On The Line - Guyana Bank for Trade &
Business Page examines the Annual Report of Guyana Bank for Trade and
Industry Limited (GBTI) for the year ended December 31, 2001 presented at
the Annual General Meeting of the Bank on April 15, 2002. Information
reaching Business Page indicates that the meeting lasted for a mere twenty
minutes with few questions emanating from the floor, not an unusual
situation in public companies with a strong controlling shareholder. For
purposes of this article we have made references to the published financial
reports of the National bank of Industry & Commerce, Demerara Bank and
was the first full accounting year since the announcement by the Bank of a
restructuring plan on November 23, 2000,
which identified as its focus a comprehensive review and strengthening of
the Bank’s systems and procedures to improve operational efficiency. As
part of that plan the Bank committed itself to broadening and deepening the
financial markets to enable the sector to contribute more meaningfully to
economic growth and for the Bank to meet the changing needs of the domestic
Page last year suggested that the Bank needed to convince the marketplace
that the restructuring was more than just a new logo and that the commitment
made so boldly at the launching would result in improved service and better
value for customers, attractive rates for depositors and adequate returns
for shareholders. There was no reference to the plan in the current year
Chairman’s Report and only a brief comment in an otherwise very
comprehensive report by the Chief Executive Officer.
Assets (Net of contra items)
Income before Taxation
Income after Taxation
the background of heightened political activity, slow economic growth led by
“decline in output of the major production sectors of rice sugar and
bauxite”, increased default by borrowers and soft demand for credit,
excessive liquidity in the banking system and a widening foreign trade
deficit in 2001, the Bank reported improved performance and profitability
which was perhaps the best response to rumours earlier this year that the it
was experiencing difficulties which had caused a brief run by some of the
Bank’s depositors. This was despite the fact that GBTI has the largest
share capital of all the locally incorporated banks operating in Guyana and
a larger than required capital adequacy ratio. While the Financial
Institutions Act requires a minimum paid up capital of G$250Mn, GBTI has a
paid up capital of G$800Mn. compared with G$300Mn. for NBIC and G$250Mn. at
Citizens Bank and Demerara Bank.
interest income fell approximately 7% while interest expense fell by 12%
with the result that net interest income was about the same as last year.
Profit before taxation increased by 46% to G$298Mn. while after-tax profit
increased by a more modest 17% to G$159Mn.
Bank earned interest averaging 17.3% on its performing loan portfolio,
slightly less than Citizens (17.5%) but higher than NBIC (16.4%) and
Demerara Bank (14.2%). In the 2000 Annual Report the Chairman had announced
that owing to the Bank’s exposure to the rice industry equaling 33% of its
loan portfolio, interest recognition on some $3Bn. had to be postponed and
assured shareholders that the Bank had “implemented measures to address
this matter.” While the Bank
understandably laments the excess liquidity in the banking system generally
and acknowledges the stability of the exchange rate, lower rates of
inflation and the declining rates on Treasury Bills, it continues to charge
high rates on lending raising the bar which borrowers must clear to make
prospective investments worthwhile.
average rate of interest earned on investments was 9.2%, the lowest among
the other banks referred to in this paragraph. Perhaps it is no co-incidence
that the two banks with the highest returns on investments both have
investments abroad, a tendency that is likely to increase in the current
economic climate with potential negative impact on the rest of the economy.
The average interest paid on depositors’ funds was 5.7%, the lowest among
the comparator banks due in part to GBTI having the highest percentage of
non-interest bearing deposits to total deposits. The ratio of Other Income
to Net Interest Income was 51% compared with Demerara Bank (76%), NBIC
(56.4%) and Citizens Bank (35.7%).
non-interest expenses fell slightly with a significant reduction in
“salaries and other staff costs”. The Income Statement has a figure of
$478.9Mn. for Other Expenses without any indication of how this is made up
although it seems to include the provision for loan losses. The net charge
for bad and doubtful debts was $276Mn. compared with a net charge of $298Mn.
in 2000. It is interesting to note that at the recent meeting of the New
Building Society a director of GBTI was very critical of the NBS whose own
accounts also included a large Other Expenses. It should be noted that GBTI
does not provide any breakdown of its other income as well, a situation
similar to the other banks.
Shareholders received dividend of $1.50 but with little activity in the
market for the company’s shares it is as difficult to calculate the
current return to shareholders as it is to compute the price earnings ratio
for the shares. It is worth noting however that the total dividend payment
is only 50% of its level two years ago.
