FCMB Group Plc (FCMB) Earnings Call Transcript & Summary

Thank you, and good afternoon, ladies and gentlemen, and welcome to our full year 2021 investor and analyst presentation. I have with me today on this call from the FCMB Group side, the following: the CFO of FCMB Group, Ms. Deji Fayose; I also have assisting me in the presentation today, the Chief Operating Officer of FCMB Group, Mr. Gbolahan Joshua; we have the CEO of the bank, Mrs. Yemisi Edun that will be talking us through the banking groups; we also have today with us, which will reflect our new presentation structure, the CEO of Credit Direct Limited, who will be speaking about our consumer finance stand-alone business; and we have the Executive Director, Investment Banking and Coverage, Mr. Femi Badeji; and we also have today, speaking to us on investment management performance, Mr. James Ilori, who is the CEO of FCMB Asset Management; supporting us today is our Head of Investor Relations, Mr. Tunji Onamusi. . I will go straight into the presentation and talk you through the agenda. Following my introduction, we will have a few slides from the CFO, to talk us through the overview of the results. Then we will go into the banking group which primarily is the FCMB Limited, the bank and FCMB U.K. We will then be having a presentation on our consumer finance business, which is a departure from the past and that would be presented by Ms. Akinwande Ademosu. We will then have Femi Badeji forecast through the investment banking business. Again, we've changed the structure slightly and consolidated corporate banking back into the investment bank, reflecting some managerial or structural changes we've made in the way the business is or the group is being run. And finally, James Ilori will talk us through the activities of our investment management businesses that comprise FCMB Asset Management, as well as FCMB Pension. I will conclude by giving you an outlook. So moving on to the highlights of our results for 2021. We -- and you'll see that on the next slide, which is Slide 3. All in all, it was a modest improvement on 2020, although I would say that the second half was far stronger than the first half. So we actually saw about a 50% or 55% improvement between H1 and H2 in PBT. This enabled us to end the year slightly above last year, 3.7% above on a PBT basis, and I think about 7% above on a PAT basis. So we closed the year at NGN 22.7 billion. We had a few negatives year-on-year, such as on the ROE side. That was very much as a result of the slower performance in H1. Capital adequacy, obviously, because of the expansion of the balance sheet, and our NPL ratio ticked up slightly as a reflection of generally tough operating environment. We did, however, see most other industries exhibit double-digit growth from balance sheet footings, as well as number of customers, both digital and total customers. The Asset Management business have recorded fairly modest growth to this NGN 525 billion being up 6.2%. This does not include the impact of AIICO, because the consolidation of AIICO pensions was done early in the new year. So that will be reflected fully in our Q1 numbers, and that will have actually led to about a 35% growth in AUM, if that will be included. Next slide, which is Slide 4, just talks about some of the key strategic themes that we pursued last year and also, continuing this year and what the results were along those themes. The first is digital innovation, which is clearly the hot topic for every financial institution right now. And we've seen -- we recorded very strong gains during the course of the year. Our revenue from digital activities, primarily payments and lending was NGN 26.1 billion. This was up 93% from last year, where we had or from 2020, where we had NGN 13.6 billion. The digital business now accounts for 12.4% of gross earnings and also, in terms of transaction volumes on mobile, we saw that this grew by 37.5% year-on-year. In terms of lending, we saw NGN 149 billion of loans disperse to 834,000 customers. The total digital loan book has grown to about NGN 60.8 billion, which is a 242% growth from prior year. And in terms of the percentage of our total lending revenues that this represents, digital lending now accounts for -- sorry, sets of total digital revenues that this represents, it now accounts for about 51% of our digital revenues, the remainder being largely payments. In terms of customers, we've seen numbers increased to 7.7 million customers, which is a 16.7% increase from prior year. This is being driven by simplified onboarding processes, the automation of our pensions business to make it largely digital and also, using our digital lending products, which are only accessible through mobile devices as a means of encouraging more and more customers to adopt digital. Moving on to Slide 5. Talks a bit about diversification, which was another key theme for us. And partly, we're doing this through just expanding our customer base. I've already touched on this, where we now have about 9.2 million customers up from 8.3 million, so we acquired just shy of 1 million customers last year. The banking group accounts for just about 69% of PBT. And non -- other subsidiaries constantly amount to about 31% of PBT. In terms of investment management, we believe that this is going to increase in terms of contribution as a result of the AIICO merger and the realization of the synergies, which we fully expect to realize from Q1 this year. One of the things that I'll be talking about towards the end is the opportunities that our group structure and new technologies that we're adopting are creating to enable us to basically grow much more rapidly by adopting almost like an ecosystem approach, leveraging our customer base, using technology just to create partnerships, where we can expand the product offerings that we make available to our customers, but also potentially help other -- basically use our platform as a means of helping to market our people's products and also, expanding our own distribution base. I'll talk a bit more about this towards the end, but I will now hand you over to Deji, who will talk us through the performance highlights.

