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GTBank lags behind peers in deposit base - THE RAINBOW

By The Rainbow
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The Guaranty Trust Bank clearly outclassed its peers in absolute naira value creation. Juxtaposed with other member of its class of three peers - Zenith Bank and First Bank, GTB outperformed both peers delivering an RoE of 34% vs Zenith's 24% and First's 18%.

Our analysis showed that the GTBank's better-than peers RoE was driven largely by superior returns per naira, lower-than-peers impairment charge and a lower cost base. But conspicuously, GTB lags far behind its peers in deposit mobilization or accretion.

However, there is a limit to how far it can go without growing its deposit base. . In the 2012 operations, First Bank was top on this criterion with a deposit base that is more than twice that of GTB Bank. First Bank's deposits ended the year at N2.4 trillion as against N1.16 trillion by GTB. Zenith Bank's deposits at N1.93 trillion also came close to doubling that of the bank. This reflected in gross earnings as both First Bank and Zenith returned stronger gross earnings at N360 billion and N307 billion respectively as against GTB's N170.3 billion. This means that again First Bank's gross earnings, just like deposits, more than doubled GTB's, while in the same vein Zenith Bank came barely short of doubling it.

That means that GTB bank literarily clamber the steep incline of top three ranking by sheer stringent cost-containment and windfall earnings. The bank's profitability in the year was helped by a huge drop in provisions for credit losses, which fell by 96% from N20.68 billion in the preceding year to just N836 million in 2012.  Specifically, it enabled the bank transfer such cost-savings windfall directly into profit.

Another factor which helped the bank achieve strong value delivery in the year under review is its shrewd cost management. Operating costs came in at 10 per cent growth as against 22 per cent by gross earnings.

The question is how far can these helpers go? With the cleaning processes going on in the banking industry, it won't be long before impairment provisions and or charges would be wiped out. And that will cut out the huge advantage that could arise in profitability or in returns due to differential in the impairment provision or charges.  In addition, there is a limit to cost saving. If you continue to drive down costs it might reach a time you reach a limit and you may be faced with the prospects of diminishing returns.

It is our opinion that deposit mobilizing and growing is at the core of banking. There can be no banking if there were no financial intermediation, which occurs by matching supply surplus units with the supply deficit.
The primary goal  of banks  are: obtaining deposit from different avenues and issuing cheques issue of cheque, Pay order, Demand draft, TT etc, and lending money to the client for business purpose.

If a bank cannot obtain deposit at lower rate & invest the same at a higher rate (Spread at least 3%), it will be difficult to achieve a sustainable growth and development. So deposit is the lifeblood of a Bank. Without deposit no Bank can run. Low-cost and no-cost deposit is very much helpful for the Bank.

Now, upward minded banks like UBA and Access Bank have achieved better than GTB on this criterion. UBA with N1.78tn deposit base is clear N600b clear of GTB on deposit, with a gross earnings coming in at N220b. In case of Access Bank, deposit was N1.210tn and earnings at N208 billion, which are still stronger than what GTB had on both scores.

GTBank attained high respectability in the industry over the years. In fact, in Lagos area it is the most respected of all banks. The problem is that it has been running shy of expansion in comparison with its appears. Zenith for instance focuses on corporates as its major market, but it has spread its wings to bring in deposits, especially cheap ones.  It affords it greater leverage to invest in various earnings inlets.

Whatever, the market segment a bank focuses on, it needs strong deposit base to be outstanding.

It is important that GTBank improves on its branch network to draw in more deposits. That is the only way it can maintain its topmost position in the long run. We know that in the years ahead, the competition for the top tier will tighten. UBA, Access have already set their sight there. Lethargy in any major element of the business may not augur well either in the short run or long run or both.