Ecobank Transnational Incorporated (ETI) Earnings Call Transcript & Summary

Good day, everyone. Welcome, and thank you for joining the call to review our half year results. I trust everyone has had a chance to review our earnings release documents. They are available on the Investor Relations section of the ecobank.com website, and includes the earnings presentation that we will be referring to during the call. This call is being recorded. All lines will be muted for the duration of the call. I will first turn the call to our Group CEO, Jeremy Awori, for some opening remarks before Ayo Adepoju, our CFO, and Chinedu Ikwudinma, our CRO, discusses our results. Before I do that, let me remind you that we may make forward-looking statements 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. So with that, it's my pleasure to turn the call over to you, Jeremy. Please go ahead.

Thank you, Ato, and good afternoon, ladies and gentlemen. Firstly, a warm welcome and thank you for joining our call today. We can move the slide forward. Okay. Very good. Thank you. Ladies and gentlemen, just for efficiency and time what we have shared here our macroeconomic landscape, I will refer to this, so this is just for your information. It's on the deck. I will jump more straight into a discussion of our performance, and I'm sure we can tackle items on the Q&A. So we announced our results for the first 6 months of 2023, a week or so ago. The company delivered profits before tax of $308 million compared to $261 million a year ago, representing a year-on-year growth of 18%, or 38% if you strip out the impact from foreign currency translation. Profits attributable to shareholders of ETI amounted to $161 million, increasing by 23%, and we earned USD 0.65 per share. and delivered a return on tangible shareholders' equity of 27% compared to 19.5% a year ago. Our return on tangible equity did get some uplift from the decrease in equity and attributable to foreign currency translation reserve impact. However, our tangible book value per share also took a hit decreasing 15% year-over-year to USD 4.34, primarily due to currency depreciation. Net revenues of $1 billion were up 14%, or 38% at constant currency with all business segments performing well. Net interest income benefited from higher rates, modest volumes and noninterest revenues from cash management, cards and episodic one-offs. Operating expenses rose partly driven by higher inflation, but our cost-to-income ratio improved to 54.3% better than guided due to comparatively higher revenues. Our focus on driving positive operating leverage enables us to keep growing our pre-provision pretax operating profits if you translate into better free share earnings growth, especially as we prudently manage our risk and internal control frameworks. We achieved these results, and I hope you would agree with me, against a complex backdrop of macroeconomic headwinds, including increasing prices of goods and services, higher interest rates, material depreciation of African currencies against the U.S. dollar, our presentation currencies and tepid economic growth across Africa. But given its not as exogenous nature, the current economic headwind is beyond our sphere of influence. Importantly, we have control over how we set ourselves up to deliver the power of Ecobank's diversified business model, balance sheet, talent, and innovative products to improve the financial lives of our customers and communities, whatever stage of the business cycle. These formidable characteristic trades underpin the results we will discuss with you today. In such an uncertain economic environment, prioritizing capital and liquidity is critical to ensuring a reasonable balance between risk and reward. Accordingly, we focused on growing low-cost deposits to both our liquid reserves and reduced funding costs. We are less aggressive on lending, especially foreign currency, long-tenured loans and where we have lended, facilities are primarily short-term and self-revolving. In addition, we are paying close attention to our regulatory capital, keenly aware of the negative impact a strong dollar through FCTR has on our capital. Our estimated capital adequacy ratio of 13.7% for June is above regulatory thresholds. And we are engaging in several initiatives to ensure the maintenance of sufficient capital buffers, for example, through specific initiatives that optimize risk-weighted assets and grow our earnings. I'm 5 months into my role, and I'm pleased with the work we've been doing so far. Beyond our results, we are progressing meaningfully in formulating our strategic road map to provide the blueprint for driving our growth, transformation and returns agenda. My confidence in our growth opportunities has been reaffirmed following engagements with customers, Ecobankers and other regional stakeholders. We see opportunities to deepen relationships in our corporate, commercial and consumer banking businesses. For example, in the consumer space, we will focus on growing low-cost deposits to improve the company's liquidity and margins further, to rejig the operating model to shift more people into sales roles and to continue to forge strategic relationships that would allow us to broaden accessibility to our products and services. In commercial, we see massive opportunities to expand our support to SMEs, recognizing that these form the bedrock of African enterprises. In this connection, we also see increased opportunities to grow our Elevate program, which supports women-led businesses across Africa. Our corporate banking business, which generates 59% of earnings, remains core to our franchise. Hence, we continue to invest appropriately in this business but also see massive opportunities to make it more efficient, particularly around capital and net interest margins. We're progressing in Nigeria, and we'll spend even more time on the business, leaving no stones unturned. People, systems and processes will be in focus. If we drive Nigeria's earnings and returns to average peer levels within the industry, the upside to our franchise would be significant. A reiterating desire of our shareholders and investors, and we just wish to reiterate that we hear you, and this is a priority. We have also -- we also have been clear on how strategically important growing our payments franchise would be value-accretive over time. The payment market is growing and Ecobank is well placed, possessing unique infrastructure to capture market share and be the go-to payments bank in Africa. As part of that pursuit, we recently signed an MOU with the Pan-African Payments and Settlement System, showcasing further our commitments to this line of business. However, fulfilling our ambitions requires us to execute with passion and discipline, be prudent risk managers and focus on delivering for our customers. For example, on the latter, we'll be launching in the coming months, a new customer experience hub called EcobankAssist to take our customer service to the next level. Taking it to the next level, we will also require investments in technology to further ensure system stability and reliability as well as functionality. And partly for this reason we have established workspace, working relentlessly on creating savings through taking out unwanted costs across our business, which we would redeploy into revenue-generating investments and other areas such as branding, marketing and sales. We initiated other activities during this period to strengthen our market presence and reinforce our commitment to financial innovation and inclusion. We launched the Fingo app in Kenya and by partnering with Dashen Bank, Rapid Transfer in Ethiopia. I'm particularly pleased that we established a diversity console and signed the diversity charter at the 2023 Africa CEO Forum, and this is consistent with our commitment to uphold diversity and inclusion. I'm proud of Ecobank's contribution to the African communities in which we operate. And before I take you through our results, I'd like to take this opportunity to thank all stakeholders for their confidence and continued support for Ecobank. I'm equally proud of the excellent work Ecobankers do for our customers daily. And I think with that, I will give Ayo the opportunity to take you through our results. Thank you.

