1. 0INTRODUCTION 1. 1 THE TOPIC CHOSEN My research is AN EVALUATION OF THE BUSINESS AND FINANCIAL PERFORMANCE OF GUARANTY TRUST BANK Plc (GT BANK) FROM 1ST MARCH 2005 TO 29TH FEBRUARY 2008. The banking landscape in Nigeria has changed tremendously since the Central Bank of Nigeria (CBN) compelled banks to raise their capital base to a minimum of N25 billion in July 2004. The re-capitalisation and consolidation exercise took effect on the 31st of December 2005. 1. 1. 1 THE CONTEXT OF THE TOPIC
The banking industry in Nigeria has witnessed a very rough and turbulent ride since its British colonial masters introduced banking to the country. For a very long time in the history of Nigeria, the industry was plagued with bad loans, inadequate capital, liquidity problems, low staff morale, lack of skilled and technical expertise, little or no infrastructure, fraud, distressed and failed banks, no corporate governance culture, lack of sound management and political instability.
The emergence of a democratically elected government on 29th of May 1999 ushered in a great measure of political stability in Nigeria. This enabled the government to embark upon the reform process that changed the Nigerian banking landscape. The Central Bank Governor, Dr. Charles Soludo, announced the 13-point reform process in July 2004. This led to the re-capitalisation and consolidation of the banking sector. There was renewed interest in Nigeria from the international community as foreign direct investment was brought into a number of banks.
This enabled the banks in turn to leverage and take advantage of the world’s major markets and financial centres, as a number of Nigerian banks established subsidiaries in various economies of the world, particularly the United Kingdom. 1. 1. 2 REASON FOR CHOOSING THE TOPIC Before the re-capitalisation and consolidation exercise, the Nigerian banking industry was in total shambles. Only a few of the 89 banks were healthy to carry on the business of banking.
However, the re-capitalisation and consolidation exercise brought about the emergence of 25 banks that were meant to be healthy. The effect was to sanitize and bring long-term stability to an already battered industry. In its quest to ensure that these objectives were realised and sustained, the Central Bank of Nigeria asked all banks in the country to adopt the CAMEL (Capital, Assets Quality, Management, Earnings and Liquidity) principle (Omolumo, 2000).
It is on this basis that the researcher has chosen this topic in order to view and analyse the business and financial position and performance of Guaranty Trust Bank Plc, 2 years 9 months after the re-capitalisation and consolidation exercise of the Central Bank of Nigeria came into effect on 31st December 2005 and at a time the bank’s operations are expanding to the United Kingdom, Ghana, Sierra Leone and Gambia. 1. 2SHORT HISTORY OF GUARANTY TRUST BANK Plc
Guaranty Trust Bank Plc was incorporated in July 1990 as a private limited liability company wholly owned by Nigerian individuals. The bank received its commercial banking licence in August 1990 and commenced operations in February 1991. Following the directive by Central Bank of Nigeria (CBN) that all banks should re-capitalise, Guaranty Trust Bank Plc became a publicly quoted company in 2004. In February 2002, the bank obtained a universal banking licence and was appointed a settlement bank by the Central Bank of Nigeria (CBN) in 2003.
The bank’s capacity to meet its obligations as they fall due has been recognised by several rating agencies. Agusto & Co, one of the foremost credit agencies in Nigeria has reaffirmed the bank’s (Aaa) risk rating every year for the last 4 years. Fitch Global assigned an (AA-) risk rating in recognition of the bank’s strong domestic franchise, good quality assets and sound earnings record. This is the highest rating ever received by any Nigerian or West African based bank. Standard and Poor’s risk rating of the bank is a (BB-).
This is the only Nigerian financial institution with such a rating, which is the same as Standard and Poor’s sovereign rating for Nigeria. (Guaranty Trust Bank, 2008). Vanguard Newspapers recently voted Guaranty Trust Bank as the Bank of the Year for 2008, Best Bank in Corporate Governance and the Most Customer Friendly Bank in Nigeria for the same period. (Komolafe, 2008). 1. 3AIMS AND OBJECTIVES OF RESEARCH The aim and objective of evaluating the business and financial performance of Guaranty Trust Bank Plc is to: . Determine the financial performance of the bank between 1st March 2005 and 29th February 2008 and compare them. ii. Determine the financial position of the bank between 1st March 2005 and 29th February 2008 and compare them. iii. To review the business performance of the bank between 1st March 2005 and 29th February 2008. iv. Examine the Corporate Governance culture that exists within the bank. v. To ascertain the going concern status of Guaranty Trust Bank Plc. 4. OVERALL RESEARCH APPROACH
The researcher used the profit and loss accounts and the balance sheets of Guaranty Trust Bank from 1st March 2005 to 29th February 2008 as the major framework for determining the financial performance, financial position and the business performance of the bank over the 3 year period. The major indices used in the course of the research were earnings and profitability, liquidity and liability generation, asset quality, market growth, marketing strategies, product lines, branch spread and a critical look at the Corporate Governance culture within the bank.
