FCMB Group Plc (FCMB) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's FCMB Group Plc's Full Year 2020 Results Webcast and Conference Call. [Operator Instructions] I must advise you that this conference is being recorded. Now I would 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. Good afternoon, ladies and gentlemen, and welcome to the investors and analyst presentation for the results of FCMB Group Plc. I would like to mention who we have also on this call. In addition to myself, we have the acting Managing Director of the bank; Mrs. Yemisi Edun. We also have the Corporate Investment Banking Director that sits in our holding company, Mr. Femi Badeji. We have our Head of -- or MD of FCMB Asset Management, Mr. James Ilori. In addition to that, we also have our Chief Risk Officer, Mrs. Toyin Olaiya. We have our Chief Digital Officer, Emeka Eboegbune; and our Head of Investor Relations, Ori Rewane. I will be taking you through the first section. If you go to the agenda slide, I'll be taking you to the first section, which is just introductory high level remarks. And then I'll be passing you on to Kayode Adewuyi, the Chief Financial Officer, who will walk us through -- Chief Financial Officer of the holding company, who will walk us through the overview of our results at a group level. So if we move to the slide, which has -- I think, Slide 4, just the summary of our results. We would see that in spite of what was a very challenging year signified largely by the pandemic that swept the world and also affected businesses, in spite of that, we were able to record a fairly strong performance. This was achieved largely as a result of our readiness from a digital perspective to be able to continue to do business in spite of the lockdown that we experienced, and in addition to that, the fact that we have begun a journey of diversifying our business, particularly growing our asset and wealth management activities. And we saw a significant shift of customer deposits from fixed deposits to investment products and assets under management as a lot of our customers were hunting for yield. We also witnessed in the year strong growth in investment banking activities, which the Corporate & Investment Banking division, whilst still being in a state of sort of turnaround due to legacy assets in the corporate book, we are beginning to see significant improvement and look forward to the entire Corporate & Investment Banking business breaking even certainly, if not the end of this year, by next year. But I will go back to the highlights, and I wanted to just provide that as background and context, and we see that total assets grew by 23% for the year to NGN 2.1 trillion. Deposits also grew by 33%, much of that growth coming from current and savings accounts. And I believe later, you'll get more insights into what our deposit mix is within the bank. Loan growth grew by 15%. Assets under management grew by 23% to NGN 495 billion. If we look at our customer numbers, we saw 19% growth in overall customers, but 43% growth in digital customers, where we now have 6.6 million digital customers, mostly on mobile. The key challenge for us is to make sure that we move as many of them to daily active users so we can ramp up fees or non-interest income, and also potentially increase our penetration of borrowing customers as a percentage of our total customers, which we believe digital lending will enable us to do. If we look at our capital adequacy, we saw that that also inched up to 17.7%. ROE is inching up marginally by 20 basis points to 9.2%, and we saw a downward trend in our NPL ratio, largely because of loan growth. All this led to an overall improvement of 9% in profit before tax, and while it's not recorded here, 13% in profit after tax when compared to 2019. If I move to Slide 5. The last couple of years, we've been running the business based on 3 core themes: building more resilience in our balance sheet, diversifying our business and driving innovation. In terms of resilience, we have maintained a very conservative dividend payout ratio over the last few years so that we can shore up our shareholders' funds, in spite of the continued loan growth. It has meant that we have not needed to go and raise Tier 1 capital. We have however, where market conditions have been right, strengthen the capital footing with Tier 2. So our CAR is currently sitting at 17.7%. In terms of liquidity, we saw an improvement in our liquidity ratio to 34%, 34.2% for the year. And this was excluding the NGN 311.7 billion that we have tied up in cash reserves that would otherwise be liquid assets. From a diversification point of view, the focus has really been on growing the customer base so that we are not reliant on a small number of corporate customers or just 1 or 2 product areas to drive revenue. We continued this in 2020, and we saw our customers grow to 8.3 million. We've also tried to achieve diversification by continuing to grow the personal and business banking space. I think that with the various technology solutions that are emerging in the market, everything from the penetration of smartphones to cloud computing, to micro service architecture and so on, artificial intelligence, many of these we're beginning to leverage, and we're seeing that this actually lends itself to growing our personal and business banking area much more rapidly. And that's why we've seen that this now accounts for 68% of total deposits, 32% of risk assets and 66% of net revenue, respectively. As mentioned earlier, investment management has been a key focus for us as it's a very capital-efficient source of growth. We saw its profits grow by 19% year-on-year. And it now accounts for 9% profit before tax. Our assets under management, as mentioned, grew by 23% to NGN 495 billion. We will continue to diversify away from just traditional banking, growing our asset management and investment management business as one of the key areas for future returns. From an innovation perspective, while there's been a lot going on, I would probably just focus on 3 or 4 areas. First being the fact that we are seeing rapid uptake in mobile app. We now have 6.6 million customers between mobile and, I should say, USSD, which is 43% growth. Certainly, the pandemic helped accelerate growth here. However, I think the fact that we have built our own proprietary mobile app, that allows us to customize not just our product offerings, but also the user journey and continue to improve it, has seen improving customer satisfaction and higher rates of adoption. In terms of transaction volume going through our mobile channels, this has increased by 73% year-on-year. Again, this is not unrelated to what we saw in -- well, this is not unrelated to the pandemic where many mobile businesses have seen an acceleration in their growth. However, we feel that we will be able to sustain similar growth rates in the year 2021 as we unlock a number of new innovations. Similarly, revenue rose during the period from -- sorry, revenue actually rose in Q4 to NGN 589 million, although year-on-year, it dropped slightly by 10% from NGN 2.1 billion to NGN 1.9 billion. This was as a result of accruals we made for session charges on USSD. However, we believe that going forward, we will see strong year-on-year growth in mobile revenue for 2021 and beyond. Digital loans is an area that we see as an opportunity to create capital-efficient lending, in other words, lending activities that would be fairly profitable from us even after the cost of capital. And there is significant room for us to further penetrate our existing customer base and grow the percentage of borrowing customers in line with what you would find in many other sort of retail banks that have digital lending or consumer lending as part of their product offering. In spite of that, we saw that digital lending represents now NGN 89.3 billion of -- well, it's NGN 89.3 billion and 30% of our total loans, and it's actually about 86% of count. So from just an efficiency and productivity point of view, the vast majority of our loans are being originated without requiring much human intervention. We expect that the volumes of loan origination and the value in the digital space is going to continue to ramp up this year. Part of that will happen because Credit Direct is also moving to being fully digital. We expect that that journey will be completed in 2022. However, we expect that an even larger proportion, we have about 70% of our customers onboard via digital in the year 2020. We expect a similar amount in 2021. And by 2022, we expect that the business will be entirely digital. I will now hand you over to Mr. Kayode Adewuyi, the Chief Financial Officer of FCMB Group, to take you through an overview of our results.

