FCMB Group Plc (FCMB) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's FCMB Group Plc's Full year 2019 Results Webcast and Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today. And I would now like to hand the conference over to your speaker today, Mr. Ladi Balogun, Group Chief Executive of FCMB Group Plc. Please go ahead, sir.

Thank you very much. Good afternoon, everybody. Welcome to the investors and analyst presentation by the FCMB Group for the year ended December 2019. I would also like to thank everyone who had been able to make this call during these rather unusual and unprecedented times. We hope you are all keeping safe, and we hope you're all enjoying working from home, those of you that are. I also have on this call with me a number of people from our group, most of whom you've heard on prior calls. From the bank FCMB limited, Mr. Adam Nuru, who is the Chief Executive Officer of the bank; he is supported or will be supported by Yemisi Edun, who is also on the call. She is the Chief Financial Officer of the bank. And we'll also be having presenting data, Mrs. Toyin Olaiya, who is the Chief Risk Officer of the bank. Also from FCMB the bank, we have our Chief Digital Officer, Emeka Eboegbune. We have on this call also a new addition, who is Mr. Femi Badeji. He is the Executive Director, corporate and investment banking. He sits in [indiscernible]. I will be discussing briefly the rationale behind a new reporting structure we'll be introducing from 2020. We have from asset management or investment management, which comprises pensions and the asset management as well as our Trustees business, we have Mr. James Ilori, who is the CEO of FCMB Asset Management. Then from the holding company, we have the CFO, Mr. Kayode Adewuyi, who will also be presenting. And we have Ori Rewane, Head of Investor Relations. So I will move straight to Slide 2. Just to explain the flow, I will be giving a brief introduction, Kayode will be talking us through the results. Adam Nuru will present the performance review for the commercial and retail banking arm. And then Toyin will take us through the risk review. Femi Badeji will be giving a presentation on corporate investment banking. This presentation will be more detailed than what we might have seen, historically, from investment banking due to revision in reporting. And I suspect we'll become even more detailed as we go into 2020, Q1 results presentation. And finally, you will have a brief review from Mr. James Ilori, who will talk on asset management, and I will summarize with an outlook. So moving on to Slide 4, in terms of just a quick overview of what we saw in 2019 from a performance point of view. I think, broadly speaking, our results reveal a number of positive factors year-on-year, which supports the fact that real front value is being created in the business. I think the knowledge and experience of our management teams and our staff is really beginning to come through, the manner in which we are able to adapt to the changing fortunes of our industry and the economy but also the competitive landscape, is something that we're very encouraged by. And the impact that we are having on our customers is something again that we're very proud of. And when you look across the indices, you'll see that most of them, we achieved double digit improvements. Profit before to profit after tax, I should say, rose by 16% from last year to NGN 17.3 billion. We saw on all balance sheet indices, loans, deposits and total assets, similar levels of growth, in sort of mid-teens. On the asset management side, we recorded fairly strong 28.3% growth in AUM to NGN 403 billion. We expect that in 2020, we will also be able to achieve fairly strong growth. Profit numbers, as you'll see later in the assets or investment management side of the business was flat, largely because of cost increases where we're investing heavily on distribution and marketing and also because of fee reductions, which will be talked about later. In terms of overall gross savings, we saw a marginal increase. We also saw operating expenses were able to come down slightly, which was positive. Our cap adequacy ratio in the bank, which is, I think, the most critical one from a regulatory perspective, has risen to 17.17%. So we saw a 127 basis point increase there and this is largely achieved through retained earnings. ROE still remains very low as we appreciate. And that went up, however, by about 80 basis points to 9%. Digital customers using mobile or Internet has risen by about 66% to NGN 4.6 million. Our NPLs came down, as you see. And then our total customer numbers rose by 27.5 million (sic) [ 27.5% ] to 7 million customers. The achievements in 2019 were driven largely through the focus on the strategic themes that had been enumerated in earlier presentations. And I'll just recap what those are on Slide 5. And give a little bit of detail in some of the things that we're doing there. So the first thing we have been focused on is building resilience, particularly in our balance sheet. The way we're doing this to a large extent, is continuing to have a very conservative dividend payout ratio from the group, retaining most of our earnings in the bank. And where we can, raise Tier 2. We raised -- I believe there was a very modest Tier 2 raise towards the end of last year. But most of the cap adequacy ratio improvement came from retained earnings, while we had no -- we declared no dividends from the banking subsidiary. So group-wide cap adequacy ratio went up to 18.47%, that is higher than the 17.17% I mentioned earlier that applies purely to the bank and gives us some additional buffer, should we need to inject capital from the group into the bank. Liquidity ratio reduced largely due to the 42% increase in restricted funds. And our cash reserve requirement was about 31.2% at the end of 2019. However, we still remain above the liquidity ratio of 30% comfortably at about 32% plus. Second key aspect for us is diversifying our business, achieving that through growing our customer numbers, so we have less concentration, both on the assets and the liability's side. And also trying to diversify and grow our nonbanking activities. In terms of customer strength, as mentioned earlier, we've seen our customer numbers group-wide grow to about 27 -- by about 27.5% to 7 million. Personal and business banking now accounts for 72%, 29% and 70% of deposit assets and revenue, respectively. Over the last few years on the banking side, there has been far greater focus on personal and business banking. As we will show in later slides, I think this has paid off, and we are now refocusing on turning around the corporate banking business. And that is why we have combined corporate investment banking under one group directive. So as we go forward, a 2020, 2021 and beyond, I think you will be seeing more significant contribution from corporate investment banking, while the momentum and the growth will continue in personal and business side. In terms of nonbanking activities, they accounted for 9%, entirely coming from our investment management side of the business. We expect that while profit was flat this year, profit will begin to grow again in 2020 because even though AUM grew substantially, we made significant investments in marketing, particularly on the pension side, post our acquisition of an insurance [ company ] in that business and the rebranding of it through FCMB Pension limited. But we expect that as we've begun to see growth, we will now begin to see profitability in 2020, the probability increase in 2020. Nonetheless, we are quite pleased with the way of manner in which the investment management side of the business is moving, and we think that share and contribution to profit will grow over time. Now in terms of innovation, this has been a central pillar of our strategy and particularly on the mobile banking side, we've seen 59% growth in terms of commissions, to about 2.3 billion last year. This is in spite of the fee reductions [ but we regulate them ]. We have also seen an average revenue of -- monthly revenue of NGN 188 million last year, in 2019. While by December, we were averaging about NGN 283 million. And we expect, as we go into 2020, those sorts of monthly revenue numbers will be sustained and increased. We'll talk a little bit about the COVID effect on the numbers in 2020 later on. In terms of lending. One of the key areas that we're focused on is to move a substantial portion of our lending business to being digital. So everything from the origination, to the underwriting as well as the collecting on the vast majority, both in terms of value and count, of our personal and business banking loans, are being migrated to digital platforms. So there, we saw total loan book digital loans rise to about NGN 10 billion. This makes up about 44% of the of the