Thank you, Ladi. Good afternoon, everyone. I'm taking us to Slide 7 to 9, which are our group's financial performance highlights for the full year 2021. Overall, the full year 2021 performance of the group improved year-on-year as a result of improved non-interest income earnings. Our non-interest income grew by 27% year-on-year, driven primarily by growth in electronic fees and commissions from our digital channels. We also recorded growth in trading income from higher volumes of fixed income trades during the course of the year. This is equally evident when we look at our ratio of our non-interest income as a percentage of operating income which grew from 28% in the previous year that a focus in the current year, a year-on-year growth of about 15.6%. The group also maintained robust capital and liquidity ratios throughout the year at 16.2% and 34.8%, respectively. Next slide, please. Going across the year, group profit before tax recorded a 55% growth between H1 2021 and H2 2021 to close at NGN 22.7 billion. Net interest income also increased by 14% quarter-on-quarter and grew marginally year-on-year as a result of increase in funding costs during the year that impacted the net revenue from funds. Operating expenses increased by 12% quarter-on-quarter and 14% year-on-year, largely as a result of increased regulatory costs and general inflationary pressures that [indiscernible] across the market. Impairment charges on the other hand, increased quarter-on-quarter. However, we call it year-on-year decrease of 28% due to loan -- due to improved recovery efforts across the group. On the next slide, on Slide 9. Our banking group remains the largest contributors of overall PBT, contributing about 69% we also begin to see the impact of the supply chain across the group with our other operating companies accounting for about [ 1% ], as mentioned by GPC. For any banking group of Consumer Finance business required a 14% contribution driven by business growth and increased traction from the business. Our Investment Management and Investment Banking end also, made positive contributions of 11% or 5%, respectively. Going forward, we do expect to see increased contribution from all operating companies in 2022 and beyond as we continue to leverage on group synergies and create a diversified and sustainable income structure. I will now hand over to Gbolahan Joshua, our Group Chief Operating Officer.

Thank you. Okay. Thank you, Deji. I'll be taking us through our digital business. Our focus hasn't changed. We are prioritizing payments, rental fees, customer acquisition and then consumer and SME lending. However, we refined our approach where leveraging data to improve credit origination in consuming and SME space, we've developed capabilities in data engineering and exercise. In terms of digital adoption, we've simplified onboard. I think Ladi has spoken about that, that has increased the number of customers we are acquiring. And then digital adoption has moved from 80% in 2020 to 84% in 2021. From a revenue diversification perspective, we've maintained a positive trend in digital lending and in the payments business and in the coming slide, I'll just speak to that. If we go to Slide 12, which shows the trend of customer acquisition, about 11% of the customers we acquired during the year came from our agency banking business we acquired over 98,000 customers from that platform. And then we now, have 7.7 million customers and [indiscernible] in our digital banking platform, which has 84% penetration rate. I'll go to Slide 13, which speaks about revenues. 12% of our gross earnings comes from digital. From a digital revenue split for the first time, we now have 51% of digital revenues coming from the lending business and 49% of the payments business. Mobile, Cards and Digital Lending account for 92% of revenues, and we are seeing increased traction in Merchant Solutions, which will account for 3% of digital revenue. I go to Slide 14, which just shows the trend of our digital banking revenue on a quarter-on-quarter basis. It moved from NGN 5 billion to about NGN 7.9 billion. You see the contribution of digital lending grew from 44% in Q1 now 63% as of Q4. And we look at the contribution of digital to gross earnings in constant 12% to 13% and the contribution of digital lending to total interest income has moved from 5% to 9%, even though the digital lending book is about 5.7% of the loan book and less than 4% of total assets. I will now go to Slide 15, which shows the growth in our digital loan book moved from NGN 22 billion in Q1 is now NGN 60.8 billion. Contribution has moved from 2.5% to 5.7%. Total growth over a year of NGN 44 billion. Total loan book growth for the group was NGN 241 billion, 18% of that came from digital lending. On the last slide on digital just gives a summary of what we've done from SME to retail and then we're rapidly building a digital world business. We've launched that, we have over 53,000 customers onboarded in 2021, assets under management of NGN 3.6 billion. It's a key growth area for us, and we expect the numbers to grow 3x in 2022. I'll now hand over to Yemisi who will take us through the banking group.