Bank’s return on assets was 0.7% compared with 0.2% for NBIC, 1% for
Demerara Bank and 1.5% for Citizens’.
bank’s balance sheet reflects the situation in the banking system
generally which according to the Chairman “enjoyed” a surplus of $11Bn
of liquid assets throughout 2001.The total deposits of the commercial banks
grew by $4.3Bn.or 4.7% in 2001 while loans and advances fell by 4% to
$52.4Bn, representing 55% of deposits. In 2000, total deposits in the
banking system had risen by 15% while loans and advances had risen by 1.4%.
comparison, GBTI’s loans and advances portfolio (net of loan loss
provision) showed a marginal increase against 2000 of 0.1% to
$10.048Bn.while total deposits grew by 1.3%. The Report states that its loan
portfolio was distributed 32% to the agriculture sector, 32% to the services
industry and 23% to the manufacturing industry.
However, one has to be careful in this kind of portfolio analysis since rice
milling is treated as manufacturing and not agriculture. The entire
agriculture sector is indebted to the Bank for $3.2Bn. which in 2000 was the
same level of indebtedness to the Bank by the rice sector. The Bank’s
exposure to agriculture and mining has decreased from $4.2Bn to $3.6Bn while
services, manufacturing and household have declined. Note 8 to the financial
statements indicates that there was a write-off of some debts against which
there were provisions in earlier periods but there is no indication of the
amount of the write-off.
increased from $19.4Bn to $19.6Bn, an increase of 1.3%, well below industry
average. Of the four banks, GBTI has the highest level of non-interest
bearing demand deposits to total deposits (20.6%) which serves to reduce the
cost of funds. As a result, the average interest paid on deposits is 5.7%
compared with 7.3% for the other banks.
the four commercial banks considered in this article, GBTI has the lowest
investment of its total assets in loans at 41.5% compared with 46.3% for
NBIC, 57.5% for Demerara Bank and 45.5% for Citizens. Loans to Deposits, one
measure of the deployment of funds declined from 51.8% at December 2000 to
51.1% at December 31, 2001. The percentage in the other banks are: NBIC
54.2%, Demerara Bank 70.6% and Citizens Bank 55.6%. GBTI also has the
highest rate of non-accrual loans as a percentage of gross loans (39.1%)
compared with 23.3% for NBIC, 31% for Demerara Bank and a surprising 7.7%
for Citizens Bank. In line with this level of non-accrual loans, GBTI also
has the highest level of provisioning relative to its non-accrual portfolio
(36.3%) compared with a simple average of 25.6% among the other banks. In
his report, the CEO noted however that “our non-performing loans are
adequately collateralised by underlying assets, which secure the bank’s
position in the liquidation process”. The continuing poor performance of
major sectors of the economy, the inefficient legal process and the dramatic
fall in property prices may make such an assessment a bit over-optimistic.
Apart from its
statement on internal controls which refers to an Audit Committee the
composition of which is not identified, the report offers no information on
governance including the process for appointment to the Board. In a
financial group such as the Beharry Group, the existence of the Chinese Wall
to avoid conflicts of interest is very important and it helps investors’
confidence to know that adequate systems are in place. During the past two
years there has been a change in the Chairmanship of the Bank and the
“appointment” of Messrs Winston Tyrell and George Jardim as directors.
As a result there is now no female director while the top two executive
positions are also held by men.
Chairman and the CEO in their reports offer very helpful information on the
external environment within which the Bank operates. The report has a number
of graphs meant to offer a better understanding of the numbers in the
financial statements. There may be a case however for a review of those
graphs and tables which are not so easily understood by the average
shareholder. Annual Reports are increasingly seen as marketing tools and
characterised by optimism. While shareholders would be pleased with the
higher reported profits, they may not universally endorse the Chairman’s
assessment that the Bank has risen to the challenges “once again in an
outstanding manner” Last year shareholders were assured that the Bank’s
“rescheduling and restructuring of over $3Bn lent to the rice sector had
resulted in the postponement of the recognition of income of approximately
$600Mn. for the year 2000 to a future period.” The results do not indicate
that that policy has had any effect on the 2001 results.
The environment in 2001 was not encouraging and but for the stability in
the exchange rate, the situation would have been worse. With below average
growth in deposits and a static loan portfolio, the Bank is in danger of
losing market share and its directors must devise strategies and policies
aimed at the very least, to maintaining its existing share of the market in
the short-term. It has to move away from the pack and to use its substantial
asset base to change the culture in the industry. The banking sector can
play a major role in the economic revival of the country but this will
require at least one bank to demonstrate the vision and plans which the
restructuring plan envisaged. Will GBTI be that Bank?