GTCO PLC: Coming from apprehension of non-performing loans to increase lending in 2022

By on September 17, 2022 0

The Managing Director of the holding company, Mr. Segun Agbaje, during a session with the financial media in April 2022, explained that the bank was forced to extend more loans in 2021 due to macroeconomic headwinds and restrictions. regulations.

In fiscal 2021, the bank had, in a seemingly cautious move, slowed the growth of its loan portfolio to 8.0% from the 10.7% growth it had experienced in the fiscal year. period dominated by COVID-19 in 2020. This resulted in a decline in interest income of 12.77%. % to 252 billion naira from 288 billion naira in 2020, but as a result loan impairment charges fell by 56% to 8.5 billion naira from 19.6 billion naira in 2020.

But ahead of FY2021, the bank saw relative year-over-year net lending growth, especially in 2019 and 2020; reaching the highest year-over-year growth of 19.02% in 2019 and 10.70% in 2020.

With the first half audited financial statements released for the period ended June 30, 2022, the bank’s loan portfolio grew to N1,834 trillion from N1,718 in December 2021, reflecting a growth rate of 1.77 % in six months and 6.77% in 3 months. (January – March 2022).

As a result, loan interest income increased by 15.51% to N134.986 billion from N116.864 billion in the first half of 2021, although more slowly than interest expense, which increased by 38.42%, with interest paid on customer deposits amounting to N24.312 billion. ; 92% of total interest expense of N26.351 billion from customer deposit of N4.263 trillion as of June 30, 2022.

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Of the bank’s total deposit of 4.394 trillion naira as of June 2022, 26% (1.138 trillion naira) is related to regulatory restrictions. Restricted deposits would certainly continue to deprive the bank of huge resources for trade and additional income. In June 2022, the Group’s loan portfolio (net) increased by 1.8%, from N1.8 trillion recorded in December 2021 to N1.83 trillion in June 2022, compared to passive deposits, which increased increased by 6.4% from 4.13 trillion naira in December 2021 to 4.39 trillion naira in June 2022

The group’s managing director, Mr. Agbaje, had expressed his concern about this. Talking about the regulatory restrictions, during a conversation with the financial media in April 2022, he mentioned that the bank’s cash was tied to cash reserve requirements (CRR) in the financial year 2021. He said, “The thing with the CRR, if you give it to us, we don’t even have to put it in the Treasuries. We can actually make loans to customers to grow the economy. We also earn revenue rather than zero revenue in CRR; we can put it into personal loans even if we lend at 10%, which means our profitability will increase.

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The overall implication is the impact on net interest margin, gross profit and profit. In the first half of 2022, net interest margin fell by 2.27%, while gross profit increased by 15.09% to N239.288 billion from N207.91 billion in the first half of 2021 and the profit before tax, increased by 10.95% to N103.2 billion from N93 billion. 0.1 billion in the first half of 2021. On the other hand, profit after tax fell by 2.24% to 77.557 billion naira from 79.415 billion naira in the first half of 2021, but largely supported by the increase in expenses tax, following the expiry of the tax exemption period for public securities; thus increasing the tax burden by 88.34% to 25.692 billion naira from 13.641 billion naira recorded in the first half of 2021

The group’s balance sheet, for now, is well structured and resilient with total assets and impressive equity of N5.7 trillion and N847.7 billion respectively, a total impact capital adequacy ratio (CAR) at 22%, asset quality maintained as IFRS 9 stage 3 loan ratio at 6.2% and cost of risk (COR) at 0.2% in June 2022 compared to 6% and 0.5% in December 2021, respectively.

However, the overall growth of the loan portfolio affects the capital adequacy ratio (CAR). The Full Impact Capital Adequacy Ratio closing at 22% is higher than the CAR of 8% stipulated by the Basel II agreement. But a continued fall and decline in earnings would reduce retained earnings and hence reduce Tier 1 capital. in June 2022 against 263.849 billion naira registered in December 2021, therefore, Tier 1 Sub Full Impact capital fell by 2.759% to 757 naira. N779.499 billion recorded in December 2021. A continued decline in Tier 1 capital would certainly reflect the significant impact of the consequent increase in market risk-weighted assets (RWA), which would subsequently reduce the capital adequacy ratio.

The key is to continue to strengthen growth prospects, to remain viable and in good financial health amid rising revenues versus apprehension of non-performing risky assets. Already, the Group’s long-term viability objective, the 2022 half-yearly scoreboard, coupled with dividend signaling in line with market expectations, etc., are on track for the Holding for the time being.