GTBank embraces disruption by building its own fintech

The pandemic has presented challenges to most banks, domestic and global, but some institutions have used the disruption as an opportunity to make changes that will serve to realign them for a new era

GTBank food and drink exhibition
GTBank food and drink exhibition 

One of those looking at radically reimagining its role in a digital-first world is Nigeria’s Guaranty Trust Bank (GTBank), the country’s third-largest by assets, that under the visionary leadership of chief executive Segun Agbaje is preparing the bank for the next decade and beyond. While presiding over a major restructuring, Agbaje and the board are reconfiguring GTBank to be more nimble and responsive so that it can combat a fast-emerging wave of fintechs and payments specialists.

The bank is also investing heavily in sustainability in the broadest sense in Nigeria’s communities. And it is expanding a highly innovative model for supporting small businesses that holds great promise for the future. In one of the first initiatives following the restructuring, GTBank will launch its own in-house fintech rather than, as many banks do, forming partnerships with outside firms.
At the time of writing, the bank is in the final stages of completing its transition to a holding company structure, which would allow it to own and operate non-banking financial services businesses.

The logic behind the strategy of building a payment company from scratch is that the home-grown fintech will fend off upstart, fast-moving digital competitors before they make inroads into the bank’s main businesses, notably payments. “It’s like a ship competing with a speedboat,” explains Agbaje. “We want to make sure we don’t lose to fintechs, and if we must, it should be to our own fintech.”

Simultaneously, GTBank will rely more on digital channels for delivering efficient banking services. With 220 domestic branches and 44 e-branches, it already has a much smaller footprint than its rivals, some of whom have 700 branches. However, where the bank truly dominates is with its online and mobile banking platforms, which is a leader in cashless transactions in Nigeria. Overall, GTBank counts over 24 million retail customers and is one of the most profitable banks in Africa. The strategy is clear. “We are building an inexpensive channel for serving customers and growing our business,” says Agbaje.

Most banking experts would give GTBank full marks for building an agile fintech within its own walls rather than waiting to be attacked from outside. “We are right in the middle of the disruption cycle in finance at the moment,” explains Homa Siddiqui, global head of digital transformation and products lab at Credit Suisse, who was speaking at an international conference in May. “Incumbents are having to rethink business models and delivery models.”

Those views coincide with Agjabe’s. “After Covid, a lot of businesses in Nigeria will move online. The bricks and mortar business model will undergo change as people travel less and more business is conducted remotely,” he predicts. “That’s why we will focus on alternative channels for doing business.”


Playing a key role
Now in his 10th year as managing director and chief executive, Agbaje has made it a habit of being a step ahead in Nigeria’s banking sector in his long career. He is an alumnus of the Harvard Business School and holds a Bachelor of Science in accounting and a Master of business administration degree from the University of San Francisco. As he worked his way up the ranks at GTBank after joining in 1991, he developed a reputation for leading some of the most complex and largest transactions across the bank’s operations. These included structured and project finance as well as the raising of debt and equity capital for some of Nigeria’s biggest companies – across the oil and gas, energy, telecommunications, financial services and manufacturing sectors. Few bankers would have a deeper view of the country’s economy.

Along the way, he played a key role in the increasing sophistication of Nigeria’s banking sector, such as developing the interbank derivatives market. In one landmark deal, he helped put together GTBank’s $350m Eurobond offering in 2007 and, later that year, oversaw a global offering that culminated in the bank’s listing on the main market of the London Stock Exchange, the first sub-Saharan institution to make the big board. So, innovation is nothing new for GTBank’s chief executive, who is reshaping the institution in the middle of a pandemic. He is also leading the bank to invest heavily in the latest technologies through 2021 and beyond. “We are taking a deep dive into tech,” Agbaje explains. “For instance, more activities are being pushed into the cloud and legacy systems are being modernised.”

Although Agbaje acknowledges the risks in building new systems at a time when banking technology is undergoing rapid development, he believes it is better than dragging one’s feet. “The longer you wait, the higher the risk,” he says. Outside experts would approve of this attitude too. “Those four brick-and-mortar walls we were seeing are not so necessary anymore,” argues Siddiqui. “A lot of the underlying assumptions of what we thought was needed for service is being disrupted at a very accelerated pace.”


A good decade
The current restructuring follows a successful decade for Guaranty Trust under the present incumbent. Having quit its non-banking businesses in 2010 in response to reforms initiated by the Central Bank of Nigeria and concentrated efforts on growing the commercial banking activities, the institution has gone from strength to strength. Profit before tax has shot up from Naira 48.5bn ($117m) in 2010 to Naira 219.4bn ($532m) in 2020, clocking a compounded annual growth rate of 16.3 percent. Measured by post-tax return on equity, GTBank posted a ratio of nearly 27 percent in 2020, superior to rival institutions domestically and its peers elsewhere in Africa.
Fuelled by ample profits, GTBank continues to expand within Nigeria and in the wider African region.

We want to make sure we don’t lose to fintechs, and if we must, it should be to our own fintech

When the bank opened commercial operations in Tanzania in 2017, it gave the parent company a footprint in its 10th country, following steadily expanding subsidiaries in the Ivory Coast, Gambia, Ghana, Kenya, Liberia, Rwanda, Sierra Leone, Uganda and the UK, where the LSE-listed institution operates mainly as a conduit for international Nigerian businesses by providing letters of credit and other services that help smooth their path abroad.


