Loss of interest earnings drags GTCO’s profit down to 4-year low in 2021

Guaranty Trust Holding Company (GTCO) Plc suffered a drop of almost N37 billion in interest earnings from core lending operations in 2021, which pushed profit down to N175 billion – the lowest profit figure in four years.

The audited accounts of the bank holding company for the 2021 operations show that total interest income resumed a downward trend in 2021 after a slight improvement in 2020. At N267 billion, total interest income went down by 11 percent in the year, well below the peak figure of over N327 billion the bank posted in 2017.

Loss of interest earnings is notwithstanding the expansion of the bank’s credit portfolio by N140 billion or 8.4 percent to N1.8 trillion in 2021. The drop in interest income is attributed to a general decline in net interest margin in the banking industry.

The impact of the drop in interest earnings cut its way through to the bottom line, slashing after tax profit by 13 percent from over N201 billion in 2020 – the first profit drop for the bank in more than a decade.

The challenge was that cost of funds failed to go down with interest income in the year. Interest expenses were only slightly down to close at a little over N46 billion at the end of the year. That led to a sharp drop of 13 percent in net interest income to less than N221 billion at the end of the year.

Nevertheless, the bank was able to reduce its average cost of funds in the year, as deposit liabilities expanded by 14.4 percent to close at over ₦4 trillion while interest expenses declined marginally.

Another high point for the bank in the year is a major cut down in loan impairment charges, which helped to moderate the impact of the drop in interest revenue. Loan loss expenses went down by 56.4 percent to N8.5 billion at the end of the year.

This is a positive change of direction from a huge increase of 300 percent in loan impairment expenses in the preceding financial year. The indication is an improvement in the overall credit quality standard of the bank despite the increase in the bank’s net lending position.

The reduction in loan impairment expenses enabled the bank to partly dilute the effect of the decline in interest earnings. Net interest income after loan impairment charges went down at a moderated rate of 9.4 percent compared to the over 13 percent drop in net interest income before the charges.

Further cost saving also came from operating expenses, which was led by a drop of 11 percent in personnel expenses to N33.4 billion. Also, there was a drop in depreciation cost, which was led by a complete absence in depreciation expenses for right of use assets, which amounted to N2 billion in the preceding financial year.

Non-interest income provided a much compensatory growth of 17 percent to close the year at N181 billion. This jerked up the contribution of non-interest revenue to gross earnings from 31 percent in 2020 to 40 percent in 2021 – the highest margin in four years.

The improvement in non-interest income was driven by fee and commission earnings, which grew by 39.4 percent to N74 billion at the end of the year. Other income also rose by 10 percent to N84.4 billion in the year.

The increase in non-interest earnings was however insufficient to make up fully for the revenue losses from interest income. GTCO, therefore, suffered a decline of 2.3 percent in gross earnings from over N458 billion in 2020 to N448 billion in 2021.

Despite the profit drop in the 2021 operations, the bank’s management is confident of sustaining operations on a solid track going forward. Segun Agbaje, group chief executive officer of GTCO, assured of continued effort in exploring new ways to connect with customers and empower communities by offering greater and more rewarding experiences.

In a press statement on the full year operating results, he said the bank’s performance in the year is in spite of the challenges in the business space and shifting economic conditions.

He expressed confidence in the strength of the bank’s franchise and the ability to deliver long-term value for stakeholders in spite of the challenges in the business environment.

The bank boasts one of the highest profit margins in the banking industry at 39 percent in 2021.