Thank you, Ladi. Good afternoon, ladies and gentlemen. I'll provide highlights of the group's performance for 2020. Slide 7 shows key ratios of the group's performance. Return on average equity grew year-on-year, supported by an increase in net interest margin and improved cost-to-income ratio. Our loan-to-deposit ratio deteriorated from 75.9% to 66%. This was largely because of the 33% growth in deposits and a 15% growth in loans. Cost-to-income ratio dropped from 69.4% to 66% because revenue grew faster than our expenses in 2020. Our NPL ratio improved from 3.7% to 3.3%. We'll provide more details on that with risk management review. As mentioned earlier, capital adequacy and liquidity ratios are higher improved in 2020, higher than minimum regulatory requirements. Slide 8 provides a summary of the contribution of our different business groups to the group's profit ability. The notes at the bottom of this page shows the entities that make up the different business groups. Slide 9 provides a summary of our statement of profit and loss. As I'd mentioned earlier, profit before tax represent year-on-year, due to an increase in net interest income, FX income and a moderate increase in operating expenses. All these factors cushioned the effect of the increase we had in impairment charges to deliver the increase we had in profit before tax. I'll now hand you over to Yemisi Edun to take us through the Commercial and Retail Banking businesses.

Thank you, Kayode. Good, ladies and gentlemen. I will take you through Slide 11 to 20 on the review of the Commercial and Retail Banking business for the financial year 2020. On Slide 11, which contains Retail Banking segment performance. So Personal Banking contributed 46% of net revenue, further demonstration of the sustainability of our retail-led strategy book of using technology and digital innovation to drive scale and acceptance across retail products and services. The segment has also consistently maintained a strong and stable deposit base, with a balanced low-cost mix from new-to-bank and increase in the wallet share of transactions from existing customers. We have also continued to see an upward delivery in the personal banking segment, assessing through validation from our digital transformation initiatives as more retail transactions are now processed on our electronic banking channels. Furthermore, we shall continue to use technology to promote OpEx improvements and reduced cost of funds across the segment. For SME, the segment contributed 31% to net revenue, from growth in net interest income. While the automation of SME lending has enhanced the digital collection for fast-tracking origination and underwriting. Institutional banking contributed 2% to net revenue, while it's seeing U.K. Limited, which contributed 3% to net revenue. Moving on to Slide 12. This contains a review of the Commercial and Retail Banking performance. 28.4% quarter-on-quarter increase in PBT from a combined increase in net interest income and non-interest income as well as cost efficiency in OpEx. However, PBT declined 34.4% year-on-year due to increase in impairment loss on financial assets and OpEx. Net interest income increased 3.7% quarter-on-quarter and 14.5% year-on-year from cumulative improvement in our low-cost deposits as well as improvement in cost of funds within the period. Non-interest income increased 31.5% quarter-on-quarter and 8.5% year-on-year due to increase in FX comes from revaluation gain. Operating expenses decreased 11.1% quarter-on-quarter due to the accelerated amortization of regulatory costs in line with IFRS. However, the OpEx increased 8.5% year-on-year because of regulatory and IT-related overheads, and also the continued COVID-19 community service. Risk assets grew 6.6% quarter-on-quarter and 21.5% year-on-year, while deposit by 4.3% quarter-on-quarter and 28.20% year-on-year, respectively, mainly from low-cost deposit accumulation. Moving on to Slide 13, which contains non-interest income analysis. Return on net fees and commissions declined 17.3% quarter-on-quarter and 25.4% year-on-year because