Thank you, Jeremy, and good afternoon to you all. I'll walk you through our financial results, providing further insights into the drivers behind our earnings. Please turn to Slide #7. On this slide, we show the KPIs, so I'll touch a few of them to provide a broad scope of the company's performance despite the challenging macro environment. Like Jeremy mentioned, we delivered a return on tangible equity of 27%, higher than our cost of equity. Our earnings per share increased by 23% and due to growth in pretax and attributable profit, positive operating leverage translated into a Jaws ratio of 3.4%, helping improve the cost-to-income ratio to 54.3% from 56% a year ago. The noninterest revenue ratio of 47.2% was higher than the prior year and continues to reinforce the strength of our diversification, broad-based capitalized revenue streams and capabilities to drive fee-generation income. The total capital adequacy ratio of 13.7% continues to be well above the regulatory threshold, despite the FCTR impact. Please turn to the next slide. This shows the summary of the income statement. As a reminder, we encourage consumers of our financials to pay attention to constant currency growth rate since it depicts the underlying power of the franchise. Our profit before tax grew 18%, but excluding the effects of foreign currency translation, it increased by 67%. Net revenues were up 11%, or 34% in constant currency, driven by an improving net interest and noninterest revenue growth. Our cost-to-income ratio of 54.3% benefited from positive operating leverage and cost of risk of 71 basis points compared with 181 basis points in the prior year, reflects in the current state of our coverage ratio. To conclude the slide, let me briefly touch on regional performance. The key observation is a solid underlying fundamentals we saw across the board. At constant currency basis, revenues and profits grew at double digits. Turning on to the next slide, which I will use to talk about the net interest income and also the net interest margin. The ongoing monetary tightening by Central Banks across most of our markets provided some uplift to net interest income growth, particularly in Anglophone West Africa and also in Central, Eastern and Southern Africa through margin expansion. We did get some yield repricing on some of our floating-rate loans. However, we also started to see higher deposit costs, particularly within our large corporate clients as rates increased and competition in the deposit market intensified. Also, the net interest income growth was [indiscernible] the nonaccrual of approximately $20 million of interest income and on our Ghana creditor for the first half of the year as it continues to wait the finalization of negotiations between the government of Ghana and also the external creditors. The lower coupon on domestic Ghana bond issued in February was also a drawback. Despite all of these challenges, the net interest income was up by 11%, or 34% in constant currency. And the net interest margin rose by 20 basis points to 4.9%. We have also launched actions in the second quarter towards the price in our asset book and also embarked on deposit mobilization efforts of low-cost deposits to further improve on our margins. I'll now turn to the next slide, which I'll use to speak to the noninterest revenue and its ratio. Noninterest revenue increased by 18%, or 42% in constant currency, driven by solid income growth in cash management, payments, card and client-driven foreign currency sales. And the noninterest revenue ratio increased to 47.2% compared to 45.8% in the prior year, notably, the underlying drivers of higher client activity, a stable deposit base, digital momentum, and higher transaction volumes held up well. That said, the noninterest revenue for half year received a boost from a one-off gain of $20 million due to AMCON refunding previous clawback on loans we previously bought from Ecobank Nigeria. Moving on to the next slide on payments. We continue to see substantial payment volumes across our digital payment platforms. Payments revenues amounted to $132 million or 13% of total net revenue. And our payment revenue grew by 11% on a year-on-year basis. Volumes continue to be dominated by customer activity on our omni platforms for both corporate and commercial banking customers. Additionally, we saw strong SME banking and mobile money transaction volumes. Card payment volumes increased by 10%, driven by an increase in card issuance and transaction count. I'll now move on to the next slide, which I'll use to speak to the volumes across our digital channels. Here, we are provided a snapshot of our growth on our digital and physical channels. We continue to see that digital momentum across channels reflects our strong customer engagement with the Ecobank brand. I'll now turn to the next slide on expenses. Our operating expenses continue to be broadly impacted by higher inflation, which has necessitated us to be more stringent and disciplined with cost. For the half year, expenses grew by 11%. Beyond the impact of the inflation, cost rose on higher staff compensation in some market, insurance, IT licenses and related technical fees. However, the rise in the operational expenses was offset by higher revenues helping drive an improvement in the cost-to-income ratio to 54.3% compared with 56.0% in the prior year. On the other hand, the cost-to-total asset ratio deteriorated slightly, reflecting both the inflation impact on our costs and also the decline in the total asset base on account of currency depreciation. Ecobank has already instituted actions that was cutting out unwanted costs to curtail the impact of inflation on our cost base. Turning on to the next slide which focuses on customer deposits. I must mention that we have a highly diversified deposit base across 5 regions and business lines. On top of that, 81% of our total deposits are current and savings accounts, which are sticky low-cost deposit. For the half year, the deposits increased by 7% or in constant currency increased by 18% to $19.5 billion. The increase in deficit was mainly driven by consumer and commercial deposits with broad-based deposit growth across the region, significantly in Nigeria and Anglophone West Africa. Total funding costs rose by about 40 basis points to 2.9% primarily due to deposit competition and increasing cost of borrowed funds. That said, mobilizing deposits underlies our strategy in the consumer banking business to drive noninterest-bearing deposits, lower funding costs and improve our liquidity. As I earlier mentioned, we initiated deposit mobilization campaigns during the period towards driving our low-cost deposit, and we expect us to continue to come through in the second half of the year. Turning on to the next slide which speaks to customer loan. Our loan growth on a year-on-year basis was at 11%. Growth continues to be driven by corporate banking loans which was higher, especially in the fourth quarter of 2022 due to the seasonal effect. However, we are deliberately rightsizing lending activity in the current environment like Jeremy earlier mentioned as foreign currency loans that do not meet return on risk-weighted asset metrics. I'll move on to the next slide on the lines of businesses. This slide provides a snapshot of earnings performance across our business lines. Our profit before tax in our CIB business, which is our Corporate & Investment Banking business, was flat on modest revenue growth, which was impacted primarily by nonaccrual of interest and -- on Eurobonds in Ghana, higher funding costs and the impact of the modification losses and also monetary losses in our hyperinflationary markets. In our Commercial Banking business, our pretax profit increased by 113% to $86 million on the back of the growth that we saw in our revenue of 31%, which was driven by largely payments, trade and FICC. Our PBT in the Commercial Banking business, benefited from the solid operating leverage, efficiency gains and lower cost of risk. In the Consumer business, our pretax profit increased by 42% and revenue growth was driven primarily by deposit margins, payments and cards in general. I'll quickly turn to the subsequent slide, which speaks to our regional performance. And I'll start with Slide #17 on Francophone West Africa region. We also call it UEMOA, which delivered a good performance with strong ROE of 27.9% for half year and a 21% increase in pretax profit. Net revenues were up 11%, driven mainly by cash management fees and client-driven foreign currency sales. The cost-to-income ratio for our UEMOA business improved to 48.1%. Turning to the next slide, which speaks to Nigeria. In Nigeria, the newly elected President's decision to remove fuel subsidies, unify the exchange rate regime created market volatility in the last month of the second quarter. It cost the Nigeria naira to depreciate by circa 40%. As a result, Nigeria's financials in USD were negatively impacted by this currency movement. Overall, the return on equity for Nigeria has improved to 9.6%, reflects an increase in revenues, particularly from noninterest revenue, positive operating leverage and lower impairment losses. The revenue, like I mentioned earlier, included a one-off gain of about $20 million related to the reversal of clawback of AMCON. If I turn to the next slide, which speaks to Anglophone West Africa, the currency depreciation in this region impacted the regions performance as Ghana cedi weakened about 35% on a year-on-year basis with also movement that we saw in Gambia and also in Liberia. The pretax profit decreased by 23%, was increased by 4% in constant currency. ROE of 26.4% was slightly weaker than prior year. Revenues increased by 34% in constant currency despite the nonaccrual of interest income on the Eurobond portfolio. The cost-to-income ratio for this region remained resilient, only deteriorating slightly to 47.2% from 45% in the year ago. But if you put into context the fact that we've had to sterilize interest income on the Eurobond portfolio, you see that there is an inherent improvement in operation efficiency. As you're aware, we continue to have restructuring conversations with external creditors for the Eurobond. But it is important that we mentioned that this will continue into the foreseeable future. Like earlier mentioned, as part of closing 2022 results, we took approximately $75 million as impairments on our Eurobond portfolio. And once there is a formal restructuring proposal on the table, we'll list it accordingly. If I move on to the last region, which is the Central, Eastern and Southern Africa region, which also delivered a strong performance. Return on equity at 28.8% versus 24% in the prior year. The tax profit increased by 32% on the back of strong net interest and noninterest revenue growth. Although expenses were up 11%, we saw improvement in the efficiency ratio from 48% in prior year to 41% in current year. I'll now move on to Slide 21, which speaks to our capital metrics. Here, we have provided our estimated capital ratios as of 30 June 2023. Our CET1 ratio was 9.0%. Tier 1 ratio 9.7%, and total capital adequacy ratio was 13.7%. The bar chart shows decreases in these ratios on a year-on-year basis, predominantly driven by the adverse effect of the FCTR on the capital supply, which outweighed the earnings generated. Also contributing to the decrease in capital ratios was the final IFRS 9 Day One amortization of $75 million that was booked in January 2023. So from this year going forward, there is no longer any amortization IFRS 9 Day One impact. With macroeconomic uncertainties still prevailing, particularly with possible further depreciation in some of our currencies, we are driving initiatives to safeguard our capital levels such as rightsizing RWA and also improving our earnings. Already, we have done much work in reducing our RWA density, which was 52% as of June 2023 compared to 66% four years ago in 2019. We expect earnings in the second half of the year coupled with this RWA optimization to further boost our capital ratios. If you go to the next slide, which shows the movements in our capital ratios from 31 December 2022 to June 2023, which illustrates both the positive and also the negative impact on our capital ratios from various factors, including our FCCR and RWA. And finally, for this section, I will turn to the 2023 guidance just to show you how well we are tracking. Overall, we expect the challenging operating conditions affect our lending activity. Our loan growth was resilient at 11%, which I explained, which was mainly in the fourth quarter of 2022. Deposit were a bit light, falling by 1% but increased by 18% in constant currency. Revenues came ahead of guidance, primarily driven by higher rates, growth in volumes and the one-offs we discussed earlier. Operating expenses increased by 11% from a mix of inflationary staff costs and other related expenses. The cost-to-income ratio landed at 54.3%, better than expected, primarily due to higher revenues. We expect our cost-to-income ratio to slightly inch up in the second half as we step up investments in critical growth areas such as investment in technology, marketing and branding. On cost of risk, 71 basis points was better than the guidance due to the reasonable high level of coverage ratio achieved in prior year. Credit quality is resilient with NPL ratio of 5.5% within the target that we provided. However, the NPL coverage ratio of 80% is outside of the guidance, primarily due to the impact of currency depreciation. I'll now hand over to Chinedu to walk you through the group's asset quality metrics and the related drivers. Thank you. Over to you, Chinedu.

