Ecobank Transnational Incorporated (ETI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Ecobank Group Full Year 2021 Earnings Call. This call is being recorded. [Operator Instructions] This afternoon, I'm joined our Group CEO, Ademola Ayeyemi; Chief Financial Officer, Ayo Adepoju; And Chief Risk Officer, Chinedu Ikwudinma, who will describe our full year results and answer your questions. Please note some of the statements we are making today are forward-looking and are based on our best view of the world and our businesses as we see them today. For more information on forward-looking statements, please refer to the disclaimer at the back of the Slide Deck. We will mone now, Slide 2 of the presentation, please standby. At this time, I would like to pass the call back to Ade. Please go ahead.

Thank you, Ato, and good afternoon, everyone. Our detailed results reviewed at 2021 was a transformational year for Ecobank, and I thank over 13,000 Ecobankers across our businesses in Africa and internationally, for serving the financial needs of our customers and clients every day. Our results are very pleasing, especially given the challenging operating environment which is starting to show an economic recovery. We are also encouraged with our progress on strategic priorities aimed at improving efficiency, credit quality as well as our [indiscernible] However, the world is in a different economic cycle than we have witnessed in last decades. Inflation is back. As a decades of low interest and significant accommodation to deal with the effect of the pandemic, the central banks and markets are now resigned to a new normal of monetary restraints. The uncertainties arising from this has now been compounded by a supply shock from the recent Russia-Ukraine crisis, which has impacted commodity prices, particularly energy and food, especially in this period of uncertainty, we remain committed to supporting [indiscernible] navigate the case. Let me talk about our performance. We delivered USD 478 million profit before tax, an increase of about USD 140 million from a year ago, that is after we adjusted for the one-off nonrecurring goodwill tax of $164 million we took in 2020. Profitable -- profit attributable to shareholders of ETI was USD 262 million, translating to USD 0.106 of diluted earnings per share, representing growth of 58% if normalized for goodwill charge in 2020. In addition, for the fourth time since 2016, our Board recommended resumption of dividends. Net revenue increased by 5% in constant currency to $1.8 billion, benefiting from our diversified operating model and a continued focus on growing at trade finance, payments, FICC business and serving all our customers. Expense management benefited from our focus on cost discipline. On our One Bank concept, we layer our manufacturing centrally and distribute local strategy to become a low-cost financial services provider. This strategy is paying off [indiscernible] helping to reduce our operating expenses by $18 million, 2% in constant currency in 2021 and leading to a record efficiency of 58.9%, the best in over a decade despite the revenue headwinds that we face. The credit quality of our portfolio continues to be strong as well. We've improved on this. Our cost of risk improved to 1.69% in following loan write-offs, recoveries and favorable economic conditions [indiscernible]. Moreover, nonperforming loans as a percentage of total gross loans, which is at historic low of 6.2% compared to 7.6% in 2020. We will also progressively reduce the concentration of in credit portfolios across our businesses and so far as target of 100% for NPL [indiscernible] to coverage ratio of 102% in 2021, which means we have not been able to make provisions -- set aside provision to cover all nonperforming loans, that without taking into consideration the collaterals that we hold. This achievement reflects our investment in our risk management teams, strengthening credit on the writing standard and with NIM NPL recovery strategy and our relationships with clients. We maintained a highly liquid balance sheet, thanks to record customer deposit generation, which increased by USD 1.4 billion, all in constant currency, USD 2.5 billion to $19.7 billion as at the end of 2021. Several underlining drivers were critical to the deposit growth. But our investments in digital, liability and premium products have been crucial. Our customers chose an Ecobank brand as a haven especially in such uncertain times has been very supportive. With our loan-to-deposit ratio up 52%, our balance sheet is asset sensitive to benefit in a rising rate environment if the ways of duplications do not stall economic recovery. We strengthened our capital base through enhanced profit generation and positive impact of the issuance in 2021 of USD 350 million, 10 years subordinated sustainability, Eurobond in June as well as USD 75 million additional Tier 1 in September from one of our very supportive shareholder. As a result, our estimated Tier 1 ratio is now 10.7% and total capital ratio 14.8% at the year-end. Our performance was broad-based. With all our businesses showing underlying solid momentum. Corporate and Investment Banking increased trade loans and lending in the fourth quarter. Commercial Banking enhanced [indiscernible] businesses significantly improving credit quality and adding more clients through its value chain strategy. Consumer banking payments revenue rose on increased transaction and card spending. Finally, we remain focused on conducting our businesses responsibly. Our commitment to environmental issue and governance principles and honoring our investment in Ecobank Foundation. We will continue to be aggressive in driving our strategic priorities, leading with technology and serving our clients and communities. As always, I want to thank all Ecobank for their unwavering commitment towards realizing our vision and becoming the bank that Africa and friends of Africa Thank you. I will now hand you over to Ayo, our Chief Financial Officer.