Ratios and trend analysis was used to compare indices such as profitability, liquidity, deposits and loans and advances which provided detailed information about the business and financial performance of the bank and enabled the researcher to draw meaningful conclusions about the performance of Guaranty Trust Bank over the 3 year period. In concluding the research work, the analysed information helped the researcher to form an opinion on the going concern status and operations of the bank in the foreseeable future vis a vis its business and financial performance over the 3 year period from 1st March 2005 to 29th February 2008. . 0INFORMATION GATHERING 1. SOURCES USED FOR INFORMATION GATHERING There are two sources of information, primary and secondary. Primary sources of information are first hand accounts written by individuals who experienced or witnessed them. On the other hand, secondary sources of information are usually in the form of published works such as journal articles, books, radio or television documentaries and conference proceedings. Information gathered for this research was purely from secondary sources.
These were mainly from various publications on the Nigerian banking industry including research work from the Central Bank of Nigeria. These are 1. 2007 / 2008 Annual Report and Accounts of Guaranty Trust Bank Plc 2. 2006 / 2007 Annual Report and Accounts of Guaranty Trust Bank Plc 3. 2005 / 2006 Annual Report and Accounts of Guaranty Trust Bank Plc 4. Banking Supervision Annual Report 2006 5. Central Bank of Nigeria quarterly reports 6. JP Morgan Africa Equity Research 7. Vanguard Newspapers 2. REASONS FOR USE OF INFORMATION GATHERED
Secondary data was used because it was readily available for the researcher to lay hands on. As a public limited liability company, the financial report was accessible on the website of the bank. Another reason for the use of the information gathered is due to the accuracy of the various sources. As expected, the financial report of the bank has been audited by seasoned independent auditors while the Central Bank of Nigeria, as the apex body of the financial system would also have kept up to date and accurate information about the financial system and the economy. . 3 DESCRIPTION OF METHODS USED The financial report of the bank was the main source used to gather information for this research in understanding the business and financial performance, the work environment and the issue of corporate governance as obtained in the annual reports for the years ended 29 February 2008, 28 February 2007 and 28 February 2006. The availability of internet resources at home made information gathering relatively accessible as the researcher was able to browse in order to get vital information. . 4 LIMITATIONS OF INFORMATION GATHERING The major challenge in the trying to gather information is the epileptic power supply and constant power outages that are experienced in Nigeria. This in turn meant that the researcher had to spend a considerable amount of money and time on diesel and a generating set in order to generate power that would enable him utilise the internet resources at home effectively and efficiently to gather the required information for the research work. 2. 5 ETHICAL ISSUES
There were no ethical issues that arose in the process of the research work as information gathered was purely from secondary sources such as the financial reports, publications, newspapers and the internet. This meant that there was little or no contact with third parties. 2. 6 ACCOUNTING TECHNIQUES Ratio analysis was the major accounting technique used in undertaking this research. Ratios were computed in order to compare the financial performance of Guaranty Trust Bank and establish a trend in the financial performance of the bank from 1st March 2005 to 29th February 2008.
Financial statements are usually expressed in quantitative financial values and ratios are usually expressed in the same terms. It should therefore be noted that the interpretation of financial statements provides qualitative information to the users of the financial statements explaining to them in clear terms the meaning of the financial information and ratios that form part of the financial statements. (BPP Professional Education, 2007). Ratios are broadly divided into 5 parts namely: 1.
