GTBank: Setting The Bars For Others

Just like the emergence of “good to great” companies described by Jim Collins, approximately two decades ago, two home bred bankers in an attempt to realize their dream of pioneering a reference African bank with global edge; embarked on a journey that led to the birth of Guaranty Trust Bank (GTBank). Reflecting its name and the “Orange” brand, GTBank is built on the core values of customer service, professionalism, ethics and innovation – distinct bricks, which Fola Adeola and Late Tayo Aderinokun carefully selected and guarded with their passionate drive of creating the benchmark bank in Nigeria, at a time when banking was highly fragmented and made little difference from pseudo bureau de change and thrift credit houses. Whilst it may be too early to conclude that GTBank is “Built to Last”, the recent tide that revealed the weakness of a handful of erstwhile celebrated Nigerian banks (thanks to the intervention  of the apex bank which salvaged the system) attested to the strength of  GTBank’s foundation and reinforces its resilience to shocks.

Bucking Industry Trend

Bucking industry trend, when its peers fell apart, struggling with their performances, GTBank waxed stronger with impressive scorecard; an exceptional performance buoyed by its disciplined Management and Board. Riding on its revered cost efficiency and customer service, which have become case studies, GTBank remains the most profitable bank; posting the highest profit with less capital and assets. Defying mergers and acquisitions, even in the tough consolidation regime (which pruned down the 89 fragmented banks into 25 big banks), GTBank organically outgrew the market to achieve and sustain its place among the Tier one banks in Nigeria.  The bank now prides itself as the best customer demographics; youthful middle income retail clients and strong corporate banking brand.

Whilst GTBank owes tribute to its founders, it brand is not personalized, a deliberate framework which ensued the independence of the franchise. It’s enviable corporate governance, succession planning, and more importantly its unique culture to which every “family member” is strategically inducted, have seen the bank beyond its dreamers. Perhaps the most impressive feat is that the “Orange Rules and Culture” run in the vein of the least of GTBank’s rank, an attraction that has become an industry threat, as competitors headhunt employees with GTBank’s trait.

GTBank Sustains Impressive Returns

Guaranty Trust Bank maintained its reputation as the bank to beat in terms of efficiency and optimisation going by its 2011 full year earnings. GTBank posted a net profit of N52.65 billion in 2011, a growth of 37% over N38.347 billion in 2010. According to GTBank’s annual filing with the Nigerian Stock Exchange, its gross revenues grew 23% to N188.9 billion in 2011, up from N153.91 billion a year earlier. The bank’s return on equity for 2011 was 22% compared to 18% in 2010.

GTBank’s net profits of N52.65 billion full year 2011 places the bank at a ranking position even above its closest peer – Zenith Bank. While, over the same period, Zenith Bank recorded a net income of N44.2 billion on a revenue base of N244.1 billion, signifying a net profit margin of 18%, GTBank’s net income of N52.65 billion on revenue of N188.82 billion represents a net profit margin of 28%. This implies that GTBank turned a higher portion of its revenues for the period into profits.

GTBank achieved this feat mainly on the back of its performance in the second half of the year. At the end of the first half of the year, GTBank’s net income of N30.5 billion ranked it third, after First Bank with net profits of N31.3 billion and Zenith Bank with N30.67 billion. From the foregoing, it is obvious that the first half of 2011 was more profitable for the banks than the second half. However, even with lower profits, GTBank’s profit margins were still better than its peers; a 35% pre-tax margin compared to Zenith Bank’s 29% and First Bank’s 26%.


Loan Loss Expense Remains a Concern

Across board, financial results released reflect the prevalence of loan write-offs in 2011. GTBank has the least losses, having written off N19 billion in 2011, up from N8.09 billion a year earlier. This loan loss expense nonetheless represents the most significant glitch in GTBank’s 2011 financials. Over the same period, Zenith Bank recorded a N24.3 billion provision from diminution in asset value while FCMB provided for over N32 billion. The Central Bank created the Asset Management Corporation of Nigeria (AMCON) to take bad debts off banks at a discount. This loan loss expense has resulted in investor apathy for banking stocks over several months.

Expanding Beyond Anglophone West Africa

According to the bank's chief executive – Segun Agbaje, GTBank has completed its expansion in Anglophone West Africa with subsidiaries in Gambia, Ghana, Liberia and Sierra Leone. The management plans to expanded into Francophone West Africa through a combination of acquisitions and organic growth. According to him, "Ivory Coast will open for operation this year with a green field project. Over the next five to seven years, the bank intends to expand into a number of other African countries". The overall target is to expand into 10 to 12 countries with economic growth estimates of about 7% and sizeable populations. The bank's chief executive said the lender will set up between five and seven new branches in Nigeria this year to add to its existing 177-strong branch network. Analysts view the bank’s openness to brown field expansion as a shift in strategy. According to BGL Research, “an acquisition in Nigeria is not anticipated where organic growth has been the bank’s strategy from inception to date”.