Thank you, Gbolahan. Good day, ladies and gentlemen. I'll be speaking from Slide 18 to 27 on the review of the commercial [indiscernible] and key business for full year 2021. On Slide 18. The dashboard showing the key performance matrics. Deposits have grown year-on-year by 23.5% and quarter-on-quarter by 10.4% to NGN 1.56 trillion. Return on average equity increased by 16.6% quarter-on-quarter to close at 11.5%. Gross loans grew 10.3% quarter-on-quarter to NGN 1.04 billion. While the cost income issue ratio closed at 55.8% as against 80.7% in Q3. The major drop recorded is because of various regulatory costs, AMCON and NDIC that have been fully amortized by September. This indicates that with the regulatory level is in future, our cost-to-income ratio will significantly improve and expected to be at sub 60%. Moving on to Slide 19, which contains an analysis of the commercial and retail banking performance for the period. PBT declined 7.3% quarter-on-quarter largely due to impairment changes absorbed in Q4. Year-on-year, PBT increased by 3.9%, supported by the improvement in noninterest income by 14.8%. Net interest income increased 15.6% quarter-on-quarter, driven by an increase in interest income from growth in loans and advances in Q4 and remains relatively stable year-on-year at NGN 80.3 billion. Noninterest income increased 28.9% quarter-on-quarter, driven by an increase in FX income from revaluation gains in Q4. Year-on-year growth of 14.8% was driven largely by an increase in fees and commissions, as we continued to record traction from transacting customer activity on our platform. Operating expenses increased 17.4% quarter-on-quarter due to the accelerated amortization of the regulatory costs, in line with accounting standards. However, increased 14.0% year-on-year as a result of regulatory costs, technology enhancement costs, coupled with the double-digit inflationary environment.. Risk assets grew 10.3% quarter-on-quarter and 29.7% year-on-year, while customer deposits also increased 10.4% quarter-on-quarter and 23.5% year-on-year, respectively. Moving on to Slide 20, which contains noninterest income analysis. Year-on-year growth in noninterest revenue by 14.8% was driven by growth in net fees and commissions and trading income. Net fees and commissions grew by 59.3% year-on-year, driven by growth in electronic fees and commissions, but declined 5.1% quarter-on-quarter. Trading income grew by 29.2% year-on-year, however, decreased by 35.0% quarter-on-quarter due to low trading activities in government-backed securities in Q4. FX income increased by 136.4% quarter-on-quarter due to an increase in asset income from revaluation gain in Q4. It however declined by 40.8% year-on-year. Orders grew 91.2% quarter-on-quarter but declined 277% year-on-year, due to losses recognized as a result of restructured facilities. Moving on to Slide 21, which contains net interest margin analysis. With net interest margin pressure to the moderated view on the REIT assets on the back of lower yields of FGN Fixed income instruments and steady increase in funding costs. On Slide 22, we have a PBT distributed by segment. The Personal Banking segment contributed 77% PBT. As we remain on course with our strategy of using innovation and technology to increase retail transaction. The segment has a strong deposit base with a stable liability mix, which continues to position the business for sustainable growth and profitability. We have also seen the growing acceptance of our innovative propositions and strategies designed with the customer first approach and digital agility. SME banking contributed 34% of PBT, driven mainly by growth in net interest income. Growth is supported by the automation of the SME lending platform. Our treasury and financial market segments contributed 55% to PBT, while FCMB UK Limited contributed 2.9% PBT. For Corporate Banking, the segment recorded a negative contribution of 61% due to impairments and compressed margins. The segment is being repositioned for stronger assets quality growth and leveraging on automation for better performance. The Commercial Banking Business segment also had a negative contribution of 4%, majorly due to impairment from an oil service sector. It is expected to return to positive contribution during the year 2022. The institutional banking segment had a negative contribution of 4% and is being refocused for improved performance. Moving on to Slide 23, which analyzes the deposit trends for the period. Total deposits grew 10.4% quarter-on-quarter and 23.5% year-on-year, driven by CASA deposits because of our sustained focus on retail banking. Low-cost deposits now accounts for 70% of total deposits. Low-cost