of a decline in service -- cost of decline in service commissions on finance trade activities. Commissions from domiciliary related transactions and from regulatory-led reduction on tariffs and charges. Trading income decreased 30.1% quarter-on-quarter due to low trading activities in government-backed securities in Q4. However, it grew 3.8% year-on-year. FX income increased 372.4% quarter-on-quarter and 169.6% year-on-year from revaluation gains. Gain from financial institution -- financial instruments and others declined quarter-on-quarter and year-on-year due to matured financial instrument deals and loss recognized as a result of structured facilities. Moving on to Slide 14 for a review of interest income and earnings assets for the year. Total earning assets decreased by 17.5% quarter-on-quarter and 28.6% year-on-year, respectively. For our interbank placement declined 80.8% quarter-on-quarter and 97.7% year-on-year. Gross loans and advances grew 6.7% quarter-on-quarter and 21.5% year-on-year. The gross loan book of NGN 339.46 billion represented 36.1% of total earning assets. Investments in government and corporate securities increased by 26.9% quarter-on-quarter and 63% year-on-year from CBN Special Bills program for banks. Slide 15 shows the gross loan distribution by segment. In line with business plan to grow the loan book for the year, we achieved 21.5% year-on-year and 6.6% quarter-on-quarter growth in loan across business segments. There was a 21.5% drop quarter-on-quarter in commercial banking as a result of pay downs on revolving trade lines. Growth in personal and SME banking has remained steady and sustained through the year, in line with our strategic plan. We will stay steady on our approach to sustain quality loan growth across business segment, driven through focus sectors. This sectors include renewable energy, owned and managed businesses, and then SMEs, as I said by the COVID-19 pandemic, especially in health care, local manufacturing, agriculture industry, and educational sector. Slide 16 contains deposits distribution by segment. Personal and SME deposits now constitute about 82% of total deposits, and this grew 2% quarter-on-quarter and 25% year-on-year. On Slide 17, which shows total deposits by distribution type. Our total deposits rose 4.3% quarter-on-quarter and 28.2% year-on-year, driven by current accounts and savings accounts deposits, because of a sustained focus on retail banking, leveraging on digital innovation and technology to improve customer applications, onboarding and user experience in the segment. Low-cost deposits now account for 80% of our total deposits, a 2% for quarter-on-quarter rise from 78% and 5% year-on-year from 75% the prior year. On Slide 18, which is on our OpEx analysis. Operating expenses decreased 11.1% quarter-on-quarter due to the accelerated amortization of the regulatory cost, particularly AMCON levy, in line with IFRS, and as the returns of the business is stronger, while the increase of 8.5% year-on-year is from regulatory costs, IT overheads and COVID-19 business and community support. Slide 19 and 20 both look at the performance of our digital channel during the year. On Slide 19, we are continuing to see consistent adoption on our mobile channel with 6.6 million out of 7.7 million customers now using our digital platform for their daily transactions. This represents an 85% adoption mix from total customer mix and an addition of 2 million new users onboarded from financial year 2019. About NGN 4.6 million customers were onboarded in 2019 on our digital platform. On Slide 20, we shall -- we see channels usage analysis indicating acceptance and usage across digital, alternative and branch channels, respectively. For the combination of transactions, digital continues to take the lead with about 53% adoption, and usage across FCMB Mobile and USSD, while approximately sustained, those come from personal loans who were sustained on digital channel during the year. Thank you. And I'll now hand you over to Femi Badeji, who will present the performance of the Corporate & Investment Banking.

