Guaranty Trust Bank plc (GTBank) for the full year ended December 31, 2020 audited result and accounts reported stronger growth in total assets, driven by impressive performance on its customers deposit and loans & advances to customers.
The Group continued to maintain a well-structured, efficient and diversified balance sheet with strong earnings capacity.
The balance sheet structure enabled the group to withstand the negative impact of COVID-19 which virtually affected all the sectors of the nation’s economy.
GTBank reported N4.9trillion total assets as at December 31, 2020, a 32 per cent increase from N3.76trillion reported in financial year ended December 31, 2019 and continues to maintain a well-structured and diversified balance sheet with earning assets constituting 59.5per cent of total assets.
The group’s loans and advances, fixed income securities and money market placements accounted for 34 per cent, 22 per cent and three per cent of total assets respectively.
The strong growth in earning assets to N2.94trillion in 2020 from N2.553trillion in 2019 resulted from the Bank’s well diversified funding base comprising customer deposits, customers’ escrow Balances and equity which enabled the achievement of the 15.1 per cent growth in earning assets.
The improved funding led to the growth recorded across key Earning Asset components; 23.9 per cent (N 214.4billion) and 10.8 per cent (N 162.2billion) growth in Fixed Income Securities (FIS) and Loans and Advances respectively.
Growth noted on Non-earning Assets was principally driven by CBN’s CRR net debits in the sum of N565.1billion closing N1.009trillion in 2020.
Customer Deposit liabilities grew by 38.6 per cent (N976.8billion) from N2.533trillion in 2019 to N3.509trillion in 2020.
Low cost funds increased by 45.1 per cent (N970.7billion) from N2.152trillion in 2019 to N3.123trillion in 2020 leading to 400bps improvement in low cost deposit mix to 89 per cent from 85 per cent in 2019.
The growth of 10.8 per cent in the net loan book from N1.50trillion in 2019 to N1.66trillion in 2020 was primarily from the growth recorded on the naira loan book with a gross increase of N110.5billion compared with N51.6billion recorded on the FCY Loan Book.
The increase in the LCY loan book was principally driven by increased credit flows to the Corporate (Manufacturing, Telecoms & Oil & Gas) and Retail segments.
CRR increase of 127.4 per cent (N565.1billion), funded through improved Naira liquidity largely from OMO maturities impaired the Group’s ability to take maximum advantage of opportunities to optimize its earnings potential.
The Bank was, however, able to cushion the impact of CRR on earnings through optimization of its Dollar liquidity and Revaluation Gains. The Bank benefitted from the $1.15billion long position owing to devaluation of Naira against the Dollar.
Profit maintaining stronger performance
In spite of all the challenges posed by the COVID 19 pandemic in terms of disruption to businesses and households as well as the impact of regulatory response by way of moratorium/interest rate reductions, the Bank was able to navigate efficiently, deploying appropriate strategies to deliver Post-tax Return on Average Assets of 4.98 per cent and Post-tax Return on Average Equity of 27.24 per cent. The Group delivered a Post-tax ROE of 26.83 per cent, Post-tax ROA of 4.63 per cent and NIM of 9.26 per cent.
Gross earnings grew by 4.6per cent from N435.3billion in FY 2019 to N455.2billon in 2020, growth driven largely by 11.1 per cent increase in earnings from Non-Funded Income (N139.1billion in 2019 as against N154.5billion in 2020) and marginal growth of 1.5 per cent (N296.2billion in 2019 as against N300.7billion in 2020) posted on Funded Income.
Funded Income as a percentage of Gross earnings declined slightly to 66 per cent in 2020 relative to 68 per cent recorded in 2019 due to the lower yield on Earning Assets and reduction in Interest Income earned from Subsidiaries in 2020.
Despite declining yields, pressure on pricing and preference of Large Corporates to raise funds through issuance of commercial papers, the Group managed to sustain its earnings from Interest income.
