GTCO Sustains Profitability, Dividend Payout to Shareholders

Kayode Tokede

Guaranty Trust Holding Company (GTCO) in its audited half year ended June 30, 2022 maintained a track record of profit generation, and interim dividend payout to shareholders despite numerous challenges facing the banking sector.  

The group reported 11 per cent growth in Profit Before Tax (PBT) to N103.25 billion in half year 2022 from N93.06 billion reported in H1 2021 with PBT contributions from Banking Entities ex-Nigeria improving to 32.8 per cent in half year 2022 from 25.5per cent in half year -2021 and the non-Banking Entities accounting for 0.6 per cent of the H1 2022 PBT.

On the H2 2022 Earning Per Share (EPS) of N2.79, the board proposed an interim dividend of N0.30 and it is an interim dividend yield of 1.52 per cent as the stock closes on Monday at N19.80 on the Nigerian Exchange Limited (NGX).

The management effective management of topline performance, core banking operations, and cost despite the hike in inflation played a critical role in PBT growth in the period under review.

Take for instance, the Group’s gross earnings increased by 15.1 per cent to N239.3 billionn in half year 2022 from N207.9 billion in half year 2021, primarily from growth recorded on all revenue lines apart from the Other Income line that dropped by 14.9 per cent.

From the profit & loss figures, Interest Income increased by 16.7 per cent to N147.2billion in half year 2022 from N126.0 billion, driven by the 17 per cent growth in average volumes of Earning Assets.

A five per cent growth in the Average volume of Gross Loans (1.7 per cent actual) complemented by the 0.8 per cent yield pick-up translate to a 13.5 per cent growth in Interest earned on Loans and advances to N104.1 billion in half year 2022 from N91.7 billion in H1 2021 and played a significant role in aggregate growth of Interest Income.

Interest expense

The Group’s interest expense grew by 38.4 per cent to N26.4 billion in H1 2022 from N19.0 billion in half year 2021 due to an increase in Cost of Funds to one per cent in H half year 2022 from 0.7 per cent in half year 2021 and culminating in a dip in Net Interest Margin (NIM) to 6.5 per cent in half year 2022 from seven per cent in H1 2021.

Also, the Group grew the volume of its fee-based transactions resulting in a 21.4per cent (N8.2billion) growth in Fee and Commission Income to N46.5 billion in H1-2022 from N38.3 billion in H1 2021.

Fee and Commission growth can be attributed specifically to the growth in Corporate Finance Fees to N5.3 billion in H1 2022 from N1.6 billon reported in half year 2021 and Current Account Maintenance Charge (CAMF) that increased to N9.4billion in H1 2022 from N7.8 billion in H1 2021 on the back of 28 per cent growth in turnover volumes to N14.7 trillion from N 11.5 trillion during the same period.

The Group’s loan impairment charges decreased by 25.4 per cent to N3.5billion in half year 2022 from N4.7 billion in H1 2021 due to the level of risk reserves built up from previous years.

However, the Group’s total Operating Expenses (OPEX) grew by 11.3 per cent or N10.1 billion to N99.5 billion in H1 2022 from N89.3 billion in half year 2021 primarily from increased regulatory cost associated with growth in Balance Sheet size i.e. AMCON levy and NDIC premium, incremental depreciation charge arising from capital spend, inflation hovering between 17per cent -18.6 per cent for the most part of half year 2022, the effect of an increase in energy costs and impact of adverse exchange rate movement against the US Dollar across the bank’s jurisdiction of operations outside Nigeria in H1 2022.

As the Financial Holding Company continues to gain traction, as the bank stated that it is expecting revenue base to become stronger and further diversified to withstand stress. It also expected income from Non-Banking Subsidiaries (i.e., Payments, PFA, and Asset Management) to strengthen the Group’s performance with resultant improvement in profitability metrics.

Stronger balance sheet

The Group closed H1 2022 with Balance Sheet size of N5.69 trillion representing a 4.6 per cent growth over N5.44 trillion recorded 2021 FY.

