Thursday, November 05, 2020 / 03:35 PM / By FBNQuest Research / Header
Image Credit: Bloomberg
Event: GTBank notifies the NSE that it has obtained regulatory approval-in-principle
restructure into a financial holding company (Holdco).
Implications: Bank shares to be swapped in a one-for-one
exchange for Holdco shares. In our view, the proposed restructuring will
enhance the bank's revenue diversification, earnings growth and give it
flexibility to adapt to future opportunities.
Late yesterday, GT Bank formally notified the Nigerian
Stock Exchange (NSE) that it has obtained an AIP from the CBN and a no
objection from the Securities and Exchange Commission (SEC) to begin the
process of reorganising the bank into a financial holding company. According to
the bank, the restructuring will be implemented through a scheme of arrangement
between the bank and its shareholders. Under the scheme, issued shares in the
bank will be exchanged on a one-for-one basis for shares in the Holdco. The
bank's existing GDRs will also be swapped on a similar one-for-one basis for
GDRs in the Holdco.
On its H1 2020 conference call, management had
affirmed that the proposed Holdco structure will comprise regional units,
namely GT Bank Nigeria, GT Bank East Africa and GT Bank West Africa. The bank
is also considering having business lines along Pensions, Asset Management and
Payments. Following the cancelation of universal banking licence by the CBN
about 10 years ago, GT Bank decided to be bank-focused. As such, it divested its
non-bank subsidiaries including insurance, asset management and registrars
business. However, changes in the competitive landscape and slower growth in
the traditional banking business has led to a rethink of its strategy and
Recently, the CBN's monetary policies have put
downward pressure on banks' net interest margins and resulted in a reduction in
the growth rate of funding income. Also, regulatory induced fee cuts on
E-banking transactions and ATM fees have also had a negative impact on
non-interest income. As such, earnings growth has slowed for most banks. GT
Bank delivered average PBT growth of 8% over the 2018-19 period. This compares
with the 29% average that it delivered between 2016 and 2017.
If properly executed, the bank's entry into
fast-growth segments like payments would help to diversify its revenue base and
drive earnings growth. That said, although banks have a significant head-start
with mobile money, the payments landscape is getting more competitive. While
most local fIntechs lack the scale and resources of the banks, the Telcos and
interest from global tech firms will increase competitive intensity in the
segment. The recent acquisition of local fintech Paystack for c.US$200m by US
based payment firm Stripe is a case in point. Being technology firms, global
tech firms can use their digital platforms to make deep inroads into the
payments space. We believe that banks may be able to respond to these threats
through collaborative partnerships with the technology firms.
1. GTBank Obtains Approval-In-Principle from CBN
and SEC to Restructure to a Financial HoldCo
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