Yes. Thank you, Ade, and good afternoon, everyone. I'm going to start on Slide 7. On this slide, I draw your attention to a few key highlights. Our jaws ratio of 642 basis points, the highest in 6 years, demonstrate efficiency gains and revenue growth. As a result, our pre-provision pretax profits of $722 million increased by 15% for 2021. The cost-to-income ratio was at the record 58.9%, and the cost-of-risk improved to 169 basis points. We achieved a record returns on tangible equity of 19% and increased earnings per share by 58%. Overall, it was a solid performance in 2021. Moving to the next slide. This shows the summary of our income statement. We recorded decent revenue growth of 6% in constant currency. Expenses were down by 2%, helping to drive the preprovision operating profit offered by [indiscernible] constant currency. We have substantial loan recoveries and provision releases, which lowered the net credit losses. CAR would be lower net monetary losses in 2021. Our profit before tax rose by 41% to $478 million adjusted goodwill impairment charge in prior year. Additionally, the slide highlights the diversification benefits reflected by the regional contributions to group revenues. Moving to Slide 9. Our net interest income rose by $37 million, driven primarily by a [indiscernible] partially offset by compression in our margins. Margins fell by 20 basis points to 5.1%, reflecting pressure on assets on the back of generally lower rate environment in 2021. Moving on to Slide 10. Our noninterest revenue increased by $40 million, result growth in fees and commission. Our following the reason of the pandemic-induced restrictions, a robust client and customer activity boosted cash management, spending on cards, credit-related fees and payment activities across our digital channels. Furthermore, our other income increased, driven by the sale of noncore assets and dealer income associated with investor companies in some of our subsidiaries. Lower client [indiscernible] following the currency-driven fees partially offset these gains in other income. I'll now move on to Slide 11, which shows our payments business. This has benefited from the easing of the lockdown restrictions, higher spending and robust client activity. As a result, it generated $208 million in revenue, increasing by 23% on a year-on-year basis. The growth was strong in disbursement [indiscernible] payments on only increased. Also, consumers open their wallets, which drove spending on debit cards. The effort of commercial banking is to, its mature and acquiring businesses are paying off, the number of metrics increased during the year and the introduction of the new Android and of so terminal supported volume growth. Turning to Slide #12. On our digital transactions. This slide highlights the tremendous growth in digital transactions across multiple digital platforms. For example, transactions and omni at corporate banking payments platform increased by 45% to $39 billion. Also, robust client activity on the Ecobank mobile App increased volumes by 50% to $5 billion. As you can see on the slide, volume growth across the board on all digital transactions. Moving to the next slide, on operating expenses. Our expenses decreased by $19 million, mainly driven by [indiscernible] our of expense discipline by [indiscernible] as mentioned. Staff cost decreased partially offset by increase in depreciation and amortization associated with digital and mobile enhancements capabilities. As a result, our efficiency ratio was at a record 58.9%, [indiscernible] with revenue headwinds that we faced in our markets. Moving to Slide #14. Modest revenue growth, efficiency gains and lower provision credit losses translated into sustained returns across our regions. This slide gives you a sense of the returns performance over the last 6 years. This slide showcases the diversification benefit of our operating model, performance is robust in from West Africa and West Africa, Central, Eastern and Southern Africa region. We redoubled our focus on improving Nigeria's profitability and returns, which is currently lower than our targets. We are concentrating on our trade payment and FICC business, amongst others, to drive revenues in this market. In addition, we have made notable achievements in bringing the cost structure down and stabilizing the credit portfolio. The impact of the excess cash reserve requirements is our performance and should there be a relaxation by regulatory authorities in our market, this would further improve the revenue performance. Moving to Slide 15. We grew our balance sheet by $1.6 billion total assets of $28 billion, predominantly on record deposit growth. On the asset side, we did see an increase in all the major lines on the liability side. Customer deposits remain our most significant funding source with low-cost CASA ratio, which is at current account and savings account deposits representing 82% of total deposits. Rose [indiscernible] in part from our issuance of the $350 million Tier 2 sustainability bond in June 2021. Our shareholders' equity increased on the back of the performance -- attributable profit performance during the year, but was partially offset by the unrealized mark-to-market losses on investment, securities and also the negative impact of foreign currency translation. We generated $75 million in terms of additional Tier 1 instrument raised in September 2021 from one of our major shareholders which will demonstrate the confidence in the organization. Moving to Slide 16. At this stage, closer look at our customer deposit. Our customer deposit grew by $1.4 billion to a record $20 billion. The growth was broad-based across all regions with solid growth in Nigeria and In our businesses, corporate banking delivered the most growth with commercial also substantial growth. That was growth in the consumer business on deposit mix improvement as we move to reduce the amount of expense in deposit balances. Moving over to the next slide on the loans. On the back of the improved economic conditions in 2021, we allocated more capital to what's driving quality risk assets. And we saw modest growth of 4% in gross loans of $10 billion, creating mostly by corporate banking business. Most of the increase happened in the last quarter of the year reflects [indiscernible] and also the impact of improved client activities. Moving to Slide 18, where we show the across our lines of businesses. We've seen that growing also and business activity underpin the strong growth in our client business. Profit rose across 4, particularly strong in commercial and consumer banking. Revenue growth was mixed, corporate banking and investment showed a revenue decline on the back of nonfunded income. On the other hand, because of improved efficiency, the profit before tax increased by $40 million. Commercial banking revenue rose by $38 million on [indiscernible] driven by payments, but also the positive forecast for this business increased by $26 million. Revenue from our consumer banking also increased by $36 million, reflecting growth in funded and nonfunded income and its profit before tax also increased by $44 million on unprofitable operating leverage. Moving to the next slide, which shows our regional summary. We already provided adequate commentary on the regions in our earnings release, and we've also included summary of the result of the regions in our appendix. So I'm going to keep it quite short and simple. We are pleased with our progress in each of our regions. Nigeria as I noted, we get an increased focus on our pension. And I indicated earlier discussion on Slide 14, what we've see that performance in that region. Turning to Slide 20 on capital. The group Tier 1 capital adequacy ratio on the total capital adequacy ratio for 2021 were at 10.7% and 14.8%, respectively, which improve both the internal target and also above the regulatory Moreover, we project to continue to exceed our best limits through the forecast [indiscernible] on 2020, 2021 financials. Our efficiency and risk [indiscernible] continues to improve as shown in the right graph. The improvement in cash adequacy ratio is primarily due to the improved performance of the group resulting in better-than-expected profit generation as well as today thats $35 million as additional Tier 1 capital and also the $350 million for Tier 2 sustainability bond issuance. In addition, [indiscernible] to improve the efficiency of the balance sheet have also helped to support the improvement of capital adequacy ratio. Please note that the convertible bond is fully amortized on a standpoint and provides no opportunity to the 2020 capital adequacy ratio numbers. Moving to Slide 21. The graph confirms what I earlier highlighted. The main point to note here is that the range of Tier 1 and Tier 2 capital in dollars provides a natural hedge for the group against currency devaluations. Also, our local currency risk weighted assets which accounts for circa [ 7% ] of our total risk-weighted assets also act as a natural hedge. Currency devaluation that affects both the numerator, which is a capital and also the denominator, which is a risker. I know we usually get a lot of questions on [indiscernible] ratio. So let me provide some update in this gap. As we earlier noted, the ratio was at its peak at 155% in 2019. This further reduced to 153% in 2020 and has reduced to 147% at the end of 2021 due to the combination effect of the [indiscernible] during the year and also the impact of improved performance and dividend option of the holding company. The ratio at 147% is higher than tolerance limits, and we are reviewing all options towards breaking down this ratio, both organic and inorganic. Moving to Slide 22, which speaks to our targets. This target reflects as best as we could the uncertainties that we are facing in the current environment. We report in U.S. dollars, so the strengthening of the U.S. dollars puts pressure on our various local currencies. However, in circumstances like this, we always reminded of the benefit that gives us for being a diversified business, which allows us to drive synergies in our pressure. These pressure factor are starting from our near-term estimates. We expect us to a deficit to grow with a increase 3% to 5% range, driven by price activity and payments, especially in the B2B space and in Biller solution. Loans are expected to grow within 3% and across all of our businesses. Revenue will get an uplift from volume growth from new improvements and transaction activities. Inflationary pressure is the primary driver with our expense targets strive on services continue to rise and our efficiency ratio would essentially remain unchanged given these dynamics. Cost-of-risk, however, is expected to fall by improve on the back of projects that recovering especially due to the fact that our coverage ratio is in excess of 100%. As risk rise in the current [indiscernible] the NPL ratio will remain sticky as we could have our implication for borrowers. Finally, we expect to maintain our NPL coverage ratio to go 100%. Moving to Slide 23 on our medium to long-term targets. We expect our return on tangible equity to be approximately 20%. We expect efficiency ratio to improve to circa 55% range on the back of expanding revenues and also expect are nonperforming loans ratio to be under 5%. So this is the end of this performance presentation. I now turn over to Chinedu, our Chief Risk Officer to take us through the growth risk metrics.