Thank you, Yemisi, and good afternoon, everyone. As mentioned, my name is Femi Badeji, and I will take you through the Corporate & Investment Banking section of the presentation, which are Slides 22 through 26. Performance for the CIB business segment continues to trend towards profitability with a 48% year-over-year improvement in profit after tax. Net interest income dropped 19% quarter-over-quarter, driven by an increase in cost of funds, but improved by 69% year-over-year to NGN 12.6 billion due to the improved yield on risk assets in 2020. Non-interest income grew 103% quarter-over-quarter, driven primarily by the greater than 85% growth in both brokerage fees as well as other fees and commissions. There, however, was a 5% reduction year-over-year to NGN 6.7 billion as a result of modification losses on facilities restructured during the year. Operating income improved 19% quarter-over-quarter and 33% year-over-year to NGN 19.3 billion, whilst operating expenses increased 32% year-over-year to NGN 12.7 billion. The CIB business remains focused on its return to profitability and is boosting its efforts to increase non-interest income whilst also becoming more efficient with the usage of its balance sheet. Moving to Slide 23, please. Loans and deposits grew year-over-year, primarily due to increased customer activity as well as gains from FX revaluations, with gross loans increasing year-over-year by 26% to NGN 529 billion, and deposits increasing year-over-year by 66% to NGN 208 billion. Increased net interest income and a slight reduction in impairment provisions are primarily responsible for the year-over-year improvement in return on average equity, with the fourth quarter of 2020 recording a marginally positive return on average equity. NPLs increased 36% quarter-over-quarter and 44% year-over-year, due primarily to delayed repayments on certain oil and gas downstream loans. CIR reduced 6% quarter-over-quarter and 1% year-over-year to end at 66.1% for the full year 2020. The reduction in CIR was largely due to the improved yield on risk assets and increased fees and commissions that boosted revenue. Active work continues to be done to reduce the impairment costs related to the business, which should help restore profitability. Moving on to Slide 24. Fees and commissions contributed 92% to non-interest income for full year 2020. Trading income at 1% of non-interest income for the full year remains marginal. Contributions from FX income increased significantly in the fourth quarter due to an increase in FX-related activities. Other income represents mainly dividend income received by our brokerage business, which dropped in the fourth quarter as the dividend payment season wanes. Slide 25. Gross loans and advances increased 1% quarter-over-quarter and 11% year-over-year, respectively. This was primarily driven by an increase in new loans to customers and some FX revaluation gains on the loan book in the second quarter of the year. The gross loan book of NGN 529 billion represents 99% of total assets. Investments in governments and corporate securities for the CIB segment increased 40% year-over-year due to the increase in market rates on T-bills, bonds and other corporate instruments. Slide 26. As a result of an extensive reengagement efforts with the corporate clients, corporate banking's deposits rose 11% quarter-over-quarter and 66% year-over-year. 17% of total deposits are from the corporate banking segment, with 68% of these deposits being classified as CASA deposits. I will now hand you over to Toyin Olaiya, Chief Risk Officer of the bank, to take us through the risk management review for Commercial and Retail Banking.

Thank you, Femi. Good afternoon, ladies and gentlemen. I will be taking you through the risk management report on Slide 28 through 33. Moving on to Slide 28. This slide summarizes the group's gross loan book by sector. We achieved 15.2% growth in the loan book year-on-year, and 2.9% growth quarter-on-quarter. 9.8% devaluation in currency also contributed to the year-on-year growth. Year-on-year growth, of course, mainly across our focus sectors, namely retail, agricultural, manufacturing, commerce and education. Quarter-on-quarter growth also came largely from focus sectors earlier mentioned. The growth in the oil and gas upstream exposure year-on-year came largely from currency devaluation experienced in the year. We closed the year with exposure to oil and gas sector in total at 28.9%, which is in line with our ongoing diversification strategy. I now move on to Slide 29. This slide shows the NPL distribution by sector. We witnessed 3.4% growth in nonperforming loans year-on-year and reduction by 24.1% quarter-on-quarter. NPL ratio stood at 3.2% by year-end. The year-on-year NPL growth came largely from a particular account within the oil and gas downstream sector. And we -- the reason for this is because of the delay in respect of FGN committed refund. The 24.1% quarter-on-quarter drop in NPL was largely due to long outstanding nonperforming loans written off in the last quarter of the year. These are largely accounts currently on the green workout in telecoms, in manufacturing, retail and real estate. Our recovery drive will continue in the current year with expectation for improvement as economic activities pick up. I now move on to Slide 30. This slide shows cost of risk trend year-on-year and quarter-on-quarter. The cost of risk ratio grew by 0.9% year-on-year, largely due to the impact of COVID-19 on macroeconomic industries, which increased our ECL impairment charge in the year. We expect gradual ECL moderation as the economy stabilizes, with consequent improvement and recovery on other key variables. Thank you. I now hand you over to Mr. James Ilori who take you through our investment management performance review.

Thank you, Toyin. Good afternoon, ladies and gentlemen. So I'll start with the financial year '20 results review slide, that's Slide 32. Looking at the NGN 92 billion year-on-year increase in assets under management. 55% of that increase came from new inflows, that refers to net contributions. And the balance was from investment return on funds under management. Our pensions business accounted for 74% of the year-on-year AUM of NGN 495 billion. That's down from 79% achieved in 2019. The number of retirement savings accounts grew by 4% year-on-year to close at 450,929. Registrations via our digital platform accounted for 23% of the increase. Looking at the cost-to-income ratio for the group, that fell by 5% year-on-year. The drop was primarily due to increased revenue, cost savings from the COVID-19 lockdown and restrictions, and increased use of technology in service delivery. I'll now move to the next slide, which looks at the financial year 2021 projections. We expect the group's full year AUM to rise by 19%. So we expect to close with assets under management of NGN 588 billion. The figure does not include the expected AUM impact from the AIICO Pension Managers Limited acquisition. In terms of an update on that, we have secured regulatory approval from 3 of 4 regulatory agencies. The 3 agencies are the CBN, the Federal Competition and Consumer Protection Council, and the SEC. We are now awaiting final approval from the industry regulator. We project a net gain of almost NGN 14 billion from the pension transfer window. Also, RSA registration via our online platform should account for 45% of the projected 30,000 increase in RSAs this year. That compares with the 23% that was recorded in 2020. Contribution to AUM from collective investment schemes and wealth management should account for about 27% of the projected AUM for this year. That's up slightly from the 26% that was achieved in 2020. Lastly, we expect full year PBT to grow by around 19%, to close at NGN 2.4 billion. And we expect our pensions business to account for about 62% of that figure. Thank you. I'll now hand you over to Ladi Balogun to talk you through the general outlook.