The London Stock Exchange, where GTBank listed in 2007
The London Stock Exchange, where GTBank listed in 2007


After the pandemic
As the pandemic lifts and sub-Saharan Africa makes a fragile recovery from the economic devastation, GTBank and its subsidiaries will play a vital role in rescuing the region. As IMF economists reported in May, the region faces three immediate challenges because widespread vaccination remains out of reach for much of the population, with inevitable consequences.

“The bad news is that for sub-Saharan Africa near-term growth prospects are somewhat more subdued in a region whose development path has been set back by almost a decade,” the IMF argue. Employment fell by about 8.5 percent in 2020 because of COVID-19, 32 million people were thrown into poverty, and disruptions to education have jeopardised the prospects of an entire generation of schoolchildren.

The IMF’s think tank believes finance ministers face “an incredibly difficult balancing act.” While meeting increased spending needs, they must also contain a pronounced increase in public debt as well as finding more tax revenues. “How policy-makers navigate this trilemma will have a huge bearing on economic and social outcomes in coming years,” the economists conclude.

If this sounds pessimistic, rating agency Fitch is in broad agreement. In a report in May, it noted that while the recovery from the shock of the pandemic is underway, it is being slowed by the weak state of public finances and the slow pace of vaccination programmes. Also, some economies are heavily indebted: “median public debt in the region leapt to 68 percent of the gross domestic product in 2020, from 56 percent in 2019, and is likely to rise further to 75 percent in 2022,” Fitch advise.

Fortunately though for GTBank, Fitch believes Nigeria is managing the recovery better than most. “Nigeria’s B rating is supported by the large size of the economy, a low general government debt-to-GDP ratio, small foreign-currency indebtedness, and a comparatively developed financial system,” writes Fitch, also citing in the country’s favour an expected rise in oil prices. Against that though, in common with other rating agencies, Fitch believes the Naira is overvalued and is critical of the government of president Muhammadu Buhari, now in their sixth year in power, for “weaknesses in public finance management.”

Inflation is running at high levels, with consumer prices jumping by 15.7 percent year-on-year in December 2020, notes Fitch. Relatively speaking, the country’s banking sector has sailed through the pandemic.

As well as providing a lifeline to these businesspeople, GTBank has boosted its own assets

According to a variety of sources, most institutions have recovered from the initial shock and their profitability and capitalisation – essentially, their robustness – have held up while the inevitable deterioration in the quality of assets has been contained. And importantly, most banks have been able to shed the rating agencies’ negative outlook imposed on them when the pandemic first hit.
The Nigerian banking sector was hardly alone in being put on negative watch at that dangerous time.

At the end of 2020, nearly two-thirds of the world’s banks were in that position, a designation that reflects near-term risks as governments slowly withdraw the massive and unprecedented financial support that has propped up borrowers. In Africa, however, about half of bank ratings were put on negative watch, significantly less than the global average. Most of Nigeria’s banks have been given a ‘B’ rating, in part because the country’s sovereign rating sets the standard (no bank can be rated above that of the government).

Compared with most of its peers, GTBank scores well with the rating agencies. Currently, it boasts a ‘B+’ ranking from Fitch and a ‘B’ from Standard & Poor’s, both based on the strength of its domestic franchise, quality of assets and consistently robust record of earnings.


GTBank food and drink exhibition
GTBank food and drink exhibition


Small oil
In the recovery from the pandemic, GTBank is pinning considerable hope on its initiatives with small businesses. Indeed, Agbaje sees them as a pathway to a different kind of future for Nigeria as the country inevitably comes to rely less on oil, currently the mainstay of the economy. As Standard & Poor’s notes, over 85 percent of goods exports and about half the country’s fiscal revenues are derived from oil revenues.

“Nigeria’s economy depends on oil but what happens when fossil fuels are no longer the principal source of power,” GTBank’s boss asks rhetorically. “We are obliged to keep an eye on the sustainability of the economy.”

Thus the fortunes of Nigeria’s banks have long been tied to that of the oil and gas industry. Roughly a quarter of the loan book lies with the oil sector, which was hit by low oil prices in early 2020 followed by production cuts.

Taking a broader view of corporate social responsibility, Agjabe foresees a more diversified economy as Nigeria navigates a long-term transition from a fossil fuel-based economy. “Our initiatives with SMEs are an important part of our views on sustainability,” he says. “We started by encouraging entrepreneurs from the fashion and food and drink sectors to come to us for support. They are the bedrock of the economy but they have been neglected, with limited access to funds.”

Building a strong business and making the world a better place are essential ingredients for long-term success

Now in its fifth year, the policy has proved an outstanding success. At GTBank’s annual gatherings for small businesses seeking support and guidance, attendance has soared from a few hundred to over 4,000. The bank’s fashion week has become a showcase for the industry.
Although most of these small businesspeople have no storefront or security, GTBank backs its loans against their cash flows. A boon to these entrepreneurs, the loans have enabled them to develop new opportunities. As well as providing a lifeline to these businesspeople, GTBank has boosted its own assets.

The experiment has proved so successful that GTBank will widen its support and invite entrepreneurs in technology and service industries such as delivery and distribution networks. “Covid taught us something, logistics is coming along strongly and GTBank can help build the sector in ways that are of considerable benefit to Nigeria,” says Agbaje. In the coming years, GTBank is being positioned to play an enriching role in Nigeria as it supports hundreds and perhaps thousands of entrepreneurs. “We are driven by a belief that building a strong business and making the world a better place are essential ingredients for long-term success,” explains the bank’s chief executive. In short, proudly African and international.