Managing Director/CEO, Guaranty Trust Bank Plc
(Agbaje is named one of The Top10 Magazine’s top 10 bankers of the year, 2019 for consistently growing value for shareholders in both good and bad operating seasons.)
Mr. Segun Agbaje, managing director/CEO, Guaranty Trust Bank Plc, faced a challenge of declining revenue in 2019 and he had an answer as to how to keep profit growing in the face of revenue weakness. The bank’s revenue performance lost even the moderate improvement record in 2018 and headed downward as from the second quarter of 2019.
Agbaje charted a strategy of defending the bottom line against the weakening revenue performance. He succeeded in extracting a stable profit performance from the revenue instability that could have sent profit crashing. He applied sharp cost pruning saw on key expense lines, which enabled him to keep profit up in the face of declining revenue.
The challenge with revenue is rooted in the main earning line of the bank – interest income, which was leading the decline in earnings at the end of the third quarter. A decline of 5.6 percent in interest income at the end of the third quarter meant a loss of about N14 billion for the bank. This is despite an expansion of the customer loan portfolio by about N120 billion from the closing figure in 2018.
An improvement in fee and commission income was the only source of strength in revenue performance for GTB but this was more than countered by a 52 percent drop in net gains on financial assets at the end of the third quarter. The weakness in revenue did not lead to a drop in profit because the bank’s management took steps that made all the difference.
Agbaje shifted resources by way of cost cutting from other stakeholders to build wealth for shareholders. He is one of the few bank CEOs that moved against the trend of rising interest expenses in the year. He built the biggest cost saving centre around cost of funds that set interest expenses declining all the way from the first quarter. With that, he changed the decline in interest income into a marginal gain in net interest income at the end of the third quarter.
Additional cost saving was also extracted from operating expenses, meaning that management reduced the cost of generating a unit of revenue. This prevented cost-income mismatch in the face of decline in revenue.
Agbaje’s cost saving strategy enabled him to put up a moderate profit improvement at the end of the third quarter. He succeeded in keeping profit up in a year in which gross earnings headed for the first decline in many years.
GTB closed the third quarter of 2019 with gross earnings of N326 billion, which is a decline of 3.3 percent year-on-year. The weakness is expected to follow the bank to full year though some strengthening expected in the final quarter may improve the position to flat growth.
Interest earnings – the main revenue weak point in the year, amounted to N224 billion at the end of the third quarter. It dropped by 5.6 percent year-on-year at the end of the period, sustaining a weakness that has been on since 2018 when interest income went down by 6 percent. Management applied fees/commissions and other incomes to try to stabilize the bank’s revenue in the course of the 2019 financial year.
Agbaje reinforced his revenue building effort with cost saving strategy and succeeded in changing the bank’s earning story for good. One of his game changing moves is a slash of over 23 percent in interest expenses at the end of the third quarter to N51 billion. The drop is more than four times the decline of 5.6 percent in interest income.
It is a feat on the part of the bank’s leadership that defied the general industry trend of rising interest expenses. The drop saved N15 billion for the bank, which more than countered the drop in interest income and saw a marginal improvement in net interest income at about N173 billion.
At the same time, Agbaje lost a major cost saving centre that had powered profit improvement in the preceding two years. That is loan loss expense, which reversed from major drops in the preceding two years to a 59 percent increase at the end of the third quarter.
The loan impairment figure is however relatively low at N2.8 billion at the end of the period and did not impact the bottom line significantly. It however presents a warning signal that bad loans are building up once again.
GTB closed the third quarter operations with an after tax profit of over N147 billion, representing a moderate improvement of 3.4 percent year-on-year. While it is a continuing slowdown in profit from annual growth records of 29 percent in 2017 and 10 percent in 2018, it is a major accomplishment in a declining revenue situation so far in the 2019 financial year.
The strength that Agbaje put up at GTB in the year is the ability to extract the biggest profit margin in the banking industry from revenue. That explains why the bank claims the 2nd position on profit ranking from the 5th place on revenue volume on the industry table.
The bank’s net profit margin reached a rare record in the world of banking at 45 percent at the end of the third quarter. This is a sustained improvement for the third year running from 39.8 percent in 2017 and 42.3 percent in 2018. This is management’s secret in keeping profit from falling in the constrained revenue situation facing the bank.
Agbaje is named one of The Top10 Magazine’s top 10 bankers of the year, 2019 for consistently growing value for shareholders in both good and bad operating seasons.
Agbaje joined Guaranty Trust Bank as a pioneer staff in 1991 and worked his way up to the apex of the corporate leadership ladder. He was appointed executive director in 2000 and became deputy managing director in 2002. He was named chief executive officer of the bank in June 2011.
He serves on the boards of Guaranty Trust Bank in Ghana, Gambia, Rwanda, Uganda, the United Kingdom and Kenya. He is a director on MasterCard Advisory Board, Middle East and Africa.
Under his leadership, he consolidated the bank’s leadership as one of the most profitable financial institutions in Africa. He added retail banking advantage to the bank’s corporate banking stronghold and developed a broad-based, market-oriented framework.
Agbaje has broken new grounds in the Nigerian banking industry such as the development of interbank derivatives market among dealers and the introduction of balance sheet management efficiency system. He was instrumental to structuring his bank’s landmark $350 million Eurobond offering in 2007. He also led his bank’s listing of its US$750 million Global Depository Receipts, making GTB the first bank in sub-Saharan Africa to be listed on the main market of the London Stock Exchange.
Also, he led the bank to launch the first sub-Saharan Africa financial sector benchmark Eurobond in 2011. GTB launched its $500 million Eurobond without any government support or credit enhancement from any international financial institution.
Agbaje holds a Bachelor’s degree in accountancy and a Master’s degree in business administration from the University of San Francisco, America in 1986 and 1988 respectively. He is also an alumnus of Harvard Business School.