Guyana Bank for Trade and Industry
Accounts for the Year 2000
This week's Business Page examines the Annual Report of
Guyana Bank for Trade and Industry Limited (GBTI) for the year ended
December 31, 2000 which was presented to shareholders on June 4, 2001 at the
Le Meridien Pegasus.
GBTI’s Re-organisation Plan
Like its competitor the National Bank of Industry &
Commerce Ltd. (NBIC), GBTI has a long and proud history going back over 163
years. This history has been characterised by change, dynamism and growth.
The year 2000 saw a further step in this direction as the Bank launched its
new logo, mission statement and corporate philosophy together with a broad
The restructuring plan identified as its focus, a
comprehensive review and strengthening of the Bank’s systems and
procedures to improve operational efficiency. As part of this plan announced
on November 23, 2000, 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
The Bank needs to convince the marketplace that the
restructuring is more than just a new logo and that the commitment made so
boldly at the launching will result in improved service and better value for
customers, attractive rates for depositors and adequate returns for
In his Chairman’s report, Attorney-at-law Robin Stoby
lamented that expectations for an economic upturn in Guyana for 2000 was “not
to be, as old problems persisted and new ones made an appearance”. The
crisis in the rice industry prompted the Bank of Guyana to permit a waiver
of FIA Guideline No. 5 allowing for the re-scheduling of loans and advances
to rice farmers. With 33% of its loan portfolio in rice, the waiver was both
timely and significant to the Bank’s results as it relaxed the very
stringent provisioning required under the FIA. Whether this is prudent only
time will tell, but the experience of re-scheduling of loans has not been
very positive and it may a case of postponing more difficult decisions.
Even allowing for the re-scheduling, the Bank’s profit
was described by the Chairman as modest but in his view and in the light of
the difficulties the Bank took “pride in its achievement”. With
considerable optimism, the Chairman added that the Bank had the “experience
and the resources to achieve much more success in the years ahead”.
On a positive note for the economy, the Chairman reported
that inflows of foreign exchange created a stable exchange rate with
depreciation of the Guyana dollar against the US dollar being just 2.3%. He
noted without comment on the implications for the sector that the stock of
domestic debt had increased as a higher volume of Treasury Bills were issued
to mop up the excess liquidity in the system, with a shift in emphasis from
short term (91 day) maturity to medium term (182-365 days) maturities. The
average 91 days Treasury bills declined from 11.07% at the end of 1999 to
9.20% at December 2000.
In his first report as GBTI's CEO, Mr. R.K. Sharma also
refers to the “optimism for resurgence in the economic fortunes of the
country and a better climate for the business community”. In a note of
caution and realism, Mr. Sharma referred to several off-scheduled projects
such as the bridging of the Berbice River and the completion of the
Guyana-Brazil road; the non-materialisation of several high profile
investments such as Beal Aerospace and CGX; the delayed privatisation of
GNCB Trust and the recapitalisation of GUYSUCO adding further difficulties
to the instability in the political and economic climate led to an
environment of uncertainty during 2000.
The following summary is reproduced form the Bank’s
Net Income before Tax
Net Income after Tax
Profitability and Revenues:
Operating income for the second successive year declined,
this time by 0.5% compared to a fall in 1999 of 1.2% from 1998. This decline
was reflected in the substantial decline in pre-tax income of 39%, almost
equal to the 39.6% fall in 1999. After tax profits were $136Mn, a decrease
of 28.6% against the previous year. Income before tax, even in nominal terms
has fallen by 64% since 1998 while after tax income has fallen by 57% over
the same period.
The Bank attributed this loss to “reduced interest
income of $288Mn from loans and advances. There was no growth in gross loans
and advances but non-accrual loans increased by a further $235Mn over 1999.
According to the Report, the lower returns do not signal a permanent
diminishing of profitability, but rather the application of capital
maintenance concepts and rigid adherence to the Financial Institutions Act
as regards income accrual. Minority shareholders in particular will be
closely looking at the results for the current year since any repeat of the
substantial losses will give any optimistic projections a very hollow ring
seriously erode confidence in a key player in the banking sector.
Exchange gains also decreased by $6.3Mn or 2.3% while
commissions fell marginally by 1.7%. The net interest margin declined
sharply and fell below that of its principal competitor for the year.