Performance or profitability ratios: This provides overall information for the evaluation of the performance of an entity and its management. These are: • ROCE = Profit Before Interest and Tax x 100 Capital Employed • Gross Profit Margin = Gross Profit x 100 Revenue • Net Profit Margin = Net Profit x 100 Revenue Operating Income Margin = Operating Income x 100 Revenue 2. Liquidity ratios: These ratios measure an entity’s ability to settle its short term obligations as and when they fall due. These are: • Working Capital = Current Assets – Current Liabilities • Current Ratio = Current Assets Current Liabilities • Acid test Ratio = Current Assets – Inventory Current Liabilities . Leverage or long term solvency ratios: They measure the long term stability of an entity by establishing the relationship between debt and equity in the sources of fund of an entity. These are: • Debt to Asset Ratio = Total Liabilities Total Assets • Debt to Equity Ratio = Total Debt Total Equity • Capitalisation Ratio = Long Term Debt Long Term Debt + Owner’s Equity . Activity ratios: These ratios are used to measure the efficiency of asset utilisation in the generation of income and the entity’s ability to maintain expenses at a pre – determined level. These are: • Asset Turnover = Revenue Capital Employed 5. Investment ratios: They are used to measure the potential and actual growth of an entity. These are: • Earnings Per Share (EPS) = Earnings attributable to ordinary shareholders Number of ordinary shares in issue and ranking for dividend Dividend Per Share (DPS) = Dividend payable to ordinary shareholders Number of ordinary shares in issue and ranking for dividend • Price Earnings Ratio (P/E) = Market price per share Earnings per share • Dividend Yield = Dividend per share x 100 Market price per share • Dividend Cover = Earnings attributable to ordinary shareholders Dividend payable to ordinary shareholders Earnings Yield = Earnings per share x 100 Market price per share • Pay out Ratio = Dividend per share Earnings per share The use of ratios has the following limitations: 1. Ratios are based on historical data. This invariable means that while ratios may be very helpful in analysing and evaluating past data, they may not provide a meaningful insight into the future operations of an entity. Hence it may be difficult to use ratios for planning purposes. BPP Professional Education, 2007). 2. Ratios cannot be used in isolation unless they are used to compare performance over a period of time. In other words, there is the need to observe the trend of the values used in the computation of the ratios before meaningful conclusions could be drawn. (BPP Professional Education, 2007). 3. Financial ratios are normally calculated from financial statements, which may be prepared using different accounting concepts and conventions, which could make comparism very difficult. (BPP Professional Education, 2007). 4. The interpretation of ratios can be subjective at times. BPP Professional Education, 2007). 5. The use of ratios could be meaningless where an entity in the has used window dressing or creative accounting in the preparation of its financial statements. This effectively means that ratios would be difficult to rely on in this case. (BPP Professional Education, 2007). 6. A number of ratios have definition problems. A good example is the Return on Capital Employed (ROCE); where different variables could be used to determine the Return on Capital Employed (ROCE) for the same entity which will eventually produce varied results. (BPP Professional Education, 2007). 3. ANALYSIS OF RESEARCH 3. 1 ANALYSIS OF INFORMATION 3. 1. 1 CAPITAL The share capital of Guaranty Trust Bank Plc grew by 33. 3% from N3. 0 billion in 2006 to N4. 0 billion in 2007 and by 71. 0% to N6. 8 billion in 2008. Similarly, shareholders’ funds in 2008 were N161. 1 billion as against N47. 4 billion in 2007 and N36. 4 billion in 2006. This represents a growth of 239. 5% and 30. 1% in 2008 and 2007 respectively. This increase was largely due to the huge amount of funds the bank received from the general populace during its public offer of 2007. As a result of this the shareholders fund of the bank is 644. % above the minimum shareholders fund of N25 billion as prescribed by the Central Bank of Nigeria. It can be seen from the financial statements that shareholders’ funds represented 22. 4% of total assets in 2008. This was up from 9. 9% in the previous year and 11. 4% in 2006. Also, loans and advances were covered by 55. 2% of shareholders’ funds in 2008 as against 41. 7% in 2007 and 43. 6% in 2006. This increase is again due to the fresh share capital that was raised in 2007. These are positive indicators that the bank is experiencing some growth in its capital base due to its expanding operations.