Thank you, Ayo. Once again, thank you all for joining our call today. I'll talk you through the risk and credit portfolio metrics including our current risk environment and expected, and also [indiscernible] 2021 was seen a continued improvement in credit conditions with key [indiscernible] stabilising or improving, commodity prices have continued to hold strong throughout 2021 coming into 2022. Although, of course, impacted with the recent have geopolitical crisis as we speak, particularly oil and metals. Our economies [indiscernible] of COVID-19 pandemic with the indices across the continent showing positive trends at this time. However, it's important to observe that Africa remains under vaccinated compared to continents, and this will continue to pose a strategic risk until that is mitigated. If we may go to Slide #25, is to discuss the liquidity of our balance sheet. I think the key thing to highlight here, which has been spoken to by the GCEO and GCFO is the strength of our balance sheet from a liquidity perspective. You've seen the substantial increase in deposits across the pandemic by up to $3.4 billion, which is like 21% increase. It speaks to the brand loyalty we enjoy, the position of Ecobank as a destination for as a place for heaven in times of crisis, and also it speaks to the success of our digital strategy, which is continue to as the CFO has already spoken to. This reflects another year of strong momentum in deposit growth. Our group liquidity profile remains resilient with ample liquidity to take advantage of opportunities in due course. The predominant message here is [indiscernible] that we see in customer deposits, particularly noninterest bearing, where we see that if the proportion of that over loans is now at the magnitude of 120%. That highlights the opportunity we have to increase [ board ] income and also to grow our loan book, should we choose to, of course, is part of our strategy, and also to continue to do that in a way that builds up quality earnings and ensure the health of our portfolio. Going to next slide, which speaks to the asset quality metrics. You will see from there that all of the indices are moving in the right direction. And the thing to highlight is that this is not something -- if you look across the 6 years on the chart there, you see that the trend is consistently positive. And the key message we want to highlight here is the [indiscernible] cost we have or reducing the stock of nonperforming loans and improving the credit quality of our portfolio. We've continued to see strong credit performance across the board with net impairment charges amounting to $170 million compared to $182 million the previous year. We finished the year with a strong momentum on our recoveries and resulted in our cost of risk declining to 1.69% compared to 1.85% in 2020. As we continue to demonstrably strengthen our risk and controls, we expect to maintain this level of credit [indiscernible] 2022. As the GCFO has indicated to you, we are expecting that this year we should come in within 1.5% in terms of our cost of risk. As I noted earlier, our strategic priority has been the reduction of our NPL stock. At $639 million, NPLs are their lowest levels since the third quarter of 2015. The NPL ratio as a result has improved markedly to 6.2% as of the end of last year compared to 7.6% as at the end of 2020, and if you also consider that as at the end of 2019, it was 9.7%. So just again, a reflection of the focus of management and the results that we have achieved over this period. Our allowance at the end of 2021 that reflects both the ongoing economic recovery and the uncertainties that remain. 2 years into the pandemic, we continue to witness new virus strains, and there are also new issues to navigate with on the macroeconomic front, such as inflation across many markets or the geopolitical issues that we are seeing with the Russia-Ukraine conflict. This present to our challenges into the future, which we need to manage. But we're confident that we'll have the ability to the resources to be able to manage this effectively and proactively going into the future. We've continued to build our impairments. We ended the year with a figure of $62 million in cumulative provisions compared to $558 million in the last year. A year ago, we put our expectation to end 2021 with a coverage ratio above 90%. We are pleased to note that we have delivered on this promise as we finished the year with NPL coverage of 100% for the first time. And the positive thing to indicate there is that we expect to sustain this profile related to the future because we have managed to contain our NPL names to what I say, distinct names that we are sure can be remedied. We also have improved our uniform quality so that the migration from the positive portfolio to the negative side is contained, and we don't expect that to be substantial going forward. So a coverage of 100% on the is something that we expect to sustain. Moving to Slide 27. This speaks to the divesting of our portfolio. If you were to go back a few years to have seen that the concentration in oil and gas would have been -- if you combine the E&P and marketing would have been about 25%. At this point in time, it's now down to about 17, and trending down also. That is something that we [indiscernible] if you look across the board, you see that there is substantial between our portfolio. [indiscernible] is at 15% [indiscernible] at 14 [indiscernible] we expect to sustain this because we consider this is difficult to be a strength. The loan book is skewed towards corporate borrowers. At this time, we expect that profile to be sustained, though we continue to grow our business in the commercial and consumer banking space, and we expect to retain that profile in terms of growth and for them to sustain that share, particularly as we continue various initiatives in the commercial and consumer banking space, including efforts in sustainability, banking, targeting specific groups and specific initiatives, which is something that we are very proud of. Our UEMOA region remains the largest portfolio constitution up at 70%, followed by Nigeria, 26%. This again, if you were to go back about 4, 5 years, you have seen that there was a switch there, it was Nigeria ahead. We expect this to be sustained going into the future because, again, in the UEMOA region, we have a very large operations within these markets. We have our banks -- some of the largest banks in each market that we're operating. We do expect Nigeria portfolio to retain this position because we strategically expect to continue to grow there within the overall growth of the bank. But then also in that market, you have seen that there are substantial growth in our non-loan business in payments, in trade and other activities, and that is also a strategic focus for us. Turning to Slide 28, where we discuss the various movements in the IFRS 9 staging. In terms of stage 1 loans, you've seen growth -- net growth there of over $700 million. This includes -- in terms of gross movements in loan originations and upgrades amounting to $1.843 billion and paydowns, loan and FX impact of $1.104 billion, which resulted in that net effect. Within Stage 2, we've seen a net reduction from $1.2 billion to $1.04 billion, Stage 3, we've seen also a net reduction in that portfolio. I think we expect to continue to have these indices improve in terms of seeing growth in Stage 1 and containment reduction in Stage 2 and 3, reflecting the input quality of our portfolio and also continued growth in our business. Turning to Slide 29. Looking at the -- on this slide, I've already spoken to the growth of Stage 1 by 9%, a reduction of Stage 2 by 16%, reduction of stage 3 by 15%. But what is important here, I want to highlight is the level of our cumulative impairments we're taking on our portfolio compared to peer organizations. So if you look at that, we are at 6.4% and pre-organization that are particularly in the Nigerian market at 4%. This reflects our efforts to immunize our portfolio against volatilities in terms of earnings or in terms of any issues on the portfolio quality in due course despite our optimism. So this is a proactive action to inoculate against the many challenges that we may see with the rise from current market conditions such as seen from the geopolitical events or other factors. This also allows us in due costs, given the fact that we have taken at least $164 million of these provisions at the central level to be able to release such provision should the market condition to be more benign than we may anticipate presently. If you look at the chart on the bottom right, we highlights the non-performing loan book, you find the kind of a component the oil and gas E&P, which is that 30%, that reflects again with our sales on the control side, a positive thing because if you recall some of these assets, we have moved to Stage 3 and pick on the oil crisis, 2014, '15, the trends that we see now substantial increase in oil prices and improved market conditions, the prospects for remediation for improvement in that respect are much better, which again speaks for optimism in into the future. And with that, I shall now handover to handle the Q&A component of the session.

