GBTI ekes out improved earnings
-but loan environment challenging
Stabroek News
April 9, 2004
In what is being described as another difficult year, the Guyana Bank for Trade and Industry (GBTI) has reported improved after tax profits of $202M for 2003 ($170M) mainly on the back of reduced interest expenses.
Interest income declined from $1.59B in 2002 to $1.39B. This reflects lower lending activity with loans and advances down marginally from $7.68B to $7.67B in 2002. Other income rose to $641M from $517M.
However interest expenses fell to $623M from $817M. This was despite deposits increasing from $20.4B to $21.7B. Non-interest expenses increased to $1.13B from $1.039B.
Return on average equity increased to 7.13% from 6.29%. Earnings per share were $5.06.
In his review of the year CEO RK Sharma, said the bank continues to face declining net margins due to the interest rate environment- (declining rates) on local investments versus stable rates on deposits. He noted that the local Treasury bills Market continues to have declining returns as evident in the decline of the 182-day T- bill rate from 4.12% at the start of the year to 3.37% at year end. The 364-day T-bill went from 5.6% to 4.23%. This affected the bank which has 90% of its total investments ($9.7B) in local T-bills.
The lower rates were the direct result of the excess liquidity in the system and few lending opportunities with all commercial banks having excess reserves last year averaging 15.2B or 66% over the required level. At the end of 2003 commercial banks held their reserve requirement in excess of 45% of the required minimum level.
Sharma notes that market turnover in the cambio system grew by 7.5% to US$485M for the first six months of 2003 while bank cambio transactions increased by 11.5% for the same period.
Sluggish lending
As for lending, Sharma said the agriculture, manufacturing and services sectors all experienced a decline in credit over the review period with the largest reduction in the rice sub sector. The indebtedness of the rice sub-sector to the Bank stood at $3B at December 2002.
"Credit to households on the other hand more particularly for housing and motorcars continues to show noteworthy annual increases." New loans (net of repayments for the year) totalled $465M whereas the non-performing loans written off from our books (net of recoveries) in accordance with the Financial Institutions Act was $804M. Our loan portfolio therefore has shown a decrease of $338M for the year."
Sharma also brought up the issue of the increased tax rate on earnings by commercial banks from loans secured by bonds which came into effect in September 2003. The income tax amendment saw the rate going from the withholding rate of 20% to the corporate rate of 45%.
"The commercial banks have expressed their displeasure at this development which, it felt, constrains the banking sector, by far the largest repository of domestic savings from participating in the domestic capital market and using bond financing as a funding solution to business.
He said this resulted in part, in GBTI's lower income from loans given that the bank could no longer offer customers premium rates. "Nonetheless the Bank is pleased at the results of its overall efforts to improve the quality of its portfolio. We have worked with customers to have their accounts perform satisfactorily by offering appropriate business advice and feasible repayment alternatives. ...We have carefully approached the issue of non-performing accounts and have taken action in having these accounts regularised."
In looking to the future, Sharma said that revenue growth is expected to continue to be challenging given the competitive environment. "Accordingly our focus for the coming years will be on increasing the level of business with our current customers by improving our cross selling efforts and by building on the early successes of our recently introduced retail loan plans."
GBTI shares currently trade at between $26.00 and $30.00.