In recent years the Annual General Meeting of Guaranty Trust Bank Plc
have been a celebration of what remains the most profitable banking
operation in Nigeria. This brand equity has been exported to make the bank
a successful international brand. At present the number of foreign
subsidiaries with the bank’s Group is 10 with total investment of about
N40billion. GTB plans to continue with this growing trend in its global
strategy.
Corporate Governance
Some few years ago, some researchers at the University of Lagos
conducted a study to find out if certain corporate governance variables are
significant predictors of bank performance in Nigeria. As part of the
accompaniments of the research outcome, it was found that Guaranty Trust Bank
came out top as one the best governed banks in Nigeria and this was significant
in explaining the corresponding top rate performance achieved by the bank over
the years.
Remarkably it has continued with this tradition of implementing best
practice governance in areas of board composition and oversight, executive
compensation, financial reporting, shareholder relations, corporate social
responsibility, internal control, procedures and compliance. The Board is
composed of very reputable and distinguished professionals including 2 key
independent Directors. Three different Committees of the Board are instituted
to make policies and oversight the risk Management function alone in a bid to
ensure maximum integrity.
A system also exists whereby the control function is decentralized and
attached to every business area to minimize incidences of transaction errors
and malfeasance. This is complemented by a whistle blowing policy backed with
an effective response system. The Board Risk Committee performs important
duties of overseeing the operational risks function by ensuring that relevant
policies are adequately complied with and that appropriate mitigants are
in place.
Capital Adequacy
GTB, by all measures qualify as one of the top 3 capitalized banks in
Nigeria. As at 31stDecember 2014, the bank operated with a shareholdersfund of
N369billion, the third highest ‘in the industry for the year, up from
N329billion. Obviously, the bank is ever conscious of the level and coverage of
capital base and has used internal and external means to shore it up at a pace
that surpasses the average industry growth rate.
In fact, some seven years earlier, when equity capital closed at
N47.4billion, the bank ranked about 8th in the absolute level of capitalization.
As it worked to increase the size of business risk and ascend to the top of
performance ladder in the industry, the board and management consistently
monitors how adequate capital is to provide cushions for new businesses in ways
that meet both regulatory and prudential requirements.
A measure of how the bank improved in coverage of capitalization can be
gleaned from our analysts measure of relationship between shareholders’ fund
and estimated Naira size of risk asset portfolio. Our analysts pitched
this at 18% in 2007, when the bank ranked about 13th by this measure.
In 2014, we estimated this at 25% with the bank occupying a position in
the top 4 of the industry. Clearly the bank had substantial leverage to
continue business expansion even if capital remains at present level. With
regulatory capital to risk assets requirement of 15%, we consider that on the
minimum, risk asset expansion of about N900billion would not dent the adequacy
of existing capital, all things being equal.
Loan Impairments and Asset Duality
GTB is no doubt one of the top 3 banks actively financing the economy
through different forms of loans. As at 31s December 2014, total loans
outstanding was about N1.2trillion. it was just N121billion in 2007 when the
bank occupied the 8th position in the industry. Notwithstanding, this
massive exposure growth, strict risk governance standards had consistently kept
non performing loan ratios below 5% in the last 10 years. The ratio remained at
5% in 2013 and 2014 even as gross loan grew from N947billion to N1.2trillion.
To underscore the desire of the bank to continue to maintain bespoke
quality in risk assets and consistently satisfy regulators, the bank
invested in two software to drive credit risk management and
reporting, namely the Lead to Loan and OFSAA Basel II solutions. These
softwares are robust in headline customer profiles, rating assessment,
disbursement, recovery and documentation among others.
Liquidity Ratios, deposit Mobilization
Over the years Guaranty Trust Bank enjoyed the advantage of customers’
flight to safety. This worked with design of innovative liability products
which enabled the bank to steadily increase deposit. As at 31st December
2014, traditional customers’ deposits were as high as N1.44trillion. One of the
factors that have encouraged customers to deposit their money with the bank
would appear to be the conviction that their funds are not at risk and that the
bank would be able to meet obligations at all times.
Historically, the bank had always maintained a balance between risk
asset creation and ability to meet obligations. According to our analyst’s
estimate, liabilities adjudged to be vulnerable to unplanned obligation is
about N1.49trillion out of which demand liabilities amounted to N808billion. Cash
and card equivalents in relation to such vulnerable deposits were 13% down from
20% in 2013. Liquid assets to total assets also declined from 42% to 38% in a
period the entire industry witnessed sectoral erosion of liquidity. Adjusted
liquidity also reduced from 50% to 37%.
Notwithstanding the decline observed in this metrics, it is reassuring
that all ratios were significantly above regulatory minimum as the bank
continued to demonstrate capacity to meet all obligations not only to
depositors but to all other stakeholders.
Earning and Profitability
Perhaps one area GTB has shown clear market leadership is in its ability
to churn out excellent earnings. In 2014 the bank achieved gross
earnings of N247billion, up from N220billion in 2013. In absolute terms, this
was the third highest figure in the industry for the year out of which interest
income accounted for 73% or N180billion. During the year, the bank made
significant improvement in earnings arising from foreign exchange transactions.
These include fees and commissions on Letter of Credit transactions and trading
and translation gains on forex positions.
The leadership shown by GTB here can be seen if these figures are
related to level of resources devoted to the business. Firstly, the adjusted
interest income margin of 71%, though a slight reduction from 74% in 2013, is a
top of the industry performance which underlines the high quality of
earnings from risk assets and dexterity in mobilization of low priced
liabilities. Operating expenses rose marginally from N71billion to N79billion.
Accordingly profit after tax ultimately rose to N93billion, a figure
that was the highest in the industry during the year and translated
to Return on Equity of 27%, another top of the industry performance for the year.
Earnings per share also increased from N2.91 to N3.11, a pace-setting result in
a year that was generally tough for the sector. Given the obviously top rate
performance, the bank rewarded shareholders with a dividend of N51.5billion or
N1.75 per share.
As we put together the 2015 profile of GTB for repeat of this
publication in April 2016 the first nine months result of 2015 is already
showing a resilient in the earnings performance.
Source: Vanguard Business
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