deposits grew quarter-on-quarter and year-on-year by 11.1% and 10.9% respectively. Retail deposits comprising of personal and SME banking now constitute 66.3% of total deposits and grew 8.1% quarter-on-quarter and 19.6% year-on-year. On Slide 24, we provide cost analysis and reduction plans for the year. Operating expenses decreased 17.4% quarter-on-quarter due to the accelerated amortization of the regulatory costs, in line with accounting stance. However, increased for 14% year-on-year because of regulatory costs, technology enhancement costs and induced donation support, coupled with the double-digit inflationary environment. Regulatory costs, predominantly NDIC and AMCON grew 21.3% year-on-year and accounted for 18.5% of OpEx in year 2021. Technology costs also grew 30.8% year-on-year and accounted for 8.3% of operating costs in the year 2021. Our reduction plans include but are not limited to internal processing realignment and automation, resources reallocation for optimization of performance. Focus remains on driving efficiencies and reducing the cost-to-serve. Moving on to Slide 25. This slide summarizes the group's loan book by sectors, currencies and statements. We achieved a growth of 29% year-on-year, in line with our plans for the year 2021. The quarter ended with a 10.3% growth over Q3 numbers. The drive for quality loan growth was actualized in the year. Growth for the year was a key across new sectors, primarily driven by natural growth in commerce, individual ,manufacturing, oil and gas downstream, agriculture, finance and real estate. 6.2% of the growth for the year was driven by a 5.9% evaluation currently. Our focal sector, real estate, agriculture, manufacturing, commerce and education also which made year-on-year growth, and they contributed [ 56% ] of the total group for the year on their release. 29.1% quarter-on-quarter growth came likely from commerce, individual and agriculture were dropping few non-focused sectors. The marginal growth in oil and gas upstream year-on-year and quarter-on-quarter came largely from currency devaluation, as we remain cautious with our loan generation in this sector. The total oil and gas sector concentration dropped from 28.9% to 25.4%. Competition in FCY loan improved year-on-year, with a 7% drop in portfolio share from 46.9% to 39.8%. 17.8% of this Foreign currency loan is from our U.K. subsidiary with a natural hedge. About 22% of this foreign currency portfolio is put to currency risk slightly in the power and real estate sectors. The growth for the quarter came likely from local currency loan book, while the bank is making [ competitive ] efforts to convert the users exposed to currency risks to look after it. Concentration in corporate banking dropped from 60.9% to 53% year-on-year, while we saw growth in focused segments like personal and SME Banking as we continue to drive portfolio diversification. The portfolio is well diversified and all sectors are within plan and regulation. Loan growth for 2022 is planned, we maintain and sustain the same [ speech ]. Moving on to Slide 26, which shows our loan book performance by sectors, currency and segments. We had a 45.1% quarter on quarter growth in NPL and 76.2% year-on-year to close at NGN 44.7 billion. This is largely driven by deterioration in the oil and gas services and manufacturing sector. The year-on-year growth came largely from the group in manufacturing and the company in oil and gas by services. Similarly, the quarter-on-quarter growth similarly from these 2 sectors. Restructuring of these account sales with COVID, workout is ongoing and there is prospects for deposits. 99.6% of NPL as from local currency portfolio, on personal and [indiscernible ] segments contributed [ 61% of currency ] this year. The quality of our loan book remains a major focus for us. Slide 27, speaks to the trend in our NPL cost of risk, net impairments and coverage. We recorded quarter-on-quarter improvements in net impairments on loans and cost of risk dropped further by 20 bps quarter-on-quarter. NPL ratio was stable through the year of Q3, however, there were [76 bps ] increase in ratio quarter-on-quarter due to reasons mentioned earlier. The cost of lease trend was outlawed through the year, closing at 0.7%, largely due to growth in recovery as activities peaked of post COVID. Coverage dipped year-on-year and quarter-on-quarter due to the impact of year-on-year write-offs taking on some long-outstanding NPL as well as greater efficiency in collateral management, which impacted charge positively. Thank you for listening. I will now hand you over to Akinwande Ademosu, Managing Director of Credit Direct Limited, who will present the consumer finance.