loan book. My apologies, I think we have to check that figure and come back to you because I don't -- I think the entire present business banking loans book is significantly -- NGN 10 billion now will be a lot less than 44% of that book. So I'll just check and make sure I give you the correct percentage of a number. In terms of transactions on our new mobile app, we saw the value of transactions grow by about 218% quarter-on-quarter from NGN 35 billion to NGN 111.5 billion in Q4. We saw volumes grow by 158%. I think this is interesting because it shows that the value of transactions is increasing by more than the volumes or did so. This went in NGN 859,000 to NGN 2.2 million. One of the good things here is that the new app is a proprietary app that we built ourselves. It gives us a lot more agility. So we can add new features. It also means that our profit margins on any transactions commission that we earn is better because we're not paying anything out to any third parties. So this, I think, is something that over the next few months will help us not only acquire more customers but also be able to push a lot more features and products through our apps. So the plans for 2020, I think definitely, we will see continued -- and this is moving on to Slide 6 now. We will see continued focus on digital transformation, particularly in the personal and business banking side. CDL, our consumer finance business is also very fully digital, which would, over the years, would improve their overall cost-to-income ratio, our customer acquisition numbers. I think because of the lockdowns that we're seeing for the couple of weeks that we're in right now may extend who knows for another couple of weeks, but we certainly don't expect lockdowns to extend from the 2 months. Also -- yes, we don't expect it to be more than 2 months. If we look at what's happened in other countries. So we anticipate that there may be a drop in our customer acquisition numbers in Q2, but we are expecting that if the virus is brought under control that we should be able to resume customer acquisition growth in Q3. We had a very strong Q1 in terms of customer acquisition, and we're seeing about 60,000 customers being acquired purely digitally and about another 60,000 to 65,000 being acquired through our nondigital channels, including agents. So we're hovering slightly north of 120,000 customers acquired monthly. SMEs as well. We've moved a lot of the accounts opening on to online. And this year, we're targeting about 10,000 SME accounts to be opened online, which will represent about 20% of the total accounts to be opened. Also, we've launched wealth management solutions our new mobile app, and we expect this to begin contributing more materially to the assets under management, but also to strengthen our share of the premium segment, particularly amongst millennials, who are the ones -- sort of premium millennials who are more likely to use our mobile apps for investments. SME lending has been digitized, and we want to do more of that. But we're moving from just the sort of very short-term working capital and overdraft facilities that we've been giving, moving towards SME -- sorry, towards supply chain and medium-term lending. We're targeting about NGN 4 billion revenue growth from SME lending taking the book to about a NGN 25 billion, our loan size and representing about 20% of our SME book. I guess the question that would arise in this sort of higher risk environment, does it make sense to continue to plan to grow SME lending? We are definitely looking at our risk acceptance criteria, making sure that the algorithms we're using to drive this sort of lending activity. Also plugs into the fact that clearly, we are in an environment where there is currency depreciation as well as -- obviously, slowdown in activity in certain sectors that we have, do not feel will adversely affect our ability to be able to grow the book to the extent we intend to, because this NGN 25 billion is still a very, very small fraction of the entire market opportunity. Another area on the digital side is our Application Programming Interface, which will enable us to partner more effectively with software programmers. And also to work effectively with other technology companies and be able to offer them banking-as-a-service so they can potentially provide some of our services to their own customer base. Now as I mentioned earlier, corporate investment banking will resume growth this year. And investment management, we see as another area that will be accelerated this year through both organic, and we are looking at some in inorganic opportunities, which we hope will materialize before the end of the year. As I mentioned earlier, we do have a new reporting format. We are now reporting commercial and retail banking, which is basically all our banking businesses, excluding corporate banking under one umbrella. Then we report corporate banking, so we're actually carving out the corporate banking division from the bank, so you can see what we're doing in corporate banking separately, along with capital markets and stock brokers. The reason we're doing this is that we have chosen to focus increasingly in terms of asset growth outside of retail where we do grow our assets on top-tier corporates and increasingly reduce our exposure to what we would describe as the middle market. We feel there are a number of opportunities, sustainable opportunities to do that effectively. Number one, our cost of funds is coming down as the retail business is growing. Number two, a number of opportunities in terms of intervention funding, which allow us to do this effectively without any sort of cost of funds disadvantage. And number three, our [ dollar ] balance sheet has also enabled us to effectively play in the corporate space and be able to lend similar rates as up to -- as other banks focused on top-tier. So we recognize that these top-tier corporates are also the ones most likely to have investment banking transactions that will close. And this will also help differentiate our investment banking play from the, what I would describe as, the boutique investment banks, where we would be largely leveraging a cross-sell model, working more closely with our corporate banking RMs. So we feel that, that effort is better reported as one. The first time you see the numbers of this, it will look quite poor, I would say, because we have had quite a lot of challenges in the middle-market corporate side, but we think we're coming from a low place in terms of where the business is in corporate. And over the next year or 2, that's an area of potential significant upsize for us as we get a better grip of how we want to play in that place. But I'll let Femi talk you through that in more detail. Finally, we're reporting investment management, as has always been. So the fundamental change is just -- you will see from commercial and retail banking would have hived out the corporate banking business and corporate investment banking report as one. We hope that -- we expect that future presentations, this format will become more lucid and there may be some minor tweaks here and there. But we believe that it will certainly be a better reflection of our sort of different strategic areas of business and how they're faring. So finally, in terms of plans, I think the twin challenges we're facing this year is the global pandemic as well as the sustained drop in oil prices. We will discuss this in more detail later. We have developed a comprehensive set of responses to keep our employees and our customers safe. We intend to fully keep business going and support those affected by this pandemic, whether they be our customers or the community. We've already made a NGN 250 million donation to a banking industry-wide initiative, and we will be doing other things to support our customers and also local communities that are affected where we can. We are altering our working practices, and we think that there are some, as many people are realizing, some long-term opportunities here that will reduce not only our carbon footprint, but also improve employee satisfaction and potentially, have positive impact on cost of running some of our infrastructure buildings and so on. We see this definitely as an option to accelerate the adoption of our digital financial services. For example, right now, very few customers can access branches. So we're seeing higher uptake of those digital platforms. And generally, we're seeing both customers and employees are actually generally happier with the changes. So really for 2020, our objectives will be keep people safe, keep business going and support those will be affected by the pandemic. That will be end of my remarks, I will now hand you over to Kayode Adewuyi, the group's Chief Financial Officer, to go into more detail on the numbers. Thank you.

