H1: GTCO Beats the Odds to Hit N1tn Profit Milestone

Despite the challenging operating environment, Guaranty Trust Holding Company recorded a profit before tax of N1.004 trillion for the half year ended June 30, 2024, writes Kayode Tokede

Guaranty Trust Holding Company (GTCO) in its audited half year(H1) ended June 30, 2024    historically crossed the N1 trillion mark in profit before tax(PBT), becoming the first Nigerian financial institution to attain such milestone achievement.
The Group reported profit before tax of N1.004trillion in H1 2024, representing an increase of 206.6per cent over N327.4billion recorded in the corresponding period ended June 2023.  Nigerian operations accounted  for 84per cent, West Africa – 13per cent, East Africa – 1.1per cent, United Kingdom – 1.1per cent and Non-Banking Entities – 0.8per cent.

Also, the Group’s profit  after tax (PAT) closed H1 2024 at N905.6 billion, about 222.86per cent increase from N280.48 billion reported in H1 2023.
On the H1 2024 earning s per share (EPS) of N32.12, the board proposed an interim dividend of N1.00 and it is an interim dividend yield of 2.11per cent as the stock price of GTCO closed Friday (September 20, 2024) at N47.50 on the Nigerian Exchange Limited (NGX).

Amid macroeconomy challenges, the Group leveraged on effective management of topline performance, synergies created through the holding company(holdco) structure, utilising its robust foreign exchange liquidity, benefitting maximally from the structure of its balance sheet as Naira suffered massive devaluation, core banking operations  played a critical role in remarkable PBT growth in H1 2024.
The Group’s gross earnings stood at N1.39 trillion in H1 2024, about 107 per cent increase from N672.6billion in H1 of 2023 due to growth in transactional volumes and sustenance of its solid balance sheet structure which led to significant increase in net interest earning and enhanced other income.

GTCO’s interest earnings moved to N617.9 billion in H1 2024, about 173.5per cent increase from N225.95 billion in H1 2023, primarily on the back of growth in Earning Assets (EA) volumes of Banking subsidiary resulting from increased funding and complemented by yield uptick, as well as increased interest earnings posted by GTCO Fund Managers(GTFM) and GTCO Pension Managers (GTPFA) as these business verticals effectively deployed assets under management (AUM) volumes to higher yielding investment securities. Average volumes of EA were up by 90.7per cent; earning asset yields improved y-o-y to 12.72per cent in H12024 from 9.93per cent in H1 2023.
GTFM’s interest income grew from N5.1billion in H1 2023 to N19.6bn in H1-2024 principally from earnings on GT Investment Note Funds. GTPFA also complemented the Group’s interest earnings, posting N405.3million (60.9per cent) growth (N1.07billion vs N0.66billion) during the same period.

The 173.5per cent growth in interest income was further assisted by the 73.4per cent growth recorded in non-funded income (N774.66billion from N446.66billionn).
Also, interest expenses stood at N126.4 billion in H1 2024, a growth of 160.6per cent from N48.5 billion in H1 2023, driven by the 642basis points and 780bassis points pick-up in the cost of savings account and time deposits on the back of adjustment to Monetary Policy Rate (MPR) to which interest paid on savings account is indexed; 18.75per cent in H1-2023 as against 26.25 per cent in H1-2024.
The Group’s net interest income moved from N177.46 billion in H1 2023 to N491.5 billion in H1   2024, about 177 per cent as the 173.5per cent increase in funded income was sufficient to douse the impact of 160.6per cent growth in interest expense.
The increase in interest rates impacted interest paid on savings accounts and time deposits, leading to an increase in the Group’s cost of funds from 1.4per cent in H1 2023 to 1.5per cent in H1 2024.

The Group booked sizeable loan impairment charges of N47.40 billion in H1 2024, though lower than the sum of N82.96billion that was charged in H1 2023, due to the level of risk buffers created in prior year and continued improvement in the loan book quality.
Notwithstanding weakening macroeconomic variables, the key driver of the predictive ECL model weighed negatively on the ECL allowance charged during the period causing management overlay on stage 2 facilities as permitted under IFRS 9 in line with its conservative posture of building up credit risk reserves to deal with adverse situations.
The Group also recognised N357.55 million in H1-2024 as an additional impairment charge on other financial assets (FA) as a mitigant against residual loss rate on its investment in Ghanaian sovereign securities and other foreign currency financial instruments whose underlying values are sensitive to adverse exchange rate movement.

