GTCO: Enhancing Profitability With Capital Raising Exercise

Guaranty Trust Holding Company Plc’s proposed $750 million capital raising exercise will enhance its profitability and shareholders return, writes Kayode Tokede

The Group’s proposed plans to raise $750million capital aimed at bolstering its capital reserves in order to meet new regulatory targets of the CBN.

GTCO in a statement stated that it could issue shares or bonds in Nigeria or internationally to raise the funds and capital market analysts have expressed that the move is poised to drive the group’s profit further and impact positively on shareholders’ return.

The plan is to raise the fund through the issuance of securities comprising ordinary shares, preference shares, convertible and/or non-convertible notes, bonds or any other instruments, in the Nigerian and/or international capital markets.

According to the company, the capital raise shall be by issuance of securities which consists of ordinary shares, preference shares, convertible or non-convertible notes, bonds or any other instruments in the Nigerian and international capital markets.

The group with about N2.01 trillion total equity as of March 2024 from N1.48 trillion reported December 31, 2023, has consistently grown its retained earnings amid rewarding shareholders.

 Retained earnings stood at N923.23billion as of March 31, 2024 from N580.03 billion in 2023 as share capital and share premium remained at N14.72 billion and N123.47billiion as of March 31, 2024.

On the backdrop of effective management, GTCO sustained sound first quarter (Q1) ended March 31, 2024 and full financial year ended December 31, 2023 performance.

The financial institution commenced 2024 on a remarkable note, surpassing other banks in profit generation amid N331.55billion fair value gain on financial instruments in Q1 2024 from N99 billion fair value loss on financial instruments in Q1 2023. 

The financial institution delivered outstanding growth in profit before tax and profit after tax, gaining about 587per cent and 686per cent, respectively in unaudited Q1 2024. 

In Q1 2024, GTCO declared N509.35billion profit before tax, a growth of 587 per cent from N74.09 billion declared in 2023, while its profit stood at N457.13 billion in Q1 2024, representing about 686per cent growth from N58.17 billion reported in Q1 2023. 

The Group’s balance sheet remained well structured, diversified, and resilient with total assets and shareholders’ funds closing at N13trillion and N2trillion, respectively.

Full Impact Capital Adequacy Ratio (CAR) remained very strong, closing at 24.9per cent, while asset quality was sustained as IFRS 9 stage 3 loans improved to 3.1per cent in March 2024 from 4.2per cent December 2023.

However, the lender sustained its profit growth momentum and delivered outstanding performance in 2023 full financial year results and accounts for period ended December 31.

The Group in 2023 financial year  leveraged synergies created through the Holding Company structure, its robust foreign exchange liquidity, efficient capital planning, well-crafted and executed retail strategy, well-structured and healthy balance sheet to post a 184.5per cent increase in profit before tax to N609.3billion in 2023 from N214.2billion in 2022 with the Nigerian operation accounting for 77.6per cent, West Africa – 17.3per cent, East Africa – 2.3per cent, UK – 1.9per cent and Non-Banking Entities – 0.9per cent.

Profit after tax stood at N539.65 billion in 2023, representing about 219 per cent from N169.17 billion declared in 2022 financial year.

Amid growth in profit, the directors of GTCO recommended the payment of a final dividend of N2.70kobo per ordinary share of 50 kobo (bringing the total dividend for the financial year ended December 31, 2023, to N3.20kobo.

Key drivers of profit in 2023FY

The Group’s gross earnings closed 2023 at N1.19 trillion, a growth of 120 per cent from N539.2billion in 2022, driven by a growth in core banking activities from increased transactional volumes and enhanced “Other Income”.

From the profit & loss figures, Interest income stood at N550.8 billion in 2023, representing 69.3 per cent from N325.4 billion in 2022, and it was further complemented by the 197.3per cent growth recorded in non-funded income that stood at N635.7 billion in 2023 from N213.8billion in 2022.

The key driver for the 72.6per cent increase in interest expense to N114.1billion in 2023 from N66.1billion in 2022 is on the backdrop of the 120 basis point  pick up in the cost of savings account on the back of an increase in MPR; 18.75per cent in 2023 compared with 16.5per cent in 2022.

Net interest income increased to N436.7billion in 2023, a growth of 68.4per cent from  N259.3billion in 2022.

