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Beyond revaluation gains: GTCO Plc’s half-year performance sets a marker for long-term value creation & continuing service innovation



Some optimism returned to the Nigerian financial services industry and indeed the equities market in recent weeks with banks and financial holding companies releasing their half-year results.

A cursory view will reveal massive revaluation gains which describes benefits accruing from foreign currency exchange rate revaluations due to the Naira weakening against the US dollar following recent policy measures designed to usher in a market-led regime.

While this situation qualifies as a tailwind for some, GTCO’s historical positioning amongst peers provides a solid reference in strategic planning and prudent management.

GTCO’s spectacular earnings growth is primarily attributable to an FX revaluation gain of ₦357bn, which is due to the bank’s net long USD position.

Aside from the exceptional FX gain, the earnings growth is also attributable to positive momentum in other profit drivers. The Group’s gross earnings increased by 181.1% to ₦672.6bn in H1-2023 from ₦239.3bn in H1-2022 driven by growth in core banking activities mainly increased transactional volumes and enhanced other income.

Interest earnings grew by 53.5% as a result of growth in earning assets volumes and improved yields. Average volumes were up by 21.3% from increased funding; similarly, earning asset yields improved y-o-y to 9.93% in H1-2023 from 8.01% in H1-2022. The 53.5% growth in interest income (₦225.9bn vs ₦147.2bn) was further supported by the 385.0% growth recorded on non-funded income (₦446.7bn vs ₦92.1bn). Net interest income increased y-o-y by 47% (₦177.5bn vs ₦120.8bn).

Revenue growth remains strong, as gross earnings which comprises funded income and non-funded income increased by 181.1% to ₦672.6bn in H1-2023 from ₦239.3bn in H1-2022. Growth in earning asset volumes (21.3%) coupled with a 210bps increase in yields on fixed income securities (H1-2023: 6.8% vs. H1-2022: 4.7%) and loans and advances (H1-2023: 13.5% vs. H1-2022: 11.3%) led to a 53.5% growth in interest income; from ₦147.2bn in H1-2022 to ₦225.9bn in H1-2023.

GTCO maintains a well-structured and diversified balance sheet, posting growth across all asset lines and closing H1-2023 with total assets of ₦8.5tn representing a 32.0% growth over ₦6.45tn recorded in FY 2022.

Guaranty Trust Bank Ltd, which constitutes 74% of the Group balance sheet, recorded huge gains from its FCY asset mix of 39%. Growth in earning assets of 21.3% in H1 2023 is underpinned by growth in deposit liabilities. Customer deposit liabilities grew by 39%, from ₦4.49tn in FY-2022 to ₦6.238tn in H1-2023 as low-cost funds grew by 43.8% from ₦3.991tn in FY-2022 to ₦5.74tn in H1-2023 resulting in low-cost deposit mix of 92% from 88% in FY 2022. GTCO’s retail strategy continues to enhance its capability to attract low-cost deposits.

The Group continues to post one of the best metrics in the Nigerian Financial Services industry i.e., Full Impact Capital Adequacy Ratio (CAR) remained very strong, closing at 24.7%, Pre-Tax Return on Equity (ROAE) of 61.4%, Pre-Tax Return on Assets (ROAA) of 8.8%, while asset quality was sustained as IFRS 9 Stage 3 Loans improved to 4.6% in June 2023 from 5.2% December 2022, however, Cost of Risk (COR) closed at 3.7% from 0.6% in December 2022 owing to worsening macros which caused significant increase in Expected Credit Loss (ECL) variables.

In his comments on the half-year results, the Group Chief Executive Officer of Guaranty Trust Holding Company Plc, Mr. Segun Agbaje, said; “Our half-year audited results reflect the strong business fundamentals underpinning the GTCO franchise, the quality of our past decisions in future-proofing our balance sheet for challenging times, and the sound practices that guide our day-to-day operations.

Despite the challenges in the business environment, notably inflationary pressures and exchange rate fluctuations, we are starting to see the gains in the transformation of our businesses following our transition to a Holding Company structure. Improved profitability and solid performance across key metrics reflect efficiencies and justify the investments we continue to make in technology, product development, and our people.”

Hinting at the Group’s unwavering commitment to offering great experiences especially with its free business platforms and innovative financial solutions, Mr. Agbaje further said; “We recognise the impact prevailing economic and market conditions have on people and livelihoods and we remain committed to seeking better outcomes for our customers by ensuring that our products and service offerings support our customers and their businesses through their evolving realities, whilst also taking every opportunity to optimise stakeholder value.”

Overall, the Group leveraged synergies created through the Holding Company structure, robust FX liquidity, well-structured of its balance sheet, efficient capital planning and a brilliant retail strategy to post a 217% increase in PBT to ₦327.4bn in H1-2023 from ₦103.2bn in H1-2022 with Nigerian operations accounting for 84.7%, West Africa contributing 11.75%, East Africa contributing 1.6%, UK contributing 1.5% while share of Non-Banking Entities came to 0.8%. An interim dividend of 50 Kobo has been proposed by the board of Guaranty Trust Holding Company (GTCO) Plc for half-year 2023.

Achieving its retail strategy required that GTCO maintain its “customer focused, digital first” approach to offering financial services. Indeed, banking operations are characteristically complex and happen in an ever-evolving scenario. The key to GTCO’s ability to thrive in this environment is rapid digital transformation and creation of an organic, fully integrated franchise across viable sectors.

Critical to GTCO’s customer experience promise is the recent upgrade in their mobile banking application, GTWorld which has continued to receive flattering reviews following initial challenges experienced by users trying to transition from the old app to the new one. New features include incognito mode, transfer with phone number, and links to ancillary products and services in investments and funds management that leverage other business verticals in Fund Managers and Pension Managers.

The GCEO, Mr. Agbaje, indicated that the bank has also embarked on a complete overhaul of the core banking system, the back-end system that processes banking transactions and handles other service requests across various branches.

Ultimately, it is expected that customers will experience improved services and enhanced self-service engagement across all channels and touchpoints thereby reinforcing trust and loyalty. Building on data efficiencies and increased automation will also drive down costs and finetune operations.

In June 2022, GTCO launched Squad by HabariPay, a digital payment product that simplifies payments for micro-merchants, SMEs, large corporates, and Techstars. Since then, Squad has gained market acceptance and is fast becoming a preferred payment solution for individuals and businesses.

According to by Mr. Agbaje, the GTCO’s improved financial performance is testament to the unfolding success of the decision to go beyond banking in becoming a leading financial services company in Africa under a Holding Company structure.

Going into the 2nd half of the year, the Group expects revenue streams from all its business verticals to continue to grow and further gains in earnings diversification as the Financial Holding Structure continues to gain traction; specifically, it expects earnings from the non-banking Subsidiaries (i.e., Payments, PFA, and Asset Management) to strengthen and contribute 3% of the Group’s performance by FY-2024.

While the magnitude of the FX revaluation gain is likely to be much lower during 2H23 unless there is a further significant depreciation of the NGN/ USD rate, underlying profitability could remain robust  due to the potential for continued margin expansion on an enlarged asset base, potential moderation of provisions because of the pro-active provisions accrued during 1H23, and likely  Opex moderation as historically the bank has accrued a bulk of its AMCON expenses (the largest cost contributor) during the first six-months of the financial year.

GTCO’s remarkable brand strength and exceptional governance practices assures all stakeholders, especially investors and customers of sustained value creation well into the future.