FCMB Group Plc (FCMB) Earnings Call Transcript & Summary

Hello.

Hello. Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's FCMB Group Plc's Half Year 2020 Results Webcast and Conference Call. [Operator Instructions] I also must advise you that this conference is being recorded today, 4th of August 2020. I would like now 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. Good afternoon, once again, everyone. I would like to, first of all, let you know who will be on this call today with me. We have Mr. Adam Nuru, who is the Chief Executive Officer of the bank; as well as Mr. Yemisi Edun, who is the CFO and Executive Director of the bank. We also have our Chief Risk Officer, Ms. Toyin Olaiya; as well as our Chief Digital Officer, Emeka Eboegbune. From the holding company, we have Mr. Femi Badeji, who is the Corporate and Investment Banking Director; as well as the CFO, Mr. Kayode Adewuyi. And from our asset management business, speaking on our investment management activities, generally across asset management pensions will be Mr. James Ilori; and we also have the Head of Investor Relations, Ori Rewane. Moving on to the agenda slide. The format remains unchanged, and I will move straight from that just to make a few introductory remarks before I hand you over to Kayode Adewuyi, who will give you a more detailed review or overview of group financial performance. From Slide 4, you'll see our key highlights. I would say all of which trended positively on a year-on-year basis. Our balance sheet footing in terms of total assets rose by 31%, largely driven by growth in deposits, and our earnings rose by 26.5% year-on-year to NGN 11.1 billion due to a variety of factors we will talk about later. In terms of volumes, we saw strong deposit growth, as mentioned to 35%. Loan growth also rose by 29% year-on-year, and our assets under management in the asset management business rose by 28% to NGN 455 billion. Growth was faster in the non-pension side than in the pension side of the business. In terms of customer numbers, we've seen continued acceleration in terms of our customers, 29% growth in overall customers and 48% growth in our digital customers to NGN 5.3 million. Earnings, we saw a slight improvement in ROE coming up to 9.4%, and stable NPL ratios at 3.5%. Moving on to Slide 5. Just talk you through the strategic themes for us as a business, which revolve around building resilience, particularly in our balance sheet, diversifying our earnings and generally reducing concentration and continuing to drive our innovation agenda. In terms of resilience, we see that capital adequacy ratio has been at 17.3%, which -- at the group level, which is 6% up year-on-year, this in spite of 29% year-on-year loan growth. Our liquidity ratio did fall slightly by 11% quarter-on-quarter to 32.2%. However, it's important to stress that we saw over 100% growth in cash reserve requirements. I think that's about NGN 200 billion-plus growth, which, if we normalize for that, then it would be apparent that liquidity also improved significantly. In terms of diversification of our business, one of the things that we constantly have done is the need to grow the retail business and reduce concentration, whether in terms of noninterest income or deposits. And there, we've seen, as I mentioned earlier, our customer numbers grow by 29% to $7.7 million. In terms of retail banking, i.e. personal and business banking, which is the key means of diversifying in the bank, we see that deposits account for 69% of total balance sheet in retail business. Assets is 29%, and that is supporting a higher net interest margin that you -- than you can find in most other banks. And we're also seeing our net revenue of about 64% coming from the retail bank. One of the things we're also trying to do is ensure that we diversify from just interest and banking income. And the key means of doing that has been through our investment management business. There we saw earnings growth of 41% year-on-year and representing 9% of profit. The business saw 28% growth year-on-year in AUM, as has been mentioned earlier. In terms of innovation, we continue to see digital accounting for a significant and growing chunk of our transaction volumes and value. This served us particularly well during the lockdown period. We saw 9% quarter-on-quarter growth in terms of volume and 41% year-on-year growth. And this was in spite of 6 weeks of lockdown, where many of our customers in the informal sector were not able to tranche. We did see revenue drop 20% year-on-year, largely because of the revised tariff guidelines from the Central Bank. Our subsidiaries are also -- outside of the bank, are also moving quite rapidly in terms of their digital agenda. And we're pleased to also announce that Credit Direct has launched its own mobile apps during the course of this period. This is in addition to its USSD offering that was launched towards the end of last year. We think this will, over time, have a positive impact in terms of cost-to-income ratio as 60% of its loans by the end of this year will be distributed digitally. We also believe that this will create opportunities for cross-selling more financial services to Credit Direct customers than just lending. On the topic of lending, digital loans overall now account for about 22% of all our retail loan sales, and that is both SME and personal banking. And we distributed about NGN 48 billion of retail loans during the course of the year. Our API platforms as at Q2 now have about 37 fintechs signed up to them and other organizations connecting to us via this platform. And this is enabling us to basically offer banking as a service to customers and also enable us to be able to distribute their products to our customers. A quick word on the impact of COVID on our business. It's been both positive and negative, but as the results showed, on a net-net basis, we've been able to overcome the negative report of a growing performance trend. So positively, we saw that the remote working practices that we deployed as well as the reduction in travel expenses during this period has led to a 5% reduction quarter-on-quarter in terms of operating expenses. We've also seen that deposits have grown generally. Some of that is due to the fact that customers are spending less and saving more, at least those that are still earning an income. And we, therefore, were able to improve our CASA mix, our current and savings accounts, as well as bring down our interest expense, as you see in our numbers. Certainly, interest expense was also propelled downwards by the Central Bank's monetary policy environment with CASA requirement that has seen fixed deposit rates remain in the very low single digits. And finally, the dislocation and uncertainty in the markets have certainly created some volatility, which our treasury has been able to take advantage of. And we've seen earnings be employed in both trading and FX income. And on the asset management and brokerage side as well, we also saw some significant growth in terms of earnings. In terms of the negative impact of COVID, the -- our net interest income did drop because we reviewed interest rates downwards substantially for a significant number of our customers to help them through this period. We also saw the transaction commissions themselves actually dropped by about 7% quarter-on-quarter, and this is because many people were staying at home, many businesses workflows. We expect that we will resume transaction commission growth in Q3. In terms of interest rates, we saw a 4% reduction in interest rates on CBN intervention funding or intervention funded loans, which had a 1% negative impact on the bank's revenue from about NGN 57.9 billion of intervention loans. 40% of our risk assets were restructured, and this represents about 29% improved risk assets as at June. And on loan pricing, as mentioned, we saw the yields drop from 11.4% to 9.5%. As mentioned earlier, it was a mixed bag. But all in all, we feel that the business was sufficiently diversified and has become substantially digitized to ensure that we were able to overcome the challenges of the period -- of the most intense period of inactivity in the economy. I will now hand you over to Kayode Adewuyi to talk us through in more detail the results of the group.

