GTBank FY2020 Audited Result: Slim Earnings Growth Clash with Rising Impairments


Monday, March 22, 2020, /06:40 AM / by Adaeze Nwachukwu, Proshare Research / Header Image Credit: Financial Technology

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GT Bank has been an organic growth animal, unlike some of its Tier 1 banking rivals the bank has grown its assets and earnings under the strength of its own wings rather than by the acquisition of other banks. So far, the gambit has served the bank well as it has faced down 2020 headwinds to sustain growth of assets, profit, and deposits.


 However, the devaluation of the naira in 2020 did the bank no favours as dollar-denominated earnings took a knock. The bank has consistently been Nigeria's most cost-efficient lender over the last five years and remains so even though pressure has been put on operational cost in 2020 as the Group's cost-to-income ratio rose marginally from 36.11% in 2019 to 38.24% in 2020 which was still below its 2020 guidance of 40%.


Key Highlights/Takeaways

  • Gross earnings increased Year-on-Year (Y-o-Y) by +5.58% from N435.31bn in 2019 to N455.23bn in 2020 (fell by -15.75% in USD terms to US$1.19bn in 2020).
  • Profit before tax grew marginally Y-o-Y by +2.76% from N231.71bn in 2019 to N238.09bn in 2020 (declined by -17.21% in USD terms to US$624.92m in 2020).
  • Impairment charges on loans significantly increased Y-o-Y by +298.50% from N4.91bn in 2019 to N19.57bn in 2020 (up by +221.05% in USD terms to US$51.37m in 2020).
  • Marginal Y-o-Y uptick of +2.16% in basic and diluted earnings per share from continuing operations from N6.96k in 2019 to N7.11k in 2020.
  • The loan book grew Y-o-Y by +10.70% from N1.50trn in 2019 to N1.66trn in 2020.
  • Total deposit up significantly by +37.08% Y-o-Y from N2.63trn in 2019 to N3.61trn in 2020.
  • Total debt declined by -30.13% in 2020 from N162.99bn in 2019 to N113.89bn.
  • Total equity increased Y-o-Y by +18.49% from N687.34bn in 2019 to N814.39bn in 2020 (marginal decline in USD terms, declined by -4.54% to US$2.14bn in 2020).
  • The total dividend for the year ended December 31, 2020, is N3.00k against N2.80k per share paid in 2019.



Illustration 1: GTBank's 2020 Financial Highlights

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Share Price and Traded Volume-From Business Cycle to Profit-Taking

The year 2020 was tough and the COVID-19 induced macroeconomic challenges were hard felt by the banking sector. However, the share price performance and the banking sector index both recorded an increase in the year despite the challenges. GTBank's share price movement in 2020 reflects the volatility faced in the business cycle in 2020, March 2020 records the lowest levels of the share price of the bank at N17.7. At the tail end of the year share price had improved with which was supported by the gradual reopening of the economy and business activities. The share price of the financial institution increased higher than the pre-COVID-19 levels, closing the year at +8.92% higher, although lower than the banking sector index on the Nigerian Stock Exchange (NSE) which closed at +10.14% as of December 31, 2020.

Year-to-date (YTD), the share price has dipped by -7.88% as of 18 March 2020, this could be attributed to profit-taking by investors.


The volume of shares traded of Gtbank has quite a different trend from the share price movement. In 2020, the volume of shares traded declined by -14.72% with June 2020 recording the lowest volume traded while February 2020 recorded the highest volume traded. However, YTD performance has improved significantly, increased by over a +1000% as of 18 March 2020 (see chart 1 below).


Chart 1: GTBank's Share Price Movement and Volume of Shares Traded as of 18 March 2020

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Source: NSE, Proshare Research


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Profitability-Climbing Stepwise

Gross earnings of the group marginally in 2020, despite macroeconomic challenges in the year. Gross earnings grew Y-o-Y by +4.58% from N435.31bn in 2019 to N455.23bn in 2020. Growth in gross earnings was on the back of a +9.64% Y-o-Y uptick in net interest income (NII), which was largely attributed to the -27.41% decline in interest expense in 2020.


Gross earnings have an upward trajectory over the past five years, 2020 recorded the highest percentage growth while 2019 has the lowest percentage change with +0.14% growth in gross earnings (see chart 2 below).


Converting to USD terms, using the closing official rate at the different period for translation, gross earnings declined Y-o-Y by -15.75% which is contrary to the growth in Naira terms. From US$1.42bn in 2019 to US$1.19bn in 2020, the decline in US dollar terms is attributed to the devaluation of the domestic currency.


Chart 2: GTBank's Gross Earnings 2016- 2020 (N'bn)

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Source: GTBank's Financial Statement, Proshare Research


The FY2020 audited result released by GT Bank showed a marginal climb in profit before tax (PBT). PBT grew Y-o-Y by +2.16% from N231.71bn in 2019 to N238.09bn in 2020.


The growth in PBT was despite a -21.04% fall in net fee and commission, this decline was attributed to the +109.88% increase in fee and commission expenses and a -14.80% slide in fee and commission income. E-banking income slumped by -24.85% in 2020 while bank charges under fee and commission expenses grew by +128.98%. Also, a driver of the increase in fee and commission expenses, loan recovery expenses grew by +81.74% in 2020.


In 2017, the PBT of the group had the highest percentage growth of +19.71% while 2020 records the lowest percentage growth for the past five years (see chart 3 below).


