Banking
High Credit Risk, FX Income Dominate GTBank Performance
By Modupe Gbadeyanka
One of the foremost financial firms in Nigeria, Guaranty Trust Bank Plc (GTBank) delivered an impressive performance in FY 2016, inspite of the low pace of credit expansion that characterized the year amid the heightened credit risk environment.
The bank, since its inception, has been dominating the sector in Nigeria, growing its customers’ base and delivery impressive performances.
After reviewing the FY 2016 earnings release and the expected performance of the bank, Wstc Financial Services Limited assigned a BUY rating on the stock, with a fair value of N29.74 implying that the current market price is trading at a 19.4 percent discount to fair value.
GTBank currently trades at a forward P/E multiple of 6.34x and P/B of 1.36x
Gross earnings grew by 37.4 percent to N415 billion (FY 2015: N301 billion), primarily on account of a significant FX revaluation gain of N87 billion (FY 2015: N5 billion) recorded in the year.
This was characteristic of the industry and akin to other players with foreign currency net asset exposure, in the light of the currency depreciation recorded in Q2 & Q3 2016.
Interest income grew by 14.5 percent to N262 billion (FY 2015: N229 billion), reflecting the impact of the elevated interest rate environment, while Interest expense declined by 3.2 percent to N67 billion (FY 2015: N69 billion).
GTBank recorded a lower interest expense which primarily resulted from the early redemption of $500 million out of the outstanding November 2013 $902 million 5-year Eurobond.
A sinking fund has also been set up towards the redemption of the remaining $402 million with no plans of refinancing, according to guidance from management. A combination of the remarkable growth in interest income and contraction in interest expense led to a 22.2 percent growth in Net interest income to N195 billion (FY 2015: N160 billion).
The deterioration in the macro environment stressed asset quality and caused a sharp rise in non-performing loan (NPL) to N61 billion (FY 2015: N45 billion) with an NPL ratio of 3.66 percent (FY 2015: 3.21 percent).
Consequently, the bank recorded a significant impairment charge of N65 billion, representing a 426.0 percent surge from FY 2015 levels of N12 billion. The bulk of the impairment charge reported was largely driven by increase in provision on FX denominated facilities due to the currency depreciation.
In line with the elevated inflationary environment, operating expense (Opex) increased by 17.9 percent to N114 billion (FY 2015: N96 billion). The key Opex drivers were fuel cost & translation differences from foreign subsidiaries.
In tandem with the impressive performance from top line, profit before tax increased by 36.8 percent to N165 billion (FY 2015: N120 billion), while profit after tax increased by 33.0 percent to N132 billion (FY 2015: N99 billion).
The Bank proposed a total dividend of N2.00, representing a payout ratio of 43 percent (FY 2015: 51 percent).
Wstc Financial Services Limited says it expects high yield on government securities to continue to support growth in interest income in FY 2017, as it expects a marginal expansion in loan book size.
Also, barring significant volatility in the FX market, the firm said it does not expect the level of FX gains recorded in FY 2016 to recur in FY 2017.
“Thus, we expect a 12.6 percent decline in gross earnings in FY 2017.
“We expect cost of funds to increase in reflection of the high interest rate environment. Also, we believe the newly introduced FGN savings bond may somewhat crowd-out the bank’s retail deposits and impact negatively on interest expense,” Wstc Financial Services Limited said.
In view of the bank’s significant loan book exposure to the oil & gas sector and the weak outlook of oil price as well as management’s recent disclosure that the Etisalat Nigeria loan (N42 billion) is expected to be restructured sometime in Q2 2017, and Wstc Financial Services Limited still expects a high impairment charge on risk assets to be recorded in FY 2017.
“Thus, we estimate that the bank’s ROAE will decline to 22.5 percent by FY 2017 (from 29.1 percent in FY 2016) as the cost to income ratio increases to 45.1 percent from 40.8 percent which resulted from FX income in FY 2016.
“We expect a FY 2017 PBT of N142 billion (more conservative than management’s guidance of N168 billion),” it added.
In estimating the fair value of GTBank, Wstc Financial Services Limited adopted a blended valuation methodology using the residual income and dividend discount valuation approaches.
Its initial year cost of equity (COE) estimate of 21.3 percent was computed using a 10-yr risk-free rate of 15.89 percent, beta of 0.74 (relative to the NSE ASI) and an equity risk premium of 5.69 percent.