Thank you, Ladi. Good afternoon, ladies and gentlemen, and thank you for joining us. I will speaking briefly from Slides 8 to 10, which summarize the performance for the group. Slide 8 shows a summary of the key performance ratios for the group. Return on equity improved quarter-on-quarter and year-on-year moving from 8.2% in the first half of last year to 9.4% in the same period of 2020. The improved profitability was supported by FX evaluation gain and improved net interest margin. Our cost-to-income ratio improved in the second quarter of 2020, partly because of the COVID lockdown and also because of sterilizing gains from our operational efficiencies from digitization processes. Nonperforming loans to total loans remained flat quarter-on-quarter, but improved year-on-year. This is because we have some write-downs of loans in the second half of 2019. Slide 9 shows a summary of the contribution of the different business, which shows overall profitability. Our Commercial and Retail Banking group remains the largest, which improved profitability, while our Investment Management business remains the most profits sector. I will speak more on the performance of these business groups in subsequent slides. Slide 10 shows a summary of our net interest -- our income statement. As we mentioned before, our profits improved quarter-on-quarter and year-on-year. Our profit total grew 4% and 26% quarter-on-quarter and year-on-year, respectively. As I mentioned before, this was driven by FX valuation gains and net interest income. Our operating expenses dropped in Q2 due to cost savings from the COVID lockdown, but you'll notice that costs grew year-on-year. This was because last year, we had reversal of regulatory costs and litigation expenses. I'll now hand you over to Adam Nuru to take you through the Commercial and Retail Banking business.