Thank you, Ladi. Good afternoon, ladies and gentlemen. I'll be speaking from Slide 9 to 11, which provides an overview of the group performance. Slide 9 shows the key ratios of our performance in 2019. Return on average equity improved quarter-on-quarter and year-on-year to 9.0% for 2019. This was driven primarily by increase in net interest income, reduction in operating expenses and provisions. Our loan to funding ratio of 58.7% at the end of 2019 is below the CBN threshold of 65%. We're working towards bridging this gap. Our capital adequacy and liquidity ratios are quite healthy and higher than minimum regulatory requirements. Our earnings per share increased in line with our post-tax profit from NGN 75 to NGN 87 per share. The volume recommending dividend payments of NGN 14 at the next Annual General meeting. Our loans and deposits increased by 13.1% and 14.8%, respectively. We'll provide details on this when we go into the commercial and retail bank review. I'll now turn to Slide 10, which provides a summary of the contributions to grow profit by the different business groups. As you can see, our commercial and retail banking group remains our largest business group, while the investment management group is the most profitable from a results perspective. We'll provide more details on the performance of the different business groups in later slides. I then turn to Slide 11, which provides a smart [ shadow ] of our statement of profit and loss. As you can see, profitability was driven mainly by increase in net interest income and a 3% reduction in our operating expenses. In 2019, our noninterest income declined by 16.9%, this was likely because of significant reduction in our FX income. I'll now hand you over to Adam Nuru to take you through the commercial and retail bond synergy. Thank you.

Good afternoon, ladies and gentlemen. I will be starting my presentation on the commercial retail bank from Slide 13. Slide 13 shows the contribution of each segment within the bank, personal banking continues to contribute strongly. It contributed about 50% to total revenue of the bank. We continue to see good deposit growth in the right mix and continued growth in adoption of our digital channels in line with our strategy. SME contributed 30%, largely driven by growth in net interest income, enhanced through our digital lending products. Commercial institutional banking contributed 2% and 6%, respectively. Our subsidiary, FCMB UK, we see good growth in that. And we had a 10.8% year-on-year growth. Moving on to Slide 14. This slide compares to the last 2 quarters of 2019 as well as year-on-year performance. We saw a 1.2% increase in PBT quarter-on-quarter and year-on-year PBT growth of 37%. This was largely driven by increase in net interest income, a decline in impairments and reversal of litigation expenses. Risk assets grew 13.7% quarter-on-quarter and 12.5% year-on-year. We expect to maintain this level of growth. Deposits saw moderate growth of 7.4% quarter-on-quarter and 16.1% year-on-year. This is largely from low-cost deposits. Moving on to Slide 15. Focusing on noninterest income. Net fees and commissions grew 57% quarter-on-quarter, however, declined 62% year-on-year, primarily due to nonrecurrence of exceptional gains from FX in prior year. Other income declined 215% quarter-on-quarter, largely due to reclassification and reversal of legal expense to operating expenses, however, we saw a growth of 55% year-on-year. Moving to Page 16. This looks like interest income on earning assets. Total earning assets grew about 5% quarter-on-quarter, 84% year-on-year. Gross loans and advances grew 14% quarter-on-quarter and 12% year-on-year. The gross loan book represents about 38% of our total earning assets. Moving to Page 17. Looking at loan distribution. We saw quarter-on-quarter growth in all segments, with 13.7% quarter-on-quarter growth and a 12.5% year-on-year growth in loans. We expect to sustain these growth levels. Slide 18 speaks to deposit distribution by segment. Witnessed good growth of about 40% year-on-year. Personal banking and SME banking accounted for about 84% of our total deposits at bank level. Slide 19 looks at deposits by type. We continue to focus on low-cost deposits, in line with our strategy. And as of today, low-cost deposits account for about 75% of our total deposits. Moving on to Slide 20. We're looking at our OpEx, with a decline of 7.2% year-on-year. The drop in Q4 is largely due to classification reversal as mentioned earlier. Slide 21 speaks to our growth in our digital channels. We have seen consistent growth quarter-on-quarter and year-on-year in all our digital offerings. Of note there is the good growth we see in our digital loans, which has been quite impressive, and we hope to sustain this in the quarters ahead. Slide 22 focuses on digital channels, primarily in personal banking. We've seen good growth in usage as well as in loans, both in terms of volume and count, where we continue to see increase quarter-on-quarter in digital loans, and we expect to continue to sustain this. I will now hand you over to my colleague, Ms. Toyin Olaiya, Chief Risk Officer, to discuss the risk management report. Thank you very much.

