Guaranty Trust Bank: Capital Adequacy Ratio at 22.93% Affirms Group’s Strength

Wole Olajide

Guaranty Trust Bank in the first half of 2020 achieved gross earnings of N228.32 billion, up 2.85% from N221.99 billion in the first half of 2019.

Profit before tax of N109.71 billion was reported, down by 5.25% from the PBT of N115.79 billion in H1’19.

Profit after tax for the first half of 2020 was N94.27 billion, down by 4.90% from N99.13 billion in half year, 2019.

Earnings per share (EPS) in half year 2020 dropped to N3.20 from the EPS of N3.37.

During the period under review, Directors proposed 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. Withholding tax will be deducted at the time of payment.

Impact Assessment of COVID-19

Guaranty Trust Bank instituted various measures to preserve the health and well-being of its employees, customers and communities while minimizing the impact of the pandemic on its Businesses in all the jurisdiction where it operates. The Group activated its Business Continuity Plans and came up with various initiatives to prevent business disruptions while ensuring effective service delivery. Some of the measures adopted include internal awareness campaigns, enforcement of health and safety precautions, minimization of physical access to office premises, restriction of access to buildings to non-essential visitors, enforcement of social distancing protocols and virtual working approach to reduce exposure and replacement of face-to-face meetings with video conferences or online meetings. The Group also came up with various palliative measures to ease the difficulty encountered by obligors in identified vulnerable segments and partnered with Government on initiatives aimed at alleviating suffering brought about by COVID-19.

In accordance with the Group’s Business continuity plans, the IT unit granted staff access to the Bank’ server from different remote locations without compromising security. This enabled the bank to achieve flexible work arrangements and alternate team split with some of its staff working from their respective homes. As our employees continue to work from home, GT Bank continually maintained the confidentiality of all sensitive information. While the bank has taken steps to keep its employees safe, the management continued to leverage on its robust service platforms to enable customers carry out seamless transactions on its self-service electronic banking channels in order to reduce the number of people who visit the bank’s branches.

Impact on Capital and Liquidity

Guaranty Trust Bank carried out stress tests to access the impact of the Covid-19 pandemic on its Capital and Liquidity positions; and results shows that the Capital and Liquidity ratio of the bank remains well above the regulatory threshold of 16% and 30% respectively. The results indicate that under normal and stressed conditions, the Group have adequate capital buffers to mitigate against risks and ample liquidity to meet current and prospective commitments. GT Bank considered different types of liquidity risks inherent in its business activities which include unanticipated withdrawal of deposits, inability to repay maturing debt obligations. The Bank’s liquid resources are strong in all scenarios considered with stressed liquidity ratio of 39.55% from a closing position of 43.15% as at the end of H1 2020.

The strong Capital ratios under stressed conditions also attests to the quality of the underlying Assets (risk assets and otherwise) and associated collaterals. It also validates the strategy put in place regarding the institution and regular monitoring of the stringent in-house limits which is well above the regulatory requirement. As at 30 June 2020, the Group is well capitalized with normal Capital Adequacy Ratio (CAR) and Stressed CAR closing at 22.93% and 20.32% respectively.

Impact on Revenue

The COVID-19 Pandemic has impacted all sectors of the economy. However, the level of impact depends on the nature of the industry. Considering that some clients may be much more vulnerable than others, the bank worked closely with her credit customers to assess their liquidity and operational cash flow needs and offered different relief measures such as credit restructures, limiting the amount available for drawdown for retail credits and granting of moratoriums for customers having financial difficulty in meeting up their repayment obligations. In addition, the Group carried out a re-assessment of risk exposures on the entire loan portfolio with major focus on susceptible sectors and their performance risk.

While for the Intervention facilities which accounts for 6% of the Gross loan book, the Central Bank introduced some palliatives such as repricing of the interest rate on the facilities downward from 9% to 5% in order to support businesses experiencing cash flow challenges and further moratorium of 1 year on principal repayments on Intervention facilities.

The containment measures implemented against the COVID-19 pandemic such as lockdown measures, travel restrictions, closure of non-essential businesses, skeletal service operations, recent changes in the interest rate environment resulted in limited/reduced economic activity with consequent negative impact on transaction volumes and the Group’s earnings. The Covid-19 Pandemic also came during the time that the Central Bank released a revised guide to bank charges with significant impact on fees and commission line. The Bank’s E-business income reported under the Fee and Commission line was the worst hit owing to the implementation of the CBN guidelines on NIP charges.

Notwithstanding these challenges, the Group’s efficient balance sheet optimization, effective risk management strategy, robust business model, as well as product and geographic diversification provided ample room helping to curtail the impact of the Pandemic on the Group’s earnings.

Impact on Loan Impairment Charges

Considering the disruption to economic and market activities and the resultant heightened probabilities of default occasioned by the Pandemic, the Group has put in place measures to mitigate the impact which the Pandemic has on the impairment numbers as a result of worsening macro-economic variables which have been incorporated into the forward looking information (FLIs) within the ECL model used in determining impairment charges. Increased probabilities of default have a direct correlation with worsening macros, hence the institution of measures which include obtaining adequate collateral in support of Loan exposures, institution of hedges specifically for Oil and Gas exposures and application of the monetary value of the underlying collateral. These measures which was further complemented with improvement in 1 year Oil prices forecast put at > $40/barrel helped douse the effect of heightened probabilities of default on the impairment charges.

Impact on Operating Expense

The Group was able to manage its controllable cost prudently even though it incurred some unexpected Covid-19 related costs. Some of which include additional investment in technology, to enable staff work from home, cost associated with implementing enhanced safety procedures and other COVID-19 protocols. In addition, the impact of inflation was also pronounced in the first half of the year. Overall, Operating expense grew by ₦13.44bn (19.2%) from ₦69.87bn in June 2019 to ₦83.31bn in June 2020.

Impact on Subsidiary Operations

The Group has an experienced and competent Management team that is well prepared to manage risks arising from the economic realities affecting different business environment.

Guaranty Trust Bank currently operates in 10 countries and the bank is confident that there will be no threats of either partial or complete cessation of any of the business operations despite the impact of the Covid-19 pandemic.

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