Thank you very much, Kayode. Good afternoon. I'll be speaking from Slide 12 to Slide 21 focusing on the performance of the commercial and retail banking business. Starting with Slide 12, we see the contribution of each segment to overall performance. Personal banking continues to contribute significantly, accounting for about 45%. Our retail strategy continues to pay off positively. We continue to see good growth in customer acquisition, low-cost deposit growth and increased usage of our digital channels. We will continue to drive our various initiatives to encourage growth and optimize OpEx and reduce cost of funds. Our SME business contributed 31% to net revenue, which was slightly driven by growth in net interest income. And we have seen a good growth and increase in the digital dollarization and processing in this segment. Commercial and institutional banking contributed 2% and 5%, respectively. And our subsidiary, FCMB UK, contributed about 3% of net revenue during the period. Moving on to Slide 13. We see overall combined performance. It was a 42.9% year-on-year growth in PBT, largely from net interest income, securities trading and FX income. PBT improved quarter-on-quarter by about 4.1%. Net interest income increased by 24% -- 24.7% year-on-year, familiarizing from the gains from low-cost deposit growth. However, we saw a decline of 4.6% quarter-on-quarter, largely attributable to decline in money market rates as well as COVID-related forbearance on credit facilities, as mentioned earlier. Noninterest income grew 3.9% quarter-on-quarter and 7.8% year-on-year. OpEx increased 12.5%, as mentioned earlier. This was a result of litigation reversals sales as well as regulatory costs, additional investment in renewable energy and branch locations, IT-related costs as well as our community support for COVID-19. It, however, declined 6.8% quarter-on-quarter because of the lockdown in Q2. Risk assets grew 4.5% quarter-on-quarter and 30.4% year-on-year, while our deposits grew 9.8% quarter-on-quarter and about 29.7% year-on-year, largely from low-cost deposit growth. I will move on now to Slide 14. Due to the breakdown of noninterest income, net fees and commissions declined 19.9% quarter-on-quarter and 21.3% year-on-year. As mentioned earlier, this was largely due to reduction of regulatory costs, reduced charges and tariffs as well as COVID-19-induced lockdown. Trading income increased 8.6% year-on-year. Revaluation gains increased 51.6% quarter-on-quarter and 240.3% year-on-year. However, I'd like to note that only about 50% of the FX revaluation gain has been recognized in H1 of 2020. Moving to Slide 15. We see a breakdown of interest income. Total earning assets increased marginally by 0.9% quarter-on-quarter or 10.4% year-on-year. Interbank placements grew 42.7% quarter-on-quarter and was 7.6% year-on-year. Gross loans and advances also grew 4.5% quarter-on-quarter and about 30.4% year-on-year. Our gross loan book is about NGN 314 billion, represents about 41% of our total earning assets. Moving on to Slide 16. We're looking at the gross loan distribution by segment. Generally good growth year-on-year in all segments. The drop in commercial Banking quarter-on-quarter arose from reduction in revolving trade lines during the lockdown period. We have seen consistent growth in personal and SME loans, continue to leverage our digital initiatives to grow this further. Growth in institutional banking largely came from our U.K. subsidiary. We expect loan growth to continue across all segments for the rest of the year. Slide 17 gives the breakdown of deposits by segment. Retail SME deposits now contribute about 83% of total deposits. We've seen growth of 5% quarter-on-quarter and 24% year-on-year. Slide 18 looks at deposit distribution by type. We've seen good growth of 10% quarter-on-quarter and 30% year-on-year, largely from low-cost deposit growth. Low cost now accounts about 80% of the deposits, which is a 3% quarter-on-quarter rise from 77% previously and a 7% year-on-year rise from 73% previously. Moving on to Slide 19. Looking at OpEx, we saw a 6.8% quarter-on-quarter decline in OpEx, largely due to COVID-19 lockdown. It was a 12.5% year-on-year increase, as earlier highlighted. Slide 20 speaks to the impact of our digital financial initiatives, sharing the trend analysis of customer footprint across our digital channels. The first chart -- in the first chart, the number of customers using mobile channels is now about 5.3 million, representing approximately 75% of our total customer base of about 7.1 million. Also, customer transaction volumes, the Internet banking platform increased by almost 40% between the fourth quarter of 2019 and half year 2020. We have also witnessed significant growth in the number of customers and volume transactions processed on our mobile banking platforms, which is both USSD and our FCMB mobile app. Number of customers increased by about 730,000 between the fourth quarter of 2019 and half year 2020, and transaction volumes across the mobile banking platform increased approximately 7 million in the same period. Moving to Slide 21 speaks to customer adoption of our electronic platforms specifically in the personal banking space. Volume of personal banking transactions on our trading channels, both alternate and digital, increased by 11 million between H2 2019 and H1 2020, with the digital channels -- the volume of digital channels accounting for approximately 70% of this increase. Finally, in line with our trusts to create a digital-first bank, we have also seen significant growth in digital loan volumes, which is presently over 80% of total loan volumes in the Personal Banking segment. I will now hand you over to my colleague, Femi Badeji, to discuss the Corporate & Investment banking segment.