Thank you, Adam. Good afternoon, everyone. I'll be taking you through the risk management review on Slides 24 to 27. Moving on to Slide 24. Here, we see the analysis of gross loans by sector. The loan book grew by 10.7% year-on-year and 12.1% quarter-on-quarter. The year-on-year growth came largely from manufacturing, agric and retail sectors. The quarter-on-quarter growth also came mainly from these sectors. Q4 growth in risk assets was also driven by our focus on increasing quality risk assets in line with our corporate strategy and CBN LDR guidelines. I'll now move on to Slide 25. We see here the NPL distribution by sector. Nonperforming loans dropped by 30.5% year-on-year and grew by 17.3% quarter-on-quarter. The year-on-year drop was largely due to improved risk management across the group, and write-off within the year. The quarter-on-quarter growth in NPLs higher but came largely from retail, finance and insurance and the oil and gas downstream sectors. Our recovery drive will continue and the quality of the loan book remains a priority for us. I now move on to Slide 26. This slide highlights the cost of risk trend over a period. Cost of risk has experienced downward trend year-on-year since 2016, largely driven by improved risk acceptance criteria across the group and recoveries during the same period. We witnessed improvement in cost of risk, both year-on-year and quarter-on-quarter. We, however, estimate that cost of risk will rise in 2020, in view of the COVID-19 pandemic and crude oil price crash, but we expect this to be cushioned by the palliative measures recently introduced by the Central Bank to address the outbreak. I now move on to Slide 27. This is a brief summary of our response to COVID-19 outbreak and the crude oil price crash. We have evaluated the likely impact of these events on our loan book on liquidity and on capital. These are early days and the process is ongoing -- is an ongoing one, and we will continue to update our projections accordingly. Like I mentioned, we carried out the assessment of the potential impact on the portfolio. Scenario analysis and stress testing of the credit portfolio was conducted. We considered low, medium and significant impacts. We looked at a combination of spike in exchange rates, the impact of the crash in crude oil price. Some of our major assumptions include looking at scenarios, 20% devaluation of the currency, 40% devaluation and 60% devaluation. We looked at oil prices coming down to $20 per barrel. We looked at $30 per barrel. And on the worst case scenario we looked at $40 -- sorry, I'll repeat that again. Our major assumptions included looking at 20% devaluation of the Naira, 40% and 60%, and we looked at oil prices at $20 to the barrel and $30 per barrel over a 9 to 12 months period. Our portfolio segmentation was based on borrower and sector vulnerability to exchange risk and crude oil price movement. The outcome of our stress testing inclusive of the CBN COVID-19 palliative measures reduced single-digit NPL ratio across these scenarios within the 9 to 12 month period. The stressed capital adequacy ratio also remains above regulatory minimum. The palliative measures put in place by the bank include the extension and restructuring of loans in line with the recent CBN policy measures on COVID-19, continued engagement of customers and strengthening of the bank's loan monitoring function. Lending at this time remains cautious, while we have intensified monitoring of the existing facilities bank-wide. We will continue to reach out to our customers to enable us address their peculiar challenges, which might also include extending existing trade lines. The overall goal is to ensure that the bank continues to run with as minimal interruptions as may be feasible and possible, given the constraints introduced by the COVID-19 pandemic to our business and the measures already been taken by key stakeholders such as the CBN government and other allied interest. Thank you. I'll now hand you over to Mr. Femi Badeji, Director Corporate and Investment Banking.

Thank you, Toyin Olaiya. Good afternoon, everyone. This is the first time we're reporting on the corporate and investment banking segment, which, as Ladi mentioned, consists of our corporate banking, investment banking and stock broking businesses. Before we go into the numbers, I would like us to spend a minute on the rationale and strategic objectives of the CIB business. The bringing together of the corporate banking and investment banking and stock broking businesses as a logical unit is designed to capture the inherent synergies offered by those businesses working together in the service of our clients. CIB provides us the opportunity to bring incredible focus to our top 25 and next 25 clients, enabling us to provide the suite of complementary services to corporates, grow balance sheet to support loan growth, deepen share of wallet of major clients by exploiting cross-selling opportunities. And provide innovative structured financing solutions, which are needed today, now more than ever to clients. Slide 30 highlights the numbers for the CIB segment. Whilst CIB's net interest income year-over-year declined by 36%, we were able to increase our noninterest income by 38% from NGN 5.1 billion to NGN 7.1 billion. Net interest income dropped due to a regulatory-induced industry-wide reversal of accrued interest on petroleum marketers as well as a drop in rates on a number of loans. Operating expenses remained relatively flat year-over-year at approximately NGN 9.7 billion, whilst operating income declined year-over-year by 13% to NGN 14.6 billion. Year-over-year, loan growth and deposit growth were relatively muted at 4% and 5%, respectively. While CIR went up by 30% -- 13%, I mean, year-over-year, NPLs increased by a healthy 65%. To improve the performance of this segment, we are looking to do the following: one, boost loan growth, particularly through intervention funds to many of our corporate clients; two, restructuring as needed to reduce the potential impact of challenged loans; and three, boost noninterest income. I will now hand you over to James Ilori, who will take us through the performance of our investment management business.

Thank you, Femi. Good afternoon. I will start with Slide 32. The investment management group grew its assets under management by 6% quarter-on-quarter and by 28% year-on-year to take the closing AUM for the year to slightly above NGN 403 billion. The 89% -- sorry, it's NGN 89 billion growth reflects the effect of better brand awareness, from the adoption of the FCMB brand name across the 3 businesses that we call the group. So I'm referring to FCMB Pensions, FCMB Asset Management and FCMB Trustees. Also, there was a greater collaboration with other hands of FCMB group to cross-sell products and services. Finally, we created an improved digital platforms, this led to better customer experience. Our Pensions business line contributed 79% of assets under management in 2019 compared with 87% in the previous year. This reflects the growing importance of our other business lines. [Audio Gap] I have moved to Slide 33, which is on the financial year 2020 projections for the investment management group. We expect investment management group's 2020 assets under management to increase by NGN 63 billion. That's an increase of 15%, to take the closing AUM for the year to NGN 466 billion. Contributions to AUM and from our collective investment schemes and wealth management business lines should represent almost 22% of AUM by the end of the year, that would be equivalent to NGN 100 billion of the NGN 466 billion target. Lastly, we expect the full year profit before tax to increase by 11% to close the year at almost NGN 2 billion. With our Pensions business line contributing around 74% of the PBT target, that will be down from 76% contribution in the year 2019. Our 2020 PBT targets already factors [ Audio Gap ] and it's NGN 3 million reduction from another regulator in post fee reduction on pension fund administrators. Thank you. I'll now hand you back to Mr. Ladi Balogun who will talk about FCMB Group's general outlook for 2020. Mr. Ladi Balogun will join us shortly. We are having slight challenges with the communication line. So just give us a couple of minutes to restore that connection.

Okay. Thank you. James. Sorry, I was cut off very briefly there. In terms of the outlook for 2020, no doubt, there are challenges that we face, I would say, in the immediate short-term is predominantly a... [Technical Difficulty] I'm currently on the call. I'm on the call, I believe.