The combination of efficient dealing room activities and the optimal management of the Group’s long position resulted in a 17.2 per cent and 231.9 per cent growth in Net Trading Gains on Financial Instruments classified as held for Trading and Other Income respectively.
The Group continued to benefit from the impact of Devaluation/Exchange Rate movement on its long $1.15billion position (Ex-$613million SWAP positions).
The benefit from the long FX position assisted in mitigating the impact of capped Credit Related Fees and reduced e-business charges brought about by revision to Bank Charges which caused N9.2billion decline in Fees and Commission Income from N62.4billion in 2019 to N53.2billion in 2020.
However, interest Income recorded marginal growth of N4.5billion (1.5per cent) from N296.2billion in 2019 to N300.7billion in 2020. Interest Income grew amidst low interest rate environment that characterised most part of 2020 resulting in Asset yield compression of FIS and downward repricing of loan facilities.
The impact of the declining yields was doused by the investment strategy employed in 2019 which include taking position in long tenured Treasury Bills.
Also, the 11.1 per cent growth in Gross Loans was adequate to completely offset the impact of 1.9 per cent compression in Risk Asset yield (12.9 per cent in 2019 to 11 per cent in 2020) caused by a downward repricing of investment grade loans and measures adopted by the Apex bank in response to Covid-19 impact such as the reduction of interest rate on intervention loans from 9 per cent to 5 per cent).
Fee and Commission Income dipped by 15 per cent (N9.2billon) from N62.4billion in 2019 compared to N53.2billion in 2020 due to Covid-19 which caused disruption to businesses with attendant negative impact on fee-based transaction volumes.
Also, the impact of CBN’s revised guide to Bank charges which became effective Jan 1, 2020 restricted management fees to new loans and a maximum of one per cent one-off charge and tiering of NIP transactions into bands.
The group’s 15per cent growth in turnover volumes to N17.9trillion led to eight per cent growth in AMC in 2020 helping to mitigate earnings from Fees and Commissions in 2020 and offset the drop in average Account Maintenance Charges (AMC) rate (N0.57/Mille in 2020 vs N0.59/Mille in 2019).
Interest Expense on Customers’ deposits improved by 23.5 per cent (N12.5billion) from N53.1billion in 2019 to N40.6billion in 2020 largely due to drop in Cost of Funds to 1.2 per cent from 2.3 per cent on the back of reduction in interest paid on tenured deposits.
The drop in cost of tenured deposits (7.8 per cent in 2019 against three per cent in 2020) resulted in a drop in average volumes.
The reduction in Interest Expense was helped by the revision on savings rate from 30 per cent to 10 per cent of MPR, moderating its growth to N1.7billion in spite of the significant growth in volume of N422.1billion (N580.9billion in 2019 vs. N1.003trillion in 2020).
Loan Impairment charge increased by 298 per cent from N4.9billion in 2019 to N19.6billion in 2020 due to management decision to increase the level of impairment on a single obligor owing to uncertainty regarding future outlook of the company.
The Group’s total operating expense grew by 12.6 per cent (N16.5billion) from N131.0billion in 2019 to N147.4billon in 2020 induced by regulatory charges (AMCON levy) and incremental depreciation charge arising from capital spend in 2019.
Subsidiaries’ contribution to the Group’s Profit Before Tax (PBT) improved from 14.9 per cent in 2019 to 15.3 per cent in 2020.
Overall, the Group closed 2020 financial year delivering a PBT of N238.1 billon better than its PBT target of N235 billion for the period under review.
With impressive profits, the management of GTBank proposed final dividend of N2.70, eight per cent higher when compared to N2.50 per declared in 2019.
Strong liquidity position
GTBank’s liquidity ratio closed at 38.9 per cent in 2020 (2019: 49.3 per cent) well above regulatory minimum of 30 per cent.