However, the proportion of fixed assets to shareholders’ funds reduced significantly from 32. 8% in 2006 and 41. 6% in 2007 to 19. 7% in the current financial year of 2008 despite the fact that fixed assets increased by 60. 3% over the previous financial year of 2007. The financial implication of this is that the bank has more capital to use to finance current operations of the bank as fewer funds are used to finance fixed assets. From the above analysis, Guaranty Trust Bank Plc has a very sound capital base and as such its capital is very adequate. 3. 1. 2 MANAGEMENT
The Board of Guaranty Trust Bank Plc comprises of 11 members. It is well balance with 5 Executive Directors and 5 Non-Executive Directors apart from the Chairman. The roles of the Chairman and the Chief Executive are distinct and separate. The board is made up of a crop of seasoned professionals who have excelled in their various professions including banking, oil and gas and law. The composition of the board remained unchanged from the last financial year of 2007. This has accounted for the quality and stability of the board over the years. 3. 1. 3 EARNINGS Gross earnings in 2008 was N74. billion as against N46. 4 billion earned in 2007. This represents an increase of 61. 3%. Also gross earnings of N46. 4 billion in 2007 was 45. 1% over the gross earnings figure of N31. 9 billion in 2006. This means that gross earnings increased by 133. 9% between 2006 and 2008. Profit on ordinary activities before taxation grew by 77. 2% from N15. 4 billion in 2007 to N27. 2 billion in 2008 and by 53. 1% from N10. 0 billion in 2006 to N15. 4 billion in 2007. In the same vein, profit on ordinary activities after taxation in 2008 was N21. 5 billion representing a growth of 65. 1% over the 2007 figure of N13. billion and a growth of 171. 8% over the 2006 figure of N7. 9 billion respectively. The positive growth in earnings was due to the introduction of various products during the financial year that are tailored towards different segments of the market. 3. 1. 4 LIQUIDITY Total liquid assets for the bank were N278. 1 billion in 2008. This was down by 1. 4% as against the figure of N282. 2 billion in 2007. This was due to the fact that cash and short-term funds fell by 15. 3% in 2008 from N122. 2 billion to N103. 5 billion. However, the 2007 figure of N282. 2 billion was over the 2006 figure of N176. 6 billion by 59. %. On the other hand, deposits and other accounts rose to N357. 0 billion from N290. 8 billion indicating a net increase of 22. 8% and it also increased by 36. 6% when deposits and other accounts rose from N212. 8 billion in 2006 to N290. 8 billion in 2007. This effectively means that the bank’s liquidity ratio was 77. 9% in 2008 as against 97. 0% in 2007 and 82. 9% in 2006. Although there was a drop in the liquidity ratio over the years, the bank was still over the minimum liquidity ratio of 40% prescribed by the Central Bank of Nigeria for all banks operating in the country. 3. 1. 5STAFF PRODUCTIVITY
In the period under review, the bank continued to attract some of the best talent from the nation’s tertiary institutions with its “GT Bank Brightest and Best” recruitment initiative. The bank also sponsors its employees for various training courses both locally and overseas to reflect the fact that staff are encouraged make inputs to the decision making process. The total number of staff employed rose by 17. 1% from 1,617 in 2007 to 1,894 in 2008 and by 28. 1% from 1,262 in 2006 to 1,617 in 2007. The net effect of this was that the average contribution per staff to profit on ordinary activities before taxation was N14. million in 2008 as against N9. 5 million in 2007 representing a net increase in staff productivity by 51. 6%. Also average contribution per staff to profit on ordinary activities before taxation was N7. 9 million in 2006 as against N9. 5 million in 2007 representing a net increase in staff productivity by 19. 5% In other words, average contribution per staff to profit on ordinary activities before taxation grew by 80. 8% between 2006 and 2008. Similarly, as a result of the improved productivity of staff, average staff remuneration increased from N3. 0 million in 2007 to N4. 2 million in 2008 representing a net increase of 40% and from N2. million in 2006 to N3. 0 million in 2007 representing a net increase of 19. 9%. In effect, average staff remuneration increased by 67. 5% between 2006 and 2008. 2. BUSINESS PERFORMANCE The business operations of Guaranty Trust Bank Plc have come a long way in the Nigerian Banking Industry from February 1991 when it commenced banking operations. Overall, the bank is rated number 7 in the industry and is the number 3 bank in Nigeria in terms of total assets. It is also significant to note that Guaranty Trust Bank Plc is the most efficient bank by cost to income and return on equity. JP Morgan Chase, 2008). The business performance of the bank has not only been on the increase, but has been greatly enhanced by its diversified marketing strategies which have seen an increase in the deposit base and profitability of the bank between March 1st 2005 and 29 February 2008. These strategies are discussed below. 1. MARKET STATEGIES Guaranty Trust Bank Plc has grown its branch network considerably over the last 3 years. The bank has grown from 57 branches in 2006 to the present number of 130 branches as at 29 February 2008. This represents a growth of 128. 1% in the last 3 years.
The increased branch network has enabled the bank to grow its deposits and lay the groundwork for sustainable retail banking. The increased growth of the branches and the simultaneous growth in the deposit base of the bank is a defensive strategy to protect net interest margins as the competition for assets increase. (JP Morgan Chase, 2008). Another important strategy the bank has used to increase its business performance is diversifying its operations largely into investment banking activities, but also into insurance, mortgage banking, custodial and asset management.
This has led to the establishment of subsidiaries such as Guaranty Trust Assurance Plc, GTB Registrars Limited, GT Homes Limited and GTB Asset Management Limited. (Guaranty Trust Bank, 2008). The steps taken by the bank to become a regional and international player is another important strategy that has helped its business performance of the bank. It is pertinent to note that as at 1st March 2005, the bank had little or no cross-border operations. However, as at 29th February 2008, the bank has established off shore operations in a number of countries.