Wstc Financial Services Limited says it arrived at a Fair value estimate of N29.74 per share, pointing out that its fair value estimate implies justified forward P/E multiple of 7.57x and P/BV multiple of 1.62x, while the current market price is at an 19.4 percent discount to its fair value; “hence, we rate the company’s stock a BUY.”
By Modupe Gbadeyanka
Any bank caught supplying minted Naira notes to currency hawkers will have to pay a fine of N150 million, the Central Bank of Nigeria (CBN) has warned.
In a circular issued over the weekend by the acting Director of Currency Operations Department of the central bank, Solaja Olayemi, it was stated that it was becoming embarrassing that new banknotes are hawked at social events when most Nigerians are unable to get cash from Automated Teller Machines (ATMs) of banks or over-the-counter.
The banking system has witnessed shortage of cash for a while, with most ATMs not dispensing cash to customers despite efforts by the regulator to address the situation.
In the notice, the CBN said the distribution of freshly minted Naira notes illegally to currency hawkers will attract a penalty of N150 million per branch involved.
The apex bank disclosed that to curb the illegal practice, it has ramped up enforcement measures, including spot checks at banking halls, ATMs, and mystery shopping at locations linked to currency hawking.
“Any erring deposit money banks or financial institutions that is culpable of facilitating, aiding or abetting, by direct actions or inactions, illicit flow of mint banknotes to currency hawkers and unscrupulous economic agents that commodify Naira banknotes, shall be penalised at first instance N150 million only, per erring branch and at later instances apply the full weight of relevant provisions of BOFIA 2020,” a part of the circular stated.
The notice stressed the importance of banks strengthening their internal controls, particularly in cash management at branches and during teller operations.
By Aduragbemi Omiyale
The Central Bank of Nigeria (CBN) has reaffirmed that the old and new Naira notes will continue to be used for financial transactions in the country beyond December 31, 2024.
There had been rumours that the old and redesigned N200, N500, and N1,000 banknotes would no longer be legal tender from Wednesday, January 1, 2025, because the central bank would phase out the notes in compliance with a Supreme Court judgement of November 29, 2023.
But the apex bank, in a statement signed by its acting Director of Corporate Communications, Mrs Hakama Ali, on Friday, clarified that the apex court’s judgement being cited did not authorise the bank to phase out the banknotes by the end of this year.
According to her, the court allowed the CBN to leave the old and new notes to be used concurrently until it decides to gradually phase out the former.
The central bank’s spokesperson urged members of the public to disregard claims suggesting the old series of these denominations would cease to be valid at the end of this year.
She urged them to continue to accept all Naira notes for daily transactions, encouraging banks to also adopt alternative payment methods such as electronic channels to reduce the pressure on physical cash usage.
“The Central Bank of Nigeria (CBN) has observed the misinformation regarding the validity of the old N1000, N500, and N200 banknotes currently in circulation.
“In line with the bank’s previous clarifications and to offer further assurance, the CBN wishes to reiterate that the subsisting Supreme Court ruling granted on November 29, 2023, permits the concurrent circulation of all versions of the N1000, N500, and N200 denominations of the Naira indefinitely.
“For the avoidance of doubt, all versions of the naira, including the old and new designs of N1000, N500, and N200 denominations, as well as the commemorative and previous designs of the N100 denomination, remain valid and continue to be legal tender without any deadlines,” the statement noted.
By Adedapo Adesanya
Access Bank Plc, the banking subsidiary of Access Holdings Plc, has entered into a binding agreement with South African-based Bidvest Group Limited for the acquisition of 100 per cent equity stake in Bidvest Bank Limited.
The deal for the 24-year-old South African lender is due to be completed in the second half of 2025, upon regulatory approval.
This shows Access Bank’s further expansion plans in line with goals set by its late founder, Mr Herbert Wigwe.
The agreement to acquire 100 percent stake in Bidvest Bank reflects Access Bank’s commitment to strengthening its footprint in South Africa and consolidating on its position as the continent’s gateway to global markets as it seeks to optimise the benefits of recent acquisitions and accelerate its transition towards a greater focus on efficiencies.
Bidvest Bank, founded in 2000 is a niche and profitable South African financial institution providing a diverse range of services, including corporate and business banking solutions and diverse retail banking products.
As of its year ended June 2024, Bidvest Bank reported total assets equivalent of $665million and audited profit before tax of $20million.
Upon conclusion of this acquisition, Bidvest Bank will be merged with the bank’s existing South African subsidiary to create an enlarged platform to anchor the regional growth strategy for the SADC region.
This is coming just as the bank opened a new branch in Malta as part of efforts to focus on international trade finance after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
The Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
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