Thank you. So in terms of outlook for the rest of the year, we do expect that the Nigerian economy will experience modest growth. It is estimated this will be around 1.7%. As a business, we are focusing on innovation and efficiency gains as the key pillars that will drive growth in the near future. Specifically, when we talk of innovation, we expect that our digital initiatives, particularly digital lending and payments, which will be driven by customer and merchant acquisition, as being the key drivers of our innovation-related revenue or revenue growth and profit growth. In terms of efficiency, we see continued migration to digital channels, which will mean that a lot more of our revenue will not be tied to variable or marginal cost and much of the revenue would, therefore, be able to flow to the bottom line and gradually improve our cost-income ratio. We also see that there will be the ability to take out cost from the business over the course of the year as we continue to automate our processes. Again, we see the contribution of asset and wealth management continuing to grow, and we believe that this will be as a result of both organic growth, both in the pensions as well as FCMB Asset Management business as well as inorganic growth as we hope to finally conclude the acquisition of the PFA. Asset quality will remain a key focus for us this year as we seek to minimize the hangover from COVID. And we expect that while cost of risk will remain slightly high, it will not be at a level that would significantly adversely impact the earnings trajectory that we're currently on. We thank you very much for listening, and we now look forward to taking your questions.

[Operator Instructions]

All right. So we have a number of questions coming in from the webcast. I will read them out, and then I will assign them to a member of our executive team to provide the answers. So the first question came from [ Carl Chua ] who asked, please give some context to your Stage 1 and Stage 2 provisioning methodology in the context of the COVID forbearance extension granted by the CBN. So I will ask the Chief Risk Officer to please answer that question.

Okay. Thank you for that question. So in terms of our IFRS 9 provision methodology within the context of the CBN forbearance, so we took on the modification losses arising from these restructured loans. So consequently, expected credit loss impairment charge increased for the year, and we can see that in the numbers, despite the COVID forbearance. So expected credit loss of Stage 1 and Stage 2 loans increased, given the worsening industries that impacted the forward-looking indicators. I hope that has answered the question. So in terms of ECL charge, that increased in view of the modification losses that we had to take because of the extensions and the restructuring. Thank you.

[Operator Instructions]

Okay. The second question also came from Carl, where he asked if we can clearly explain how FCMB covers its own U.S. dollar positions to ensure timely repayment of U.S. dollar facilities and trade loans granted by foreign banks in the context of persistent FX shortages in Nigeria. So Yemisi Edun will answer that question. I may chime in afterwards as well. Go ahead, Yemisi.

Thank you very much for that question. So during the period, of course, we were able to rely on leverage on our relationship with our subsidiary, FCMB U.K. Ltd. So they were able to open a confirmation line to us and we're able to take it, some of these USD facilities as well as trade loans. We also put some of the check down on their own group. So we paid timely all our maturing obligations and that we anticipate -- I don't assume what we did was to open or expect some of the other confirmation lines that we have with other international banks will be extended or increase those lines to be able to settle the obligations around the region.

I think I'd also add that generally, we've maintained quite a liquid dollar balance sheet over the last few years. And so we do maintain healthy liquidity ratios in foreign currency to ensure that we can meet -- we have quite a lot of cash to ensure we meet our obligations as and when they fall due. We will move to the next question, which was asked by [ Tim Chang Guatao ] who -- so the decline in cost/income ratio is well received. Is this decline sustainable? How should we think about costs going forward? Also, how much of loan growth was due to revaluation? So I think there are basically 3 questions there. I will talk to cost/income ratio, as that is something we are really trying to drive at the group level and consequently, sort of top costs as a whole. And I will ask Yemisi, would you be able to -- or should we ask risk to talk to the -- okay, risk, Toyin, may comment on how much of our loan growth was due to revaluation. In terms of the -- Toyin, I'll go first, and then I'll pass to you. In terms of the decline in cost/income ratio and whether it is sustainable, I would say there are really 2 elements to it. There are really 2 elements to what's been driving the cost to income ratio improvement. I think we saw the -- in the bank that a combination of... I think we can go ahead again. Apologies for the disruption. So the question just to recap was whether the decline in cost/income ratio is sustainable and how we think about costs going forward. Our apologies. So in terms of cost-to-income ratio, we don't expect that we will see the same rate of decline as we saw in 2020. But we do expect that we will keep it in the sort of mid- to late-60s. There were certain nonrecurring items that we do not expect to see in 2021. And secondly, obviously, with the resumption of business back to normal, the cost benefits that we saw from many of our branches being closed are not being repeated. We hope over time, as volumes grow, more of our revenue is going to be coming from digital channels. And I think that, over time, is what's going to take us to our sort of target of medium-term cost to income ratio, which would certainly be in the 50s, all other things being equal. So to answer the question on how we think about costs going forward, we don't see it growing at a particularly high rate. It will certainly be single digits. But we see that revenue will be growing faster because a lot more of that will be coming from digital and quite a bit from the recovery of our Corporate & Investment Banking business. So both digital revenue, Corporate & Investment Banking revenue as well as even our asset management revenue or what I would describe as low cost/income ratio businesses. And we expect, therefore, that over a medium-term time frame, there's good reason to expect that cost/income ratio should hold up and continue to improve. In terms of loan growth and revaluation, I'll pass that to Toyin to answer the question.