Thank you, Ms. Edun. Good afternoon. and welcome again. I'll be speaking on Slide 29 and 30. Okay. Our loan disbursement expanded by 18% year-on-year and up to NGN 28.2 billion in 2021. PBT for our consumer finance business grew by 32% quarter-on-quarter and 20% year-on-year to NGN 3.2 billion. This was sustained by growth in our net interest income and our moderated operating expenses. The net interest income also remained unchanged quarter-on-quarter, which also grew slightly by 4% year-on-year. Our noninterest income grew by 46% quarter-on-quarter, but declined by 4% year-on-year, and this was attributed to a decline in fees and commission. Our operating expenses remained steady quarter-on-quarter while however continues to drop by another 5% year-on-year. In terms of asset quality, the business recorded a significant improvement of 77% and 22% in net impairments quarter-on-quarter and year-on-year, respectively. And this was supported by a robust and proprietary risk management framework and continued digitization of our processes. Today, our digital channels account for nearly 20% (sic) [25%] of global sales. This came off from 4%, which it was in 2020. I'll speak to Slide 30. On key performance ratios, the business recorded strong profitability ratios. For financial year end 2021, our return on average equity improved significantly from 29% to -- from 20% to 29%. And in terms of asset quality, NPL to total loan ratio also improved by -- dropping by 55% year-on-year. The business maintained a very good and solid liquidity and capital buffer throughout the year. I'll now hand you over to Femi Badeji, the Executive Director in charge of the Investment Banking Group, and thanks for listening.

Thank you, Akinwande, and good afternoon, everyone. My name is Femi Badeji, and I'll take you through the performance highlights of the investment banking business on Slide 32 and 33. Gross earnings dropped year-over-year by 29% to NGN 2.7 billion, largely driven by the 28% drop in noninterest income to NGN 2.6 billion. Operating expenses declined 35% year-over-year by NGN 900 million from NGN 2.7 billion to NGN 1.8 billion, and the cost-to-income ratio improved by 600 basis points to 64.6%. Though the return on average equity declined by 352 bps to 20.8%, the business increased its profit before tax by 6% to NGN 1.14 billion. Moving to Slide 33. PBT for the investment banking business grew by 239% quarter-over-quarter and 6% year-over-year. The quarter-over-quarter growth was driven by strong capital markets activity, which led to an increase in capital raising and advisory fees and brokerage commissions by 376% and 63%, respectively. The Capital Markets business continues its growth trajectory, executing key market transactions during the year, especially during the fourth quarter and this contributed to an increase in capital raising and advisory fees by 31% year-over-year. The value of stock working trade declined by 47% from NGN 95.9 billion, fiscal year 2020 to NGN 50.9 billion in fiscal year 2021. And this is mainly driven by lower foreign institutional investment activity in the market during the year. This contributes significantly to the 42% decline in brokerage commissions year-over-year. Year-over-year cost-to-income ratio improved by 600 basis points as has been alluded to, as operational expenses declined by 35%. This decline was driven largely by a decline in commercial expenses, professional fees and staffing costs. I will now hand you over to James Ilori, CEO of the FCMB Asset Management Limited business to take us through the Investment Management section of the presentation. Thank you.

