GTBank Strong Balance Sheet Management And FX Revaluation Gains Drive Earnings

How N500,000 Disappeared GTBank Account Without Owner’s Consent
Photographer: Issouf Sanogo/AFP/Getty Images

GTBank Plc delivered a relatively impressive earnings performance in FY’2020. The Group’s gross earnings grew by 5% YoY, driven by a 2% YoY growth in interest income and an 11% YoY growth in non-interest income. Operating income grew by 6% YoY, while profit before tax grew by 3% YoY.

Profit after tax advanced by 2% YoY, and the Group declared a final dividend of N2.70 for FY’2020, having declared and paid an N0.30 interim dividend during the financial year. Thus, the total dividend for FY’2020 stood at N3.00, representing an 11% increase from the N2.70 total dividend declared in FY’2019.

The dividend qualification date is on March 31, 2021, while the payment date is on April 9, 2021.

Efficient Balance Sheet Management Spurs Earnings Growth

Given the financial system liquidity induced by the Central Bank of Nigeria (CBN) in FY’2020, the Group expanded its funding base, reflected in the Group’s 39% YoY growth in customers’ deposits from N2.53trn as of FY’2019 to N3.51trn in FY’2020.

Specifically, current and savings account (CASA) grew by 45% YoY, thereby driving up the Group’s CASA ratio to 89% (the highest ever thus far). The implication of an 89% CASA is that a significant portion of customer deposits was low-cost, and the impact of that reflected in the Group’s cost of funds.

On the strength of an increase in funding base, the Group’s interest-yielding assets rose by 18% YoY from N2.99trn as of FY’2019 to N3.52trn as of FY’2020. The growth in interest- 45.00 yielding assets was largely on account of an increase in the Group’s loan book (+11% YoY) and 35.00 investment portfolio (+28% YoY). On loan book, the growth driver came from increased credit 30.00 flows to corporate manufacturing, telecoms, oil & gas, and retail sectors.

Regulatory risks heightened during the period, as restricted deposits increased by 112% YoY from N522.43bn as of FY’2019 to N1.23trn as of FY’2020. The increase in restricted deposits limited the ability of the grow interest-yielding assets during the period.

Interest income grew by 2% YoY from N296.21bn in FY’2019 to N300.74bn in FY’2020. According to the management, asset yield declined from 11.90% in FY’2019 to 11.00% in FY’2020. The marginal decline in the Group’s asset yield, despite a material decline in interest rates in the economy, reflected the group’s solid investment strategy. Also, the growth in the Group’s loan book offset the negative impact of asset yield decline.

The Group’s cost of funds declined from 2.90% in FY’2019 to 1.19% in FY’2020. As stated earlier above, the growth in the Group’s CASA implied a well-diversified funding base, and the optimal low-cost deposit mix led to the improvement in the cost of the fund. Accordingly, the Group’s interest expense declined by 27% YoY from N64.84bn in FY’2019 to N47.07bn in FY’2020. As a result, net interest income recorded double-digit growth (+10% YoY from N231.36bn in FY’2019 to N253.67bn in FY’2020).

Dealing Room and Treasury Activities Support Bottomline Growth

Non-interest income rose by 11% YoY, from N139.10bn in FY’2019 to N154.49bn in FY’2020. The non-interest income growth drivers were ‘net trading gains on financial instruments‘ (+17% YoY from N20.89bn to N24.49bn), and ‘foreign exchange revaluation gains’ (+232% YoY from N17.07bn to N56.64bn).

The optimization of the Group’s long position on its investment portfolio and the realised benefit of its long US$1.15bn FX position (ex-US$613mn swap position), spurred the Group’s non-interest earnings. Net fee and commission income declined by 21% YoY from N59.44bn in FY’2019 to N46.94bn in FY’2020, largely attributed to the impact of reduced fees and a COVID-induced decline in economic activities.