Okay. Thank you, Ladi. So 29.6% of the loan growth amount, in terms of value, was due to devaluation. Thank you.

Thank you, Toyin. The last question came from [ Jerry Nabue ], and this is that, what drove your interest income in 2020, especially in a year where we saw weakness in yields and slowdown in loan growth? Do you expect the FX gains to persist in 2021? That's the second question. If not, how do we plan to make up for that potential earnings gap? That's the part of the second question. The third question is what is your net open position? The fourth is, can you speak to the overall yield environment? Are you seeing improvement in lending rates and repricing accordingly? And then the fifth is, can you give an update to the potential conclusion of the AIICO deal? And the sixth is, other than AIICO, are there any other inorganic expansion initiatives being considered by the firm to make its performance more sustainable and resilient? So the first around interest income, I don't know whether Yemisi would be able to take that.

Sure. Thanks. On interest income, in 2020, were due to a couple of gains. One is that we invested in money market instruments much late 2019. That way the yield guidance really dropped significantly. And so that's to be paid a lot to interest income in 2020. The background reason for the increase is the devaluation that occurred. So we had quite a sizable earnings in foreign currency that on translation, of course, give increased interest income. That is first. This is out here, there was a slowdown in loan growth, but we actually grew loans in specific sectors that were important to us. And overall, our loan book grew in these sectors and grew. And in these sectors, we were -- while rates and users are moderated, we were able to have income much more higher than money market yields. So those are the contributory factors that's purely interest income in nature.

I would also add that we're seeing -- we saw strong growth in our retail loan book in 2020, if I'm not mistaken. And the average yield in that retail loan book is still in the high teens to early 20s. So again, that contributed to helping to drive interest income. The second question is about whether we expect FX gains to persist in 2021? I mean, Yemisi can answer that. Yes.

Yes. Okay. So we still expect that to persist. We've been following this trend, you'll see that there has been further devaluation in 2021, which is supporting the FX gains. Also, the gaps between the spot and forward rate in the market also still support these FX gains. So with those in mind, I mean we still expect this to translate. So because of that, well, maybe the second part of the question is really not relevant because we've seen that is not quite how we're planning. So that means they'll be made history.

Yes. Carry on to #3, what is our net open position?

So jumping to #3, our net open position is about $120 million positive.

Okay. The fourth question is to speak to our overall yield environment and whether we are seeing improvement in lending rates and repricing accordingly. I mean I can quickly answer that. The answer to that, I don't believe we really are seeing improvements yet. But as mentioned earlier, our loan book is growing faster in the retail space than it is in the corporate space where yields are somewhat depressed. So we do expect that average interest income on our lending book should, I believe, at the very least, be stable, if not, in touch slightly. In terms of updated time line on the AIICO transaction and when we hope to conclude it, I think that either -- I don't know who wants to answer that. Is that Kayode, you're working on the transaction so maybe you can answer that.

Yes. We expect that to happen in next quarter. We already have 3 out of 4 regulatory approvals. We are just with the primary regulator for the industry. We expect their approval to come out in a matter -- so we expect that that deal will be concluded very soon. A specific date, we can't give the date now but we mean to say very close.

Thank you. Now the last question there, are we looking at other inorganic expansion initiatives by the firm to make its performance more sustained and resilient? The answer would be largely no. However, that being said, I think there are a number of capabilities that we seek to acquire that would help to strengthen our performance, which we think can be done either through partnerships or through building businesses from the ground up. A lot of these are in the technology space, and I think you will see going forward a great deal more focus on the impact that technology is having on improving our overall performance and, indeed, making it more resilient, especially as a result of diversification. I believe that's the last question. Sorry, one second. Sorry. We have a lot more. We'll have to move a lot faster. Apologies. Sorry. So the next question is, the number of banks have hinted that -- we've already talked about AIICO, I'm sorry. So we were asked by [ Tim Chang ] again, how might the impact -- how might this impact performance in the near term? That's the AIICO acquisition. Kayode, can you articulate that?

Definitely, we'll be positive, increasing the profit in our investment management businesses by north of 20%, but we'll provide more guidance once the deal is completed.

