Guaranty Trust Holding Company Plc (GTCO) has taken advantage of a huge foreign exchange gain of over N373 billion to throw off bad assets in excess of N164 billion at the end of half-year operations in June 2023.
The audited accounts of the N8.5-trillion bank for the six months ended June 2023 show that asset losses comprise almost N83 billion bad loans and over N81 billion other problem financial assets.
The figures represent massive increases from N3.5 billion net loan loss charges and from an insignificant net impairment charge on other financial assets last year. The numbers are also nowhere comparable to the N12 billion net impairment charges on assets the bank made for the entire 2022 financial year.
However, the impact of the charge-offs on the income statement was more than remedied by the huge foreign exchange inflow – which also powered over a three-fold jump in group after-tax profit to N280.5 billion at the end of half-year operations.
The profit figure is already 66 per cent above the closing after-tax profit of N169 billion in 2022. The hopes for recovering from two successive years of profit drop the bank raised with its first quarter performance has been more than realised at half year.
The foreign exchange inflow accounted for 55.5 per cent of the group gross earnings of N672.6 billion the bank recorded at half year. The figure is an increase of 181 per cent over the corresponding gross income of N239 billion in 2022 and already stands well above the full-year revenue of N539 billion in 2022.
The foreign exchange gain however obscures a persisting weakness in non-interest earnings with net trading income dropping by 32 percent to N16 billion at half year.
Added to that is that the pressure from cost of funds that lowered profit numbers in the preceding two years has remained and the massive asset impairments have yet added to the bank’s challenges for the current financial year.
The cost of funds keeps accelerating from a 43 per cent rise at the end of last year to 63 per cent in the first quarter and further to 84 per cent to close at N48.5 billion at half year. That compares to an increase of 53.5 per cent in interest income to N226 billion at the end of June 2023.
Yet, interest earnings are maintaining the course of the biggest advance seen in many years – which remains a key operating advantage for the bank this year so far.
The half-year growth rate is a continuing improvement from a 22 per cent increase in interest income to N325 billion at the end of last year and 47 per cent in the first quarter.
The much stronger growth in interest expenses than income affirms that the bank’s challenge of using a higher cost of funds to generate the naira of interest income, which has been the weak point in recent years, is yet persisting.
Impacted by the rising cost of funds, net interest income grew by N56.7 billion or 46.8 per cent to N177.5 billion at the end of half-year operations. The increase was however more than consumed by net loan impairment charges of about N83 billion.
That slashed net interest income after loan loss charges from over N117 billion in the same period last year to N94.5 billion in half a year. Bringing in net impairment losses on other financial assets of over N81 billion, net income represents a crash from N117 billion to a little over N13 billion.
The bank’s management continues to extract cost savings from operating expenses and with the big boost in gross earnings from foreign exchange gains, the operating cost margin has dropped further from 35.5 per cent in the first quarter to 18.7 per cent at half-year – the lowest in decades.
The bank’s operating results at half year were therefore extracted from the overriding functions of revenue windfall and moderated operating cost against the opposing forces of revenue gulping credit losses and accelerating cost of funds.
The bank earned N9.94 per share at the end of June 2023, jumping from N2.70 per share in the same period last year.
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