These are Guaranty Trust Bank (Gambia) Limited, Guaranty Trust Bank (Sierra Leone) and Guaranty Trust Bank (Ghana) Limited. It is important to note that the latest offshore operation of the bank, Guaranty Trust Bank (U. K. ) Limited, has just commenced operations. (Guaranty Trust Bank, 2008). In addition to the traditional current and savings account services, specialised products and services have been developed by the bank over the 3 year period to meet and satisfy the needs of various segments of the market and thus boost its deposit base and in turn its profitability.
The specialised products are GT Connect, GT Max Advance, GT Salary Advance, GT Auto, GT Margin, GT Save, GT Smart Kids Save Account, GT Max, Guaranty Trust electronic Notification Service (GeNS), GT Slip Free Banking, GT Pay, Guaranty Trust Bank MasterCard, GT Cash Plus Debit Card, GT Bureau De Change Service, GT Mortgage, GT Bank on Wheels (Nigeria’s first fully automated mobile branch) and GT Book – Pay – Fly – Easy, which is in collaboration with British Airways. The bank emerged as the Best Bank in Mobile Banking at the 2007 Nigerian Telecom Awards on the strength and effectiveness of its GT Connect service. Guaranty Trust Bank, 2008) Guaranty Trust Bank has consistently used technology has a strategy to improve upon its business performance. The bank emerged as the institution with the most satisfied e-banking customer from the Intermac Consulting Nigeria Banking Survey of 2007. The bank also features in Interswitch’s top 3 banks in Nigeria in terms of Automated Teller Machines (ATM) card usage. (JP Morgan Chase, 2008). 3. 3 PRESENTATION OF FINDINGS Find below the information relating to overall performance of Guaranty Trust Bank Plc for the financial year ended 29 February 2008, 28 February 2007 and 28 February 2006. Profit & Loss Account |2008 |2007 |2006 | | |N’ 000 |N’ 000 |N’ 000 | |GROSS EARNINGS |74,794,202 |46,383,846 |31,970,318 | |INTEREST AND DISCOUNT INCOME |51,045,578 |31,372,760 |21,339,688 | |Lease finance income |2,715 |- |32 | |Interest expense |(16,322,902) |(13,100,312) |(7,982,295) | |INTEREST MARGIN |34,725,391 |18,272,448 |13,357,425 | |Loan loss expense (net) |(3,845,258) |(244,651) |(1,763,891) | |NET INTEREST MARGIN |30,880,133 |18,027,797 |11,593,534 | |Other Income |23,745,909 |15,011,086 |10,630,598 | | 54,626,042 |33,038,883 |22,224,132 | |Operating Expenses |(27,427,338) |(17,688,652) |(12,199,196) | | | | | | |PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION |27,198,704 |15,350,231 |10,024,936 | |Taxation |(5,708,819) |(2,337,085) |(2,119,430) | |PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION |21,489,885 |13,013,146 |7,905,506 | Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2006, 2007 and 2008 Balance Sheet |2008 |2007 |2006 | |ASSETS |N’ 000 |N’ 000 |N’ 000 | |Cash and short-term funds |103,519,908 |122,228,115 |72,767,868 | |Short term investments |174,612,748 |159,963,141 |103,806,539 | |Loans and advances | 291,530,777 |113,705,183 |83,476,852 | |Other facilities |- |4,443,719 |4,460,852 | |Advances under finance lease |18,091 |- |- | |Trading properties |- |- |- | |Other Assets | 94,446,992 |48,171,846 |16,215,034 | |Long term investments |22,218,821 |10,107,687 |12,622,734 | |Equipment on lease |- |- |1,250 | Deferred tax asset |- |- |- | |Fixed assets |31,652,460 |19,749,488 |11,729,436 | |Goodwill on consolidation |- | | | |TOTAL ASSETS |717,999,797 |478,369,179 |305,080,565 | | | | | | |LIABILITIES | | | | |Deposit and other accounts |357,006,128 |290,792,372 |212,833,770 | |Other facilities | – |4,488,605 |4,505,911 | |Taxation payable |5,517,981 |3,332,773 |2,171,208 | |Other liabilities |135,548,369 |73,187,845 |34,542,138 | |Deferred taxation |2,731,679 |1,071,027 |1,144,411 | |Dividend payable |- |- |4,200,000 | |Long term borrowing |56,142,576 |58,063,369 |9,237,585 | |TOTAL LIABILITIES |556,946,733 |430,935,991 |268,635,023 | | | | | | |NET ASSETS |161,053,064 |47,433,188 |36,445,542 | | | | | | |CAPITAL AND RESERVES | | | | |Share capital | 6,839,708 |4,000,000 |3,000,000 | |Share premium |119,076,565 |21,391,928 |21,391,928 | |Other reserves |35,136,791 |22,041,260 |12,053,614 | |EQUITY |161,053,064 |47,433,188 |36,445,542 | |Minority Interest | – |- |- | |SHAREHOLDERS’ FUNDS |161,053,064 |47,433,188 |36,445,542 | | | | | | |Contingent liabilities |322,462,234 |115,000,398 |74,583,586 | Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2006, 2007 and 2008 1. EARNINGS AND PROFITABILITY
