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High Credit Risk, FX Income Dominate GTBank Performance



GTBank Branch

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.”

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.


Zenith Bank Retains Award for Adherence to Global Best Practices



Zenith Bank

By Modupe Gbadeyanka

For adhering to global best practices and institutionalising corporate governance, Zenith Bank Plc against been announced as the Best Corporate Governance Financial Services in Africa.

This is the fourth consecutive year the financial institution is running away with the award, setting an industry-wide example of best practices in corporate governance on the continent.

The lender was bestowed with this recognition by the Ethical Boardroom in the Spring 2023 edition of its magazine.

Ethical Boardroom is a trailblazing and leading international magazine that delivers in-depth coverage and critically-astute analysis of global corporate governance issues to help boards stay ahead of the governance curve.

The chief executive of Zenith Bank, Mr Ebenezer Onyeagwu, dedicated the award to the company’s founder and Chairman, Mr Jim Ovia, for providing the template for an enduring and very successful institution.

He also dedicated it to the board for their vision and outstanding leadership, the staff for their dedication and commitment, and the bank’s customers for their unwavering loyalty to the brand.

“I am extremely pleased that Zenith Bank has been awarded the Ethical Boardroom Corporate Governance Award as a regional governance champion for the fourth year.

“No doubt, the bank’s board has pioneered the exemplary governance culture for which we are now renowned. Indeed, this recognition reflects our steadfast commitment, discipline and high ethos in the conduct of our business and dedication to the principles of good corporate governance.

“This award will motivate us to strengthen this culture internally and advocate for good governance at every forum,” Mr Onyeagwu said.

Zenith Bank has been generally adjudged a Corporate Governance compliant bank by the Nigerian Exchange (NGX) hence its listing on the Premium Board of the Exchange.

The firm continues to sustain this reputation and reappraise its processes to ensure that its business always conforms to the highest global standards.

Its track record of excellent performances has continued to earn it numerous awards, including being recognised as the Number One Bank in Nigeria by Tier-1 Capital, for the 13th consecutive year, in the 2022 Top 1000 World Banks Ranking published by The Banker Magazine; Bank of the Year (Nigeria) in The Banker’s Bank of the Year Awards 2020 and 2022; Best Bank in Nigeria, for three consecutive years from 2020 to 2022, in the Global Finance World’s Best Banks Awards; Best Commercial Bank, Nigeria 2021 and 2022 in the World Finance Banking Awards; Best Corporate Governance Bank, Nigeria in the World Finance Corporate Governance Awards 2022; Best Commercial Bank, Nigeria and Best Innovation In Retail Banking, Nigeria in the International Banker 2022 Banking Awards. Also, the bank emerged as the Most Valuable Banking Brand in Nigeria in the Banker Magazine Top 500 Banking Brands 2020 and 2021, and Retail Bank of the year, for three consecutive years from 2020 to 2022, at the BusinessDay Banks and Other Financial Institutions (BAFI) Awards. Similarly, Zenith Bank was named as Bank of the Decade (People’s Choice) at the ThisDay Awards 2020, Bank of the Year 2021 by Champion Newspaper, Bank of the Year 2022 by New Telegraph Newspaper, and Most Responsible Organisation in Africa 2021 by SERAS Awards.

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Small Business Owners in Edo Hail Wema Bank for Support



Wema Bank small business owners in Edo

By Dipo Olowookere

Wema Bank Plc has been praised by small business owners in Edo State for equipping them with the skills needed to scale up their operations.

Between May 22 and 26, 2023, the financial institution trained 250 participants on business management skills, entrepreneurial knowledge, and financial and marketing management skills to boost the success of Small and Medium Enterprises (SMEs) in the South-South region of the country.

The workshop, organised under the Wema Bank SME Business School, was the fifth edition held at the Uyi Grand Event Centre, Benin City, the state capital, and comprised SME customers and non-customers.

One of the beneficiaries, Ms Edith Igabali, commended Wema Bank for the knowledge-laden seminar which has broadened her perspective on SME management.