Yes, Ladi, you are.

Yes. Ladi, you are. We can hear you, yes.

Thank you. Sorry. So as I was saying... Sorry, I was cut off very briefly there. In terms of the outlook for 2020, no doubt, there are challenges that we face, I would say, in the immediate short-term is predominantly a... [Technical Difficulty] Apologies I think there's a lag on my side. Having slight technical issues here. But I will go ahead and try and finish. Pardon me for this. So I think that we have some challenges in terms of COVID-19, and we also anticipate that the oil price drop will have an impact, a fairly significant impact on the business environment as a whole. What we intend to do is focus heavily on our customers, support those that we feel have the credit capacity to be able to get that sort of support. We'd be focused heavily on innovation and trying to develop new working practices to not just get through this period, but also to generate sales and business during the period. We expect there will be downside pressure in terms of transaction commissions, trade finance. I think we are likely to see some degree of tightening and rationing of foreign exchange and also a potential rise in impairment charges. I would say that in that regard, as been mentioned by Toyin earlier that in various scenarios that we have run, we feel that even with a fairly sort of a worst-case assumption right now that the impairment should not be too significant. There are opportunities during this period. Particularly, we still feel that our loan growth that we had projected at the beginning of the year when we started this year internally, of about 14%, still remains intact. We see, however, the nature of that loan growth may change slightly. The focus will be increasingly on top-tier corporates, as they're looking to restructure, some of them are looking to source working capital to cope with the COVID related -- that was meant to be disruptions and not distributions. And also the impact of the recent currency devaluation that we experienced last month. And we're seeing, obviously, that when you do have these devaluations, the benefit of backward integration becomes more apparent, and we're already beginning to see requests from our top-tier corporate customers to seek borrowings for these purposes. So we do see a significant loan demand, some of which we will meet. And I think that will help to offset some of the other revenue reductions that we may see. Assets under management, we expect will continue to grow, and that will happen certainly organically. But as mentioned earlier, we're also exploring some inorganic opportunities. Digital lending will continue to grow. Digital payments will continue to grow. And also operating expenses, we think, will moderate through our revised working practices. So while definitely there are challenges ahead and it's difficult for us to give any sort of solid projections at this stage, I think there are a number of areas that we think we will see growth within the business, and we are confident that we'll be able to weather this storm while focusing on the priorities of supporting our customers and communities through these times, keeping our employees safe via remote working and then getting our customers towards digital financial services. We thank you very much, and we'll now move to Q&A.

[Operator Instructions] We have one question in the line. [Operator Instructions]

Okay, while we wait for the calls to come in under actual line -- this is Ori Rewane, Head of Investor Relations. I'll read out the questions that have come in via webcast. So the first question is from [indiscernible] from Rencap. She's asking the question what is your FX liquidity position? Could you speak on your upcoming maturities and any stress you may be facing? Secondly, could you speak on the NGN 4 billion Other losses in Q4 and its drivers? Thirdly, what percentage of group capital is allocated to the wealth business? Fourth question, what are you noticing in regards to customer behavior in the wealth business with COVID-19 in place? And how realistic is 15% AUM growth target?

Okay. In terms of FX liquidity position and maturities coming up, I'm not sure if we will have answers to that -- those details on this call. And I may request that we get back to you on that, but we'll certainly do so. On the NGN 4 billion of Other losses, I will request that the banks [indiscernible] maybe can attend to that. I'm assuming and feel concerned whether all of that came from the bank or from other companies. The amount of capital allocated to the wealth business, I'll request that Kayode Adewuyi can answer that question, but I know that it's relatively small. And customer behavior that we are seeing on the wealth side in light of COVID-19, I will make a quick remark on that, but then I'll also ask James Ilori to share some insight. I think, generally, during this period, there's obviously much more going on with everyone's wealth management decisions other than just COVID-19. So I would broaden it to say that we're faced with a situation where interest rates have been very low from the banks for -- because of the cash reserve requirement and minimum LDR issues. You're also seeing a situation where exchange rate is devaluating. We are concerned about the real value of their investments and their wealth. And then, of course, you have the issues around COVID. So we are not looking at this -- and maybe when James answers, he will talk about this sort of broadly what we're seeing. But one clear trend that we are seeing certainly is that more of our customers feel that they cannot get good enough returns from bank deposits, they are looking for us to assist them with higher-yielding investments, be they commercial paper, be they [indiscernible] funds, be they any other things that we can offer, whether it be local or foreign currency. So generally, that's why we are seeing an increased movement from banking to asset management. And because we have a active customer base of 5 million or 6 million people, approaching, I think, 7 million now at the end of last year, then a reasonable chunk of those customers and others are beginning to move more towards our Asset Management products. So that's why we're confident we will still get some growth. I think there's element in there that we also expect some inorganic opportunities will take us beyond those levels, but we can't go into too much detail there. But James, will also talk about that a little bit in terms of what we're seeing from customers. I will want to go back, first of all to Yemisi to talk about the NGN 4 billion if she has that information at hand or whether she will need to come back to us. Yemisi, please go ahead.

Yes. Okay. Thanks, Ladi. I really need to understand the NGN 4 billion Other losses that is being referred to, because if it is the decrease in Other income, that -- the NGN 4 billion gap. That's arose mainly from revaluation gain that we recorded previous year, but did not repeat this year. But apart from that for the year, there was no significant loss. So except maybe we want to get more information and clarity on that question.

All right. Can we move on to Kayode, maybe to answer the amount of capital that we allocate to the investment management business.

I'm sorry. I was off the call for a couple of minutes. So actually, didn't hear it. If -- can someone help me with the question please? Thank you.

The question... Yes, I can help you with that, Kayode. The question was how much capital do we allocate to our investment management business?

Okay, so I can speak in terms of what our investment in our customer management businesses are. If that's the question, I can't give you that figure, right away. We're looking at other opportunities in that sector. Just a minute, I'll get information out just right now.

Kayode, the question is how much capital is allocated to that business, I believe. If that's what you're trying to answer.

I'm trying to get that very quickly. Just a minute.

It's in Slide 10.

Yes [indiscernible]

Okay. I wanted to actually...

Yes. It's in Slide 10. And it's about 4 -- the capital allocation is NGN 4 billion.