Across all its jurisdictions of Operations (West Africa, East Africa and the United Kingdom), the Group’s Balance sheet remains well structured and diversified. Earning Assets, which constitute 63.1 per cent of Total Assets grew by 4.1 per cent to N3.58 trillion in H1 2022 from N3.44 trillion in 2021 financial year.

The growth in Earning Assets resulted from an improved funding base backed by the synergy created through the Holding Company i.e. multi-focused business approach and effective execution of the Group’s  retail strategy; which is underpinned by customer acquisition, deployment of innovative solutions, tailored product & service offerings and well-defined business segmentations.

Growth in Customer Deposits, Customers’ Escrow Balances was deployed across all the key Earning Asset Lines resulting in 8.32 per cent (N118.42billion) and 1.7per cent or N32.0 billion growth in Fixed Income Securities (FIS) and Loans and Advances, respectively.

Group’s Net Loans closed at N1.835 trillion in half year 2022 from N1.803trillion in 2021; the growth noted is from the N57.6 billion increase in the loan book of Nigeria’s operations, due to increased credit flows to the Corporate (Manufacturing and Telecoms) and Retail Sectors.

The growth was adequate to offset the negative impact of the translation of Subsidiaries’ Loan balances to Naira based on currency adjustment (N425.05/$1 in H1 2022 vs N435/$1 in 2021 FY).

Customer Deposit Liabilities grew by 6.24 per cent or N250.3 billion) from N4.012 trillion in 2021 to N4.263 trillion in H1 2022 as a result of low-cost funds which increased by 6.5 per cent (N224.2 billion) from N3.438 trillion in 2021 to N3.662 trillion in H1 2022, resulting in low-cost deposit mix of 85.9 per cent from 85.7 per cent in 2021.

Stronger financial ratios

In spite of the challenges and headwinds which characterized the operating environment with attendant negative impact on businesses and households in half year 2022, the Group posted Pre-tax Return on Average Assets of 3.7 per cent and Pre-tax Return on Average Equity of 23.9 per cent on the back of efficient and timely deployment of appropriate strategies to deal with challenges as they arise.

The group’s total capital adequacy ratio closed at 22 per cent, significantly higher than the minimum regulatory requirement of 15 per cent.

The liquidity ratio closed at 38.85 per cent in half year 2022 (FY 2021: 38.26 per cent) well above the regulatory minimum requirement of 30 per cent.

Despite the pressure from intense competition and the need to cover for regulatory debits, the Group maintained an average liquidity ratio of 39.44per cent during the Period under review.

Reactions

The Group Chief Executive Officer of GTCO, Mr. Segun Agbaje, in a statement said, “Our results show an increase in key revenue lines and a strong performance in other financial metrics which reinforce our growth prospects as a leading financial services company.

“Our priority at the start of the 2022 financial year was to bring the Group’s new businesses on-stream, starting strong with a focus on long-term viability.

“At present, we have successfully expanded our financial services ecosystem to include HabariPay Limited, Guaranty Trust Fund Managers Limited, and Guaranty Trust Pension Managers Limited, and all of them are P&L positive.”

He further stated that, “These newly created businesses will operate alongside our flagship banking franchise to offer increased value to our growing customer base as well as other stakeholders.

“We will continue to build on our core strengths of service excellence, innovation, and flawless execution to deliver our corporate objectives for the year and further our vision of being Africa’s leading financial services institution.”  

Analysts View

According to analysts at Coronation Research, “Net interest income was in line with our expectations. However, profits were lower than our and the market’s expectations following higher-than-expected tax charges and operating expenses. We are worried about the slow growth in the group’s loan book, while concerns remain around the elevated operating expense profile. However, we are encouraged by the fact that the group maintained its dividend payout despite the drop in earnings.

“On the positive, as we expected, interest rates have risen significantly in recent weeks. As a result, the benefits of rising asset yields are likely to filter through to funded income and support earnings in Q3. In addition, the stock has declined by 23.5 per cent y-t-d and is trading at a deep discount to its peers and historical valuation. This presents an attractive entry opportunity for investors. Accordingly, we maintain our BUY recommendation on the stock.”