Thank you, Ayo, and thank you all for joining today's call. I'll be covering the commerce indices for risk and credit portfolios, the macroeconomic environment as well as franchise and related risks. The first half of 2023 has been eventful. [indiscernible] in our markets. We've had various events, some of them positive, some of them adverse. If you just consider, for example, the accelerated devaluation of Nigeria's currency in the past few weeks, which have led to certain pressures, that's environment around inflation, also impact on bank's capital. We've also seen social unrest in some of our countries, including in Kenya and Senegal and Co. But on balance, it's fair to say that we have managed heavily across our footprint to ensure that we continue to maintain a very positive trend in terms of our balance sheet asset quality in terms of the resilience. If you turn to on Slide 25 on the liquidity of balance sheet. Balance sheet remains very liquid. You will look at our deposits as Ayo has spoken to. So despite the fact that you see a trend down there of about 6% from the end of 2022 to first half in '23 if we go as of the end of June. Actually, in constant currency terms, we see 18% increase in our deposit figures. Again, you will see that the quality of the deposits that we are generating remains very strong. Most of that is demand. So again, we are seeing a continued increase in that ratio, up 65.9% compared to 65.2% as the end of 2022. Our loan-to-deposit ratio at 57.1% highlights the capacity we have, should we so desire to expand our portfolio. However, in doing so, we are very cognizant of the impact on capital with the asset. And as Ayo has spoken about we are taking various efforts to make sure that we're optimizing our risk-weighted asset origination to ensure, one, we have the right kind of returns, and also that the level is continued. Again, if you look at our noninterest-bearing deposits-to-total loans, you will see that we remain well above 100%, reflecting our opportunities to continue to enhance our net interest income aggressively. Next slide. On next slide, we are looking at the indices for asset quality. You will see a slight uptick in terms of the NPL ratio from 5.2% at the end of 2022 to 5.5%. It is primarily because there was the impact of about $300 million on our loan book from the devaluation in Nigeria, reducing that loan book size, while a large component of our Stage 3 assets are actually in foreign currency. So that led to an uptick in terms of the ratio to 5.5%. Irrespective of this, we expect to continue to maintain a very solid profile in terms of our Stage 3 and also addition to Stage 3 and expect to come within our guidance of between 5% or 6% for NPL by the end of the year. Again, if you also look at the accumulated impairments, that figure, again, is lower than the end of last year, it's $490 million versus $518 million. The reason for that, once again, is the devaluation of the naira, a lot of the impairments have been taken in the books of local affiliate in Nigeria in local currency. So with devaluation, you've seen a trend down in that figure. We continue to be prudent in this regard, and wherever we find that necessary in our portfolio, we continue to be proactive in taking impairments where we find that to be required. Our cost of risk is 0.71%. This is consistent with our -- within our guidance of coming in within 1.5% and we expect to maintain this profile going to the end of the year. Certainly, there are stressors. It's important to highlight that. You do not have the kind of strategy you have in economies like Nigeria and Ghana without the PBT impact from corporations. We have been proactively managing that, working with our customers to ensure that we navigate the most challenging scenarios most effectively. Next slide. Next slide speaks to the profile of our portfolio, again, very well diversified. Government, again, if you recognize that we are in 33 African countries, also from 34 state governments, naturally, a major component of our business and portfolio. So they account 19%. But again, as I said, you see substantial diversification. Something to highlight here is that the constitutions used to see in the past around oil and gas is no longer there. That also is something we say strategically that will address and will attain. And you can see that this is consistent. We have been able to show this profile for a number of years now. The UEMOA region continues to dominate in terms of our gross loans at 43%, Nigeria now at 20%. If you look at the previous indices, Nigeria was at 25%. But again, because of the devaluation of the Nigerian naira, we've seen that ratio come down to 20%. And we expect that UEMOA and some components of CESA will continue to drive loan growth in the future. Again, subject to the points I made about optimizing of risk-weighted assets. The Business segment distribution, again, continues to show that our corporate bank dominates still. Strategically -- as you have heard from the G-CEO, there are various initiatives to expand our business in broader consumer and commercial banking space. And we expect that strategically, there will be some greater balance in that profile going into the future. In terms of currency mix, the CFA, which is the currency of both the UEMOA and CEMAC accounts for 53% of our portfolio, followed by the USD then the Nigerian naira. You have seen that there have been some decline in Nigerian naira component, again, because of the devaluation of the currency in that market. Next slide, which speaks to the evolution of Stage 1, Stage 2, Stage 3 loans. I think what I'll highlight there is really the impact of devaluation in the reduction of Stage 1, okay? So you've seen that grow from $9.748 billion to $9.355 billion. For Stage 2, given the combination of repayments and also some new entries there, it will be flattish, $1.174 billion going to $1.145 billion between the end of last year and the end of June this year. Stage 3 loans, as I said earlier, you haven't had a substantial impact of the currency devaluation in Nigeria on this portfolio because primarily a large component of that is in foreign currency. I don't say that I think it's important to highlight that we are grappling with a number of dynamics in our regions. You would have, of course, seen the -- like the recent [indiscernible] as I said, aggressive devaluation in Zimbabwe. So certainly, it calls for great diligence. Market conditions are triggered by events like the Russia-Ukraine war from last year, which have driven the inflation and also led to spike in rates, ultimately have led to challenges by some of our countries in assessment on international debt, I guess, continues to be the case, and that's something that we need to be vigilant about. So I think the key thing to say is that we are cautiously optimistic about our prospects going to the end of the year. We expect to come in within the guidance we have given. But certainly, a lot of diligence and vigilance is required. On this note, I will hand over to Ato to please handle the Q&A. Thank you very much.