Okay, NGN 4 billion. Thank you. All right. James, Ilori, what are you seeing in terms of customer behavior? And do you feel the 15% is this it?

In terms of what we're seeing, customers have reacted to the devaluation of the Naira, the low interest environments we're in and the fact that in February, headline CPI came in at 12.2%. So the key thing for customers is how do they preserve the value of the investments. On the local currency side, customers are looking for higher-yielding instruments, as Ladi said. We're seeing more interest in our mutual funds. For example, because these funds offer -- at the moment, offer better returns relative to where treasury deals are today. On the FX side, there's also increased demand from customers. But the interesting thing is unlike the past where customers were more interested in -- just investing in euro bonds issued by Nigerian entities. Right now, customers are looking to also diversify risk across countries so you see customers asking to invest in, for instance, euro bonds issued by Aramco of Saudi Arabia. So that really is customer behavior right now. And what we're doing is doing our best to sort of guide customers to ensure that they take into consideration the risk involved in investing in international markets. We saw euro bonds issued by the Angolan government trading at close to 30%. So it's one thing for you to relatively higher, it's another thing to manage that risk. So that really is the behavior we're seeing from customers in the current environment. And then I think there was a second question on...

I believe that was the only question, James.

Okay. Sorry.

I think -- clarification from Kayode actually is that the amount of capital allocated to -- across our management businesses is NGN 8 billion, not NGN 4 billion.

Okay. Then...

If we could move on to the next set of the questions.

Okay. [ Timothy ] has a follow-on question, which says, "What sort of conversations are you having with your up and midstream customers nowadays, given where oil prices are at? Can you speak to the dynamics of hedges tenure? And what happens to impairments, when those hedges mature and if oil prices remain in the $30 range?", so that's [ Timothy's ] follow-on question.

I think that will really be a risk management question. So I don't know. Toyin what are your views on that?

Yes. So like I mentioned, we've conducted a preliminary evaluation of the sectors that are vulnerable to exchange its risk and then looking at crude oil price volatility. So upstream oil and gas and downstream sectors. So we realize that exposure, and we have mentioned the specific names in the portfolios. Now we're vulnerable to that. And like I mentioned, the kind of discussions we are having right now, those discussions have started with the SB is concerned. So we're seeing more request for tenure elongation in that specific bucket. So most of those facilities are indicated and then the discussions have started. Like I said, it's early days. And the policy measures of the Central Bank has actually addressed by the real line, and especially we are on productive assets, the results that are there, they're problem. So yes, the oil price might come down, but we're also seeing that for most of the names in our portfolio. So OpEx is around $11 to $17 per barrel, so most of them can actually meet contributions to CapEx recovery. And so based on that, like I said, the discussions have started, and we might be extending tenures for like 50% of that book, not the entire book. So about 50% of the upstream and then the midstream services and exposure that we have in our book.

We have another webcast question, which is, "What drove the growth in real estate lending? Because it's a major contributor to NPL". So I don't know whether Toyin you have any responses to that?

Yes, the middle growth there was the specific asset in the Southeast portfolio. Now we had to specifically impair in Q4. So that was what contributed to that. As far as the emphasize sector's real estate, in terms of the especially one sector that the [ company ] is growing. In terms of NPL, there was just one mean that we had to, specifically -- so that was more accounted for the growth in the NPL for that sector. Just NGN 1 million. And we're secured, and we're actually working on that NIM. We have a good prospect for recovery. So by the course of the year, we will come back to explain progress that we're making. Thank you.

Okay. We have another question, another webcast question from Tunde Abidoye. The first is, can you speak to your upstream exposure at what price did you benchmark oil prices for structural loans? Secondly, what's your current financial position as a percentage of loans and deposits are FCY-related? Third question, could you speak more to the stress testing carried out in light of COVID-19? What worst case NPL ratios did you observe? Fourth question, could you give us a possible drop in profitability? You -- profitability expected due to the COVID-19 disruption based on your stress numbers?

Ori...

So the question...

Yes, yes?

Yes. I think -- don't worry Ori. Toyin if you look at your reader view, you'll see the questions written out. The first question, which was, can you speak to our upstream exposure and the price at which we benchmarked oil prices when we structured the loans. Do you have an answer to that? Toyin?

Yes, the range -- yes, ranging between $35 to $65.

Thank you. And I guess that explains why -- Sorry, go ahead, Toyin.

Yes, the prior restructuring that we did, that was the wins at that time.

Okay. Okay. And the second question is what's -- maybe Yemisi can answer that. What's our net open position? And what percentage of our loans and deposits are in foreign currency?

Net open position is positive for us because we are long dollars. We keep some of our earnings, retained earnings, in foreign currencies. So we're long dollars. So the net position is positive for us. On percentage of FCY on loans, we have about 48% of loans in FCY as at end of year and for deposits, about 20%.

The next question is, could we speak to the stress testing carried out in light of the COVID-19 and what the worst case NPL ratio was that we observed? Toyin, can you take that, please?

Okay. So I'll take that. So like I mentioned there were 3 scenarios. So we looked at the scenario of $20 to the barrel and 20% devaluation of the Naira, which came about closing at NGN 432, naira to a dollar. We looked at the second scenario $30 to the barrel, still 20% devaluation, at NGN 432, and then we looked at another scenario $30 to the barrel and a 40% devaluation of the Naira, Naira coming to about NGN 504 to the dollar. So when we factored in all of this into the model -- so speaking to the question on NPL's issues. So on a worst-case basis, we saw that NPL resolved to be sub-8%. So that was the outcome of the stress testing that we did. So even on a worst-case basis, NPL will double from the position that we are in right now, where it will be sub-8%. So just slightly above 7%. That was the outcome of the stress testing that we carried out.

