Published On: Sun, Mar 25th, 2018

GT in Spreadsheet…beyond the magic


Guaranty Trust Bank (GT Bank) is one of Nigeria’s most profitable commercial lending institutions and one of its most enigmatic. The bank spawned by two dreamy-eyed bankers, Fola Adeola and the late Tayo Aderinokun, posted a 2017 earnings per share of N6.03 or 29.1 per cent higher than the N4.67 posted a year earlier. Profit after tax of the bank went from N132.3 billion in 2016 to N170.5 billion in 2017, representing a growth of 28.8 per cent. 

Nigeria’s couture banking franchise has no doubt set the tone for premium corporate bottom lines in the year as Business Hallmark’s spreadsheets for the bank’s operations in 2017 reveal awkward facts about its profit and loss and balance sheet statements. Does GT hold up to its impressive historical earnings statistics in the past year? Most certainly; but does it score high marks on all its operating fronts? Maybe not.

The house Fola and Tayo built has had some spotty patches.  Riding the financial meltdown of 2008 GT Bank came out stronger with several people making a flight to safety, jumping ship from banks perceived as ‘weak’ to banks like GT that were considered considerably stronger; this resulted in a sudden surge in GT’s deposit base and in its need to strengthen its accounts processing capacity. The higher deposit base led the bank incur higher nominal operating costs but it also took advantage of larger free float or higher average idle monthly deposit balances. This continues to remain a strong competitive advantage as economies of scale has resulted in declining cost per customer per period. So what are the banks problems?

GT’s problems relate more to what behavioural psychologist call ‘the winners curse’ which refers to a situation where a winner finds out that she increasingly cannot cope with the consequences of her success, than to major operational difficulties. The banks huge customer growth between 2009 and 2017 has created a problem of institutional service quality; meaning that the more the number of customers the bank seems to have the lower the quality of its service.  The average over-the-counter customer processing time has stretched to an average of two more minutes per customer above those of its competitors within a similar market tier.

The average amount of time taken to complete a transaction on the banks automated teller machines (ATMs) appears to be three minutes longer than that of its nearest rivals. For example, transaction completion at ATMs in its Lagos Berger branch is about five minutes longer than that of ATM’s at Zenith Bank its immediate neighbor. This may not be a typical story for all branches of GT, but it is indicative of a niggling service delivery challenge that could cause customer migration if not nipped in the bud.

Profitability…the money machine still glitters

GT Bank (recent market price N46.90) is still a bright spot on investor portfolio despite certain worries about declining service quality; its underlying profitability remains strong. Profit before tax relative to gross earnings rose from 39.83 per cent in 2016 to 47.76 per cent in 2017, a 19.92 per cent leap. Profit before tax equally soared 21.26 per cent from N 165.1 billion in 2016 to N 200.2 billion in 2017. Segun Atere, a former lead analyst at Apel Assets and Finance, a Lagos-based stock broking and asset management firm, notes that, ‘GT has done a credible job of cranking up the profit machine in a difficult year. A tough recessionary headwind has had a devastating impact on various companies in different sectors of the economy, without even the banking industry being spared the hurricane storms’.

Analysts note that quite a number of banks have seen their profit figures slide a notch as manufacturers and retail borrowers have had to hold firmly to whatever latch they could find as declining consumer demand and tight foreign exchange conditions (especially in the first quarter (Q1) of 2017) sent chills down corporate spines.  Indeed, by the end of the second quarter of 2017 when the recessionary winds appeared to have blown over, not many organizations where in a position to handle the devastation. ‘But’, according to Apel’s former portfolio analyst, Atere, ‘there are indications that things are getting a whole lot better as quite a number of banks are seeing their loan loss provisions as a proportion of customer loans outstanding declining noticeably’; GT Bank’s loan provisions as a proportion of its customer loans outstanding declined from about 4 per cent in 2016 to about 0.8 per cent in 2017. Loan impairment charges dropped several paces from N65 billion in 2016 to N12billion in 2017.  This suggests that the bank has improved the quality of its loan assets and made its overall balance sheet less risky or in the arcane language of corporate bankers, GT in 2017 managed to ‘de-risk’ its books. GT grew its profit after tax (PAT) from N132.3 billion in 2016 to N170.5 billion in 2017, a growth of 28.9 per cent. While its net interest income as a proportion of its average loans to customers (a measure of the bank’s profitability in its core business) grew by 42 per cent from 0.12 in 2016 to 0.17 in 2017.

GT seems to be wringing profit from cost savings rather than from earnings growth as the banks gross earnings (GE) between 2016 and 2017 rose by a mangy 1.11 per cent rising from N414.6 billion in 2016 to N419.2 billion in 2017.

All about the assets

A crucial investor indicator of wellness for bank analysts is the quality of assets or a bank’s loans and advances; the better the quality the more sustainable earnings and the business.  Loan impairments for 2017 at N12.2 billion was 81 per cent lower than the N65.3 billion posted in 2016. Loan impairments as a percentage of customer loans outstanding dropped from 40 per cent in 2016 to 11 per cent in 2017, which amounted to a clear onslaught on its bad loan troubles, showing a major improvement in the quality of the bank’s book assets.

Investors watch hour

For investors, GT Bank remains a serial delight as year- on- year return scuffles around a robust 90.67 per cent on a price earnings ratio (P/E) of 7.75. With a recent dividend yield of 5.76 per cent the bank has produced one of the best total investment yields for stocks in the sector.

As far as bank spreadsheets go, GT has thrown up a basket load of indices that suggest that the bank is what Berkshire Hathaway’s Chairman, Warren Buffett, calls a ‘fat pitch’, meaning a hidden value opportunity that only the vain, naïve or silly would truly pass up.






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