Thank you, Chinedu. Ladies and gentlemen, we will proceed into Q&A now. [Operator Instructions] We will take our first question today from [Constantin].

I had two questions. The first one, could you please comment how do you assess risks in the Nigerian units following the recent devaluation of naira? And specifically questioning the -- how do you see risks on the lean quality assets with respect to that business? And secondly, in terms of the Eurobonds maturity that you have at the holding level in early 2024, could you please update on your -- at what stage are you in terms of raising new borrowings to refinance these Eurobonds? And in extreme if Stage 1, you find that market access is somewhat constrained, how viable do you see the option to raise a significant amount of liquidity from within the group to address to replace -- to refinance that debt?

So I'll take question on the FX risk in Nigeria. I think this is a well-known scenario. And if you recall from our earlier conversations with this audience sort of what time the issue of such risk of Nigeria has been discussed, and what we have always shared is that we expect the forward outlook to be better because we felt that the multiple exchange rates system being run in Nigeria was leading to [ obesity ] and what discouraging foreign portfolio and direct investors from going to that market. It was that scarcity was then creating the backlog that was impacting a lot of populations. However, I think as expected, Nigeria is a big market. It's expected that the transition will be challenging, which is what we are seeing today, but the direction is positive. So you've already seen that the [ ILC F-4 ] by the new government which we took off in May to try to harmonize the exchange rates. You have seen the devaluation of the naira from about 450 to about 750 on the I&E window. That is, I would say, was expected by most of the main market actors. So whether it's also a Ecobank Nigeria operation in the market or other operators, actually a lot of transactions and billings in that market had actually been ongoing at such rate. So this is not a shock. I think in Nigeria, we are, I would say, the stress is around the impact of this devaluation on the price of petrol because over time, the government has subsidized petrol and the impact of transport costs on inflation in the country is significant. So trying to normalize that as they've done, I would say, has created a number of stressors in that system which needs to be addressed, and it's positive to note that the government is already announcing various initiatives to address that. That needs time for it to fully bake. So in summary, what I would say is that yes, the transition has proven to be somewhat maybe challenging in terms of the way it has played out. However, the direction is positive. And the more, the action that S&P took within the past few days, they actually upgraded the outlook for Nigeria from negative to stable. It reflects that direction. And my anticipation is that people gain comfort from, one, the consistency of policy in Nigeria and also they see the opportunities in that country, which are significant, you will see a return of portfolio investors and foreign direct investors that will ease the FX environment in the country. But secondly, this transition phase will be stressful and it may lead to 1 or 2-week weaknesses in margin in some companies. But for ourselves, as I said, we have been proactive and we're expecting that we can be successful. Thank you.