Okay. The next question asked about loan repricing in the second half of the year. Is this something we are considering? I would say that we can't give any guidance on that because it will be largely determined by market conditions. What we can control is where we choose to allocate our capital in terms of loan growth. And certainly, while there may not be a repricing, I think you may find a continued rebalancing of the loan book towards more retail. The next question came from [ Tursi Une ], who asked, the first question was, while we understand that the environment is fluid, can we get more specific guidance on loan growth, deposit growth, NIM, cost of risk, NPL ratio, ROE and effective tax rate for 2021? I don't believe we give specific guidance on those indices. The -- our business, I would be the first say, is still somewhat unpredictable in this market. And there are various forces that would be working in either direction, positively or negatively. So we'd rather refrain from doing that. However, what I would say is that the general trend we're seeing has been steady and we're not expecting an adverse trend in our key indices. Gradual improvements is what I would say. But the quality and resilience of our earnings is improving year by year because if we looked at our business a few years ago, it was very concentrated and today, it's diversified across customers and across businesses. So what you will find is that if one part of the business experiences a slight shock, there will be others that are compensating. And really, we're relying very much on the sort of traditional portfolio management theory of diversification. So we do look forward to improved performance in 2021. We were asked what percentage of our loans have been restructured? Toyin,, do you know what that is?

Yes. About 28.4%.

Thank you. And the next few questions, if you could also answer, which talk about the maturity profile of the moratoriums granted as well as the -- if we could confirm the drop in NPLs quarter-on-quarter was as a result of write-offs in IT, manufacturing, individual and real estate sectors.

Yes, just to confirm, yes, write-off was in telecom, manufacturing, retail and real estate. Then on the majority profile for the moratorium blanket on the forbearance, so 6 months to 12 months. So that is fixed and it is from 6 months to 12 months ending March 2021.

Okay. He said that oil and gas downstream seems to be undergoing some stress. Could we speak a bit more to the challenges here? And what level of coverage do we have on this book?

Yes. Okay. So maybe -- okay, he was looking at the NPL distribution. So there is just a particular account there that I had mentioned. So the NPL ratio for the oil and gas downstream sector is 9.3%. And of the value that you're seeing there, about 82%, is just that 1 particular that I had mentioned. So that's it. Just one particular name that we had to classify in Q4. So that was what happened. In terms of the coverage product sector, in terms of impairment, 82.5% that we have in terms of impairment coverage.

Okay. Thank you, Toyin. Also if you could give outlook for interest and exchange rates. I don't know, Yemisi, do we have outlook on that? I believe in terms of interest rates, we expect there will be -- we expect that both will be stable basically. There may be a marginal depreciation in the -- which we've already seen, I think, a little bit in the I&E window but -- as we move towards rate unification, but we don't see anything significant or dramatic for now. So relatively stable. He said for 2020 -- for the year 2020, our capital adequacy buffers are quite thin. And how we -- how is management thinking about this? We are actively managing that. What we do is we tap into the Tier 2 market sometimes to build up the buffer. We're also increasingly driving capital-efficient revenue. First of all, in terms of asset growth, it's focused more on retail, which has higher yield as well as a lower capital charge, where I think retail loans are 75% or thereabouts waiting. So it allows us to still be able to grow the book steadily without consuming too much capital. We're also maintaining relatively modest dividend payout ratios for the bank, and we focus on dividend payouts from our nonbanking subsidiaries. So that is gradually shoring up our capital. I would also add that we maintain buffer in the holding company and in some of our subsidiaries. So if needed, we could upstream dividends to the holding company and reinject some of that into the bank to shore it up. But we believe that at these levels, we're okay, and we will continue to see gradual improvement in that cost/income ratio. We're asked to talk about how we cover our trade loans. I believe this has been answered already. We're asked by [ Kofi ] to consider the 66% deposit growth and the 22 -- 23% gross loan improvement. And why is there not a more aggressive effort to increase the gross loans? I think there are 2 -- a few reasons for that. I think the first is that our cash reserve requirement debits prevent us from driving our loans because we have to stay above the sort of liquidity buffer. However, I'd also say that the loans we are creating are more in the retail space, which is still growing quite handsomely. The next question, which came from [ Sinde Abdullahie ] and apologies I'm going through these quite fast. Please, can you give us broad guidance on key parameters, like loan and deposit growth, ROE, cost of risk? Again, similar answer, we're unable to give guidance at this point. But overall, we expect a positive trend. [ Kofi Twong ], oil prices appear to be stabilizing around $60 to $70 in contrast to the budgeted $40. If sustained, the ForEx situation in Nigeria will be expected to ease going forward. How will this affect FCMB's outlook? I think that a stable ForEx environment will be positive. I think more liquidity in the foreign exchange markets tends to mean more activity, particularly with our corporate customers. It also means potentially more lending activity in the corporate space to support the trade activities. Next question is, what is our U.S. dollar LCR? I guess this is -- what's LCR? Liquidity ratio?

Liquidity cash ratio.

I don't have that figure. Do you have the figure? But we'll try and extract that and share. Then, what is the percentage of our loans that were restructured in 2020? I believe the total that was restructured was 20...

28.6%.

28.6% has been answered. He notes that our CAR is slightly above the regulatory threshold. We've shared our thoughts around this and how we plan to increase it. We see there will be a steady increase while we maintain some additional buffer in the holding company. And then the next question asked, if we can give our view on interest rate developments and guidance on NIM and cost of risk. As we've mentioned earlier, we think interest rates will be relatively stable. We think our NIMs will hold up because of the strategy. I think cost of risk, again, we're very cautious on that because it's a fairly volatile environment we're in. But we don't expect it to be worse than we saw in 2020. The forbearance expanded to CBN has been extended until February 2022. What impact will this have on our NPLs in the near-term and performance ratios after that? And when will forbearance be lifted? What is FCMB's strategy and focus to reduce cost/income ratio and improve liquidity? I think that the first set of questions around the impact of lifting of forbearance in NPLs and performance ratios, maybe we can have Toyin answer that on NPLs.