[Operator Instructions] So our first question will come from Adesoji.

This is Adesoji Solanke from Renaissance Capital. Congrats on the results. I have a couple of questions, but since Ato is limiting us to 3, maybe let me start off with the first 3. The first one is around dividends. So I'm trying to understand the dividend you've declared, will they be optionable by shareholders? So for example, would Nedbank receive this ultimately? If so, how soon? And will the dividend be paid in dollars or local currency? The second question is just trying to get your thoughts on your plans for the payments business. Any updated thoughts you can give us around how you are thinking of potentially carving that out going forward? That would be helpful. The third question is around the plans for Nigeria. I believe [indiscernible] has resumed, but it would be useful to get some sense on your early thoughts around what could potentially change in the Nigeria business now that there's a new CEO? That will be helpful. Those are my initial questions. If the time I can ask more, but otherwise, I'll rejoin the queue.

Thank you. I will answer the easy questions. Dividend will be paid as soon as approved by the shareholders in the AGM that is coming up in May and to be paid in U.S. dollars, and we will help shareholders on the best way to receive if they wish to receive in their local currency. The payment business, I will now may talk through, but here is where we are. We've set up a unit within our business in Nigeria to handle payment vertical across the group. That unit has gone to work set up that business, and we are tracking it. As you know, we are across multiple countries. It's important to lay different additionally very carefully, making sure that it's working, work with our regulators for the purpose of determining where at what point do we need to let this go or continue to stay inside. In terms of the -- and again, business. We continue to be very hopeful because again, look at Nigeria, it's a very large market, but it has underperformed for us. And honestly, for us underperformed for a lot of people. We'll fix that business. It's not just changing the CEO, it just -- the CEO change reinforces the existing management team to ensure that we can drive that business for performance. We are very, very hopeful on what we expect from that business. We think that the country is also turning the corner. As the country turns, we've turn with it the[indiscernible] Imagine in Nigerian in 3 years' time, that is delivering as much as what Ghana and [indiscernible] is delivering. And that is where we imagine our business. What that means that we'll be able to fire on all the 4 cylinders [indiscernible] and we're firing at the moment. And we have good support of the Board, the shareholders and the markets and stuff to make that happen. Ayo, do you want to add?

Yes, nothing to that. I think you've cleared such of the payment business. What we're trying to do right now is to try to eliminate the value in our business. And you see that share on our slides, the volumes of transactions, which continue to grow, and we project that to continue to grow into the future for [indiscernible] the growth in the payment revenue was significant at 23%, and we expect that trajectory to also continue into the future.

Do I ask more or should I rejoin the queue?