The major sources of income for the bank were derived from lending to financial institutions, lending to non-bank customers and interest income on trading and other securities. Lending to financial institutions accounted for 5% of total income while lending to non-financial institutions and interest on trading and other securities accounted for 64% and 31% respectively in 2008. On the whole, interest and discount income increased by 62. 7% from N31. 4 billion in 2007 to N51. 0 billion in 2008 and by 47. 0% from N21. 3 billion in 2006 to N31. 4 billion in 2007. This is corroborated by the increase of loans and advances from N113. 7 billion in 2007 to N291. 5 billion in 2008 representing a growth of 156. 4% and from N83. 5 billion in 2006 to N113. 7 billion in 2007 representing a growth of 36. 2%.
This contributed significantly to the profit on ordinary activities before taxation of N27. 2 billion which grew by 77. 2% over the figure of N15. 4 billion in 2007 which in turn grew over the figure of N10. 0 billion in 2006 by 53. 1%. [pic] Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2008 On the other hand, interest expense also grew by 24. 6% from N13. 1 billion in 2007 to 16. 3 billion in 2008 and by 64. 1% from N7. 9 billion in 2006 to N13. 1 in 2007 billion. The breakdown of the major interest expense lines in 2008 are: borrowing from financial institutions – 28%, borrowing from non-financial institutions – 68% and interest expense on trading securities – 4%. [pic]
Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2008 3. 3. 2 LIQUIDITY AND LIABILITY GENERATION There was an increase in deposits and other accounts from N290. 8 billion in 2007 to N357. 0 billion in 2008, an increase of 22. 8%. Of this amount, demand deposits accounted for N186. 6 billion or 52. 3%, time deposits was N111. 5 billion or 31. 2%, savings accounts stood at N27. 7 billion or 7. 8% while the balance of 8. 7% was made up of domiciliary accounts valued at N31. 1 billion as at 29th February 2008. On the other hand, the increase in deposits and other accounts from N212. 8 billion in 2006 to N290. 8 billion represented a growth of 36. 6 %.
Overall, the increase in the deposit base is as a result of the renewed confidence that Nigerians are beginning to have in the banking system and in Guaranty Trust Bank in particular. [pic] Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2008 From the financial information of the bank, it can be seen that a lot of the deposits and other accounts are of a short-term nature. Deposits maturing under 1 month was 97. 86% as against 98. 33% in 2007 and 95. 18% in 2006 respectively. Although, this dropped by 0. 47% between 2007 and 2008, it is still relatively high given the fact that the bank is a major financier of medium to long-term loans. Deposits maturing over a year were basically non-existent. Deposits Maturity Structure |2008 |2007 |2006 |Changes in 2008 |Cumulative in 2008 |Cumulative in |Cumulative in 2006 | | | | | | | |2007 | | |Under 1 month |97. 86% |98. 33% |95. 18% |-0. 47% |97. 86% |98. 33% |95. 18% | | 1 – 3 months |1. 89% |1. 65% |4. 79% |0. 25% |99. 75% |99. 98% |99. 96% | | 3 – 6 months |0. 00% |0. 02% |0. 03% |-0. 02% |99. 75% |100. 0% |99. 99% | | 6 – 12 months |0. 25% |0. 00% |0. 01% |0. 25% |100. 00% |100. 00% |100. 00% | |Over 12 months |0. 00% |0. 00% |0. 00% |0. 00% |100. 00% |100. 00% |100. 00% | [pic] Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2008 Total loans and advances of N297. 6 billion less provisions of N6. 1 billion in 2008 was N291. 5 billion. This amounted to a massive increase of 156. 4% over the 2007 figure of N113. 7 billion. The figure of N113. billion in 2007 was in turn over the figure of N83. 5 billion in 2006 by 36. 2%. In 2008, loans and advances secured against real estate was 35. 4% of total loans and advances, otherwise secured loans advances account for 61. 4 % while unsecured loans advances made up the balance of 3. 2%. Of the total portfolio for 2008, 33. 1% of gross loans and advances of N297. 6 billion matured over 12 months while only 11. 7% matured less than 1 month. This could be worrisome considering the fact that 97. 86% of deposits and other accounts mature within 1 month. It can therefore be seen that the bank is clearly using short-term funds to finance long-term projects. [pic]
Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2008 |Loans Maturity Structure |2008 |2007 |2006 | Changes in 2008 |Cumulative in 2008|Cumulative in 2007 | Cumulative in 2006 | |Under 1 month |11. 7% |16. 0% |16. 8% |-4. 3% |11. 7% |16. 0% |16. 8% | | 1 – 3 months |15. 7% |17. 0% |10. 9% |-1. 3% |27. 4% |33. 0% |27. 7% | | 3 – 6 months |17. 2% |10. 0% |11. 1% |7. 2% |44. 6% |43. 0% |38. 9% | | 6 – 12 months |22. % |31. 1% |35. 3% |-8. 8% |66. 9% |74. 2% |74. 2% | | Over 12 months |33. 1% |25. 8% |25. 8% |7. 2% |100. 0% |100. 0% |100. 0% | 3. 3. 3 ASSETS QUALITY Total performing loans was N294. 1 billion in 2008. This is up from N114. 4 billion in 2007 representing a growth of 157. 1%. The 2007 figure of N114. 4 billion also grew over the figure of N84. 0 billion by 36. 1%. In 2008 alone, 98. 8% of the loans in the portfolio of Guaranty Trust Bank were performing as against 98. 0% in 2007 and 96. 7% in 2006 respectively.
This is quite healthy for the bank as the high proportion of performing loans indicates that the risk asset quality of the bank is quite good and is not in doubt. Since, loans and advances constitute a major source of interest income for the bank, it also means that the source and quality of income generated is of good quality. The reason for this is the fact that the bank has a sound Risk Management policy that is effectively carried out through the Asset and Liability Committee and the Criticized Assets Committee of the bank. [pic] Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2006, 2007 and 2008 On the other hand, total non-performing loans also increased by 54. 5% from N2. billion in 2007 to N3. 5 billion in 2008. This is in contrast to the fact that total non-performing loans reduced by 27. 2% from N2. 9 billion in 2006 to N2. 3 billion in 2007. However, despite the increase in non-performing loans in 2008 over the 2007 financial year, the proportion of non-performing loans to total loans and advances in 2008 was 1. 2% as against 2. 0% in 2007 and 3. 3% in 2006 respectively. This means that the bank was able to improve upon the quality of its loans by reducing the number of loans that went bad. [pic] Source: Guaranty Trust Bank Plc Audited Annual Report and Accounts 2006, 2007 and 2008 4. CORPORATE GOVERNANCE
Guaranty Trust Bank has over the years developed good corporate governance. There is a board of directors that is responsible to the shareholders for creating and delivering value. The roles of the Chairman and Managing Director are separate and distinct and held by different individuals. There is also a balance between the Executive and Non-Executive Directors. The Board accordingly, determines the strategic objectives and policies of the bank to deliver long-term value, providing overall strategic direction within a framework of rewards, incentives and controls. The Board also ensures that management strikes an appropriate balance between promoting long-term growth and delivering short-term objectives.
The Board reviews and assesses the risk profile appropriate to the corporate strategy of the bank and also ensures that management maintains an appropriate system of internal controls that provide assurance of effective and efficient operations, internal financial controls and compliance with laws and regulations. (Guaranty Trust Bank, 2008). Powers reserved for the Board include the approval of quarterly and full year financial statements, significant changes in accounting policy and practice, the appointment or removal of Directors, change to the bank’s capital structure and major acquisitions, mergers, disposals or capital expenditure. (Guaranty Trust Bank, 2008) The Board meets quarterly and additional meetings may be convened as required. The Board met on 6 occasions during the course of the financial year ended 29 February 2008. (Guaranty Trust Bank, 2008). The responsibilities of the Board are carried out through its standing committees.
All committees have clearly defined terms of reference, responsibilities, functions and scope of authority and render reports to the Board at its quarterly meetings. The Board presently has 4 standing committees. The committees and their composition are as follows: i. Board Risk Management Committee – 3 Non-Executive Directors and 3 Executive Directors. ii. Board Credit Committee – All Non-Executive Directors. iii. Board Human Resources and Remuneration Committee – All Non- Executive Directors, excluding the Chairman. iv. Audit Committee – 3 Non-Executive Directors and 3 ordinary shareholders. (Guaranty Trust Bank, 2008). On the other hand, Executive Management is accountable to the Board for the development and implementation of strategy and policies.