Thank you, Adam, and good afternoon, everyone. Once again, my name is Femi Badeji, and I will take you through the Corporate & Investment Banking section of the presentation, which are Slides 23 through 27. The focus for the Corporate & Investment Banking business remains the return to profitability, which we have seen progress with, with an improvement of 15% recorded quarter-over-quarter. Whilst there was a slight improvement quarter-over-quarter in net interest income, there was a 12% percent decline year-over-year, primarily due to a drop in risk asset yields from 11.4% to 9.5% and an increase in impairment. Noninterest income grew 15% quarter-over-quarter and 13% year-over-year, driven primarily by CSL as a result of increases in brokerage commissions and dividend income. Operating income improved 5% quarter-over-quarter, but declined 7% year-over-year, whilst operating expenses were largely flat quarter-over-quarter, but declined year-over-year by 4%. The business is boosting its effort to increase noninterest income to offset the decline in risk asset yields whilst also becoming more efficient with the usage of its balance sheet. Moving on to Slide 24. Loans and deposits grew quarter-over-quarter and strongly year-over-year due to increased customer activity as well as FX revaluations. Impairments on FX-related assets are primarily responsible for the year-over-year decline in return on average equity, which has now begun to trend back to breakeven territory quarter-over-quarter for the business. NPLs declined significantly by 53% year-over-year due to loans written off in H2 of the previous year and remained steady quarter-over-quarter. The CIR increased 4% year-over-year to 75%, largely due to the reduction of yield on risk assets. General cost reductions during the COVID-19-related lockdown brought the CIR down by 5% quarter-over-quarter to 73%, and we continue to work towards a CIR of 65% for the business. Active work is being done to reduce the impairment costs related to the business, which should help restore profitability. Slide 25. Capital raising and advisory fees dropped 58% quarter-over-quarter due to the postponement of some transactions targeted for completion in the second quarter of 2020. These transactions have either been pushed out in the near term, Q3 or Q4, with some going as far as Q1 of next year. Brokerage commissions increased quarter-over-quarter and year-over-year, driven primarily by improved activity and contributions by the stock broking business, which has been a bright spot this year. Net fees and commissions increased 9% quarter-over-quarter, driven by loan growth in Q1, but declined 2% year-over-year as a result of decreases in transaction charges based on CBN's revised guidelines on charges and tariffs. FX income declined quarter-over-quarter and year-over-year due to the reduction of completed transactions by corporate customers during the lockdown as a result of FX scarcity. Other income represents mainly dividend income received by our brokerage business. Slide 26. Total earning assets increased by 4% quarter-over-quarter and 25% year-over-year due to significant growth in loans, driven partially by FX revaluation and increases in loans to clients. Bank placements grew 85% year-over-year, driven by proceeds from equity disposals and income earned from deals. The gross loan book for corporate banking -- or the Corporate & Investment Banking business is approximately NGN 528 billion, which represents 99% of its total earning assets. The sharp drop in rates on T-bills and other government instruments led to a 2% quarter-over-quarter and 28% year-over-year decline in investments in government and corporate securities. Slide 27. The Corporate Banking segment represents 16% of the total deposits for the institution. And as a result of extensive reengagement with clients, Corporate Banking deposits rose 12% quarter-over-quarter and 67% year-over-year, driven by low-cost deposits, which, at the end of Q2 2020, represents 61% of deposits. I will now hand you over to Toyin Olaiya, Chief Risk Officer of the bank, to take us through the risk management review section for Commercial and Retail Banking.

Thank you, Femi. Good afternoon, everyone. I'll be taking you through the risk management review on Slides 29 to 32. Moving on to Slide 29, here we see the analysis of gross loans by sector. The loan book grew by 4.3% quarter-on-quarter and 27.1% year-on-year. The quarter-on-quarter growth came largely from commerce, finance, oil and gas downstream and power sector. Year-on-year growth was slightly induced by 7.3% movement in exchange rate. We also witnessed year-on-year growth in our focus sectors like agriculture, greenfield, manufacturing and commerce. We have continued with our focus to diversify the loan book and improve concentration ratio across most sectors. We expect loan growth to continue in H2, in line with our risk acceptance criteria and plan for the year. Moving on to Slide 30, here we see the NPL distribution by sector. There was a 4% growth in nonperforming loans quarter-on-quarter and 3.8% year-on-year. We closed H1 with 3.5% NPL ratio. The quarter-on-quarter growth was largely due to the impact of COVID-19 on the loan book of our subsidiary Credit Direct Ltd costs and a 60% increase in the NPL book quarter-on-quarter. The quality of our loan book remains a key focus, and we expect NPL ratio to be within regulatory limit this year in lieu of CDL's COVID-19 palliative measures. I'll now move on to Slide 31. This slide shows the cost of risk trend year-on-year, quarter-on-quarter. Q2 2020 annualized cost of risk grew slightly compared to similar to the prior year due to low recovery experienced in Q1 and the impact of COVID-19 on macroeconomic variables, which increased impairments in Q2. We, however, expect CBN's palliative measures to cushion the impact of COVID and moderate our cost of risk for the year. Thank you. I now hand you over to Mr. James Ilori, who will take you through the investment management review.

