GTBank’s Poor Margins Mirror Weak Economy | Independent Newspapers Limited
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GTBank’s Poor Margins Mirror Weak Economy

Posted: Mar 16, 2016 at 1:00 am   /   by   /   comments (0)

Kirk Leigh, Lagos

GTBank may well blame the economy for its stunted growth in the last financial year and may be excused. But the fact remains that the poster boy of the new generation banks must work at getting better in its primary calling of maturity transformation.

In the last financial year ending December 2015, GTBank managed an 8.4 percent growth in gross returns from N278.52 billion to N301.85 billion despite the economy’s uninspiring growth of 2.11 percent. The slow growth had the effect of caging the bank’s bottom-line returns.

Profit before tax, which is an indication of how well operations are managed, grew 3.7 percent from N116.4 billion to N120.7 billion. Despite a lean PBT, the ORANGE bank resorted to tax deferment to prevent net profit from shrinking lower than N99.4 billion from N94.4 billion, a 5.3 percent improvement from the previous year.

The scenario above led to dropping pre-tax and net profit margins; pre-tax margins sank in 2015 to 40 percent from 42 percent in the previous year while net profit margin dropped to 33 percent from 34 percent.

Attracting deposits was Herculean for banks in the out-gone year given the erosion of purchasing power by a combination of factors including rising inflation and a weaker naira. It was little surprising then that GTBank’s deposit base shrank in the period though by less than one percent to N1.610 trillion from N1.62 trillion.

It would have been in the interest of the bank to rev up deposits given that its loans and advances portfolio was growing too fast relative to the deposits base. The bank’s loans portfolio grew by 7.5 percent from N1.275 trillion to N1.372 trillion.

The implication of a faster paced loans and advances portfolio resulted in a very high loans to deposit ratio of 0.85 (85%). This means that for every thousand naira depositors put in the bank, it loaned out N850 with only N150 left to prop the vaults.

High credit risks such as this have grave implications for a bank’s credit risk.

The bank’s high credit risk position may have been curious and eye popping at other times but it is much the same for most banks at this time, sending a warning signal that banks are indeed sitting on a thin buffer in case of a run.

This is especially worrying at a time most financial institutions are exposed to oil market and currency risk.

The consolation for GTBank though is that its N2.52 trillion assets is enough cover for the loans, at least two times over, even if the loans coverage ratio has been static at 0.54 in the last two years.

The hefty assets level have milked little profit for the bank as return on assets has been flat at 0.04 in the last two years. This may be an indication that the bank has grown too fast and is unable to translate that growth into more profit. But what is certain is that the bank needs a combination of an improved macro economy and improved efficiency in its own operations to fork out more profit with its hefty assets base.

The bank may have realised this reason why it grew assets by only 7.2 percent from N2.36 trillion to N2.52 trillion.

Interest income, which is at the core of maturity transformation was jerked up by 14.3 percent from N200 billion to N229.24 billion while interest expenses grew faster at 19 percent to N69.29 billion from N58.21 billion.

Despite the quick pace of interest expense, the bank managed to grow by 18.2 percent, net interest margin to N159.95 billion from N135.3 billion.

The bank declared a N1.77 dividend. Investors do not appear impressed with the result as the bank’s share price took a dive on Tuesday, March 15, one day after the results were released. It dropped from N16.61 to N16.11.

Commenting on the financial results, Segun Agbaje, the bank’s MD/CEO, said that “the bank’s financial performance in 2015 is an indication that the bank earned the loyalty of our customers and an attestation of the hard work and dedication of our staff, management and board. The Group has delivered a respectable profit before tax of N120.7 billion despite an extremely challenging business environment in 2015.”

He further stated that “as a bank, we will continue to actively partner with our customers and grow our business in a sustainable manner that is not only driven by profit objective, but with an increased focus on empowering our customers with a view to growing Nigerian economy. Also, we remain committed to maximising shareholders’ value and delivering superior and sustainable returns whilst actively expanding our franchise in select, high growth African markets where we believe we have a competitive advantage.”