The senior management of the bank is currently made up of 64 individuals from the ranks of Assistant General Managers to the Managing Director / Chief Executive. There are 4 Management committees as follows: i. Asset and Liability Committee. ii. Management Credit Committee. iii. Criticized Assets Committee. iv. Relationship with Shareholders. (Guaranty Trust Bank, 2008). 4. CONCLUSION 1. WHAT THE RESEARCH HAS SHOWN IN RELATION TO AIMS AND OBJECTIVES This research made extensive use of the Annual Report and Accounts of Guaranty Trust Bank Plc for the financial year ended 28 February 2006, 28 February 2007 and 29 February 2008 in analysing the financial position, financial performance, business performance and corporate governance culture that exits within the organisation.
From the research undertaken it can be seen that both the financial position and financial performance of the bank is very sound, healthy and is not in doubt in any way. The bank improved tremendously in all the parameters of capital, asset quality, management, earnings and profitability, liquidity, staff productivity and corporate governance. This performance has rubbed off on the operations of the bank, as there is a lot of public confidence in the bank and its management. The bank currently has 130 branches and 8 subsidiaries both locally and overseas with plans for more business expansion in the nearest future as the bank continues to open branches.
Income lines are being expanded and sustained with the introduction of 18 different specialised products tailored to different segments of the market apart from the traditional current and savings accounts. From the research, it can also be seen that corporate governance practice and culture has flourished over the years at Guaranty Trust Bank. The number of Executive and Non-Executive Directors is equal excluding the Chairman and there is a clear-cut separation of roles between the Chairman and the Chief Executive. The board has clearly defined roles of its own and these are carried out through functioning standing committees of the board. On the economic front, there are a lot of opportunities for Guaranty Trust bank to tap into.
The equities segment of the Nigerian financial market recorded impressive performance across all indicators in 2007. This was attributable to the promising and improved outlook of the Nigerian macroeconomic environment. The financial services sector of the economy has continued to witness tremendous growth following the re-capitalisation process. Interest rates have reduced and more Nigerians now have the opportunity to access funds from banks. The official inflation rate hit an all time low of 4. 2% while the Naira appreciated to a 5 year high of N117. 5 / $, reflecting stronger economic fundamentals. The improved economic relationship between Africa and China is expected to continue in 2008.
All the economic gains have further been buoyed by the relative political stability Nigeria has witnessed for the 1st time in her history, a seamless transition from one democratic government to another. These positive trends are expected to continue. (Guaranty Trust Bank, 2008) However, the bank needs to pay more attention to its funding mix as a lot of deposits are currently being used to finance long term loans and advances. The implication is that the bank must not only intensify its efforts at deposit mobilisation, but it must also more importantly ensure that a lot of the deposit maturity profile falls within the period of 6 to 12 months as this will achieve some form of balance in its funding mix between deposits sourced and the loans and advances created.
In conclusion, Guaranty Trust Bank Plc has over the years acquired an enviable reputation built on a solid foundation of integrity, professionalism, quality, value adding service delivery and excellent corporate governance practices. As a publicly quoted company with a highly diversified ownership structure, the bank is committed to improving shareholder value through the transparent conduct of its business by adhering to the post consolidation Code of Corporate Governance for Banks in Nigeria issued by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission’s (SEC) Code of Best Practice. It is pertinent to note that the bank also benchmarks itself against international best practices. (Guaranty Trust Bank, 2008). The going concern status of the bank is not in doubt as the operations of the bank are expected to continue in the foreseeable future.
It is therefore the opinion of the researcher, that Guaranty Trust Bank Plc is not only one of the best banks in Nigeria, it has the ability to become a high quality financial services provider that will be the best at all times whilst adding value to their various stakeholders all over the world. LIST OF REFERENCES BPP Professional Education (2007) Paper P2 Corporate Reporting (International). London: BPP Learning Media Limited. Guaranty Trust Bank Plc (2008) Annual Report & Accounts 2007 / 2008. Lagos: Guaranty Trust Bank Plc. JP Morgan Chase (2008) Africa Equity Research. New York: JP Morgan Chase & Co. Komolafe, B. (2008) ‘Vanguard’s Nigerian Bankers Award: Great Feat for GT Bank: Aderinokun’ [Online]. Vanguard Newspapers. 23 April. Retrieved from: http://www. vanguardngr. com/index. php? option=com_content&task=view&id=7147&Itemid=42 [Accessed 4 August 2008]. Omolumo, I. G. (2000) Elements of Banking: A Professional Approach.
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