Cost pressure, rigid regulation worsened GTBank’s Q3 profit sag, Analysts say


gtbAnalysts say cost pressures resulting from the acquisition of subsidiaries combined with stiff regulations are responsible for Guaranty Trust Bank’s plc (GTBank) third quarter – Q3 – profit drop.

For the first nine months through September 2014, GTBank’s net income dipped by 3.6 percent to N66.74 billion from N69.24 billion the same period of the corresponding period (Q3) 2013.

The OPEX growth is attributable to teething cost of newly acquired subsidiaries, according to Abiola Rasaq of the research and strategy unit of Associated Discount House Limited.

“More so, increasingly harsh operating environment in countries like Sierra Leone, Liberia and Cote D’Ivoire, where GTBank has subsidiaries partly elevated the Group’s OPEX,” Rasaq said in an email response to BusinessDay’s questions.

It would be recalled that in order to stamp its footprint across Africa, Guaranty Trust bought 70 percent of Fina Bank to gain entry into Kenya, Rwanda and Uganda.

Based on BusinessDay analysis, the bank’s operating expense increased by 11.38 percent to N68.13 billion as against N61.21 billion the preceding.

Cost-to-income ratio moved to 44.39 percent in Q3 2014, as against 41.85 percent in Q3 2013, as regulatory induced costs like the Asset Management Corporation charge (AMCON levy) continues to spiral costs.

Net margin, a measure of profitability and efficiency, also slid to 33.49 percent in Q3 2014, from 38.04 percent in Q3 2013.

“The rise in ‘other operating expenses’ was the main driver behind OPEX growth and this stems from regulatory cost (AMCON levy),” said Kayode Omosebi, equity research analyst with UBA Capital, in note.

Further slowing GTBank’s bottom-line performance is a 128 percent surge in loan loss expense to N6.05 billion in Q3 2014, from N2.65 billion last year

Some analysts had  expected  GTBank’s interest expense would increase as a result of direct effects of the CBN’s policy on the minimum interest rate of 30 percent of the Monetary Policy Rate (MPR) on saving deposits. As a result the tight regulatory measures aforementioned, the bank’s interest expenses rose by 22.13 percent to N42.83 billion in Q3 2014, from N35.01 billion the preceding year.

It would be recalled that the  CBN has increased CRR -the minimum cash, as a percentage of customer deposits that each bank must set aside as a reserve, from 4 percent in 2011 to 15 percent for private deposits and 75 percent for public sector deposits.

GTBank’s loan-to-deposit ratio, which measures how a   bank is inclined and aggressive about lending, increased to 73 percent in Q3 2014 as against 69.44 percent as of Q3 2014. Loans to customers were up by 15 percent to N1.16 trillion in the review period compared with N1 trillion the preceding year.

Deposits from customers increased by 9 percent to N1.57 trillion in Q3 2014 compared with N1.44 trillion as of December 2013.

The bank share price closed at N27.12 on the floor of the Nigerian Sock Exchange, while market capitalisation was N798.17 billion.

“Increasing competition and almost commoditised nature of banking services in Nigeria, as well as macro/regulatory pressures take toll on the earnings potential of GTBank,” said Rasaq.

Culled from