Thank you, Toyin. Good afternoon, everyone. I'm going to take you through the next few slides on vestments of Investment Management group. I'll start with Slide 33. Assets under management rose by 7% quarter-on-quarter to close the first half of the year at NGN 455 billion. The growth in AUM reflects the improving effectiveness of our product sales strategy, which leverages the SMB group; distribution strength; digital innovation, such as digital pension registration, and its balance state here that this accounted for 15% of total pension registration in June versus 2% at the end of March; and lastly, large-scale direct sale. Our pensions business accounted for 75% of half year '20 AUM compared with 83% at the end of the first half of last year. The Wealth Management and Collective Investment Schemes business lines contributed 53% of the NGN 99 billion year-on-year growth in AU. Despite a relatively more challenging business environment, cost-to-income ratio fell by 13% year-on-year to 55%, while group PBT grew by 41% year-on-year to NGN 989 million. And lastly, on this particular slide, we have agreed terms, subject to regulatory approval, to purchase a majority stake in AIICO Pension Managers Limited. I'll now move to the next slide, which looks up the projection for the second half of the year. We expect the group's full year AUM to increase by 23% year-on-year. That is an increase of NGN 93 billion to take the closing AUM for this year to NGN 496 billion. Our forecast excludes the expected positive effects of the AIICO Pension Managers Limited acquisition. Contribution to AUM from our Collective Investment Schemes and Wealth Management business lines should account for 27%. That's NGN 133 billion of the total AUM projected for this year. That compares with 21% by the end of last year. Lastly, we expect full year PBT to close at slightly over NGN 2 billion, representing a year-on-year increase of 19%, and we expect our Pensions business line to account for 62% of the projected PBT. Thank you. I'll now hand you over to Mr. Ladi Balogun to talk you through the outlook.

Thank you very much, James. Looking at our outlook for the rest of the year. Just want to, first of all, talk you through what we had anticipated in Q1 -- at the end of the Q1 presentation and what we actually experienced in the second quarter before I go into the outlook for the rest of the year as this helps to set the context. We had anticipated reduced fees and commissions as well as reduction in noninterest income because the lockdown would lead to lower economic and customer activity. Indeed, fees and commissions did reduce by 8.2%, but our trading activities in treasury and our activities on the investment banking side, also due to noninterest income by 3% Q-on-Q. Impairment charges, we expect it to rise, and we did see an 11% rise in impairment charges. Regulatory risk we thought would remain high, and this is probably the most significant movement that we saw where our cash reserve requirement actually doubled by 200 and -- about slightly NGN 200 billion to NGN 421 billion. We'd anticipated that loan growth could be in the 10% to 14% range at the half year. We've achieved 11%. And we also expected more revaluation gains, and we recognized NGN 1.35 billion of revaluation gains in the second quarter. Low CIR revenue came through from digital lending and Corporate & Investment Banking, and these were up 25% to NGN 1.9 billion in terms of digital lending revenue, and corporate investment banking revenue was up 3% to NGN 15.1 billion. We did see a downward cost pressure that we've anticipated with OpEx coming down 5%, and we also saw AUM growth year-to-date of 13% and, as earlier mentioned, 28% year-on-year. So as we look to the second half of the year, we actually expect that impairment charges will only accelerate very marginally. I don't think it will be that significant. We do have fairly healthy buffers already, but we want to make sure that we are well prepared for 2022. We expect that, barring any further devaluation, loan growth will slow down in H2, but we will most likely end the year somewhere in the region of 15% loan growth, maybe slightly higher than that. We expect that we would recognize about another NGN 2.2 billion there of revaluation gain in the second half of the year. Digital lending, we think, will continue to grow. Based on the pipeline of business that we have lined up in the Corporate & Investment Banking business, we expect that you will see revenue growing there and then loss position coming down. The earnings will -- broken even in that business once again by the end of the year and now see positive contribution from next year, which will have favorable impact on not just cost income ratio, but also ROE. Our H2 OpEx, we think, should remain flat, and we expect our assets under management should achieve a 23% growth that we've anticipated organically. As mentioned by James earlier, should we close the AIICO transaction, that AUM growth would be materially more than that. So overall, we do expect that earnings should remain stable in H2. We expect that it will be more diversified as we're seeing growth in areas that are more sustainable, and we're not making any bullish assumptions in terms of trading income, which we know can be volatile. So we anticipate that will reduce in H2 as well as, of course, we've already indicated what we would see in terms of revaluation gains. So that's it in terms of presentation, and we look forward to taking your questions in the Q&A session.

[Operator Instructions]

So we can start, right? Okay. So we will start with the written questions that we have received. [ Tim Chang Guata ] asks -- he's curious as to why information and communications has such a high share of NPLs, higher even than oil and gas, considering that this sector is one of the fastest-growing in the economy. I don't know. I think I would ask Toyin Olaiya, Chief Risk Officer, if you have more detail on that. Maybe you could let us know where that is.