Okay. Thank you, Toyin. I think on the last question that was asked from that particular caller, which was the sense of possible drop in profitability we expect. I think it will be premature for us to start giving a figure because we're still really trying to get to grips with the extent of the disruptions and also for how long it would go on for. So there are a number of scenarios, will this, for example, just be for 2 weeks, no movement or could it extend to 2 months? Could it be longer? So I think it would be premature for us to give a sense, but I'm sure that by the time we're giving our Q1 investor call, we would have more clarity on that. But I should stress that I think there will be both some areas of profit reduction and there would also be some areas of profit growth, ironically, coming from all the different things going on. I think, already been alluded to, has been some of the revaluation gains that were likely to see because of our net open position. But even then, in terms of core operating numbers, I think that without looking at those extraordinary onetime figures, I do think that there would be some areas of growth because banks will be the primary channel through which the Central Bank will push its stimulus measures to support key sectors of the economy. And we already have a number of credit requests from top-tier customers of ours in either the health care or the food and agribusiness sector. So it's going to be on both sides. But we also find that in areas like Asset & Wealth Management, the disruption will be minimal. But certainly, on the banking side, I think there'll be a lot of movements on both sides. But we'll take that in Q2. I mean, sorry, during Q2 for the Q1 investor call when we have more clarity. The next set of questions that we got. I think we've already spoken to the first-line around the FX long or short positions. We're net long. I think we can't describe a figure to the level of gains that we anticipate because, of course, we don't know what the level of devaluation will be during the course of the year. Do we have FX swaps with CBN? If so, what size? And are we able to liquidate this early if we need to. Also, do we have -- have we historically been rolling this over or getting our dollars back? I'm not sure that our treasurer is on the call, but I don't know whether Yemisi you would be in a position to answer the questions around FX swaps with CBN size?

Thank you. I mean, we do have, but are unable to give the size that's -- we currently have to be at the moment. So we need to come back. So you -- but yes, we do have some FX swaps with CBN.

Okay. So we'll get back offline on that. Okay. Can we please clarify the difference between the NAV NGN 4.2 billion on Slide 10 and the NGN 8 billion that Kayode quoted? Seems we've lost the main feed, so I'm hearing.

We're still here. We're still here.

Okay. All right. So Kayode, can you clarify the difference between NGN 4.2 billion NAV and NGN 8 billion figure that you quoted?

Yes. So the NAV is -- we showed different entities in our investment management group. While the NGN 8 billion is our investment in -- If you will recall that we invested in SME franchise a few years ago, [ work with paid ] was significantly higher than the shareholders for the entity at that time.

Thank you, Kayode.

So the capital [indiscernible] was actually...

Okay.

Okay. The next question is from...

The next question...

Oh sorry go on Ladi.

Yes. The next question is they need assistance in terms of the cap adequacy ratio. We have 2 different slides, 18.47% and 17.17%. I can answer that for you. The 18.47% is the CAR of the group, whereas 17.17% is the CAR of the bank. And obviously, for the minimum requirement of 15%, it's 15% versus 17.17%. What the 18.47% indicates is we do have some -- a little bit of additional buffer in the holding company should the need arise. So in terms of whether we'll be raising Tier 2 this year, we are exploring our options. I think while we don't necessarily need it to stay above the minimum capital requirement. And I believe that the numbers Toyin gave you in terms of stress testing was without any additional Tier 2 raise. But we are exploring if we can, because there were a number of conversations that have gotten quite advanced before the COVID crisis. It's our aim to gradually increase our capital buffers in case the unexpected happens. So next question, how realistic is it to assume double-digit loan growth this year? I think I can answer that for you. I think it's quite realistic. The first thing is the devaluation alone is just going to increase our loan book even if we did nothing. So that's the first thing we have to appreciate. The second thing is that we are restructuring a portion of our book. So loans that would normally have run off -- we will not have the same degree of loan run-offs as we had last year. So again, I think we can expect double digits. Thirdly, if we just look at the pipeline that we have of top-tier corporates that are seeking intervention funding through us in sectors such as Agric and health care, and I'm talking very much top-tier and not the middle market, there's also already quite significant demand coming from those areas. So even if I discount the growth that we may anticipate in the personal and business banking space, I think those factors alone doing nothing would certainly lead to material growth in our loan book. If I'm not mistaken, our total loans is still sub-700. And so looking at anything sort of the north of NGN 70 billion is not unrealistic based on those factors that I've mentioned. The restructurings that reduced the run off, the currency depreciation that we've already experienced as well as, of course, the -- some of our customers that are looking for intervention funding at this time. Now the second question, what are our macro assumptions underlying this expectation? I think we've already given that in terms of exchange rate, we're just assuming the initial 380 devaluation. Now in terms of GDP growth, I think this doesn't make any assumptions on GDP growth. It's clearly based on tactical responses that we're seeing. The segments to drive the loan growth, I've also indicated that. Whereby we expect that agriculture, some of our classes involved in healthcare or pharmaceuticals, all those would be seeing growth. The restress tested scenario, we're saving a slowdown in non all sectors of the economy. I guess, maybe Toyin who dropped off the call if she comes back on, may be able to answer that, whether we stress tested that. And also volume of loan restructuring, if Toyin is not available, maybe [indiscernible] can answer that, who is also on the call, but supports Toyin. And then finally, what would be the negative impact on net interest income of this loan restructuring. So [indiscernible] are you on the call? Okay, [indiscernible] is not on the call. We've been having some technical issues. Maybe we'll come back to that.

I'm on the call, I'm on the call.

Okay.

Yes. Some other factors were included in the stress test and those other factors will be affected by the COVID-19. This include -- hospitality was included. We actually also looked at how it's going to affect Agric and individual as well as government, meaning that Nigeria is very dependent. So about 4, 5 other sectors were included in this stress test.

Okay. And what was the volume of loan restructuring that we expect in 2020?

Okay. We're looking at about 10% of our loan book. It could be a bit more than that. And the reason why we're written at 2020 because we see there might be a bit of slowdown in this indicator. We're looking at the oil and gas upstream, about 50% of that to be restructured. And then the CBN interventional funds, which CBN has given directors based on the measure for us to restructure or extend moratorium. So we're also looking at those that are qualified for that, that is pension will be given to them as well as few [ other names ] is from [ non-oil ] sectors.

Okay. All right. So that's slightly above 10% of the book is what we expect to restructure. Okay. Now what will be the negative impact on net interest income for this volume of loan restructuring. So we expect there will be any negative impact on these restructurings?

No, no, not so much. We don't expect any negative impact because with the restructure, we expect that, based on the cash well that's going to change the written pattern [indiscernible] that's going to improve the performance of this account.

Okay. So I think to answer that -- to clarify what [indiscernible] said is that these restructurings don't also include any plans for interest forgiveness or interest reduction at this point. If we see that, that changes in the future, then, of course, we will have to update that. So as a follow-on question, there's a box number do we use to calculate ROE for investment management? Is it the NGN 4.2 million or is it the NGN 8 billion? And why? Kayode, are you on the call? Can you answer that?