“Wema Bank is trying for me; they have made me what I am today. The session was power packed, fun, and educative,” she said.

Another participant and SME owner, Ms Love Onobrakpor, expressed gratitude to the bank for the highly impactful programme, adding that she had no regrets about taking time off work to attend the one-week session.  “It was interesting and highly interactive, well worth it,” she stated.

For Ms Precious Izedonmi, she said, “I have been greatly impacted, and I am grateful for the privilege; it can never be trivialized.”

The Head of SME Banking at Wema Bank, Mr Arthur Nkemeh, after the session, expressed his appreciation to “our partners and every facilitator for the session and most importantly our customers who trust us to give them excellent financial services.”

“We will continue to offer superior customer service to our customers with business facilities and advisory services that will help scale up their business; this is one of the many offers to come from Wema Bank,” he said.

The Wema Bank SME Business School was launched in Lagos in 2021 to boost the capacity and skills of SMEs to help them achieve their business objectives.

The second edition took place virtually, while the third and fourth editions happened in Abuja and Port Harcourt, respectively.

The Edo State edition had a very rich and relevant curriculum that directly addressed the issues within the Nigerian SME sector.

The faculty and facilitators also comprised experienced and highly knowledgeable experts in various fields who made the training not only worth the while but beneficial in terms of knowledge gained and new insights revealed about SME management.

The curriculum included a macroeconomic review of the Nigerian economy, business strategy formulation and execution, sales and marketing, customer experience value management, financial management, sustainability, leadership, communication and people management.

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NAMB Directs MFBs to Update Recapitalisation Status 



Microfinance Banks

By Adedapo Adesanya

The National Association of Microfinance Banks (NAMB) has directed all licensed Microfinance Banks (MFBs) nationwide to update it on their recapitalisation status for assessment and follow-up actions with the regulatory authorities.

This was disclosed by the Executive Secretary of the association, Mr Shikir Caleb, after the Central Bank of Nigeria (CBN) revoked the licences of 179 banks for not adhering to regulations.

The central bank had said that it revoked the MFBs licences due to failure to fulfil or comply with the conditions subject to which their licences were granted.

The apex bank said the banks were sanctioned because they failed to comply with the obligations imposed upon them by the apex bank in accordance with the provisions of Banks.

Now, NAMB said that the latest decision was taken in Abuja at an emergency meeting of the leaders of the NAMB after vigorous deliberations on the latest licence revocation action of many MFBs by the CBN.

According to NAMB, the meeting had in attendance the Board of Trustees, the Past Presidents, and members of the National Working Committee.

The association said that the meeting had its main agenda the revocation of the licences of the affected MFBs and how to proactively forestall future negative occurrences in the MFB sub-sector of the financial system.

“Following the review and deliberations on the licence revocation matter, the top leaders of the NAMB directed that the various state chapters should categorize the affected micro lenders into MFBs that have fully re-capitalised but yet to be approved by CBN.

“MFBs that have not been fully re-capitalised but had ongoing discussions for funding; MFBs that were yet to re-capitalise; and MFBs that have long closed shop,” it said.

According to the statement, the leaders further advised any MFB that had fully re-capitalised but yet to be approved by CBN to present its submissions to the Secretariat with a summary of its recapitalization status as of date.

It was also disclosed that leaders also agreed that the association would review the submissions and have a meeting with all MFBs this Thursday (June 1) in Abuja “with a view to collating all submissions for engagement with the management of CBN.”

Commenting on the licence revocation, the NAMB National President, Mr Joshua Ukute, rued the ugly development and promised that the “leadership of the association would continue to intensify its self-regulation activities in all MfBs nationwide to forestall this type of occurrence.

“We have also mandated the Secretariat of the NAMB to do more by enlightening the public, especially all stakeholders in the association’s financial inclusion drive value-chain with the aim of building confidence in the microfinance Bank sub-sector of the financial system.

“As you all know, the MFBs have, over the years, remained at the forefront of the financial inclusion strategy agenda’s implementation.

“And, they will continue to do their best to deepen financial services, especially in remote communities that the big players are not ready to go,” he added.

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