Implications of GTBank’s proposed restructuring into Financial Holding Company — FBNQuest

FOLLOWING the notification to the Nigeria Stock Exchange by Guaranty Trust Bank (GTBank) that it has obtained regulatory approval-in-principle (AIP) to restructure into a financial holding company (Holdco), FBNQuest has, in a report released on Friday, highlighted a number of implications to the lender and its shareholders.

According to the report, the bank’s shares will be swapped in a one-for-one exchange for Holdco shares, and the proposed restructuring will enhance the bank’s revenue diversification, earnings growth and give it the flexibility to adapt to future opportunities.

Last week, GTBank formally notified the NSE that it has obtained an AIP from the CBN and a no objection from the Securities and Exchange Commission (SEC) to begin the process of reorganizing the bank into a financial holding company.

According to the bank, the restructuring will be implemented through a scheme of arrangement between the bank and its shareholders.

Under the scheme, issued shares in the bank will be exchanged on a one-for-one basis for shares in the Holdco and the bank’s existing GDRs (certificate of issued shares traded on a foreign stock exchange) will also be swapped on a similar one-for-one basis for GDRs in the Holdco.

On its 1st Half (H1) 2020 conference call, management had affirmed that the proposed Holdco structure will comprise regional units, namely GT Bank Nigeria, GT Bank East Africa and GT Bank West Africa. The bank is also considering having business lines along pensions, asset management and payments.

As a result of the cancellation of the universal banking licence by the CBN about 10 years ago, GTBank decided to be bank-focused.

As such, the report recalls that the bank divested its non-bank subsidiaries including insurance, asset management and registrars business. However, changes in the competitive landscape and slower growth in the traditional banking business has led to a rethink of its strategy and operating model.

Recently, CBN’s monetary policies have put downward pressure on banks’ net interest margins and resulted in a reduction in the growth rate of funding income.

Also, regulatory induced fee cuts on e-banking transactions and ATM fees have also had a negative impact on non-interest income. As such, earnings growth has slowed for most banks. GT Bank delivered an average profit before tax (PBT) growth of eight per cent over the 2018-19 period. This compares with the 29 per cent average that it delivered between 2016 and 2017.

“If properly executed, the bank’s entry into fast-growth segments like payments would help to diversify its revenue base and drive earnings growth. That said, although banks have a significant head-start with mobile money, the payments landscape is getting more competitive. While most local fintechs lack the scale and resources of the banks, the telcos and interest from global tech firms will increase competitive intensity in the segment.

“The recent acquisition of local fintech, Paystack for $200 million by US-based payment firm, Stripe is a case in point. Being technology firms, global tech firms can use their digital platforms to make deep inroads into the payments space.

“We believe that banks may be able to respond to these threats through collaborative partnerships with the technology firms,” the report read in part.

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