So we have [indiscernible]

My name is [indiscernible] I'm calling from JPMorgan Research. I wanted to ask you to provide more color on the state of the balance sheet at the Nigerian sub of the bank? So could you please highlight the overall quality trends at that subsidiary? And also, can you comment on how you think whether the provisioning at the subsidiary is conservative enough at present? And what's the outlook for the cost of risk for that business in the coming years for these potentially for the next year too?

to just open the document to where in this within Nigerian done our business performance. So the balance sheet is that we presented on Page 37 in terms of the various staging. That staging is a reflection of how we saw the risk on that portfolio. You can say whether we've been conservative, but that is the way we see the risk on that portfolio. So if we then see the coverage in terms of provisioning, that is talking to the cost of risk that you see. So you see our Stage 3 loans about USD 427 million. And as we said in several of these calls, we have -- this is highly concentrated. We have about 2 of these, that is USD 200 million in oil and gas. With the price of oil and gas at this moment, even historically, we are very hopeful of a resolution of these 2 names. A resolution of these 2 names take almost half of the NPL out of that equation. And we are very hopeful with the way we're working with the clients, and I think my colleagues -- one of my quality is even on the client premises, as we speak, trying to hasten an the acceleration of the client being able to finalize and fully realizing value from gas. If this happens, then it changes the complexion of the Nigeria portfolio completely. And as my colleague said, what we've also done as a backup plan is that, as a group, we also created a abundance of caution, an overlay of provision of about USD 164 million as of the time we closed the balance sheet as of December 2021. What we've done there is to make sure that as we move forward, we've immunized the P&L of the group against volatility that will come as a result of any catch-up on provisioning in any of our countries, especially in that Nigerian market. So the way to think about it is, business are concentrated. We believe that this concentration is about being resolved. If it is resolved, it will solve the problem. If it is not resolved, we have a backup plan, which is why we've taken those provisions at the central level. That's why across the group, you will see that we are over 100% in terms of NPL coverage, is at -- and we're about 54% in Nigeria. Now the fact that we have got USD 164 million at the center is what allow us to approach that 1, 2% coverage. Thank you.

Our next question will be from Toyosi Oni.

It's from Toyosi Oni Renaissance Capital. I just had a few questions. On your $150 million convertible bond, which matures soon, what is management's thinking? I know that you had earlier mentioned that it provides no capital uplift in your 2021 numbers, but should we expect some dilution in shares? Basically, how should we be thinking about this going forward? My second question is about what happened in Ecobank Ghana and -- I'm sorry, Ecobank Kenya and its FX dealings and When should we expect a resolution around this? And my last question is on guidance. So please, can you provide your outlook on net interest margin, NII growth, your payment revenue growth and also your dividend expectations for 2022?

What was the first question. I will take the first question around the convertible and allow the to take the second question on Ecobank Kenya. And I'll take the third question around the guidance. In terms of convertible, yes, our convertible bond of $400 million as the maturity of September/October this year. As you know, he is currently deeply out of the money but will continue to monitor the space from a capital ratio point, just like I earlier mentioned, it has not contributed to our capital ratio because it's 5-year tenor will fully amortize from the capital requirement point of view. So this is purely a liquidity instruments. Should it not be converted, which is the current economic rationale standpoint, is just a repayments of liquidity move out impacting on our capital -- on our capital ratios in any form. In terms of the guidance that you mentioned, net interest margin with the -- some of the actions of our central banks to increase rates in our market, we saw that in Ghana earlier last week. We expect our net interest margin to not go below the current levels of the 5.1% that we reported for 2021, but we'll continue to adjust our expectations on a volume basis into the future. In terms of the noninterest revenue growth expectation, we've already guided our revenue would be between 1% to 3%. We expect the largest proportion of the growth [indiscernible]. Don't forget the forecast that we're providing is in U.S. dollar terms. So that means the equivalent local currency performances would be much, much stronger than this 3% in U.S. dollar terms that we've mentioned. A similar story for our payments revenue. In 2021, we grew that by 23%. We expect our trajectory to also continue into the future because of the opportunities that exist in our market. So payment revenue growth should be along those lines. You mentioned our dividend expectation, like you know, of course, the dividend is subject to recommendations of directors and also approval of shareholders. We decided to resume the payments of dividend on the back of the improved capital ratios that we're seeing at the group level and also considering the fact that we've also gotten some stability in our asset quality with NPL ratio at the lowest level of 6.2% in the last 5 to 6 years, NPL coverage ratio reaching 100% for the very first time. Return on tangible equity, which is at 19%, which is a good record level. So on the back of the improvement that we're seeing across decided that it was right that to resume the payments of dividends to our shareholders, considering that we've not done that since the 2015 financials. In terms of expectations for the future, actually based on, of course, the profit and capability of the firm as we go along. So it is very difficult right now to forecast a precise amount. But what I can say is that we have a dividend policy which states that we can pay up to 40% of our distributable profits as dividend. We'll continue to comply with that internal guidance, and on an annual basis, would be recommending dividend based on the observance of those guidance. I'll now turn over to the Group CEO for the response of Ecobank Kenya.

Thank you. Obviously, what happened in Kenya is not what we are proud of. but it's something that happened by a single staff that failed to record a transaction that he thought was going to be effective the following day. And it should have been effective the previous day. Now we've put out a statement to the market to reflect that. We've taken the suspension by the regulator in Kenya from March 29 to April 4, 2022. We've also worked with the regulator to -- I mean to explain that there was no intent, it was a omission by 1 staff that created the situation and the regulator has accepted our position. But we take note of that. It's something that we don't feel happy about because as an organization, we want to operate within not just the letters of the law or the intent of the law. And be an organization that set records were wherever we upgrade. This is an instance in which we are not happy, but we make sure that the lessons are learned and it doesn't happen again. Thank you.

And the next question will be from Muyiwa Oni.

Congratulations on the results. I'm Muyiwa Oni from SBG Securities. So I have a few questions. First is on the in Ghana. If you could share your views on that and how you think that could affect your mobile -- your payments business in Ghana? And then secondly, also on the e-channels, if you could share the contributions of the various clusters. So just trying to understand which regions contribute for the highest growth. And then also within that digital channels business, what do you mean by indirect channels? Because that account for a considerable amount of transaction for your payments business, and we've seen strong growth last year. And then I wanted you to share on your oil and gas business. You talk about some oil assets that are collateral. If you could share the type of claim you have on the collateral? I just want to see how strong a claim is given that, as opposed for different countries, there are different rules on asset ownership. Those are questions I have.

