Guaranty Trust Bank (GTBank) recently released its audited group’s financial statement for the bank and the group for the financial year ended 31 December 2020.
As with prior years, the topline and bottom-line results were impressive. The group reported gross interest income of N300.74 billion in 2020, up by 1.5% from N296.21 billion reported in the corresponding period of 2019. More impressive was the reduction in GTBank’s total interest expense from N53.82 billion at the end of 2019 to circa N41 billion at the end of 2020, representing a reduction of N12.82 billion or 31.26% within a 12-month period.
This significant reduction is explained by policies of the Central Bank of Nigeria in 2020 to drive down market rates in the banking sector. Of particular relevance during the year was the CBN directive to all banks to reduce interest rate payable on savings deposits from a previous minimum of 30% of MPR to a new minimum of 10% of MPR, effectively reducing interest rates payable on savings account deposits from 3.75% to 1.25%per annum. For a bank like GTBank that had approximately 33% of its total customer deposit liabilities in savings accounts throughout 2020, this was a real game-changer in terms of its cost of funds and net interest income.
The increase in gross interest income and reduction in interest expense resulted in net interest income improving to N253.67 billion in 2020 compared to N231.36 billion in 2019, an increase of N22.31 billion or 9.6% year-on-year. The significant increase in net interest income is attributable to increase in interest income from an additional N162.16 billion in loans and advances made to customers in 2020 (mostly to non-individual customers).
Additionally, the Bank’s “Other Income” grew significantly in 2020 on the back of foreign exchange revaluation gains of N56.64 billion compared to the N17.07 billion gained in the preceding year. The implication is that the foreign exchange amount received by the bank during the period translated into significantly more Naira than was originally posted, as a result of Naira devaluation during the period.
Notwithstanding the impressive income numbers, it is surprising that the bank’s profit for the year grew by only 2.3% to N201.44 billion compared to the profit after tax of N196.85 reported in 2019. Given this marginal increase in YoY profit, perhaps the results are not so impressive after all.
To try and understand the reasons for the marginal increase in YoY profit, we first noticed that the bank’s loan impairment charges increased four-fold to N19.57 billion in 2020, compared to N4.91 billion in 2019. This is indicative of a deterioration in the quality of its loans and advances. It was noted that in response to the COVID-19 pandemic, the bank granted a 90-day grace period on all Small and Medium Enterprise loans. This was further extended to 6 months in June 2020 and may account for the deterioration in the quality of the bank’s loans and advances.
The effect of this huge increase in loan impairment charge was to reduce the net interest income (after loan impairment charges) to N234.1 billion (N253.67 billion before impairment charge) compared to N226.45 billion (after loan impairment charges) in 2019 (N231.36 billion before impairment charge in 2019).
The bank’s Capital Adequacy Ratio also slightly deteriorated during the period. As at December 31, 2020, the group’s capital adequacy ratio was 21.89% (December 31, 2019 – 22.51%). Note however that while the group’s CAR may have declined, it remained firmly more than the regulatory 16% minimum for Domestic Systemically Important Banks. The group’s Liquidity Ratio at the end of the year was 38.91%, a deterioration compared to the 49.33% liquidity ratio at the end of 2019. The regulatory minimum liquidly ratio is 30%, although at one point during 2020, the bank’s liquidity ratio was as low as 28.54%. So, the group remains well in compliance of the minimum limit.
Given the results of its international expansion, the strategy for aggressive international expansion is not very obvious. The group currently has ten subsidiaries (although two out of the ten subsidiaries are sub-subsidiaries) with nine located in West and East Africa, while one is located in Europe. Its Nigerian presence however dominates all ten subsidiaries as GTBank in Nigeria accounts for 79.78% of total group revenues: 84.54% of Group Profit before tax; 80.37% of Group Total Assets; 81.51%of total liabilities; and 85%of Group Net Assets.
In addition, total investments in the ten subsidiaries (or eight subsidiaries if we discount the two sub-subsidiaries) totalled N56.9 billion at the end of 2020 (N55.81 billion in 2019); however, two of the subsidiaries (GTBank Tanzania Limited and GTBank UK Limited) are loss-making, with GTBank Tanzania Limited making a loss of N415.46 million and GTBank UK Limited making a loss of N1.66 billion in 2020. GTBank UK Limited generated income of N3.55 billion in 2020 but incurred expenses of N5.17 billion in the same period. The performance of GTBank Ghana Limited is however an exception, generating 65.34% of the total N28.22 billion profit before tax generated by all eight subsidiaries.
Operations in GTB Finance B.V. Netherlands was discontinued during the period with a loss after tax of N16.39 million. It is arguable whether with minimal international presence or international presence in other locations, the bank would have generated better returns on investment on the N56.9 billion invested in subsidiaries as at the end of 2020.
During the 2020 financial year, an interim dividend of 30 Kobo per ordinary share on the issued capital of 29,431,179,224 ordinary shares of 50 Kobo each, for the half-year period ended June 30, 2020, was declared and paid. The bank’s directors have recommended payment of a final dividend of N2.70 kobo per ordinary share of 50 Kobo. If approved, this will bring the total dividend for the financial year ended December 31, 2020, to N3.00 kobo per ordinary share (2019: N2.80K per ordinary share).