When the MD/CEO of Guaranty Trust Bank, Nigeria’s largest bank by market capitalization, Segun Agbaje, addressed investors on the back of a blistering 2016 FY results, he explained to them that he had one major strategy for 2017. The bank was going to lend less to the private sector but lend more to the government. Going by its latest results (2017 half-year), It has now delivered on this strategy.
The bank reported a profit after tax of N84 billion for the first half of 2017, a whopping 17% higher than what was reported the same period last year. A cursory analysis of the results reveals how this was made possible.
GT Bank, first grew its Gross Interest Income by about 51% to N161.8 billion in the first half of 2017 compared to the same period in 2016. A further look at the result shows interest income from available for sale assets (mostly government securities) more than doubled to N37 billion from N14 billion the year before. In fact, non-loan related interest income rose from about N20 billion to N53 billion and mostly related to government securities. The Nigerian government has sold securities at rates as high as 19% in the last 6 months.
The bank also provided for just N7.2 billion in impairment charges in 2017 half-year compared to N37.5 billion in 2016.
Indeed, for GTB, this twin factors are the reasons why the company’s result beat 2016 assuming the same period.
To put this result into perspective, GTB’s loan to customers actually dropped from N1.5 trillion in December 2016 to N1.4 trillion in June 2017. Conversely it increased its investment in government securities from N434 billion to N515 billion only. Out of this amount, Treasury Bills makes up about N502 billion only.
Is this a long-term strategy? Our opinion is that so long as CBN interest rates continue to be as high as 19%, most banks will rather lend to the government than bother with the private sector.