Implications of GTBank's Proposed Corporate Restructuring into a Financial Holding Company

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 (AIP) to 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 operating model. 

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.

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