Okay. I would take the levy with the government action in Ghana. And our view is, of course, we support whatever the government is doing in the country that will ensure that the fiscal space is properly managed, and that has passed through the various leadership of the country to come to a conclusion that it is the best way to close that fiscal gap. As you know, without closing that fiscal gap, it's difficult for any of us to operate credibly within that country. So we'll continue to support that. We don't think -- most times, we think that taxes -- taxes doesn't limit ability of businesses to operate. Once it is known and it is used properly to service and create a better environment for business to operate, is our own contribution, is that contribution and our customer's contribution. It shouldn't -- and is even playing felid for everybody. We don't expect that to be a problem. We always support whatever the government is doing to ensure that the fiscal space is balanced because the alternative to that is runaway inflation. And we don't want that to happen in Ghana. Ayo on Internet.

On the e-channels, I think you're talking about the spread, the regional spread of the revenue. It is broad-based across our 4 regions. But most of the names of transactions are coming from the Nigeria region and also Anglophone West Africa region followed by and also our West Africa [indiscernible] but I can get back to you in terms of the detail revenue contribution. You also talked about the indirect charge-offs that we have. So those are broadly third party[indiscernible]. So that is what we've shown on our [indiscernible] towards the earnings release and also the earnings presentation. In terms of the other question around collaterals. I think I would to speak to the question.

Well, thank you very much. In terms of the you mentioned, I mean, typically, of course, when you are lending into oil assets, particularly the E&P companies, which is [indiscernible] you will take some charge over the reserves that are related to those assets. Now I note to a point that those results you have beneficial interest in that, but that interest is subject to licensing, is subject to government regulation. So that is acknowledged. So however, I think the point also observed is that governments have always acting with our preserve the interest of lenders some investors in the market. Because if you look across -- the government would have to exercise such an interest, maybe not to grant a license, enable financials to be rewarded for their lending or the investors to be rewarded for their investment. Then they will impede further investment in that market. So I think you have that we right to reserves is subject to government regulation. But that is the type of stake and this is general across the industry, that would every mining industry, it's taking those reserves. So that's typically -- that has to be clearly kind of collateral we roll for those kind of assets.

Your next question would come from [indiscernible].

Congratulations on your results. So I just have a few questions here.

I think she's put ourselves back on mute.

Sorry about that. I just want to add, speaking to your loan business, what specific sector are you thinking will drive your loan growth in the coming years? And I know you've spoken about your dividend payout. Well, can you kind of give a forecast to your dividend and payouts going forward?

Let me broadly pen for you how we see the demand for [indiscernible] going forward. And this is as we talk to a lot of our customers. So when you look at the sovereign space in terms of governments, they are looking at how to improve their infrastructure. especially logistics infrastructure, the ports, the rails, the roads and coal. And they're trying to walk through that as a means of expanding the opportunities within their country and the need for us to become -- to start ourselves together. In the middle of that, they're also looking for investor and that are creating industrial parts because those industrial parts are necessary for people to process things, especially the things that are banned for exports. So that gives you a sense of where -- what we'll be doing in that space. When you then talk to the other customers, whether they're big customers or small customers, we can see everybody getting ready to improve their planned capacity to be able to deal with markets that historically they used to deal with their local market, they are now trying to deal with markets across Africa. That's part of the continental free trade area, but also using that opportunity of expanding market planned capacity to be able to export out of the continent because we can see that foreign currency earners people that are making the right wealth in their countries. We can also see a lot of customers of ours thinking we need to be actually processing -- these are primary goods that we are exporting. So we are seeing people getting ready for processing that big commodities, turning them into processed goods so that they can really export. So if you look at coffee beans -- cocoa beans, for example, we export across West Africa, what are 70% of the production of what we do, we export the beans alone. And they are under of people now that are thinking, okay, what we need to do is to actually process this not only does export in the cocoa beans, process this into cocoa water, into liquor and into powder. When you do that, you've added more value to it. And the customers we are talking to in places we are just exporting raw cotton. They're saying, you know what, we need to convert this growth cotton into garment, and therefore, we'll be able to export them. So this is across the board. And all of these -- you then have linkage industries that we think across the continent of Africa will enable us to look at the things that are driving the demand for loanable [indiscernible]. As these people then start doing this, their business gets bigger. They have value chain that they are depending on in terms of the commercial banking business. And of course, they will have people that they are employing and paying that we then need to have ours and mortgages and all of those things that happen. So those are the core drivers of the economic opportunity across Africa. And I've been traveling this year, going to multiple countries. And I see that in landlocked countries that are planting maize and exporting them to be to be and then import milled back in to the country, and they are saying, no, we don't want to do that again. We want to really restart this by processing [indiscernible] So there are a lot of those things are areas we think is going to drive the demand for going forward. I hope that answers.

The second question on dividend payout.

Dividend payout, yes.

So yes, so what I said is to paint a picture about our internal guidance, which is to pay out up to 40% attributable profits as dividend. For 2021, if you look at a number that comes about 15%. So of $40 million has been recommended to the shareholders is about 15% of attributable profit. So that [indiscernible] headroom for growth as we, of course, attributable profit, which we project in the next couple of years, the dividend also would increase over the years as well. But we definitely position our dividend will be taken on an annual basis. So I just wanted to [Audio Gap]

Your next question will be from Martin [indiscernible].

I think that the performance for this year has not been -- has been quite good. But again, to some concerns on dividends and the market in Nigeria. I just want to understand what really went into the determination of the dividends, given that you've not paid dividends for quite a long time. And looking at the trend over the period, I think what you paid the last time was much, much better. So I think you could have done better than that. So I want to know what went into the determination of that? The second question is -- and we're looking at the numbers in Nigeria. Nigeria is a game changer for the group, but it looks like we are not getting the best value out of Nigeria. What is it that you're going to do going forward so that we don't get any surprises from Nigeria, because Nigeria coughs,and then that's trouble.