In US dollar terms, PBT dipped by -17.21% which was in contrast to the marginal growth in naira terms, from US$754.87m in 2019 to US$624.92m in 2020.



Chart 3: GTBank's Profit Before Tax 2016- 2020 (N'bn)

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Source: GTBank's Financial Statement, Proshare Research

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Impairment- A Hard Look at the Loan Book

GT Bank's impairment charge on loans between 2016 and 2019 saw a significant decline, however, the 2020 result showed a reverse climb in impairments although stopping short of the 2016 numbers. Impairment charges increased Y-o-Y by +298.50%, from N4.91bn in 2019 to N19.57bn in 2020. Indicative of the harsh impact of COVID-19 on lending activities and business prospects in 2020.


The banking group's impairment charge to loan ratio was 1.18% in 2020 against 0.33% in 2019. In 2016 the group recorded its highest impairment charge to total loans of 4.11% (see chart 4 below).


As noted in the lender's FY 2020 presentation, "70% of the increase in the loan impairment charge in 2020 was due to the Bank's decision to increase the level of provisioning on one of its Obligors owing to the impact of worsening macros on the company's operations and financial condition. Also, increased Probability of Default (PD) from the devaluation of the Naira to US$ led to an uptick in the impairment charge".



Chart 4: GTBank's Impairment Charges on Loans 2016- 2020 (N'bn)

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Source: GTBank's Financial Statement, Proshare Research


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Asset Quality- Looking Up Cautiously

The non-performing loan ratio (NPL) in 2020 improved slightly to 6.39% from 6.53% in 2020. Improvement in the NPL ratio in 2020 was attributed to strengthened controls around loan performance by identifying vulnerable sectors with heightened PDs and put in measures to minimize default as stated in the financials of the bank.


In 2020, the group's exposure to both the downstream and midstream of the O&G sector fell from 24% in 2019 to 20% in 2020. A breakdown of NPL by industry showed that engineering services, fashion & design, religious organizations had the highest percentage of 28% in 2020 (see chart 5 below).


Chart 5: GTBank's Non-Performing Loans 2016- 2020

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Source: GTBank's Financial Statement, Proshare Research

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Total Assets-

Total assets grew Y-o-Y by +31.54% from N3.76trn in 2019 to N4.94trn in 2020. The growth in total assets was largely on the back of a +112.40% increase in its restricted deposits and other assets and a +25.61% increase in cash and bank balances.


The 2020 result saw the highest percentage growth in total assets while 2018 recorded the highest percentage decline in assets, with total assets declining by -1.90% (see chart 6 below).


Translating to US dollar terms, total assets grew Y-o-Y by +5.98% which was a lot less than the growth recorded in the domestic currency, from US$12.25bn in 2019 to US$12.98bn in 2020.


Chart 6: GTBank's Total Assets 2016- 2020 (N'trn)

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Source: GTBank's Financial Statement, Proshare Research


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Loan-to-Deposit Ratio-Walking A Tight Balance

The group's loan-to-deposit ratio (LDR) in the last five years has spiralled downwards, the percentage growth in total deposits has been higher than the percentage growth in total loans and advances.


LDR declined from 57.03% in 2019 to 46.05% in 2020 which was lower than the regulatory minimum of 65%.


In 2020, total loans and advances rose by +10.70% to N1.66trn while total deposits increased significantly by +36.77%.


A key growth driver of risk assets was the +10.81% growth in loans and advances to customers while loans and advances to banks dropped by -93.46% in 2020.


Also, growth in total deposits was spurred by a +38.57% increase in deposits from customers while deposits from banks declined by -5.59% in 2020 (see chart 7 below).


Chart 7: GTBank's Loan-to-Deposit Ratio 2016- 2020

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Source: GTBank's Financial Statement, Proshare Research

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Shareholders Fund-Keeping Money In-House

GTBank's total equity grew by +18.49% in 2020, from N687.34bn in 2019 to N814.39bn. This was due to the +62.62% growth in retained earnings and a +18.56% increase in capital and reserve attributable to equity holders of the parent entity.


In 2017, the bank posted its highest percentage equity growth of +22.68% while 2018 saw the bank’s highest percentage decline of -6.96% (see chart 8 below).


The debt-to-equity ratio of the financial institution dropped in 2020, from 23.71% in 2019 to 13.99% in 2020. This was because of a -30.13% fall in the total debt of the group.


Converting total equity into US dollar terms, the FY2020 audited result showed total equity declined by -4.54% in USD terms from US$2.24bn in 2019 to US$2.14bn in 2020.


Chart 8: GT Bank's Total Equity 2016- 2020 (N'bn)

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Source: GTBank's Financial Statement, Proshare Research


GT bank's recent result for FY2020 showed top and bottom-line earnings resilience despite the adverse impact of the COVID-19 pandemic on general business.


The bank does its business in eight African countries and has a subsidiary in the United Kingdom (UK). A breakdown of PBT by geographical location showed that the Gambian subsidiary posted the highest percentage PBT growth of +54% Y-o-Y while the UK had the highest percentage PBT decline of -264% in 2020.


All said the bank put up a decent performance in 2020 but the rise inn impairment charges leave a brittle taste in the mouth as analysts raise red flags concerning the bank's loan quality and the exposure to the domestic energy and oil and gas sectors.


GT Bank may need to rejig its loan composition to de-risk its balance sheet and give investors less to worry about in 2021. Organic growth or inorganic growth, a weaker quality loan portfolio would signify trouble, an outcome the bank's shareholder would find far from flattering.




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