GTBank Is Still Cutting Cost To Cover Weakening Revenue
Guaranty Trust Bank is one of the big players in the Nigerian banking industry owing to its large followers that cut across the nation’s social strata. Since 2017 however, its enviable position has been shaky following the weakness in its earnings, which has intensified from marginal improvement in the past two years to a decline this year.
Revenue performance lost the mildly improving record in the first quarter and began declining in the second quarter. The downward movement gained further momentum in the third quarter ended September 2019.
The bank’s management continues to work its strategy of defending the bottom line against weakening revenue performance. It again applied its cost pruning saw on key expense lines, which enabled it to keep profit up in the face of a decline in revenue.
Despite the palliatives however, the Interest expense, the main income line of the bank continues to lead the decline in earnings. There is however some improvement from a drop of 8 percent to a decline of 5.6 percent in interest income at the end of the third quarter. That has raised some hopes for further strengthening in the final quarter and an improved full year revenue outlook for the bank.
Fee and commission income remained the strength in revenue performance for GTB in the current year but there was a significant slowdown in the third quarter. Management is however not letting the weakness in revenue lead to a drop in profit and it is doing this for the third year running.
GTB is shifting resources by way of cost cutting from other stakeholders to build wealth for shareholders. Depositors and other lenders are feeling the pinch more than the others. Cost of funds has been on the decline since the first quarter, providing the biggest cost saving for the bank. That made it possible for the bank to change a decline in interest income into a marginal gain in net interest income at the end of the third quarter.
Employees are equally facing the squeeze in the management’s bid to save cost and defend profit. Personnel cost is one of the cost cutting areas that are helping the bank put up profit improvement so far this year. The bank’s workforce remains below the 2012 peak.
A lot of cost saving is also being extracted from other operating expenses that represent the cost of materials purchased from other operating units to carry out its business. Cost saving from the three key expense lines enabled the bank to put up a moderate profit improvement at the end of the third quarter. Despite that, GTB is facing another year of profit slowdown with gross earnings headed for the worst growth record in three years.
At N326 billion at the end of the third quarter in September 2019, gross earnings extended from a 2.7 percent decline at half year to a decline of 3.3 percent. Gross income is projected to be in the region of N436 billion for GTB in 2019 – flat on the N435 billion the bank posted at the end of 2018.
Interest earnings – the main revenue weak point this year amounted to N224 billion at the end of the third quarter. This continued to drop year-on-year though the margin of decline reduced from 8 percent at half year to 5.6 percent at the end of the third quarter. The weakness has been on since last year when interest income went down by 6 percent.
As in the previous quarter, fees/commissions and other incomes remained the revenue stabilizers for the bank in the third quarter. Fees/commission income however slowed down from 29 at half year to about 20 percent at the end of the third quarter. Other income continued to slow down as well from 13 percent to 11 percent over the same period. The slowdown accounted for the increase in the margin of decline in gross earnings at the end of the review period.
Interest cost continues to be the biggest cost saving centre for the bank so far this year, having been on the decline since the first quarter. It went down by over 23 per cent in the third quarter to N51 billion – more than four times the drop in interest income. The drop more than countered the impact of the drop in interest income and saw a marginal improvement of net interest income at about N173 billion.
A major development in the third quarter is that bad debts are on the rise again. There was an upsurge of close to 59 percent in loan impairment charges, speeding up from a growth of 8 percent at the end of the second quarter. The figure is however relatively low at N2.8 billion at the end of the period. From sharp drops in loan loss expenses in the preceding two years, the loan losses are building up once again this year.
The bank closed the third quarter with an after tax profit of over N147 billion, a moderate improvement of 3.4 percent year-on-year. This is a continuing slowdown in profit from annual growth records of 29 percent in 2017 and 10 percent in 2018.
The full year profit outlook for GTB has moderated compared with the expectation based on the half year performance. After tax profit projection is revised from the initial N200 billion to N192 billion for GTB at the end of 2019. That would be an improvement of 4 percent over the full year profit figure of N184.6 billion in 2018.
The bank ended third quarter operations with earnings per share of N5.19, against N5.03 per share in the same period last year. The full year outlook is N6.52 per share for GTB in 2019, a mark down from the initial projection of N7 per share. The bank paid a total cash dividend of N2.75 per share for the 2018 operations and has given an interim cash dividend of 30 kobo per share for the current financial year.
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