Okay. So I will deal with the dividend. We've outlined the core drivers of dividend. We need to generate the income, we generate the return income. We need to assess our capital position, we need to assess our view of the future. We've done that. we bought -- have come to the conclusion at this point, a $40 million dividend is the right place to start. You are right that we haven't paid dividend in the past. It's a good place to start. Should we be doing more in the future? For sure, yes. Should we defer this year until we can get to be paying much larger? No, it's better to start and then make sure that, that is sustained well into the future. Our expectation is that these companies should continue to do well, and this companies should continue to return up to shareholders. So we could have done better? So I agree with you. And we are very grateful to our shareholders for the time that we didn't pay. The problems we needed to deal with and the fact that we've now dealt with those problems, which is what gave us the confidence to start paying a dividend. The markets in Nigeria, we've explained what we are doing. We are almost there, and we've put against that market, the best the institution has and the market has, and our view is that we should be able to get that done. But remember, if you go back to 4 years ago, we have recruit a very decent team. They were Central, Eastern and Southern Africa, where there was a problem there. The return on equity was 1% to 2%, okay? Today, the return on equity is in the 20%. So we've demonstrated our ability to resolve problem and resolve them decisively. And we'll do same thing with Nigeria.

The next question would be from Solanke.

Just a few additional questions. The first one is on your agency network. So the 110,000 agents that you report for full year '21. How many of these agents are in Nigeria? And what are your top 3 markets and number of agents in those markets? Secondly, would you get your thoughts on the PSB dynamics in Nigeria. What does this mean for the competitive landscape there? And particularly, you're acquiring businesses there, for example? Would like to know what your thoughts are on the dynamics of the PSBs potentially gets any final license? The third question is just around management changes. When should we expect an update, particularly at the group level for any potential management changes this year? Those are my 3 questions. I had just one very specific one on Android devices, which I think Eddy or Ayo mentioned, why are these Android devices are attractive to merchants for scaling your merchant acquiring business? Just trying to understand the dynamics, there.

Okay. Agent network, there are 50,000 in Nigeria. Key markets, of course, Nigeria is a key market for us. Ghana is a key market for us. And UEMOA region is the key markets and the CESA region all these markets are good, but [ DRC ] is the very key market for us because it's a very large country, with close to 100 million people, would have been [indiscernible] Destination in Africa given all these natural resources, and we have a very high hope on that country going forward into the future. The payment service banks, right? That's the PSBs. Every player in the markets add value to that market. And we will -- we have the business that we do as a bank. We have payment service bank that we do as a bank. We have [indiscernible] services that we do at the bank. We are in a position to be able to navigate. We also -- remember we operate in Kenya. We operate in other places. We have the payment services entities have operated. So the payment service bank in Nigeria, they are welcome. We will collaborate with them. We will compete with them. But ultimately, that market is a very large market that all of us can actually benefit from things that are happening in that market. So we don't -- the market dynamic is there. They are PSBs, but we'll also have a banking license. So we don't think that, that would be a material problem on its own. Management changes, the Board will make announcements as those changes becomes imminent. We will give the market a sufficient notice. But what and be rest assured is that our planning of transition for most of -- for all our position that has become vacant historically has been very smooth. And the ones that are going to be vacant in the future will be very smooth as well. We'll give sufficient notice to the market. We are not -- there is no sudden departure.

The next question would be from Oluwatoyosi Oni.

My first question is specifically on Ecobank Ghana. So we saw your NPL ratio in Ghana increase to 13% as a full year '21 versus 6.3% in full year 2020. One as for what's driving this, particularly as we also saw a spike in impairments in that period? And my second question is how are you thinking of the implications of what's happening geopolitically right now in Eastern Europe? What is the impact on the group? And last one, so just a question on Android devices was not answered. So I just wanted to sort of understand why these devices are so attractive to merchants?

Okay. I think Android devices attractive to merchants because it is easier for them to get access to, in terms of number, it's about the largest. Of course, most of the people in their lives actually likes Apple. But if you look at functionality, those Android devices are important. On the market in Ghana, I think the -- we need to come back to you with specific details. It has to do with a loan write-off that we needed to comply with regulatory approval for getting those write-off done, but they've been fully provisioned. And once we put that through, you should not see -- there were tough loan that needed to be written off that we've made that determination. Now we've spoken to the regulator that needs to be written off, and that is why you will see that movement and that will correct very quickly very soon. The spike, you will see that the challenge is because we don't have large loans in that market. So any movement that you see in the provisioning, we look that is a big spike. If you look at the aggregate number of provision that is taken in Ghana is not as material as you may think. So we can come back to you specifics on Ghana, but we feel very comfortable with that market. Russia and Ukraine, so far from where I am that I have enough problem with trains and other problems. Okay. So the way we think about this is the impact of this on commodities. You've seen the shock that has created very high elevated level of prices of energy. And that is good for some countries that are exporting energy, but overall, an increase in the price of energy just start stoking inflation. The second issue is food, okay? We have -- you see this is where we come from, where bread becomes very expensive. People become very [indiscernible] especially in some of our countries where wheat is subsidized, okay, which means that it's difficult for the government to pass the cost straight through. If they pass the cost straight through, it creates an issue unrest. If they don't pass it through, it drive the fiscal space. So those are the pains that we need to deal with and will continue to deal with it. It's important for the world that this is resolved very quickly so that it doesn't become a long grown problem. But it's -- the channels of impact is through the energy, which I said in my opening statement as well as other commodities, especially food.

We have one more questions here. Your first question is coming from Muyiwa Oni.

So I wanted to get some more clarity on your [ UEMOA ] business. You talked about credit and you said in 2021 perhaps to understand why -- what was responsible for that? And then also, if you could share the state of your restructured loans. I remember during the peak of the pandemic, there was a sizable portion of your loans have been [ muted ] I just wanted to understand how things are we hope instead. And those are question that I have.

Sorry, can you repeat the first question? I didn't quite get that, please?

So UEMOA business. The credit was muted in that your Francophone West Africa business. I want to understand what was responsible for that muted credit?