Okay. And on the second question with respect to the -- our actions on the Eurobond maturity. So yes, our senior Eurobond matures was next year, April 2024. So we have still kind of 8 months onto maturity. We already proactively refinancing plans, especially in the last quarter, the second quarter of this year. Our current focus is primarily on our private type transaction due to the current state of international debt market. And so in terms of our private transactions, we're focusing on some DFI-related funding, which we've done the due diligence in the month of June. So it's progressing very well on the one hand and also looking at other bridge financing sources. So overall, we are on track with our schedule to refinance at a maturity that falls due next year. Just to also add that, of course, if you look at the best predictor of the future is also what we've done in the past. We have seen last scenarios in the past in 2020. It was an unprecedented event in COVID year where we had to refinance major upcoming maturities. We also refinanced maturities last year, converted bond of $400 million. So these are things that we've done historically. They've become BAU. We're just focusing on executing. And for now, based on what we've done and where we foresee, we expect to be on track for the refinancing. Thank you.

[Operator Instructions] Our next question [ Dmitry Ivanov ].

So I would like to ask you about capital ratios. So you have the slide with capital ratios. And I guess, just correct me if I'm wrong, if we look at Tier 1 ratio, it's only like 20 basis points buffer over the minimum requirements, including this buffer of 1%. I'm just curious what is the sensitivity of the capital ratio to naira depreciation. So like if we assume like let's say, 10%, 20% additional naira depreciation, how should we look at this Tier 1 CET ratios? And what protection do you have because the buffer is quite low, like it's only 20 basis points over the minimum Tier 1 ratio? And the second question on this Court decision in the Ecobank Nigeria on this Honeywell Mills case to pay up $95 million in this -- for this disruption of operations. Could you kind of give us more color on this situation because this amount is quite significant for the Ecobank Nigeria? And how will it impact the capital ratios? And are there any kind of -- like what's the next steps when it comes to this kind of a decision by the Federal Court of Nigeria?

Thanks, Dmitry. I'll take the question on the capital ratio and also Chinedu will respond to the Honeywell case. Yes, starting with the capital issue. I think the first thing that we have to establish is what happened in June was a major one-off, right? So this is more like the depreciation of naira that should have happened in the last 4, 5 years. All happening at once in the last 2 weeks of the month, right? And for the fact that our capital ratio was able to withstand this significant shock shows the resilience of the capital ratio at the group level. So yes, you highlighted that our Tier 1 ratio has a buffer of 20 bps. But let me just throw more light on that. So for that Tier 1, so we reported 9.7%. The actual regulatory minimum is 8.5%, right? Now we now have a systemic important buffer of 100 basis points. So if you look at that ratio over the core regulatory minimum, which is 8.5%, that is a buffer of 1.3 basis points. It is only when you consider the 100 basis points of buffer, that is when it reduces to 20 basis points. I just wanted to have that context. Specifically, to answer your question in terms of where do we see sensitivity in case of further currency depreciation and all of that, I'll answer it in 2 parts, right, in terms of where we see the model panning out in the second half of the year. So there are 2 factors. One is the earnings generation, right? They say the best of capital is what you can generate. And based on our H2 forecast, we expect our attributable profit generated in H2 to be ahead of that currency depreciation that we're model modeling in the second half of the year, right? So for example, if you model, hypothetically, a 5% or a 10% depreciation in the second half of the year, the earnings that we will be generating in the second half of the year would be ahead of that currency depreciation. And based of our model, we expect that divergence, that excess of earnings of our currency depreciation to give us about 35 bps in the second half of the year. That's one. Number two is the work that we're doing on the right pricing of our risk-weighted assets, right? And we expect that to yield forward in the second half of the year, where we're reviewing our data, reviewing regulatory rules, focusing on rightsizing our portfolio, moving from low-returning out of [indiscernible] all of those efforts in quantum, we are projecting that we should be able to bring down the [ out of view ] by circa $500 million. And that just -- and not that 35 bps. So the 35 bps I mentioned in the first scenario, and also the 35 bps I mentioned in the second scenario gives us a delta or a cushion, additional cushion of 70 basis points. I just wanted to take you through this for you to know that there are actions that we're pursuing on the ground. And also we continue to generate earnings for the frame, as you would have seen in our H1 results where attributable profit grew by 23% on a year-on-year basis. We expect that trend to continue and which will further help our capital issues. I'll now hand over to Chinedu to briefly touch on the Honeywell case. Thank you.

Thank you very much, Dmitry. I think I will speak with some level of caution because, of course, this matter is in Court. I think what I will say, especially is that we have, of course, appealed this case. And there is no question in our minds that we have -- our appeal will be meritorious. I think what to highlight here is that you may recall a report earlier in the year where the Supreme Court actually ruled in favor of Ecobank and awarded various costs and go against Honeywell and its principle. And actually, we have been in the process of actualizing that judgment. So there's subsequent action through Federal High Court, and as I said, I'm speaking with caution here, we believe it was not, what I say, in line with the judgment of the Supreme Court. And we have the, what I say, the legal advice and the judgment to be able to prove this as appropriate. So I think I will let it be there, but I think what the comfort I would like to provide to investors and shareholders on this call is that we are confident that this award will be -- will not succeed in due course. We have appealed the matter, and we are -- as I said, we had actually already won, the most -- the substantive matter in Court, at the Supreme Court after many years. So this has evolved a somewhat of various -- every party had a strategic play. So this is something of a strategic play maybe to impede the settlement of that award. But in a way, we have the resources and the ability to see this true, and we are confident that this will have no adverse impact on the bank. Thank you very much.

Your next question is from the line of [ Nikolai Dimitrov ].