Earnings per Share
Earnings per share decreased by 27.7% from $4.7 in 1999
to $3.4 in 2000 on an average issue price of $20 per share. This was an
improvement from the fall in 1999 of 40.5% from $7.9 in 1998. In comparison,
the National Bank of Industry and Commerce (NBIC) showed an increase in its
earnings per share of 58.6% from 1999 consistent with the growth in 1999
over 1998 of 66.7%.
Reflecting the decline income, dividend payment of $1.5
per share, which consumed some $60Mn or 44% of profit after tax, was 50% of
the dividends paid in the preceding year.
Return on Equity
The return on equity capital, which reflects the
efficient use of the shareholders’ funds, fell to 5.4% from 7.8% in 1999.
NBIC had reported an improvement in this measure from 9.7% to 14.8%.
In keeping with the requirement of Section 20(1) of the
Financial Institutions Act, the sum of $20.5Mn was transferred to the
statutory reserve account.
Returns on Assets
The return on total average assets in 2000 was 0.62% for
GBTI and 0.98% for NBIC. The ratio for GBTI declined over the preceding year
by 0.3% while NBIC’s increased from the prior year by 0.4%.
Operating expenses is made up of interest paid G$1,269Mn
and non-interest expenses of G$1,001Mn. Interest payments reflected an
increase of 17.4% in line with the 18.2% increase in deposits over the
previous year. Other expenses decreased by $68Mn over 1999.
The loan loss provision increased by 27.5% from $1.1Bn in
1999 to $1.4Bn in 2000, reflected in the increase in the ratio of loan loss
provision to total average loans from 9.5% in 1999 to 12.1% in 2000, almost
double that of NBIC for the year 2000.
The net interest ratios for GBTI showed small decreases
over 1999. The net interest spread, measuring the relationship of interest
bearing assets to interest bearing liabilities, is 14.6%, a 0.6% increase
from 1999 while NBIC decreased marginally from 11.75% in 1999 to 11.70% in
2000. In comparison, the net income margin for GBTI declined by 1.3% from
5.1% in 1999 to 3.8% in 2000. This margin also decreased for NBIC from 4.3%
in 1999 to 4.1% in 2000.
Loans and Advances
For the entire banking sector, total loans and advances
at the end of 2000 was $54.6Bn, representing a 1.4% increase over 1999, as
against a 7.7% increase for the previous 12 month period.
In comparison, GBTI’s loans and advances portfolio (net
of loan loss provision) showed a marginal decrease against 1999 of 2.7% to
$10Mn. Of this 37% was lent to the agriculture sector, 28% to the services
industry and 21% to the manufacturing industry. In the industry as a whole,
the rice and distribution sub-sectors received 22% ($11.6Bn) and 20%
($10.7Bn) in 2000 compared with 22% and 19% in 1999.
The Loans to Deposits ratio, an indicator of loan
opportunities and policies, decreased from 63% in 1999 to 52% in 2000 as a
result of the significant increase in deposits with no corresponding growth
in credit. On the other hand, NBIC reported an increase in this ratio from
63% in 1999 to 65% in 2000.
Deposits for GBTI grew by 18% over 1999 to $19.4Bn while
NBIC showed decline in deposits of 8.5% from $30.2Bn to $27.6Bn. Term and
savings deposits recorded a combined increase over 1999 of 15% while demand
deposits increased substantially by 33.1%. Demand deposits accounted for 21%
of total deposits, while savings and term deposits accounted for 39% and 40%
Successive large declines in income are a bad sign for
any financial institution and affect depositors’ and shareholders’
confidence. The problem for any commercial bank is that their results
generally reflect the economy and political and investment environment in
which they operate. With a static or contracting pie, competition
intensifies and only the fittest survive. With the prospects of the country’s
political problems so bleak, the Bank must urgently move to increase its
market share, reduce cost, undertake effective restructuring and alter its
profit trend line.
The optimism in the Annual Report will soon ring hollow
without results which vindicate such upbeat projections.
Last week we had indicated our intention to look at
Guyana Airways 2000 in this week’s Business Page. Unfortunately, we have
not been able to access all the information we require for an informed and
balanced article. We hope to do so in the near future.