The increase in interest rates in response to rising Inflationary pressures impacted interest paid on savings accounts, leading to an increase in the cost of funds from 1.2per cent in 2022 to 1.4per cent in 2023.

The Group increased its loan impairment charges to N103.0billion in 2023 from N12.0billion in 2022 as a precautionary provision against the impact of unfavourable changes in macroeconomic variables on its Stage 2 Facilities as permitted under IFRS 9.

Total operating expenses (Opex)  closed 2023 financial year At N250.4 billion in 2023, about 26.5 per cent or N52.5 billion growth from N197.9billion in 2022,  primarily as a result of an increase in AMCON levy and NDIC premium, incremental depreciation charge arising from capital spending, increase in energy costs and upward salary reviews (salary review to cushion the effect of rising inflation).

Opex growth was also impacted by translation as functional currencies in the Group’s Jurisdiction of operation outside Nigeria also depreciated against the US Dollar in 2023.

Well-structured, diversified balance sheet

The audited result and accounts of GTCO for full year ended December 31, 2023 showed balance sheet improvement amid challenges in the banking sector. 

The group balance sheet remained well-structured and diversified with total assets closing at N9.69 trillion in 2023, an increase of 50.33per cent from N6.45trillion reported in full year (FY) ended December 31, 2022, to maintain a well-structured and diversified balance sheet across its Banking and Non-Banking Business Verticals (Payments, Pension and Funds Management).

 The growth in group’s balance sheet was driven by an increase in the Asset base of GTBank Ltd as the Bank benefitted from the net effect of devaluation on its FCY denominated assets and liabilities (USD to Naira at the I&E Window closed N907.11 against the dollar  in 2023 from N461.50 against the dollar in 2022.

Total assets of the Non-banking subsidiaries increased significantly by 312 per cent or N265.3billion to N350.2billion from N85 billion in 2022, contributing 3.6per cent to the Group’s Total Assets, up from 1.3per cent contribution in 2022.

The Group continued to adopt a cautious approach to loan growth amidst uncertainty in the operating environments of the jurisdictions wherein it operates. Consequently, net Loans increased to N2.48trillion in 2023 from N1.89 trillion in 2022, representing 31.5per cent growth (2.4per cent without devaluation).

Customer deposit liabilities grew by 65.2 per cent, from N4.485trrillion in 2022 to N7.411trillion in 2023, with low-cost funds growing by 68.1 per cent (N6.565trillion vs N3.906trillion) resulting in low-cost deposit mix of 89perr cent from 87per cent in 2022.

The group’s total equity moved too N1.48 trillion as at December 31, 2023, a growth of 58.6 per cent from N931.15 billion in 2022.

The Non-Banking Verticals posted strong growth in Assets Under Management and Transaction Processing volumes. Guaranty Trust Fund Managers (GTFM) recorded a growth in AUM of 251per cent (N379.9billion vs N108.3billion) between 2023 and 2022 and even stronger growth of 1,239per cent over post-acquisition AUM of N28.4billion.

Conclusion

Commenting on Q1 2024 unaudited results, the Group Chief Executive Officer, GTCO, Mr. Segun Agbaje, in a statement said “Our first quarter results reflect the unfolding value of what we have created in all our business verticals through the Holding Company Structure – from Banking and Payments to Funds Management and Pension, we are positioned to compete effectively on all fronts and fulfil all our customers’ needs under a unified, thriving financial ecosystem.

“Despite the challenging operating environment, we delivered a solid performance, recording significant growth across all financial and non-financial metrics, and we remain on track to meeting our full year guidance.”

Agbaje further said: “Looking ahead, we will continue to focus on strengthening our relationships with our loyal customers, supporting not just individuals and businesses but also our communities through our well-attested free business platforms as well as innovative products and services.

“We are confident in our credentials to lead the future of financial services in Africa and will not relent in our commitment to excellence whilst delivering long-term value to all stakeholders.”

In 2024 and beyond, the Group expects revenue streams from all its Business verticals to continue to grow as the Financial Holding Structure continues to gain traction and consolidate on current achievements; specifically, it expects earnings from the non-banking Subsidiaries (i.e., Payments, PFA, and Asset Management) to strengthen and contribute 2-3per cent of the Group’s performance by 2024.