By Chinwendu Obienyi
When the COVID-19 pandemic hit global economies in 2020, financial institutions around the world wereconstrained largely by lockdown measures adopted by different governments.
This measure was done to reduce the spread of the pandemic and as such transactions in banking halls of financial institutions were largely put on hold.
But then, the rise of fintech – use of Automated Teller Machines (ATMs), Point of Sales (PoS) terminals, online banking apps helped the banking industry around the globe especially Nigeria survive the storm.
Infact, some of the commercial banks recorded digital growth, increased deposits and customer base, profits among other variable.
Also, the stocks of these banks on the trading floor appreciated strongly as investors continued to take positions after the declaration of their earnings.
This year, it was the Russia-Ukraine crisis, inflation and FX scarcity that are currently headlining the nation’s current economic landscape.
However, this will not be the first time that the aforementioned factors would be rearing their heads in the nation’s economy.
There have been discussions among analysts as to what policy eforms can help banks to navigate these challenges. For instance, dividend cuts and omissions have been suggested as one possibility to improve the financial strength of banks by retaining earnings.
But investors and financial analysts could interpret a reduction of dividend payments as a negative signal indicating future problems.
Furthermore, shareholders of these banks see dividends as an investment over a financial period and so for more robust profits made by these institutions, it is largely believed dividends will increase judging by some of the statements made by most shareholders at different Annual General Meetings (AGMs).
Sometimes, this might not be the case for some other institutions. Despite worrying headwinds, one financial institution that has consistently maintained payment of dividends to shareholders and has remained resilient in phases of economic downturns is Guaranty Trust Holding Company (GTCO) Plc.
Since transitioning into a Holding Company Structure, the group has been on its destination to create more value for Nigerians, deliver better results for all its stakeholders and further enrich lives in the communities wherein it operates.
Consequently, when the group filed its half year (H1) 2022 audited results before trading hours on the floor of the Nigerian Exchange Limited (NGX) last week, there was cause for optimism on its long-term outlook, as the performance reflected the challenging operating environment.
H1 2022 results
The Holdco’s interest income grew by 16.7 per cent year-on-year (y/y) to N147.20 billion, propelled by all contributory lines. On a nominal basis, the most significant contributions during the period came from income from loans and advances to customers (+13.1 per cent y/y to N103.30 billion), investment securities (+26.0 per cent y/y to N40.39 billion), cash and balances with banks (+15.5 per cent y/y to N2.68 billion) and loans and advances to banks (+145.9 per cent y/y to N832.04 million).
Also, its profit before tax (PBT) grew to N103.25 billion in 2022 from N93.06 billion recorded in 2021, representing a growth of 11 per cent y/y while its gross earnings rose by 15 per cent to N239.288 billion from N207.914 billion reported in 2021, driven by a 13 per cent growth in net-interest income.
The bank recorded a higher interest expense (38.4 per cent y/y to N26.35 billion) during the period, driven by a significant spike in the cost of deposits from customers (+44.6 per cent y/y to N24.31 billion) amid a decline in expenses incurred on financial institutions’ deposits (-21.6 per cent y/y to NGN59.60 million).
The increase in the cost of deposits from customers can be attributed to the increase in deposit from customers by 6.2 per cent to N4.26 trillion in the year-to-date, combined with the marginal deterioration of the Holdco’s current and savings account (CASA) mix to 90.7 per cent in H1 2022 from 90.9 per cent in full year of 2021. Furthermore, profit after tax (PAT) for the period stood at N77.557 billion from N79.41`4 billion posted in 2021, representing a marginal drop of 2.34 per cent.
Overall, the Group continues to post one of the best metrics in the Nigerian Financial Services industry in terms of key financial ratios i.e., Pre-Tax Return on Equity (ROAE) of 23.9 per cent, Pre-Tax Return on Assets (ROAA) of 3.7 per cent, Full Impact Capital Adequacy Ratio (CAR) of 22.0 per cent and Cost to Income ratio of 49.1 per cent.
Dividend
This result during the period under review, led the board of directors to propose the payment of an interim dividend in the sum of 30 kobo per ordinary share on the issued capital of 29,431,179,224 Ordinary Shares of 50 Kobo each payable to shareholders on the register of shareholding at the closure date.
Commenting on the results, the Group Chief Executive Officer, GTCO Plc, Segun Agbaje, stated that the group’s results show an increase in key revenue lines and a strong performance in other financial metrics which reinforce our growth prospects as a leading financial services company.
He added that the group’s priority at the start of the 2022 financial year was to bring the Group’s new businesses on-stream, starting strong with a focus on long-term viability.
“At present, we have successfully expanded our financial services ecosystem to include HabariPay Ltd, Guaranty Trust Fund Managers Ltd, and Guaranty Trust Pension Managers Ltd, and all of them are P&L positive.”
These newly created businesses will operate alongside our flagship banking franchise to offer increased value to our growing customer base as well as other stakeholders. We will continue to build on our core strengths of service excellence, innovation, and flawless execution to deliver our corporate objectives for the year and further our vision of being Africa’s leading financial services institution. We will also continue to ensure we continue to pay dividends to our shareholders”, Agbaje said.
Assessing the bank’s audited results, Senior Analyst at Coronation Research, Ope Ani, said,”We are encouraged by the fact that the group maintained its dividend payout despite the drop in earnings.”
On the positive, as we expected, interest rates have risen significantly in recent weeks. As a result, the benefits of rising asset yields are likely to filter through to funded income and support earnings in the third quarter (Q3).
For their part, analysts at Cordros Research said that the growth from core banking operations was impressive. “This growth trajectory should be sustained through the year, given the higher yields expected for the rest of the year. We remain cautiously optimistic and will seek management guidance regarding the year’s pressure points so far. Our estimates are under review”, they said.