Yes, yes. Sure. Yes. The mid on in there is line mobile. So that's why. So it was impaired 3 years ago in line with the agreements at the syndicate level. So that's why it's only just line mobile that is there.

Okay.

And the details are later on pending outcome of negotiations that are still ongoing.

Okay. Thank you, Toyin. And [ Tim Chan ] also asked if we could kindly speak on our outlook for OpEx in H2. What specific measures are being taken? And also speak on the outlook for cost of funds, especially in light of the recent $50 million facility obtained. Okay. So in terms of outlook for OpEx, I believe we shared that in our final outlook slide, where we anticipate it will be more or less flat. Specific measures that are being taken is really to continue with travel restrictions and about 50% of our employees working from home, and also only staffing our branches to, I think, about 50% or so of the branch staff being in our branches. We're also generally seeing much higher digital adoption by our customers, and we continue to push that. The combined effect of all of these is that we believe we will be able to keep a lid on costs in the second half of the year. There are also a number of regulatory costs that we accrued for in the first 3 quarters of the year, and these do not have any impact on P&L in Q4. So we include them over 9 months basically. If I'm not mistaken, and the bank CFO can correct me if I'm wrong, I believe that is on our AMCON levy. Is that correct, Yemisi?

Yes. Yes, that's correct.

Right. So that's accrued over the first 9 months. So we tend to see that Q4 tends to be lower anyway in terms of expenses. So that's what we're seeing. Now in terms of outlook for cost of funds, yes, you are right that we are raising $50 million. I believe you may be referring to the $50 million from the IFC. There is also a -- in fairness, I believe we are working on a $50 million Tier 2 as well. Much of these are actually refinancing, if I'm not mistaken, of existing dollar lines and rather than an increase in terms of -- or a significant increase in terms of dollar borrowings. So again, Yemisi, you may want to clarify. Are we seeing any material increase in our billable results?

You are very right, the increase over time one is.

Okay. So these are largely refinancing. And I think when we look at what they contribute as a percentage of our overall interest-bearing liabilities, it is relatively small. So my anticipation is that our deposit mix will continue to improve. We do not anticipate that we will be further raising deposit rates. Even if we do, I think it will be on a lower relative share of deposits. We also benefited marginally from the reduction in MPR in Q2, which led to a reduction in our savings deposits. So I also think that, that will help the entirety of H2. So our view is that cost of funds should remain stable. And -- yes, it should remain stable, I would say. So moving on to the second question. [ Tuosi Oni ] -- Tuosi asked that I had mentioned that 40% of our loan is going to be restructured versus 50% mentioned in the first quarter call. Could we have an update on what sectors this -- where the restructuring's been in, and what this means for cost of risk going through into the rest of the year? Should we expect an uptick in NPL ratio the rest of the year. So then we will take that question first and ask Toyin to comment on that.

Okay. So yes. I mean we had given the 50% at the last call, but it's now 40% because the loan book grew quarter-on-quarter. So that is what has happened. So right now, it's 40% of our provision as of Q2. So that's how that happened. And in terms of the various sectors that we're looking at in terms of the 40% of the loan book that we're planning to restructure, so we have oil and gas accounting for about 16.7% of that 40%. We have real estate at 7.3%; manufacturing, 3.2%; power grid, 3%; power, 4%; and retail and SME, 7%. So that's, in a nutshell, the breakdown, although there are sectors that we're looking at restructuring the portfolio. And it's also in line with the CBN palliative measures. So the time for restructuring vary depending on the underlying resource, the businesses and why -- and so for most of them, for the oil and gas, they're looking at 3 to 6 months, but the downstream is just to -- because of the lockdown, the 6-weeks lockdown, so it impacted their cash flows. So we're just looking at semi-extension of 3 to 6 months, for the upstream sector between 6 to 12 months and between 3 and 12 months in some groups, payment extension and then payment holiday for most of the retail and SME between 3 to 6 months. And what we started experiencing after the easing of the lockdown, a lot of them, in terms of cash flows, started missing repayments. So we do not expect some significant NPL in those sectors because of the easing of the lockdown. We've seen significant impact in terms of cash flows coming into the accounts. Thank you.