Despite the pressure from the covid-19 pandemic and the regulatory CRR debits, the Group maintained average liquidity ratio of 40.7 per cent in FY 2020 (FY 2019: 44.4 per cent) which speaks to the Group’s robust liquidity profile.
The Group’s strong liquidity positions in both local and foreign currencies provide enough headroom to leverage opportunities for risk assets creation and other investments.
The Group continued to maintain robust capital buffers with Full IFRS 9 impact and transitional IFRS 9 impact Capital Adequacy Ratio (CAR) of 21.9 per cent and 24.9per cent respectively, creating a buffer which was adequate to meet the additional one per cent higher Loss Absorbency required of Deposit Systemic Important Banks (DSIB).
Full IFRS 9 impact capital adequacy ratio (CAR) closed at 21.9 per cent well above the regulatory minimum of 15 per cent while CAR based on the CBN’s transitional arrangement came in stronger at 24.9 per cent.
Tier 1 capital remained a very significant component of the Group CAR standing at 21.2 per cent representing 97 per cent of the Group’s Full IFRS 9 impact CAR of 21.9 per cent.
The robust capital position of the Group provides headroom and increased capacity for additional risk taking.
Assets Quality
The lender’s 70 per cent of the increase in loan impairment charge in 2020 was due to the Bank’s decision to increase the level of provisioning on one of its Obligors owing to the impact of worsening macros on the company’s operations and financial condition.
Also, increased Probability of Default (PD) from devaluation of the Naira to Dollar led to an uptick in impairment charge recognized on Stage 2 and Stage 3 FCY loans.
The Bank’s decision regarding the referenced Obligor and Naira devaluation resulted in 298.5 per cent increase in impairment charge from N4.9 billion in 2019 to N19.6 billion in 2020.
NPL however improved marginally from 6.53 per cent in FY 2019 to 6.39 per cent in 2020 as the Group continues to strengthen controls around loan performance by proactively identifying vulnerable sectors with heightened PDs and put in measures to minimize default.
These include, but not limited to, institution of hedges against exposures in Oil and Gas sector, reduction of interest rate in the Retail segment and deferral of principal repayment for SMEs.
Implementation of the CBN’s directive on moratorium of 1-year and reduction in interest rate granted on all CBN intervention facilities also helped to ameliorate the heightened PD on the businesses financed with the CBN intervention funds.
In line with Group’s guidance for NPL Coverage, 2020 Coverage ratio closed at 128.7 per cent from 126.6 per cent recorded in 2019.
Comment
The Managing Director/CEO of Guaranty Trust Bank plc, Mr. Segun Agbaje, said, “2020 was arguably the most challenging year that the world has faced in decades. In such unprecedented times, we sought to live out the full extent of our values; safeguarding lives and livelihoods for our people, our customers and across the communities where we operate.
“We were on solid footing going into 2020; the strength, scale and liquidity of our balance sheet, coupled with the quality of our past decisions and the efficacy of our digital-first customer-centric strategy gave us the resilience and flexibility to navigate the economic shocks and market volatility that dominated the year.”
He further stated that; “Amidst the many challenges that persist, we remain ardent believers in Africa’s growth potential. Our world is increasingly digital, and we see it opening new and exciting opportunities for empowering people and uplifting our communities.
“With our commitment to deepening customer relationships and intense focus on delivering innovative financial solutions, we enter 2021 well-positioned to lead this new world.”
About GTBank
Renowned for its forward-thinking approach to financial services and customer engagement, GTBank was recently ranked Africa’s Most Admired Finance Brand in the 10th-anniversary rankings of Brand Africa 100: Africa’s Best Brands, the pre-eminent survey and ranking of the Top 100 admired brands in Africa. The Bank was also awarded the Best Bank in Nigeria by Euromoney Magazine for a record-extending tenth time and the Euromoney Excellence in Leadership Africa Award for its swift reaction in responding to the Covid-19 crisis and for addressing the impact of the pandemic on its customers and communities.