GTB: First profit drop in a decade

Guaranty Trust Bank closed half year operations in June 2020 with profit down by 5 percent year-on-year to N94 billion. This is the first profit drop for the bank since the beginning of this decade after three years of sustained slowdown.

Profit growth has been undermined by persisting revenue weakness, which has been on since 2017. Gross earnings have been flat or marginally improved over the past three years, which again is the earnings story for the bank in the current financial year. Revenue was only slightly improved at 1.5 percent to N225 billion at the end of half year operations.

A major slowdown in non-interest income last year worsened to a marginal decline at the end of half year operations to N71 billion. The decline was led by net fee and commission income, which dropped by N11.6 billion or 34 percent to N22 billion.

Interest earnings however made a weak turnaround from a two-year drop in 2019 to a 3 percent improvement year-on-year to N153.7 billion. The only strong improvement in earnings came from other income – which grew by 28 percent to N36 billion over the review period.

The bank’s audited accounts for the half year operations in June 2020 show that inability to defend the bottom line drew from management’s inability to contain costs in the face of revenue constraints. Operating expenses broke free from marginal increases over the preceding two years and rose by 19 percent year-on-year – the most rapid increase in many years.

Also, loan impairment expenses multiplied three folds year-on-year to register the highest increase in four years. At N6.8 billion at the end of June, loan impairment expenses are already above the closing figure of N4.9 billion for the entire 2019 financial year.

Management was able to cut down credit losses since 2017 through reductions in customer lending in 2017 and 2018. The rebuilding of the loan portfolio in 2019 has induced the resurgence of loan impairment charges in the current year.

The bank’s management appears to be applying the brakes once again on customer lending with net loans and advances to customers dropping from the first quarter closing mark of N1.6 trillion to N1.4 trillion at half year. Also the investment securities portfolio thinned down from N865 billion at the end of March to N501 billion at the end of June.

A major favourable development for the bank over the review period is in respect of cost of funds. Management is sustaining a cut in interest expenses for the second year after a 23 percent drop in 2019.

At N26 billion at the end of June, cost of funds dropped by 20 percent year-on-year at half year. This is against an increase of 19.5 percent in customer deposits to N2.5 trillion and the moderate increase in interest income.

A big cost saving from interest expenses made the difference between a 3 percent increase in interest income and a 10 percent growth in net interest income – which amounted to N127.6 billion at half year.

The proportion of interest income devoted to interest expenses has dropped from 22 percent to 17 percent over the review period. This means the lowest average cost of funds for the bank in many years.

The cost saving from interest expenses was insufficient to counter rising loan impairment and operating costs during the period. Operating expenses claimed an increased share of gross earnings at 37 percent at the end of June 2020 against 31 percent for the same period last year.

The cost increases eroded profit margin from 44.7 percent in June last year to 41.8 percent at the end of June 2020.This sums up GTB’s earnings story at the end of half year trading –costs grew generally ahead of revenue.

The bank closed half year operations with an after tax profit of a little over N94 billion, down from the over N99 billion the bank posted at half year in 2019. Last year ended with a net profit of N195.4 billion, which was an increase of 6 percent.

GTB earned N3.32 per shareat the end of June 2020 against N3.50 per share for the half year of 2019. The directors have proposed an interim cash dividend of 30 kobo per share.