Okay. Thank you. So the second question that [ Tuosi ] asks was in terms of the intended acquisition of AIICO pensions and wanting more detail in relation to the transaction, the potential synergies that could be gained and also saying that the consideration sounded rather punchy. So I think, first of all, we do see significant synergies. AIICO has head office and has presence in many branches across the country and also has quite a lot of investments in technology. So obviously, those are all duplications for us, and we do not anticipate such assets and costs will continue. So there will be significant cost synergies, and we're not at liberty at this stage to share those details. But should the deal close, I'm sure, by the end of this year, we will be able to give more details as to the financial impact. It could be argued that the price seemed punchy. I would say only if there were no cost synergies. But as we look at the cost synergies, we feel that it's certainly earnings-accretive to our business. And in terms of our projected IRR, it's certainly a better use of our available resources than many of the other options available to us across the group. So we're quite comfortable with the financials of the deal. And again, we will be able to share some of that. I should stress that it is not a transformational transaction. It is incremental and increases our market share. And our overall story in terms of AUM is not really just a focus on pensions. We focus on a much broader asset management business than pensions, and we are moving steadily towards crossing the NGN 1 trillion mark in terms of AUM within the next 2 years. And this fits perfectly with that objective. The third question from [ Yenka ] -- from [ Tuosi ], sorry, is that on Page 25 of the slide, we declare a NGN 383 million revenue from brokerage as at end of June. And NSC published data that we had NGN 63.5 billion worth of trades, and this would imply about 60 basis points commission rates. And can we confirm if this interpretation is right? I can give you a high-level view of our CSL strategy and what is driving the revenue. So increasingly, we are developing a multiproduct approach. So not just equities but fixed income, currencies and commodities. We're also developing a multi-country or multi-geography approach out of CSL U.K. across several African countries. And so what you see in CSL's numbers will not just be as we go forward, will not just be brokerage commissions. And therefore, when you're analyzing it, you may -- if you're basically just looking at the volumes we do on the Nigerian stock market, it would be incorrect. But maybe we can get back to you in terms of what our actual commission rates are for the brokerage business. Okay. I think we can move on to the non-typed questions to Q&A on the call.

We have one question. It's coming from the line of Tunde Abidoye.

Congratulations on your results. My first question is just to get a sense of what you're seeing with your debt service paydown by your oil and gas sector obligors. Given the improvement we've seen with oil prices recently, so what are you seeing? And secondly, can you give us a guidance on cost of risk for 2020? And I'm asking this because of the quantum of loans that you're trying to restructure. Also on your liquidity ratio. I know you mentioned that it's much higher when you adjust for your CRR. Did you have any plans to boost the ratio in the pipeline, apart from just mobilizing deposits? And what's your effective CRR at this time? Then the CBN said it is worth about NGN 150 billion in international funds to the manufacturing sector. How much of this was bought through FCMB? That's all for now.

Okay. All right. So the first question that you asked around -- I guess, 2 questions, probably take them together, maybe Toyin can answer that where you ask, what are we seeing in terms of repayment in upstream oil and gas since we had some recovery in oil price? And then what is our outlook in terms of cost of risk for 2020? So Toyin, could you give us an answer to that, please?

Yes. So like I've mentioned for, the offstream oil and gas, what we have done is to grant some level of moratorium on payment of principal. So what has happened is that without uptick, they're establishing the interest obligation. So that is where we are right now. In terms of cost of risk, we cannot give a guidance right now on the cost of risk. Like I had mentioned, we've taken advantage of the palliative measures we're restructuring. And we're reviewing this as it is. Over the course of the year, we might be able to give more guidance. Thank you.

Okay. Then you also asked about our plans to boost liquidity. I believe I can answer that, that beyond really just the growth in deposits, which we believe will be faster than the growth in loans, that would be the only thing that would improve liquidity. We are seeing -- and, of course, that is subject to recognizing that some of that could be taken away as cash reserve requirement. In terms of our effective CRR right now, I don't know whether Yemisi can give us the total figure, what that is. Yemisi, do you have that figure.

Yes. Currently, our effective CRR is 54%.

Okay. 5-4 or 6-4?

5-4,

54%. Well, I appreciate it.

54%, yes.

That's our last question from the phone lines. [Operator Instructions] Please continue. We have no more questions from the phone lines. Please continue. Everyone, please stand by. We're just dialing out to the main feed. Please hold on. [Technical Difficulty] Hello, everyone. We have no further questions coming from the phone lines, and we now have the main feed. Please continue.

Okay. There are no further questions, but I believe there was one we haven't finished answering. So I'll just ask Toyin to answer that, and then we can round up. The question being that's about NGN 150 billion of expansion manufacturing and commercial loans, how much of that came through FCMB? So I don't know if Toyin has a sense of FCMB's share of the NGN 150 billion.

We can get back on that.

Okay.

Look, I don't know if...

So I think we'll communicate directly on what -- they would have to that figure at hand, but Ori will ensure to get back to you. Okay. So can I confirm there are no further questions? I'll take silence as a yes.

No, no, no. We have questions on the queue -- on the webcast.