Meanwhile, the Group total operating expenses (opex) increased to N201.80 billion in H1 2024, a growth of 60.7 per cent from N125.56 billion reported in H1 2023, primarily from an increase in Asset Management Corporation of Nigeria (AMCON) levy and Nigeria Deposit Insurance Corporation (NDIC) premium.
Other contributory factors to Opex growth include incremental depreciation charge arising from capital spending, rise in inflation to 34.2per cent in H1 2024 from 22.8per cent in H1 2023, precipitate by increased energy costs, and impact of adverse exchange rate movement of functional currencies against the Dollar in Nigeria and across other jurisdiction of operations outside Nigeria in H1 2024.

Stronger balance sheet reflects in profit before tax
GTCO, however, reported a significant increase in deposits from customers and loans and advances to customers that impacted on total assets in the period under review.
The Group recorded growth across all its asset lines and continues to maintain a well-structured, healthy, and diversified balance sheet across all jurisdictions where it operates a banking franchise as well as across its Payments, Pension, and Funds Management business verticals: closing H1 2024 with total assets of N14.5trillion, representing a 49.7per cent growth over N9.7 trillion recorded in 2023.

The growth in the Group’s balance sheet was primarily from the 40.4 per cent increase in the asset base of GTBank Ltd, its flagship subsidiary as the bank benefited from the net impact of devaluation on its Foreign Currency (FCY) denominated assets and liabilities (USD to Naira at the I&E Window closed $1/N1505.30 in H12024 vs $1/N907.11 in FY-2023).
Total assets of the non-banking subsidiaries also increased significantly by 83 per cent (N292.0 billion) to N642.2 billion in H1 2024 from N350.2 billionn in 2023, resulting in a 4.4 per cent contribution to the Group’s total assets relative to 3.6 per cent posted in 2023, thereby complementing the growth from banking group.

Earning asset mix improved by three per cent to 69.3per cent in H1 2024 from 66.4 per cent in 2023 on account of 56.3 per cent growth in earning assets (N10.054trillion as against N6.435trillion), which was principally influenced by the effective and efficient utilisation of deposit liabilities which grew 38.4 per cent. The synergies created by the Holdco structure enabled the increase and aided retention of funds across all business verticals.
In spite of the Group’s cautious approach to loan growth, net loans closed June 2024 at N3.11trillion, 25.5 per cent growth from N2.48trillion in 2023.

The Group increased its investments in risk free assets, leveraging improving yields in the Fixed Income (FIS) space. FIS portfolio volume grew by 56.1per cent (N1.449 trillion) to N4.033 trillion from N2.584 trillion and yield on the portfolio picked up 918basis points to settle at 15.9 per cent.
The funding base comprising customer deposits (72.7 per cent), equity (16.5per cent), customer escrow balances (1.3per cent from 0.8 per cent) and other borrowed funds (two per cent from 0.7 per cent in 2023) remains very stable and well distributed.
Meanwhile, GTCO’s Customer deposit liabilities grew by 38.4per cent to N10.254 trillion in H1 2024 from N7.411 trillion in 2023, with low-cost funds growing by 35.4per cent (N8.889 trillion vs N6.565 trillion) resulting in low-cost deposit mix of 87per cent, a slight dip of two per cent from 89 per cent recorded in 2023.

On the back of increase in Naira deposits and modification to Cash Reserve Requirement (CRR) determinants by Bank of Ghana (BOG), total sterilised funds (SF) grew by 8.3 per cent to N1.782 trillion in H1 2024 from N1.647 trillion in 2023, CRR and SIR balances with CBN represented 99 per cent of this sum, closing at N1.732trillion and N50.6billion, respectively.
Consequently, CRR ratio to Naira deposits closed at 43.3per cent in H1 2024 from 42per cent in 2023, a 1.7per cent (170bps) shy of the harmonised CRR of 45per cent advised by the CBN.
The Group’s performance attests to its resilience and responsiveness to daunting challenges which pervaded the operating environment in H1 2024 such as elevated inflation and heightened foreign exchange risks.

Group’s stronger financial ratios
In spite of the challenges which characterised the operating environment with attendant negative impact on businesses and households in H1 2024, the Group posted Pre-tax Return on Average Assets of 15 per cent and Pre-tax Return on Average Equity of 93.4 per cent on the back of efficient and timely deployment of appropriate strategies to deal with challenges as they arise.
The Group continued to maintain strong capital positions with Full IFRS 9 impact Capital Adequacy Ratio (CAR) of 21per cent (Bank:19.9per cent), 600 basis points above the regulatory minimum of 15 per cent and 500 basis points if adjusted for one per cent loss absorbency ratio.
Tier 1 capital remained a very significant component of the Group’s CAR closing at 19.3 per cent representing 92per cent of the Group’s CAR of 21per cent. The robust capital position provides the Group with the needed headroom required for future expansion and risk-taking.