And then I will give you a very straight answer to that. It's just that we can't say that the pandemic went away completely. So the demand for loanable phones has not been as steady as we have expected. We think going forward in 2022 that will continue to increase. But 2020, 2021 has not been the smoothest periods for the world. So capital formation, people setting up new businesses has not been as strong as we expect it to be.

No, thank you. On the restructured loans, I think the residual components we have largely in Nigeria, relate to mostly loans in the oil and gas industry. The positive thing there because we [indiscernible] to the COVID impacted. Positive thing there the Central Bank, of course, has been part of this process. They actually lead it. And they have granted an extension in terms of the period up to July, August this year. And as I indicated earlier, most of these loans that are in oil and gas industry, the prospects are much brighter. A lot of them are already been resolved. And given the price of oil and the trends that we see in the market, which we think will sustain across the medium term, prospects are very strong. So really -- that's the picture. We don't have any major concerns about those at this point in time. Thank you.

Just a follow on to that oil and gas loan. So United we've currently been having challenges with production. So I just want to understand if any of those obliges within that space. So we have not seen that pressure there.

No. Thank you. I thing is, if you look at the production issue -- just to put that in context, it relates in some cases, to operations within the [ onshore ] and also the shallow water activities. And also, that is related to investment in some of those assets because of issues related to regulation in Nigeria, which have been somewhat resolved by the PIB and all that. So that's why we speak to the prospects. So with that clarity and also with the much higher oil prices forecast to be sustained by every major analyst into the future, the prospects for resolution are much better. As we speak, actually, some of these major entities have largely finalized the restructuring. They are beginning to meet the obligations as indicated. So as I said, the prospects are very strong. I think the key thing to focus on is the market conditions. So the reality of production is because of 2 things you may say. One, was the lack of clarity on regulation, which in that industry. Two, was the fact that some of the major oil companies in Nigeria have fields offshore and they have fields onshore. Most of them have chosen over time to focus on the offshore fields, which would I say is somewhat removed from the issues and also those on the PSV contracts as opposed to the JV contracts. And that's part of why in the recent deal by Exxon, which has sold [indiscernible] assets to Seplat okay? So Seplat definitely would invest in those assets, and you will see the production come back. So that's the trend you're going to see. So the reality is that those happen as new investors come in. You're going to see that production come back because part of the issue that impacted the areas was on the investment.

And I think the government will continue to deal with the matters of oil, gas and coal that is limiting the ability to actually realize the potential that the country has, which is pretty offer.

And the next question would come from [ Babatunde Ogunlaja ]

Congratulations on your results. I think my first question [indiscernible] impact. I wanted to know what drove that decline because in previous call, you've mentioned that the [ Gambia ] Zimbabwe and [indiscernible] Recorded spike in the [indiscernible] So just to know what that [indiscernible] and how we should be looking at this line item going forward. That's for the first question. Second one is on your cost-to-income ratio. The Nigerian business typically adds [ 51% ] in terms of cost-to-income ratio. And I know in previous calls, well, you mentioned that you reduced your staff strength from 20,000 in 2015 to 14,000 in 2020. I just wanted to ask if we should be expecting more retrenchment going forward? And how should we be looking at your cost to income ratio, particularly for the Nigerian business? My final question is on the dividend of [indiscernible] I think you've mentioned the split between -- You mentioned it in terms of dividend income, which includes dividend and management fee. Just to have a sense of what percentage do you charge -- what percentage did you charge to your subsidiary as management fee? That will be of my question.

So Ayo would take net monetary loss and dividend and I would take cost-to-income ratio.

Okay. Thank you. So in terms of the net monetary loss, what we've seen in 2021 for both Zimbabwe and South Sudan, the 2 countries that are by inflation or instead which city seen improvements in the inflation data. So that has significantly improved year-on-year. For Zimbabwe you'll recall by 2020 we're talking about inflation in the region of 250%. By 2021, it has come down to the low 60s percent. So that significant decline is one major factor for improvement in the net monetary loss. Same story for South Sudan as well. We've seen improvement in the inflation data in 2021 compared to 2020. In terms of the -- of course, the outlook, yes, with the current trend of rising inflationary pressure, this is something we will continue to pay our close attention to but we don't expect going back to the days of the 2020 when we had a very significant net monetary loss. In terms of the other question around the liquidity of the holding company, the dividend upstream that we're expecting for 2022 on the back half of the 2021 result in about $140 million. And if you recall, in 2021 compared with 2020 results, we got total about $124 million, and this also included the resolution recovery that we had in the last quarter of 2021. As we expect dividend option to continue -- to continue to increase on the back of costs of business and cost of countries as we expect that to continue 2022. In terms of the management fees, so what we do is what we charge base for the services vendor debt and this is a cost charge. So this -- there is no markup fee that is included. Historically, we see an average of about $30 million that we charge on an annual basis. I expect that will also continue for 2022. So we also are expecting about $30 million in terms of management fee that would get from our subsidiary. So those are 2 questions that you raised with respect to liquidity of the holding company.

Okay. So on cost/income ratio for the group, we provided guidance that our cost-to-income ratio should come to about mid-50s or 55% in the short, medium term. I will give on that so we define that short, medium term to be 2024. So that's true. We currently we finished the 2021 at 58. We have -- we've given you guidance for 2022. And we think that, that takes you -- that has skewed the trajectory 2024 numbers. We believe our issue in Nigeria is no longer materially cost is now materially revenue. We've spoken to the assets that are sterilized that is not generating income that we think if it's resolved, that will bring income back to the books. We've spoken to the CRR in that market, that is not aligned liability to lead into income. We believe that, that will get results one way or the other. And we've spoken to the overall activities in that market that should give us more revenue and therefore, on the cost base that is not growing that revenue will improve our cost-to-income ratio. We've demonstrated that we can do that in 2021. We're doing that into 2022. And we believe that as we go to that 2024, our ability to achieve the 55% is starting. Thank you.

And the final question will be coming from Restel.

Okay. Ladies and gentlemen, thank you for your time. And without any further questions, we would finally I bring the conference call to an end. Thanks for joining, and have a great day.

Thank you very much, everybody.

Thank you.