Guaranty Trust Bank’s aggressive cost-cutting strategy failed to defend profit in the second quarter. The bank recorded the first drop in profit in many years at the end of half-year operations in June 2020. Cost-cutting has been the management’s response to the inability to improve revenue since 2017. It isn’t working for the bank this year.




The bank’s audited accounts for the half-year in June 2020 show that management could not contain operating expenses during the period. Operating cost grew by 19 percent year-on-year – the highest growth record for the bank since the beginning of the current decade.

Also, loan impairment charges went out of control and multiplied three times year-on-year. This is the highest increase in loan loss expenses for GTB in four years, after massive cut downs for two years to 2018 and a flat position in 2019.

This is the manifestation of the signals of a change in pattern for the bank as observed at the end of the first quarter – that the bank was shifting from growing profit ahead of non-growing revenue to losing profit per naira of gross income. This is a reflection of weakening the ability to keep cutting costs in the face of persisting revenue weakness.

Earnings' weakness has been on since 2017. The bank’s gross income at the end of 2019 was only 5 percent above the 2016 revenue figure. The earnings weakness has sustained into the current financial year so far with gross earnings only marginally improved at the end of June.

The mild strength in interest earnings seen in the first quarter was sustained in the second. The bank closed the half-year with interest earnings up by 3 percent year-on-year to N153.7 billion, turning around from two years of decline.

The bank’s management pulled back from the expansion of earning assets recorded in the first quarter. Net credit volume to customers dropped from over N1.6 trillion in the first quarter to N1.4 trillion at half-year. Also, the investment portfolio of N865 billion at the end of March, thinned down to N501 billion at the end of June.

The drop in earning assets may worsen the bank’s earnings records for the year. The cut down may have been induced by rapid growth in non-performing loans, as reflected in loan loss expenses. The indication is that interest income could still lose the moderate improvement record in the first half of the financial year.

A loss of momentum in non-interest income ruled the half-year operations of the bank. From a sharp slowdown in non-interest revenue in 2019, a marginal decline occurred at the end of June 2020.


Only one cost-cutting line remained available to the bank over the period, which is the cost of funds. Interest expenses went down by 20 percent year-on-year to N26 billion against the increase in interest income.

The development involves a cost-saving of over N6 billion that reinforced the moderate improvement in interest income. Net interest income grew by close to 10 percent to N127.6 billion at half-year. The cost of funds is dropping for the second year after a 23 percent drop in 2019.

GTB closed half year operations with gross earnings of N225 billion, which is a marginal increase of 1.5 percent year-on-year. The improvement was accounted for exclusively by interest income, which improved by 3 percent to N153.7 billion. This is the first improvement in interest income for the bank since 2017 while non-interest earnings slipped to N71 billion during the period.

The cost of funds provided the only cost-saving area for the bank, claiming a reduced share of interest income during the period at 17 percent at half-year compared to 22 percent in the same period last year.

The drop of 20 percent in interest expenses is against an increase of 18.5 percent in customer deposits over the first six months of the year, meaning a significant decline in the average cost of funds. The bank ended the first six months of the year with customer deposits of over N3 trillion.

Prospects are good for the bank closing the 2020 full year operations with the lowest interest expenses in several years. A good part of the cost-saving from interest expenses is being consumed by rising loan impairment expense, which soared by 210 percent year-on-year to N6.8 billion at the end of June. This is already more than the N4.9 billion loan impairment charges recorded for the entire 2019 financial year.

The bank closed half year operations with an after-tax profit of a little over N94 billion, which is a drop of 5 percent year-on-year. Profit margin slipped further from 44.4 percent in the first quarter to 41.8 percent at half-year and from 44.7 percent in the same period in 2019.

Earnings per share amounted to N3.32 for GTB at the end of half-year, down from N3.50 per share earned in the half-year of 2019.