What a Guaranty Trust Holding Company means for investors

 What a Guaranty Trust Holding Company means for investors

Guaranty Trust Bank

In November 2020, Guarantee Trust Bank (GTBank) notified the Exchange that it had obtained regulatory approval-in-principle (AIP) to restructure into a financial holding company (Holdco), which was approved later by the bank’s shareholders.

The investors gave their approval to the company for the transfer of the 29,431,179,224 ordinary shares of 50 kobo each in the issued and paid-up share capital of the bank held by them to Guaranty Trust Holding Company Plc.

Meanwhile, the Nigerian Exchange announced to the investing public last Friday, that it had suspended the trading of GT Bank plc shares ahead of its intention to delist from the NGX, in order to list Guaranty Trust Holding Company Plc.

How the Holdco model works

Under the HoldCo model, banks or banking groups are allowed to retain their non-core banking businesses, accommodating them as they evolve into a non-operating HoldCo structure.

In the new structure, a non-operating HoldCo is expected to hold equity investment in banks and non-core banking businesses in a subsidiary arrangement.

Following the introduction of the HoldCo model, the CBN gave banks the option to either bring all their non-core banking businesses under a parent company in the new arrangement or divest from such businesses and face their core banking businesses.

Other banks like FBN Holdings Plc, Stanbic Holdings Co Plc and FCMB Group Plc chose to adopt the first option and recently, GTBank decided to consider the possibility of the model and followed suit.

The advantage of adopting a HoldCo structure is strengthened revenue diversification, value creation, earnings growth and therefore, higher returns on investment for the shareholders.

GT Bank plans to diversify into payment service banking (PSB), asset management business and pension fund administration (PFA) without any distractions to its core banking business.

The bank has disclosed that its expectation is to add significant value to shareholders of the holding company within the next five years.

What experts are saying

Afolabi Ogunlayi, a Portfolio Analyst at Comercio Partners believes that the Holding Company is likely to go through an inorganic expansion route for the asset management and pensions arms, making Investment One Financial Services a likely target in this regard.

The bank currently has the financial muscle to effectively leverage the asset management business, while its large staff and customer base should be the starting point for its pensions market penetration strategy.

However, Ogunlayi states that investors should expect the value of the HoldCo strategy to become apparent in the long term, after the impact of the new business lines feeds into the group’s numbers and props up its performance.

The analyst further adds that, while the pathway is not completely clear at the moment, the sentiment around the stock is great, and investors should see an improvement in the long-term intrinsic value.

Commenting on the Payment Service Bank (PSB) segment of the new structure, Ogunlayi believes that the Bank will possibly scale up its existing fintech platforms to pursue its ambitious goals in this segment.

Expressing his opinion on what the restructuring would mean for shareholders, the Acting Head of Investment at AIICO Pension Managers Limited, Tony Odutola opined that much would not change for investors/shareholders from a residual value perspective, the reason being that the same value is placed on the share price of the bank and the resultant HoldCo.

Odutola further emphasized how the Payment Service Banking (PSB) would operate with GT Bank stating that there could be a potential upside in valuation when the fintech business is valued as a separate entity, and not in the toga of a Tier 1 bank with regulatory headwinds.

He noted that the Payment Service Bank (PSB) would operate with GTB, saying that the PSB will be separated from the bank but will be subject to regulations like other PSBs. Furthermore, customer onboarding will be relatively easier as the base of the bank is made available for immediate take-off and an opportunity to harvest non-bank customers for growth.

According to him, “GTPay already accounts for between 16% – 18% of NIBSS instant payment inflows and outflows, so the payment service has a very good base to launch from.”

What you should know

Guaranty Trust Bank Plc is undoubtedly one of the tier 1 banks that delivers relentless service to its customers and shareholders alike and has performed quite exceptionally to emerge as one of the best banks in Africa.

The bank is well known for its achievements of being the first Nigerian and African bank to be listed on the London Stock Exchange as well as pioneering the Internet Banking e-product.

With different branches spread across Africa and the United Kingdom, GTB has really done well for itself as is also confirmed in its annual financial reports. The sustained and impressive growth recorded year in and out has strengthened investors’ confidence in the bank, both in what it presently offers and in the promising future ahead.