee performs important duties of overseeing the operational risks function by ensuring that relevant policies are adequately complied with  and that appropriate mitigants are in place.

Capital Adequacy

GTB, by all measures qualify as one of the top 3 capitalized banks in Nigeria. As at 31stDecember 2014, the bank operated with a shareholdersfund of N369billion, the third highest ‘in the industry for the year, up from N329billion. Obviously, the bank is ever conscious of the level and coverage of capital base and has used internal and external means to shore it up at a pace that surpasses the average industry growth rate.

In fact, some seven years earlier, when equity capital closed at N47.4billion, the bank ranked about 8th  in the absolute level of capitalization. As it worked to increase the size of business risk and ascend to the top of performance ladder in the industry, the board and management consistently monitors how adequate capital is to provide cushions for new businesses in ways that meet both regulatory and prudential requirements.

A measure of how the bank improved in coverage of capitalization can be gleaned from our analysts measure of relationship between shareholders’ fund and estimated Naira size of risk asset portfolio.  Our analysts pitched  this at 18% in 2007, when the bank ranked about 13th  by this measure.

In 2014, we estimated this at 25% with the bank occupying a position in the top 4 of the industry. Clearly the bank had substantial leverage to continue business expansion even if capital remains at present level. With regulatory capital to risk assets requirement of 15%, we consider that on the minimum, risk asset expansion of about N900billion would not dent the adequacy of existing capital, all things being equal.

Loan Impairments and Asset Duality

GTB is no doubt one of the top 3 banks actively financing the economy through different forms of loans. As at 31s December 2014, total loans outstanding was about N1.2trillion. it was just N121billion in 2007 when the bank occupied the 8th  position in the industry. Notwithstanding, this massive exposure growth, strict risk governance standards had consistently kept non performing loan ratios below 5% in the last 10 years. The ratio remained at 5% in 2013 and 2014 even as gross loan grew from N947billion to N1.2trillion.

To underscore the desire of the bank to continue to maintain bespoke quality in risk assets and consistently satisfy regulators, the bank  invested in  two  software to drive credit risk management and reporting, namely the Lead to Loan and OFSAA Basel II solutions. These softwares are robust in headline customer profiles, rating assessment, disbursement, recovery and documentation among others.

Liquidity Ratios, deposit Mobilization

Over the years Guaranty Trust Bank enjoyed the advantage of customers’ flight to safety. This worked with design of innovative liability products which enabled the bank to steadily increase deposit. As at 31st  December 2014, traditional customers’ deposits were as high as N1.44trillion. One of the factors that have encouraged customers to deposit their money with the bank would appear to be the conviction that their funds are not at risk and that the bank would be able to meet obligations at all times.

Historically, the bank had always maintained a balance between risk asset creation and ability to meet obligations. According to our analyst’s estimate, liabilities adjudged to be vulnerable to unplanned obligation is about N1.49trillion out of which demand liabilities amounted to N808billion. Cash and card equivalents in relation to such vulnerable deposits were 13% down from 20% in 2013. Liquid assets to total assets also declined from 42% to 38% in a period the entire industry witnessed sectoral erosion of liquidity. Adjusted liquidity also reduced from 50% to 37%.

Notwithstanding the decline observed in this metrics, it is reassuring that all ratios were significantly above regulatory minimum as the bank continued to demonstrate capacity to meet all obligations not only to depositors but to all other stakeholders.

Earning and Profitability

Perhaps one area GTB has shown clear market leadership is in its ability to churn out excellent earnings. In 2014  the bank achieved gross earnings of N247billion, up from N220billion in 2013. In absolute terms, this was the third highest figure in the industry for the year out of which interest income accounted for 73% or N180billion. During the year, the bank made significant improvement in earnings arising from foreign exchange transactions. These include fees and commissions on Letter of Credit transactions and trading and translation gains on forex positions.

The leadership shown by GTB here can be seen if these figures are related to level of resources devoted to the business. Firstly, the adjusted interest income margin of 71%, though a slight reduction from 74% in 2013, is a top of the industry performance which underlines  the high quality of earnings from risk assets and dexterity in mobilization of low priced liabilities. Operating expenses rose marginally from N71billion to N79billion.

Accordingly profit after tax ultimately rose to N93billion, a figure that was the highest in the industry  during  the year and translated to Return on Equity of 27%, another top of the industry performance for the year. Earnings per share also increased from N2.91 to N3.11, a pace-setting result in a year that was generally tough for the sector. Given the obviously top rate performance, the bank rewarded shareholders with a dividend of N51.5billion or N1.75 per share.

As we put together the 2015 profile of GTB for repeat of this publication in April 2016 the first nine months result of 2015 is already showing a resilient in the earnings performance.