GTCO records N149b financial asset losses at Q3 close | Huge exchange gain boosts profit

Guaranty Trust Holding Company Plc (GTCO) faced the worst credit and financial asset losses in years in the 2023 financial year so far with total asset impairments hitting N148.6 billion by the end of the third quarter. 

The figure is already about one and half times the N100 billion total net impairments on loans and other financial assets for the bank for the past six years. 

However, the upsurge in cost is counter balanced by a big boost in revenue led by a foreign exchange revaluation gain of N334.4 billion at the end of the third quarter. The inflow enabled the bank to throw off the asset losses from earnings and yet permit an exceptional growth of 182 percent in the bottom line to N367.4 billion at the end of nine months of operations. 

The numbers are contained in the bank’s unaudited financial report for the third quarter ended September 2023, which shows that the financial asset losses comprise net loan impairment charges of N89.5 billion and net impairment charge on other financial assets of N59.1 billion.

The credit charges surged all the way from only N3.7 billion in the same period last year while net impairment charge on other financial assets was zero for the same period last year. 

The numbers have also jumped from less than N12 billion net impairment charges on loans and advances the bank made for the entire 2022 financial year and net impairment loss of N35.9 billion on other financial assets for the year. 

The summary of the bank’s earnings story at the end of the third quarter in September 2023 is therefore an admixture of the huge financial asset losses and the windfall in revenue. The outcome is that the impact of the asset impairment losses on the income statement was more than absorbed by the huge foreign exchange inflow.

GTCO’s group after tax profit therefore soared from N130.3 billion in the same period in 2022 to close at N367.4 billion at the end of the third quarter operations. The third quarter profit figure towers at 117.2 percent above the closing after tax profit of N169.2 billion in 2022. 

This is a distant new profit high for the bank after losing profit for the last two years from the peak of N201.4 billion attained in 2020. 

The foreign exchange gain contributed 39.3 percent of the group’s gross earnings of N850.3 billion at the end of the third quarter. The gross earnings figure rose by 133.4 percent from the corresponding figure of N364.3 billion in 2022 and already stands at 57.8 percent above the bank’s full year revenue of N539 billion last year.

Notwithstanding the rosy picture of the bottom line painted by the foreign exchange revaluation gain, the bank faces a persisting weakness in non-interest earnings so far in the year with net trading income dropping by 20.3 percent to N29.2 billion at the end of the third quarter. 

This is a sudden downswing from an increase of 79.9 percent in the income line to N40.3 billion at the end of 2022. Also, net fee and commissions income, at N82.5 billion at the end of the third quarter, is maintaining a slowdown for the second year.

Further pressure is also coming from interest expenses that keep eating into interest earnings. At N77 billion at the end of the third quarter, interest expenses grew by 79.9 percent year-on-year. This is ahead of an increase of 61.1 percent in interest income to N374.6 billion over the same period.   

However, GTCO is seeing the biggest advance in interest earnings in many years so far this year, which represents a key operating advantage for the bank in the current financial year. 

With the incursion of cost of funds, net interest income grew by 56.9 percent to N297.5 billion at the end of the third quarter – quite insufficient to absorb the massive increase in financial asset losses.

Net interest income after net financial asset losses fell from N186 billion in the same period last year to N149 billion at the end of September 2023.

There is a significant cost savings from operating expenses, as the big boost is revenue lowered operating cost margin to a record low at 21.5 percent at the end of the third quarter. That jerked up net profit margin from 35.8 percent to 43.2 percent over the review period.

The bank’s full year operating results will therefore be shaped by how the opposing functions of revenue windfall with moderated operating cost against gulping credit losses and accelerating cost of funds play out in the final quarter.