Toxic credits take toll on GTBank

One of the leading lights in the Nigerian banking sector, GTBank, is no exception in this unfolding dynamic, as an avalanche of toxic credits has presently put the bank under severe pressure.

  Of course, the bank now faces one major challenge this year on earnings performance and that is an upsurge in credit losses that happened in the first quarter.

This has raised the bank’s cost-income ratio, lowered profit margin and weakened the earnings growth momentum of the bank in the current year.

As a result, the bank has increased its own drive to recover its mounting debts with organisations such as HI Media limited.

Already, the bank is in court with the Managing Director/Chief Executive Officer of HI Media Limited (formerly known as HITV Limited), Oluwatoyin Subair, to recover a debt of N9.5billion.

According to the statement of claim filed before the court by a Lagos lawyer, Chief Ajibola Aribisala (SAN) on behalf of Guaranty Trust bank, it was alleged that as at 31 January, 2012 HI Media Limited was indebted to the bank to the tune of N9,517,093,240.97 being the balance of the principal sum plus interest on the loan facilities granted the company by the bank.

The bank between 23 August, 2007 and 23 August, 2010, based on letter of offer and acceptance granted various loans, both in local and foreign currencies totalling about six billion naira.

The loans were acquired to provide guarantee for the purchase of additional TV content for the company’s sports channel to broadcast English Premier League, Champions League, Carling Cup, English FA Cup and UEFA games.

Part of the loan was also meant to finance the working capital and operational expenses such as establishment for reality show and to be used for the payment of services rendered by MTN, ETISALAT and other sponsors for advertisement to be shown during these foreign matches.

In furtherance of the acceptance of the aforementioned facilities, the company forwarded to the bank, its board of director’s resolution accepting the loan facilities.

The aforesaid credit facilities granted by the bank were personally guaranteed by Oluwatoyin Subair in a duly executed personal guarantee and indemnity while Kola Aluko, a director of HI Media also executed a separate personal guarantee and indemnity of the said loan facilities.

These debts that are owed the bank, appear to be constituting huge burden on its neck.

At the end of the first quarter, provision for loan losses was already standing at one-half of the 2014 full year figure. Will the cost encroachment into the bank’s revenue continue in the course of the year or will it abate in subsequent quarters is the critical development to watch on Guaranty Trust Bank in 2015.

According to a Cable News investigation, Segun Agbaje, managing director/CEO of the bank, was reportedly unable to defend profit margin in the first quarter in the light of the unfavourable cost behaviour. Apart from loan loss expenses, interest cost is another area of challenge for the bank’s management this year.

Interest expenses grew ahead of interest income in the first quarter, leaving no room for any cost saving there.

The only main cost line apparently under control is operating cost and management took the advantage to achieve substantial cost moderation. With a moderated growth in operating cost, management was able to temper the effects of rising loan loss and interest expenses on the bottom line at the end of the first quarter.

The bank closed first quarter operations with gross earnings of N79.02 billion, which is an increase of 17% year-on-year.  Based on the first quarter growth rate, gross income is projected at N318.4 billion for Guaranty Trust Bank at the end of 2015. That would be an accelerated growth of 28% over the 2014 closing revenue figure of N278.52 billion. The bank grew gross earnings by 14.8% in 2014.

Fee-based income is the main driver of revenue growth for the bank this year, which rose by 26% to N23.20 billion in the first quarter. This is twice the growth rate of 13.2% in interest income, which amounted to N54.95 billion at the end of the first quarter. The comparatively slow growth in interest income seems to reflect a flat growth in loans and advances and a moderate increase in the investment portfolio.

After tax profit amounted to N26.56 billion for Guaranty Trust Bank at the end of the first quarter, an increase of 15% year-on-year. If the current growth rate is maintained to full year, the bank is expected to close the year with a net profit of N105.1 billion. This will be an increase of 6.5% over the net profit figure of N98.69 billion in 2014 but a slowdown from the growth rate of 9.6% in the prior year.

The bank has maintained consistent growth in profit since the post financial crisis trading.

Profit growth in the current year is affected by an upsurge in loan loss expenses and a decline in net interest margin. Loan loss expenses rose by 176.3% to N3.53 billion year-on-year in the first quarter- already one-half of the full year provisioning figure for 2014. Interest expenses grew ahead of interest income at 14.5% thereby reducing net interest margin.

The cost increases were tempered by a moderated growth in operating expenses at 9.7%. Operating cost margin declined from 35.3% in the first quarter of last year to 33.1% this year.

The decline in operating cost margin was however insufficient to fully neutralize the cost increases during the period, which resulted in a decline in net profit margin from 34.2% in the first quarter of last year to 33.6% this year.

The bank closed last year’s operations with a net profit margin of 35.4%. Profit margin has continued to creep down from the peak record of 39% in 2012. This is however in line with the general trend in the banking sector.

The bank earned 94 kobo per share at the end of the first quarter, up from 81 kobo in the same period last year. Full year earnings per share expectation is N3.57 for Guaranty Trust Bank in 2015, an expected improvement from N3.47 in 2014. The bank paid a total dividend of N1.75 per share for its 2014 operations, which may be repeated at the end of 2015.

In an economy in which overall revenues are fast declining, the exchange rate wobbling and debts mounting, the operating environment has become more stifling for not only corporate business organisations, but also other sectors which appear to be facing dire and difficult times.  Not even the banks which have somewhat almost always thrived and declared impressive results are comfortable with the business environment today, where, no thanks to stringent regulatory pressure and precarious fiscal headwinds, they have seen their revenues and profit margins slowing down.