However, the Group’s trading activities and long FX position mitigated the net fees and commission decline. During the financial year, the contribution of non-interest income to the gross earnings stood at 34% (FY’2019: 32%).

Operating income advanced by 6% YoY, from N362.68bn in FY’2019 to N385.53bn in FY’2020. Meanwhile, operating expense increased by 13% YoY from N130.97bn in FY’2019 to N147.44bn in FY’2020. The cost drivers in FY’2020 were depreciation charges (+28% YoY), asset-based regulatory charges (+11% YoY), administrative expenses (+40% YoY), technology communications expenses (+50% YoY), and customer services-related expenses (+76% YoY).

In consequence of the higher growth in operating expense, relative to operating income, the Group’s cost-to-income rose by 200 basis points from 36% in FY’2019 to 38% in FY’2020. Therefore, profit before tax growth stood at 3% YoY from N231.71bn in FY’2019 to N238.09bn in FY’2020. Profit after tax grew by 2% YoY from N196.87bn to N201.44bn.

Asset Quality

The Group’s non-performing loan (NPL) ratio marginally improved from 6.53% in FY’2019 to 6.39% in FY’2020. Some efforts implemented by the Group to manage risk assets quality include the institution of hedges against exposures in the oil & gas sector, reduction of interest rate in the retail segment, and deferral repayment for SMEs. In addition, the Group implemented the CBN’s directive on a moratorium of one-year reduction in interest rate granted on all intervention funds.

The Group’s impairment charge on loans grew by 70% in FY’2020 due to the Group’s decision to increase the level of provisioning on one of its obligors due to worsening macroeconomic conditions on the obligor’s operating and financial conditions. Also, the exchange rate devaluation in the economy resulted in an uptick in impairment recognized on stage two and local currency loans.

Capital Adequacy Ratio

The Group’s CAR stood at 24.87% in FY’2020 from 28.88% in FY’2019. However, recognizing the full IFRS 9 impact, the Group’s CAR stood at 21.89% in FY’2020 from 22.37% in FY’2019. The slight decline in CAR reflected the impact of higher risk-weighted assets in FY’2020, given an expansion in the Group’s risk assets. The Group’s CAR was above the 15% regulatory minimum in FY’2020. The implication of a strong CAR is that the Group is well capitalised to take on additional risks.

Liquidity Ratio

The Group’s liquidity ratio (LR) closed at 39% in FY’2020 (FY’2019: 49%), above the 30% regulatory requirement. The Group maintained a 41% average LR during the year (FY’2019 average: 44%), despite the negative impact of the coronavirus pandemic and increased CRR debits.

The Route To HoldC

The Group’s management affirmed that it is close to securing final regulatory approvals to establish a HoldCo structure. In our FY’2019 report titled ‘In Search of a New Growth Driver’, we maintained that the Group intends to change its focus and growth story for the next decade by playing the mobile payments, asset management, and pensions industries. According to the management, the Group intends to build an ecosystem where all of its customers’ needs are met. The Group aims to leverage its strong retail footprints to drive customer value. The management expects the Group to run as a HoldCo from H2’2021.


We estimate a N37.03 fair value for the stock (previous: N50.03), which effectively implies a 4.98x justified price-to-earnings (P/E) ratio. The downward revision of our fair value estimate, despite an improved outlook of earnings, majorly resulted from a higher discount rate used in our fair value computation. Notably, the risk-free rate has risen from 4% as of the writing of our last earnings update in December 2020, to 11% as of the writing of this report.

We did not incorporate the HoldCo structure in our valuation due to limited information on the technicalities and transaction details of the exercise, amid ongoing efforts to get regulatory approvals. However, based on GTB’s track record and the exciting prospects of the new industries the Group intends to play in, we expect to see an overall improved integration and earnings growth for the Group. At the current market price, we believe that the stock offers a 22% total return (price return: 13%, dividend yield: 9%). Therefore, we maintain our BUY recommendation.