Thank you, Femi. Good afternoon. I will take you through Slides 34 to 36, and I'll start with Slide 35 which is just a review of the investment management business' performance in 2021. Assets under management rose by 6.5% year-on-year to close about NGN 526 billion. Investment return accounted for most of the increase. The inclusion of AIICO pensions year-end AUM of NGN 155 billion we have taken AUM to roughly NGN 681 billion, and that would have represented a year-on-year increase of over 35%. Our Pensions business ex AIICO contributed 80% of AUM last year compared with 74% in the previous year. With AIICO, our pensions business would have accounted for 84% of AUM. Moving on. The number of retirement savings accounts grew by 4% year-on-year to 469,000 roughly. In addition, registrations by our digital platform accounted for 55% of the increase in retirement savings accounts. We received a net inflow of almost NGN 4 billion from the transfer window. The figure remains positive at NGN 1.3 billion net of AIICO's position. Then moving on, we achieved a 22% year-on-year growth in PBT. This was driven by an increase in AUM, higher average fee income on AUM from our wealth management and collective investment schemes businesses, higher finance income and process automation, which resulted in cost efficiencies. I'll now move to the next slide. which just talks about our forecast for the year 2022. And I'll start with the first one there, which is -- which looks at AIICO Pensions integration. The impact of AIICO Pensions, acquisition on AUM and PBT on our Pensions business will be fully captured from this year. We expect an increase in AUM of NGN 182 billion, cost reductions from synergies of NGN 1.1 billion and additional PBT of NGN 1.3 billion. Looking at retail distribution. This will become an even more important part of our product distribution strategy. We expect increased adoption of our in-store platforms to continue to impact positively on AUM, revenue and costs. And lastly, alternative assets. We plan to launch our first fund in alternative assets later this year. This will further diversify the sources of revenue for the division. I'll now hand you back to Ladi Balogun to talk about the general outlook for 2022.

Thank you, Femi. So on Slide 38, which is the ultimate presentation slide. I wanted to talk a little bit about the unfolding strategy of the business, which is centered around this concept of building an ecosystem. Fortunately enough, they have been running this group structure for several years, and we're beginning to see the convergence of the benefits of this group structure, as well as a lot of the technology investments that we have been making. And so I thought I'd just talk you through a number of components of this ecosystem. And on the next slide, the sort of impact we think the strategy is going to have on our performance this year, 2022 and beyond. First of all, starting at the bottom left is just looking at what we're doing on the investment management side. This is a key part of our business. We see that the digital world products that we have built can actually be offered on several platforms that we have. I'll talk about what those platforms are shortly. And also, new institutional products as well, will be very key, because they would be a potential source of funding for some of our wholesale clients. On the payment side, payments will be at the center of everything that happens in our ecosystem, the FCMB Group ecosystem. As we acquire more customers, introduced new channels, and support merchants with loan products, primarily digital loan products to drive utilization of these channels and our payment products. And we will be launching an online payment gateway during the course of this year to support our customers and keep more of the payment revenues within the group. Lending is a core competence that we've been -- particularly, retail lending. We've been fine-tuning over the years. We'll be consolidating this across the group. We see opportunities where the decisioning engines and data engines that we have can actually be, to some extent, combined, and we leverage the learnings across our various lending businesses to actually improve the quality of lending that we are doing. We also see that throughout the ecosystem, we have a lot more data than we have been using before now that we can potentially leverage and we're architecting our business to make sure that we leverage all that data. A key part of what we're doing are our platforms. Focusing on the retail space, I would say that today, we have 2 key platforms. One is the FCMB platform, which is focused really on banking and investment management. Investment management in FCMB, Asset Management, SDM detention. All of those are available through our FCMB app, as well as the internet banking. Credit Direct is a separate stand-alone platform, and that focus is going to be increasingly consumer finance to non-FCMB customer. The critical thing about this is that the success we've achieved with the back lending is largely based on those who have bank accounts in the bank, and we can obviously see their transactional data. With Credit Direct, we have typically banked or lent to people that don't have bank accounts in FCMB, but we've been able to give better other methods to assess their credit risk, as well as collect. We now see an opportunity with a number of technology partners to be able to expand this business and grow it into new markets we previously were not in. So we expect fairly strong growth this year from Credit Direct. We will be launching 2 additional digital platforms, which we'll be sharing more details with you. And I believe both of those will be happening in the second half of the year, and these will help extend significantly our ability to acquire customers, to manage their customer experience and also, to give them access to our products and more