A couple of questions then -- actually, one of them is related to Dmitry's earlier question. I was looking at your tangible equity to tangible assets. And as per my calculations, it dipped slightly inside of 4%. So boringly low number, and I was wondering whether this is a metric that you ever pay attention to. I know that you already mentioned a couple of initiatives that you're looking to carry out in order to address regulatory capital, but that will not necessarily resolve your very low tangible equity to tangible assets. So my first question is what can you do to improve that ratio specifically? And then the second question is related to Niger. I know that it's probably relatively small, but if you can quantify for us the exposure there. I think you're the third biggest bank in the country. So that we can get an idea in terms of maximum loss. And when something like this happens, how do you handle that risk? One thing that worries me is you did say that your risk-weighted assets penetration or density has declined over the years. And I completely agree with that statement. It's 52% currently. But the reality is that a lot of the assets on your balance sheet that are 0% risk-weighted are not necessarily zero risk, and we can see that in the case of Niger. So the broader question is, how do you think about risk beyond just the 0% risk-weighted?

Okay. So thanks, Nikolai. I will start with a question on the tangible common equity and then Chinedu will respond to Niger and the zero reason. So in terms of tangible common equity. So yes, this is a metric, especially that we look at, particularly because it is relevant with respect to our ratings conversations with S&P, Moody's and Fitch. So it's something that we look at. Fundamentally, the question around how do we improve it? You talked about earnings, right? And the reason why that I see it for this June is primarily because of the material currency depreciation that we've seen, right, especially in June coming from Nigeria. So as we continue to accrue earnings on one side, which is fundamental and core to the business, we expect that to consume like I mentioned, our attributable profit grew by 23% in the first half of the year. The second part is, also, we initially saw that generating more revenues from our risk-weighted assets. And like I mentioned, the traction on that within the organization. And we have seen some slight improvements in our net interest margin that we recorded as shown in one of the slides, we improved by 20 basis points on a year-on-year basis. It is also important to note that from a capital standpoint, we've gotten to the end of the IFRS 9 Day One amortization. So we've taken all the full impact into our capital about $300 million. So from next year, there's no longer shackles of IFRS 9 amortization that we see from 2024 going forward. Overall, we believe that the earning's trajectory of the firm is what will be crucial towards improving this ratio, and more importantly, growing at a faster rate than the rate of the currency depreciation. And as long as we continue to generate that 23% plus return on tangible equity, we expect that the impact of currency depreciation would kind of subside over time because the equity is a declining function, right? So as equity is declining, then the percentage decline becomes a smaller number from an FCTR standpoint. So I think those are the actions. We are focused on that. We're focused on expanding this ratio, not just this ratio, focus on expanding our broadband capital ratios collectively as a group. And we expect to see that coming through in the second half of the year and also next year as we go along. And I'll hand over to Chinedu to respond to the Niger and the zero risk reason.

Well, thank you very much for the questions. I think before I dive into Niger directly, I think it's important to highlight that Ecobank being the Pan-African Bank if you not [indiscernible]. We are in 33 countries. We are regularly, what I say, exposed to some of these geopolitical challenges in economy also across our footprint. If I just step back for a moment just a few years ago, there was Equatorial Guinea and I would say to you like Guinea today is one of our best-performing asset. It pays out higher dividend in the past year. There was a challenge in Mali, Guinea, Burkina. We'll continue to operate successfully. I think the critical thing for us there is how do we support the economy, how we support the people who have right qualities. We do all we can to ensure that sustainable business. In this context, we gave this government in progressing ways. So for example, I as Chief Risk Officer, I was actually in Niamey, Niger in May and towards the end of May, I saw some of the Ministers there and some of the government officials. And I was quite impressed with what was happening in the country. So now you have this scenario. I think a key thing to observe in this environment is what are the risks to Niger today in terms of its ability to meet obligations in due course in terms of the stability of the country and all that. What I will say is that if you look beyond some of the norms is that I don't think that Niger is going to fall apart because the cost of that will be too extreme. It's the largest country in West Africa by land area. A lot of the flights coming into Nigeria, into Burkina going to Ghana, or Togo even, some of them fly over the territory of Niger, even as they closed their airspace, you have seen the impact. Niger again hosts 2 bases for the U.S. Of course, also with the French. It's not the county's also immediately to the south of Libya, is the last country if you ask me, in Africa, you want to fall into distress. So I expect that after the season of passions, there will be a cooling of tension. And even if you listen to, for example, to the comments we are hearing from the Secretary of the State of U.S., you will see that the tone is toward the cooling of tensions. So we expect this to resolve. Now as to how do we handle? I think the question I would say is Niger is about 1.8% of our total assets. So it was about $499 million versus overall group of $27.2 billion. It is just 1.5% of our gross loans and advances. But then, of course, you can also see you look beyond that to the connectivity, yes. But on its own, it's a small proportion of our business. If you ask how we handle, I think it would be very similar to what happened in Mali. If you remember, Mali, there were sanctions. It was excluded from Central Bank activity. They all kind of things. And we have obligations where Mali activity is larger than the ones we have in Niger today. And over time, that was resolved. There was a period when there were obligations coming due on the state, which is sad if you're not paid promptly, but there was never a doubt that, that will be met. And we work with the Central Bank, and will work with the country because we have a business and they have a country to operate to make sure that, ultimately, all of this was resolved. So like in Niger, we are still there. We don't intend to leave the country. But if you look at countries I've highlighted, Liberia, Mali, Burkina, Chad, we've had conflicts in those countries, South Africa Republic. We're still there. We are a Pan-African Bank. We understand the environment. We equally have feel and touch for these markets. If we leave, it's a loss to the overall people and the continent. So we try to find ways to engage. As I said, that's progressive and that supports development of the population of that country. That's what I would say. I don't know if the G-CEO want to add if anything.

No, I think, Chinedu, you've covered it quite well. I think the thing that I would say is that we've got experienced leadership teams that have worked across the continent to handle such matters. And I think we're a trusted partner to many of these economies. So we're confident we will see through this, as we've seen through others. So I won't really add more than that. Thank you.

Your next question is from the line of Odum, Ngozi of CardinalStone.

So my question was surrounding the $20 million in one-off cash adjustments that your bank booked in Q1 from these loans that were previously sold to Nigeria's AMCON, Asset Management Corporation of Nigeria. I just wanted to have a little bit more color on that. And then also the impact of Nigeria's cash reserve ratio on the bank's funding cost power that impacted the business in terms of funding strategy in Nigeria business. And then lastly, I don't know if this was touched. I kind of joined media in the middle. The bank's operating leverage has improved. I don't know if there are any initiatives that has driven this improvement on the bank's operating leverage.