Sorry, my phone was on mute. So we calculated the return on equity-based on the shareholders' funds of the investment management businesses, which is to...

Which is what, sorry?

So the ROE is based on NGN 4.2 billion, which is the shareholders funds of the investment management businesses.

Yes. So rate based on RO -- on NGN 4.2 billion, I think [ Sajid ], the point is if we're calculating ROI, return on investment, that would be a different figure. For ROE, we simply look at the equity of the business. So it's really based on the business itself. Ultimately, it was the holding company that acquired additional shares in FCMB pensions and not the Pensions business itself. So that's why it is that way. Okay. So next question. What will be the margins on these intervention funds now that lending rates are capped at 5%? Do we still pay 3% funding cost to the CV entities? I can answer that. We -- I believe the margin is 4%, which is down from historical 6%. Okay. Any further questions Ori?

For now, those are all of the questions on the webcast, but we have 2 live callers. So the operator, [ Petra ], will lead us back to them. [ Petra ] can you bring the liver callers online?

Of course. The first question comes from the line from Tunde.

Apologies if my questions have already been answered. I was a bit -- I was off the call. Just looking at the challenging operating environment and where oil prices are, can you tell us what proportion of your oil and gas exposure is hedged and at what price and for what duration? And that's the first one. Then you mentioned that you have various scenarios, you're random or you're capital. And you still had capital ability regulatory minimum. Can you be so kind enough to tell us what the potential is to capital is for each of these scenarios? Also, can you tell us what amount of loans you wrote-off during the year? That's all.

Toyin is back on the call. Whether Toyin can take those questions or she needs them repeated. Toyin you back on?

Yes. I'm on the call. Kindly repeat the questions. Sorry, I was off for a while.

Okay. My first question is on the operating environment and how the oil prices have just gone down over the last few weeks. What proportion of your oil and gas exposure is hedged or rather do you hedges? And I think what proportion of that exposure is hedged and at what price are the hedges forward duration? That's the first one. The second one is on the scenarios you run on your capital based on the devaluation assumptions you run. You said your capital will still be above the regulatory minimum. Can you give us an idea of the hit to capital? How many basis points you had above? Do you see in terms of capital hit? And yes -- and the write-offs. Can you also provide us with value of the loans written off during the year?

Okay. So on the loans written off about NGN 25.78 billion in the year. So that's the value of loans written off, about NGN 25.7 billion. That's to answer the first question. So on the second question on the scenarios, so the range of between 150 to 200 basis points above the regulatory minimum. So that is on the first capital adequacy ratio across the scenarios. I hope that answers that?

Yes.

Okay. So on the hedge...

Okay and on the hedging?

Yes. On the hedging, we'll get back to you on the specific details you've asked for.

The next question comes from Harry.

Okay. [ Acquisitions ] have been somehow [indiscernible] and responded [indiscernible] that maybe some other time you would get back to the [indiscernible]. Trying to know in terms of your FX liquidity given what is happening in the foreign exchange market. [indiscernible] obligation therefore [indiscernible] the part of the [indiscernible]. It is important to respond to that question.

Thank you. Okay. We heard a bit about the FX liquidity. I mean, certainly, we will be able to meet obligations in foreign currency. So that for us is not an area of significant risk right now, but we can come back with more details at a later point. But I didn't hear the second part of the question, is there -- was it really just -- because I heard you say CES, but I didn't hear that.

Well, that is okay. So that is okay, I don't think [indiscernible] in the cost of your responses in other [indiscernible].

Okay. There's a follow-on question from [indiscernible] at [indiscernible] . He says [indiscernible] earlier said that the restructuring 50% of upstream and midstream loans. Half of those alone come up through 11%. When you add all the other factors, you come up way above 40% and 10% restructured loans. So that's a follow-on from [indiscernible].

Yes, Toyin or [indiscernible].

This is Toyin, [indiscernible] it does mean that about [ NGN 70 billion ] looking at the [indiscernible] so that's looking at the [indiscernible]. So that's about NGN 75 billion to NGN 80 billion. And we saw 50% of upstream and midstream comes to about NGN 60 billion, NGN 65 billion in the total. And then she had also mentioned for the intervention fund, we're going to be expanding [indiscernible] by working [indiscernible] results are contingent. So yes, right now, we have an [indiscernible] of about some consumers. So not all of them qualified for that one year moratorium. So it's not the entire book that is on balance sheet that we qualify. So we still have room for the other loans and [indiscernible] in the guidance that we have given. So that's just the explanation for that.

Okay. I would stress that... Go on, Toyin. Yes, go on, Toyin.

Yes. Just to mention that the intervention fund of balance sheet. So the 10%, you are looking at the own balance sheet. So we can provide for that detail if they want, whether that's how [indiscernible] at 10%.

Okay. I think I would stress that we're in the very early days of this crisis. And I think while we welcome the analyst questions, I think it's -- there's not going to be a great deal of clarity in the market, generally, I would say, for at least another couple of months. So any responses we give today, obviously, we would have to be updating them as we progress during the course of the year and things become clearer. So another question we've gotten. Yes there's: "What's the situation on ground in terms of DOM accounts? Where hearing customers are now unable to draw FX from their DOM accounts and some of the offered narrow alternatives". Certainly, that is not the case with CMB. We're not aware, we've not restricted any customers having access to their DOM accounts.

Okay. For now, those are all the -- well, those are all of the questions on the webcast. [ Petra ], are there any questions from the live audience?

No questions on the telephone.

Okay. So at this time we'll turn the call back over to Mr. Ladipupo Balogun for any closing remarks.

Okay. Thank you very much. Our apologies for some of the technical challenges we experienced. It's the first time that we're doing a call through this medium. Hopefully, which we anticipate will be the case, at the end of April when we do our Q1 call, we would have gotten a better handle of things. But in the meantime, I want to thank you all for joining the call. Thank you for your questions. The ones we couldn't answer on the call we will make sure that we respond to you directly, and we wish you all a safe and productive few weeks and months while we all weather through this ongoing pandemic. Thank you very much, and enjoy your evening. Goodbye.

That does conclude the conference for today. Thank you all for participating. You may now disconnect.