Turning Offshore Operations to Profit

Like other Nigerian lenders which have pursued Pan African expansion bids, financial returns ex-Nigeria remain modest, though GTBank has been able to turn a profit across all its subsidiaries outside Nigeria. This was an improvement over 2010 when GTBank’s operations in Liberia and the UK returned losses. Though the bulk of its earnings came from the Nigerian operations with 96.8% relatively small West African economies, whose sizes seem to reflect on the earnings from their operations, hence management’s decision to base future expansion strategies around macro-economic fundamentals. This also seems to be the major underlying reason behind the relative success of GTBank’s Ghanaian operation. Ghana is the second largest economy in Anglophone west Africa, after Nigeria. GTBank Ghana recorded net income of N1.43 billion in December 2011. Cote d’Ivorie is west Africa’s second biggest economy only outside Nigeria and offers significant opportunity for the bank. The bank had earlier embarked on a green field strategy for new businesses outside Nigeria and has also exported its customer centric approach to its African operations. Overall clarity of Management’s strategy has helped define this success.

Swift Compliance to the CBN New Banking Model

Due to the regulatory induced restructuring that will see banks shed their unwieldy universal banking structure, GTBank becomes the other Tier 1 bank, alongside Zenith Bank, which opted to hive off its nonbanking subsidiaries and become a commercial bank with an international license. It is believed that this approach will help management focus greater attention on the core banking operations. Competition amongst the Tier 1 banks remains keen, and issues around customer care delivery could serve as the crucial ammunition when the fight for expanded deposit resumes. The enlargement of Access Bank and Ecobank through mergers with Intercontinental Bank and Oceanic Bank respectively will only intensify competition in the top bracket.

Successful Disposal of nonbank Subsidiaries

GTBank completed the disposal of all its nonbanking subsidiaries last year which means it has fully implemented the Central Bank’s universal banking review, making it the first Nigerian lender that fully complied with this new regulatory structure. The bank had completed the disposal of GTB Asset Management and Guaranty Trust Assurance by September 30th while that of GTB Registrars was concluded in December 2012. GT Homes will be integrated into GTBank’s Nigerian banking operations and will cease to be a stand-alone subsidiary. Guaranty Trust Assurance disposal was concluded in the first quarter of 2012 and with sales proceed put in the region of N3 billion.

Subtle Approach to Risk Asset Creation

GTBank and First Bank have traditionally been the most bullish top tier banks in risk asset creation. It, however, appears that both banks seem to have adopted a more conservative approach in the first half of 2011, as deposit liabilities outpaced risk asset creation materially. GTBank maintained the 69% loan to deposit ratio through to December as against 78% in December 2010. Loans to Deposits were also around 69% in the first half of the year. Therefore, this current conservative loan to deposit trend implies that the bank has further capacity to create more risk assets, improve its income profile from loans and assist private sector development.

Deposit Base Cross the N1 trillion Mark

GTBank has a strong selling point around its customer centric approach to banking. This has been the thrust of its branding efforts and has helped the bank’s foray into retail banking. Its excellent customer care has helped the strong profit numbers whilst its healthy deposit generation has been hinged on its high reliance on alternative distribution channels and electronic banking innovations. BGL research in September 2011 on GTBank had projected that GTBank’s deposit base could cross the N1 trillion mark by the end of 2011. According to the report, “GTBank had record deposits in the first half of 2011 and could easily cross the N1 trillion mark by the end of the year”. This expectation was achieved as its deposit base hit N1.033 trillion, the highest ever in the bank’s history and 35.7% higher than N761.2 billion a year earlier. Nevertheless, this success has come at a price of long queues in the bank’s branches across the country and dropped, in the KPMG’s 2011 Customer Satisfaction Survey.

Paying the Costly Price for Expanded Deposit Base

Long queues have become common place in GTB’s banking halls. Zenith Bank overtook GTBank for the first time in the latest KPMG Banking Customer Survey becoming the number one for customer satisfaction. At the same time, First Bank’s investments in customer care delivery and its holistic approach to this challenge have also yielded results, improving the bank’s profile amongst the middle class who form the core of GTBank’s retail market and, therefore, elevated its ranking in the survey. Analysts remain highly impressed with GTBank management’s consistent delivery on targets and they have outshone their peers in delivering on innovative solutions. Mobile Banking is the ongoing innovation in their coffers, and we believe that GTBank will ultimately overcome the challenges around their customer care delivery.

Consistent Strategy amid Significant Board and Management Changes

The bank managed the ailment and transition of its erstwhile Chief Executive, Mr. Tayo Aderinokun with admirable efficiency. GTBank had notified investors of the ill health of its long standing Chief Executive as a result of which he had proceeded on medical leave. Upon his death, Mr. Segun Agbaje (a founding member of the bank) and longtime Deputy Chief Executive took over the reins of leadership. With Segun Agbaje’s entry, significant disruption to the operations and corporate governance structure of the bank is not expected. Mr. Segun Agbaje was appointed as Managing Director/Chief Executive Officer on June 22, 2011. Before this appointment, Mr. Agbaje had served as an Executive Director from January 2000 and as Deputy Managing Director from 2002.

In a bid, to rejuvenate the Board at Executive Management level and put in place an enduring Succession Plan for the Bank, Mr. Jide Ogundare, Mrs. Titi Osuntoki and Mr. Akin George Taylor retired as Executive Directors of the Bank with effect from October 19, 2011. In order to fill the vacancies created, the Board, with the approval of the Central Bank of Nigeria, appointed Mr. Demola Odeyemi, Mrs. Tola Omotola, Mr. Wale Oyedeji and Mr. Ohis Ohiwerei as Executive Directors of the Bank. It is believed that management discipline around cost and strategy will continue despite the significant changes in the board.