Okay. Thank you, Ngozi. Yes, in terms of the first question, the AMCON recovery. So you recall that Ecobank Nigeria acquired Oceanic Bank in 2011. And as part of the process, some loans were sold to AMCON back then in the days. AMCON came back in 2017 to clawback some of those loans to say that some of the representations that were provided were not right. So they are clawing back this as an amount. So Ecobank took that pain in 2017. But of course, we objected that pain, that was observed in 2017. So being in conversation with AMCON and also the CBN since that time. And of course, because of the high-level dialogue and conversation successfully, AMCON, sorry that it was a wrong call by them in 2017. And that's clawback that indeed, that should be refreshed and that is what gave rise to this one-off that we recognized in the month of June. On the second question on the cash reserve for Nigeria. The cash reserve ratio for Nigeria is still around back then level of about 44%. Don't forget that the regulatory ratio is above 32%. But now we are at 44% because of the excess CRO. So we have excess CRO of about $200 million that is not generating in any interest. And also, we have additional NGN 200 billion. That is about $260 million, which is in terms of the special bill generating 0.5%. Of course, we are aware of conversations where there could be like a change in direction from the central bank. But of course, looking at where inflation is at this point in time, we can understand the reluctance of the Central Bank as to further release cash into circulation. But fundamentally, for us, our strategy is to continue to mobilize low-cost deposits. We believe that generating the current account treatment actions or collections from using our merchant solutions and all of that will further help us lower average cost of funding and also expand our net interest margin in Nigeria. So AMCON strategy has not changed. We are pretty much focused on mobilizing local deposit in the market to further reduce our average cost of funds. And to your last question on the operating leverage, yes, we're able to achieve about 320 basis points of positive draws in this first half, primarily on the back of the stronger growth that we saw from our revenue. Our costs grew on account of inflation, and this is something that we're trying to put under control to several initiatives, but we're still very cognizant of the fact that we need to invest in our growth areas. So you might still see costs growing in the second half of the year, but the game changer for us is the fact that we need to continue to grow at a faster rate from our revenue profile. And all of the actions that we're talking about around asset repricing, growing volumes in our key transaction banking activities, trade, payments, and all of that will be very instrumental for us to continue to achieve our operating leverage, and we expect that will be the case by the end of the year by the time we release in our full year results. Thank you.

Maybe I would just add that, like Ayo said, on our investments, when we look at our resource allocation, we're doing it with, I think a lot more rigor around investing in areas that will either give us cost benefits and efficiency benefit. And by that, what do I mean? I'm talking about automating manual processes and then freeing up costs from that automation. And we've done a lot of work on things like robotics automation to improve the efficiency of the back office, front office automation that will allow our people more time to sell. That kind of set. And then also investing in business areas, probably initially with where we have bigger upside on capital-light revenue growth opportunities, especially where we can generate fee income. So in both customers, we can cross-sell products to we've got areas like bank assurance among others, which will drive that, which will give us a short-term fast uplift. And then obviously, investing in the new businesses that we mentioned, which will give us not just short but medium and long-term benefits. That's in the areas of payments, consumer and commercial businesses. So it's quite purposeful around that and also quite focused on investing in businesses where we have a strong position. Once we've got turnaround business, we also have strong positions in many of our markets. And like if you look at our current portfolio, we have 14 or 15 businesses where we're #1 or #2 out of our portfolio. We've got almost 20 businesses where we're top 4. And some of these businesses, if we invest further, we are investing from a position of strength that we feel we can grow while still attending in an honest way to turning around those who are not generating enough capital and not giving us sufficient returns. So it's a very purposeful, clear strategy to be able to attend to this. Thank you.

Your next question is from the line of Dmitry Ivanov with Jefferies International.

Is it possible to discuss holding level liquidity ratios and double leverage as of June. So if you kind of provide any color on this leverage ratio, liquidity, dividend upstreaming from banks during the period would be great. And secondly, a second one is a quick follow-up question on this increase in capital ratios. As you mentioned, you kind of expect more like improvement in risk-weighted asset density. So you kind of expect 35 basis points on the back of this RWA and 5 to 10 points on the back of the earnings growth, which will be above naira depreciation, right? So basically, you account for 5% to 10% naira depreciation. So basically, you are talking about 40 basis points expected increase in capital ratio by the end of 2023. Just would like to clarify it.

Okay. Yes. So maybe I'll start on the second one, then go to the first one. So yes, in terms of the overall summary of the capital ratios is right. So I did mention 2 factors. The first one was we expect earnings to run ahead of currency depreciation. If you think about it, the equity, say, Ecobank Nigeria now is kind of $400 million, right? So 10% is just about $40 million, right? And 15% is about $60 million. And if you consider the fact that in H1, we generated attributable profit of about $160 million. So the margin of decline coming from Nigeria is expected to be lower than the earnings that we are projected to generate in the second half of the year. So your summary is about right. I think going on to the first question around the holdco liquidity and leverage. So let me start from the liquidity. So I think broadly to just let you know, the holdco does 3 things. Face the shareholders, face the debt holders and, of course, run the ongoing business as usual. So our inflows are basically through major areas. The dividend that we earn from subsidiary and also the management fees and other franchise revenue that we generate. So those are the 2 major sources of income for the holdco. In terms of the dividend, we're expecting to generate in circa $175 million this year. We've already gotten year-to-date circa $125 million. So we're left with circa $50 million, that is primarily going to come from at the CEMAC, the Central Africa region, where we've gotten the go-ahead of the regulator after stop paying dividend after 2 years of non-payment. So that's one. The management fees that had a franchise revenue is circa $25 million. So if we add the 2 together, that gives you circa $200 million. So in terms of the outflow, running one in the bank, the cost of operating cost is about $30 million, financing cost is about $130 million, thereabout. So the addition of 3 is about $160 million. So there's a positive delta between the inflow and the outflow. I'm not to talk about the opening cash balance that we have. So that answers your question with respect to the holdco liquidity. From a leverage standpoint, I think I must just clarify that -- of course, there are 2 broad methodologies for looking at this double leverage ratio. I think we need to revisit the way that we've been doing it by using the equity method in accounting for our holding company. So if I just focus on using the cost method for EBIT, using the customer, our double leverage ratio at the end of 2022 was 166%, right? And as of June was flat at about 155%. So if you use the cost method, the double leverage ratio has not deteriorated because don't forget, what the double leverage we should measures is whether you are borrowing to inject as equity in your subsidiary -- whether you are borrowing to inject as equity. So during the year, July-June this year, we're not taking additional borrowing and injected it as equity into our subsidiary. So if you're -- vertically, using the cost method approach, our double leverage ratio is flat on a year-to-date basis. And I think that is what's possibly the market initially really understand that I mentioned cost injecting equity or raising debt or -- nothing as such has happened, so our double leverage is flat on a year-to-date basis. However, if you now consider the alternative method, which is the equity method where you have to adjust and account for FCTR because FCTR is a book accounting entry. It doesn't change anything. It's not like the holding company has taken additional debt and invested that debt as equity into the subsidiary. So nothing of such has happened. However, if you just look at the equity method, that is where you will see that the double leverage ratio has increased on a year-to-date basis. But I think the center of our focus should rather be on the cost method, where a double leverage ratio as of December 2022, was 166%. As of June 2023 was 165%. That has not deteriorated on a year-to-date basis. Yes, we still continue to be evolve that theoretical threshold of racing against one 200% and that is the action that we need to deal with as we go along. But there hasn't been any [indiscernible] looking at the fundamental definition constructs of double leverage ratio as we're taking additional debt and rather put it as equity investment in our subsidiary. And the answer to that question for the first half of the year is no.