I'm sorry. We have questions, I hear, on the webcast. Probably more are coming, unless the... so yes. Go it from [ Jerry Inyagowe ] said that where are you on the AIICO deal pipeline? And when do you envisage the deal could be completed? How you assess the impacts of easing and lockdown across your businesses? Is it back to normal, especially for your obligors? In terms of the AIICO deal, probably maybe, Kayode, you can just share where we are. Kayode, the CFO of the holding company.

Look, right now, we're engaging to our creditors. We're responding to always come with creditors. We expect to have the approval in this.

Second issue is the impact of easing of lockdown across our businesses. I think it's a balanced impact. Costs will rise or have risen very marginally, of course, but we've seen, obviously, transaction commissions. And activity is also picking up slightly as well. So I would say that it is about -- it's ready in batch. And I wouldn't say that it's either negative or positive, but we've seen movements on both the cost and the revenue side. Now is it back to normal, especially for obligors? It varies from sector-to-sector. And maybe, I think with SMEs, we've taken a slightly different approach. And maybe Toyin can just talk about what we've done in terms of obligors. Toyin.

Yes. Hello. I didn't quite get that question.

The question was, is it back to normal in terms of our obligors, whatever value to it that we've given? Are they being suspended, too?

Okay. So like I mentioned, for a lot of our obligors under retail and SME, some have even come back to us saying that they will no longer take the holiday because, yes, at that time, because of the lockdown, they had to close shop. But now customers are coming. And they're making their repayments. So we are seeing that in the retail sector, the SME sector as well. So that's the kind of positive that we're seeing in terms of obligors and their passover money. Thank you.

Great. Thank you, Toyin. Right. [ Tori ] -- sorry. [ Tori See ], well, he also asked again if we could repeat the sectors that have been restructured. And also, is it only oil and gas exposures that have moratorium on principal and whether, Toyin, you could speak to the nature of the moratoriums to the other sectors, if there are anything on oil and gas.

Okay. So not only oil and gas sector exposures being tranched or being sculptured. Like I mentioned, for oil and gas, real estate, manufacturing, agri, power, Are retail and SME. So those are the sectors where we intend to restructure. And we have obtained approval from central banks of about 71%. Hello. So we -- so we are expecting to prove out the outstanding. But when it comes at the time of the restructure, like I said, for the downstream, we are looking at 3 to 6 months channel extension for them. Because for some of them, because of the lockdown, there are strong reduction in cash flows. For upstream, a mix of 6 to 12 months and for established cities, 3 to 6 months. And for the other factors, the same thing on tariffs and for the manufacturing between 6 and 12 month. But maximum has been 12 months. And for the oil and gas opt-in sectors, so they are the ones that mainly as soon as it stops. But the real estate, it's been between 3 to 6 months. Because for the real estate exposure we have in the book, we are actually shopping malls. And then doing the lock down, a lot of these tenant...

Ending in the early October.

What happened with that one, in fact, it's more than -- and now that they are fragile, it's more complicated, similar to [indiscernible] so that's the detail on the restructuring. Let's talk about the healthy business [indiscernible]

So that concludes the question-and-answer session. I believe Toyin has concluded answering that question. We have one more question basically asking what are our concerns and risk in terms of Page 2, in terms of earnings for H2. I would say that we are optimistic, but we would maintain stable earnings. The areas that could be volatile is trading income from treasury, but we're not forecasting that, that would be as strong as we had in H1. That could potentially be a positive variance from what we expect. But if it's negative, that could also have a marginal impact. And then, of course, cost of risk to an extent is not clearly known. Of course, the palliative measures we've put in place certainly helps to mitigate that risk somewhat in H2. So we do see relative stability through to the end of the year. So very large is that. Thank you. Okay. I believe that was the last question on -- in terms of those [indiscernible]. And all that is left for me is to say thank you very much. Sorry. We have one more.

You have one more question. Sorry. The other question from [ Jerry Nyube ]. Well, hold on, please. Do we order some...

Yes, on the webcast. I didn't get the answer on where you were with AIICO deal. Did you say next month is the potential time range? Yes. We expect -- we are hopeful that we would close it out this quarter. I think it would be safe to say. Okay. I understand there are no further questions. So I'd like to thank everyone for listening and for your questions, and we look forward to seeing you and speaking with you again when we share our financials. Have a good evening. Goodbye. Also, to let you know that the Q3 numbers did -- sorry. Just one last again, that the Q3 numbers, because we'll be going through an audit would not be released until, I believe, November as opposed to October when we normally release results. Thank you. That's it.

Ladies and gentlemen, that does conclude our conference call for today. Thank you for participating. You may all disconnect. Speakers, please stand by.