Yes. Okay. So first of all to answer the comment about the extension by CBN. That extension actually covers interventional funds. And it's actually on a need basis, it's on a request basis and we have held interest rate for those funds at 5%. So I said I'll clarify on that. Yes. So in terms of the NPL impairment like I mentioned, we expect ECL moderation this year in view of its a recovery. So like you said, we can't give you guidance, but we believe that we will still keep NPL and cost of risk with in tolerance limit. Thank you.

Thank you. Now the next question was our strategy. And first, reduced cost/income ratio and improved liquidity. So in terms of cost/income ratio improvement, I think what we're seeking to do is, number one, move more of our business to technology, driving through technology channels, both in terms of payments-related activities, which used to happen in branches, as well as lending activities as well, which are increasingly digital. The other thing that we would be doing to improve cost/income ratio is focusing more on Corporate & Investment Banking to -- or looking towards the growth in the profitability of core investment banking and as that business turns the corner, we expect that we will see improvements in cost/income ratio. The final one is on the asset management side. This, traditionally, is a business that operates for us between, I would say, 40% and 55% average cost/income ratio, and we expect that this will only continue. We are developing various products in the digital wealth management space. And I think that as and when these get off the ground, they would only have a further positive impact on cost/income ratio. So we're quite optimistic that our CIR should move in the right direction over the next 1 or 2 years. In terms of liquidity, how we're seeking to improve liquidity is tricky because when we do have excess liquidity, it gets swept into CIR. But what we will ensure we do is that we maintain a liquidity ratio that is certainly comfortably above the minimum. Loans to individuals -- from [ Sinde Abdullahie ], loans to individual accounts to a large chunk of our loan book in terms of -- and also in terms of percentage of NPL, what is driving the level of comfort to lend more to the segment? Secondly, the recent regulation on open banking, how do we see this impacting what we have already have in-house? In Q3, we mentioned that we have hosted 50 countries on our API platform. Third, to justify -- just to clarify when is the stated time line for the completion of the AIICO transaction. So in terms of the loans to the NPL ratio in the consumer book, even when we adjust the cost of risk, that book is still very profitable. I would say that more of our NPLs are coming from, today, CDL, Credit Direct, largely because of challenges in some of our private sector lending in Credit Direct, it's a deducted source model, and we've seen that private sector borrowers, employers have been more affected by things like COVID than public sector. The way we're dealing with that is that we're expecting more of our loan growth to come from the bank as opposed to CDL, and it comes from existing customers where we're using transactional data to land and other data sources rather than just the salaries and payroll. We believe that we will be able to hold the NPL ratio at modest levels and still enjoy very strong risk-adjusted return in that book, which is why we continue to play in that space. In terms of open banking, how will this impact us? I think like as with everybody, it would be both -- it would increase competition. I believe that we have certain advantages as a bank that enable us to either compete or partner with fintechs. Ultimately, we have capital, which a lot of fintechs lack. We see opportunities for lending, growth in our lending activities. We also have licenses, which a lot of fintechs doesn't want to acquire. So banking as a service is an area that naturally we would look to provide. Our belief is that every company with a customer can be a fintech, not only the fintechs themselves, and we would be glad to help all our customers provide financial services to their customers. So that's why we're pushing aggressively our API platform, and we're migrating currently to a micro services architecture. So the third question that was asked by [ Sinde ] was the time line for AIICO, and I believe we've already answered that. [ Steven Block ] asked again what the frequency of stress test on the forbearance portfolio and the potential impact on capital adequacy ratio, manageable above the regulatory minimum. I don't know whether, Toyin, you can answer that question.

Okay. So yes, we regularly stress test the portfolio and we run various scenarios. So that is being done monthly and quarterly with us and report to various committees as well. So that is being resumed. I hope that answers the question.

Okay. Thank you. The next question has been asked. We'll just try to take the last 2, answer the questions very quickly. Do we intend to raise more U.S. dollar liquidity to fund the loan book? I would say the answer is we would be refinancing from time to time, but not necessarily growing our dollar borrowing. Do we see challenges? The answer is no, in dollar repayment. The NPL coverage ratio, excluding regulatory risk reserve, maybe Toyin can answer that for us, please.

Sorry, I didn't get that question. Sorry.

The NPL coverage ratio, excluding the regulatory risk reserve.

Okay. I'll get back to you on that because right now, it's about 175%. So without backing that out. I'll get back to you on that. Okay, so 173.5% after backing that out. It's 173.5%. That's the coverage ratio, excluding regulation risk reserve.

Thank you. All right. That's the last question that we have, and I believe we can now bring the meeting to a close. So thank you very much, everyone, and we look forward to speaking to you again at the end of our Q1. Thank you.

That concludes the call for today. Thank you for participating. You may all disconnect.