Your next question is from the line of [ Abebe Inniz ], a retail shareholder.

I'm a retail investor, as you said, and I am also a student. And let's say, in the coming months, I'm supposed to do stock each competition on the Ghana Stock Exchange. So I have a first question, and I would like if you could give me some 5 solid reasons why I should -- I mean why investors should choose ETI to invest in? This is my first question. And my second question is on the dividend payment. So this year, the dividend payment was -- I mean, the dividend payment date for this year was set as the 6th June. But I don't know about other exchanges like Cote d'Ivoire in Nigeria. But here on Ghana someone like me, I have not received my dividend yet. So I would like to get a follow-up on that or how the dividend with ETI is processed.

Thank you. Yes. Okay, I'll take the 2 questions. So the first question, if you go to Slide 30 of this presentation, which is being shown on this deck, which captures 6 factors around our investment thesis around the crux of institution and also the fact that we diversified banking group compared to some of our peers where 70% or 80% or 90% of the operation is in one particular country. We also a pioneer in digitization, the fact that we've got a centralized technology platform, which directly fits into our payment proposition. And Jeremy earlier spoke to that. The fact that we've got a central switch and we can automate tend transactions in 33 market, almost spontaneously. The fact that our character of an institution directly plays into our ability to foster the fix rate on our continent, we can do better than most other players on the continent. The fact that also we've got an improved risk and compliance culture, and you would have seen the return on equity is growing on a year-on-year basis if you look at some of the metrics, which we discussed in the course of this conversation. And also the bank maintained a strong shareholder base is also critical for us. And we're seeing the support of the what we shareholders historically, we have seen that in 2017 when they participated in the $400 million convertible instrument. And also in September 2021, when one of our major shareholder, Arise, invested additional $75 million in an AT1 instrument, which further demonstrates shareholder confidence in the franchise. So I think this Page 30, which summarizes our investment thesis, would be a good summary for that question number one. In terms of question number two, I think this is -- we apologize for certainly the delay, which I believe is a significant case. I will touch base with you immediately after this call together with our registrars, just to understand what exactly happened in this case. So we apologize for that delay and which is purely an isolated case. I will quickly move to remedy that situation. Thank you.

And we'll be taking our last question from the line of Ngozi with CardinalStone.

So lastly, I just wanted to talk on the strategy plan -- strategic plan that the bank is initiating, any communication, like a formal communication on this strategy?

Yes, I can take that. What we've already done earlier in the year when we released our full year results and have done it subsequently has given you the strategic pillars in which we are focusing, and we are, in some ways, already implementing. So it's not a process which says we do some grandeur piece of work. When that's finished, we start implementing. So you've already heard about the, what I call, focusing on basics, managing the balance sheet tightly, managing capital tightly managing margins, NIMs, all of those good things we are already doing. We have our most talented people and partners working with us to optimize that. And that's coming through straight away. We are focusing on where we can drive more efficiency. We are starting to see that coming through. We're focusing on things like our recoveries and collections, which will -- we've done a lot of work over the years. The team has done that. Those start coming good. We start getting lumpy things in our favor. That give us even more impetus as we move forward. We've talked about risk management. Yes, we're really making even more investments in our capabilities there. And then we've got all the focus areas, and they are the core pillars we've talked about, entrenching our position where we have leadership. Those are, as you say, a number of markets. Today, we have those 14 markets where we're top 3. I think we can become bigger and bold even in those markets. We talked about focusing on Nigeria and turning that business around. And I think we're starting to make some progress there, and we're really going to focus even more intensely there. Then, we have subscale markets, again, where we're going to focus to make sure that they are profit and return-accretive. And then we have what I would call the newer businesses. The payments business, we're in it, but we are relatively smaller. But due to our footprint, our systems, we believe we have a natural advantage to be able to drive that business or those businesses forward. On the consumer side and on the SME/commercial side, again, our centralized system, our people have deeper understanding of markets, allows us to actually capture back where we have what I would call subpar market share. And it's not subpar because we haven't pride. I think we are building our capabilities to grow in those areas that we will grow cautiously. So we see upside on that to build on our core business, which has been our Corporate business. So this, in a way, gives you a sense the enablers on this slide talk about really establishing our brand. We believe this is very powerful and will connect with Africans and friends of Africa across the continent. We've bought many companies who want to partner with us, and that will give us scale because they want to use our platform to enter multiple countries in a way that no other banking institution can be able to drive. And then obviously, we -- there's 2 last areas, which is leveraging data. We have a lot of data from transactions across the continent that we will find a way over the coming years to use this as a competitive advantage. And then last but by no means least, we really want to make sure our sustainability agenda really drives positive practices and is good for the communities and the societies in which we operate. And that also will be an area of competitive advantage and passion for the brand. So I wouldn't expect you to think all of a sudden, we're going to veer off into a different direction. This just gives you an indication on this. And at another appropriate time, we can share more details around how we are deploying resources as we progress.

Thank you. Once again, thanks for joining. We will bring today's call to an end. And if you should have any more questions, please ask Investor Relations. See you all next quarter. Thank you.