third-party products. In terms of our channels, we're moving more and more of our products, and we want to shift all our products to be available on mobile, web, as well as our agency channels. That's all of what we're doing is the continued growth in our customers. We will hit over 10 million customers this year, and we want to ensure that we're selling on average more than 2 products per customers. Wholesale and investment banking will continue to help drive the growth of our corporate, commercial and institutional customers. And we will be plugging them into our ecosystem in terms of suppliers, investors on the asset management side as well and of course, the investment banking side, and distribution channels and more customer access to our 10 million customer base and growing. Partnerships are key. Leveraging API technology, we see significant opportunity, and this is already happening to not only sell our products to more partners, but also sell partner products to our customers. And finally, we are very focused on transforming our workforce to technology evangelists, so they can help accelerate digital adoption across our branch network, and also ensure that they support customers in the process as they adopt these new digital channels. What does this mean for the business? We actually already began to see in 2021, very rapid growth in certain areas. Much of the growth we will achieve this year will be off the back of investments we've already made. So we don't think that costs will rise significantly. We are, and we're seeing that from the trends in the first few months of the year already. We do believe that we will see very strong profit growth this year, should probably exceed about 25% and this will happen as a result of improved earnings in most of the -- pretty much all the company. Now, some of the key drivers of this will be as follows. We will acquire about 1.5 million customers across the group. We think that noninterest income will probably grow by 25% or more from both payments, as well as asset management activities. Deposit growth trajectory is looking fairly strong, actually 20% and largely low-cost deposits. Digital lending will continue to grow. Corporate, Commercial and Institutional Banking will return to profitability this year, and that will be done primarily by growing the balance sheet, as well as transactional and investment banking activities. We've recently appointed a new Executive Director to oversee Wholesale Banking, and he, as well as the rest of the team, a renewed team, will be driving this transformation in that area. The upside for us is very significant as we reduce the losses we've been experiencing in that side of the business over the last couple of years. AUM growth, as we mentioned earlier, will exceed 50% as a result of the organic growth of that business as well as the addition of AIICO Pensions, and potentially, we will see very significant profit growth there. NPLs will remain stable. And we expect, as I mentioned earlier, costs will also be fairly little. So on the back of this, we are looking forward to a better performance in 2022. And I think we've laid the foundation for what should be a fairly robust performance for the foreseeable future. Thank you very much, and we look forward to taking your questions.

[Operator Instructions] There are no questions from the phone at the moment.

We have a number of questions that were typed. And so maybe, I'll just read those out and then assign them to members of the team in Toronto. The first question received is, what is the group's plan for the newly acquired AIICO pensions to the group structure? What's the larger group strategy towards -- it's a separate question, what's the larger group strategy towards a prudential capital adequacy ratio and liquidity ratio that's close to the regulatory minimum. So first of all, to address the issue of the AIICO transaction. I believe we've talked about that extensively. The deal has been concluded. The merger has been consummated. We took most of the restructuring costs or most restructuring costs were taken in AIICO before we merged. So none of these costs will impact our P&L this year. So what we basically have inherited when we concluded the merger as a business that is generating a run rate profit of about NGN 1.3 billion. So that will be consolidated as part of SGM's [indiscernible]. In terms of our strategy towards CAR, we will be exploring opportunities to raise non-dilutive capital during the course of this year. Discussions are on already, and we hope to close such transactions during the course of the year to shore up capital materially. In terms of liquidity ratio, we do keep that fairly fine to make sure that we manage issues around cash reserve deduction. We have ready access to liquidity, should we need. We actually have intensely priced fixed deposits very low. And most of our fixed deposit customers are opting to invest in our asset management product. Were we to [ rerate ] on the fixed deposit side, we certainly would be able to increase deposits, as well as tap the market should we need to. So we're comfortable we'll remain above the regulatory minimum plans of impact, done so pretty constantly throughout the course of Q1. Next question was about the outlook. Could we give guidance on loan growth, cost-to-income ratio -- Sorry, loan growth, cost-to-income ratio, cost of funds and effective tax rate in 2022? So in terms of loan growth, it was certainly, I expect to be in the teens, mid-teens. We expect that a significant chunk of that will come from the retail side as usual, but we will be seeing a resurgence of our corporate lending this year, with the appointment of new leadership and a number of other new key people. In terms of net interest margins, I think they will remain stable, largely because of the positive effect of the retail lending, the digital lending, potentially higher yields. Cost of funds, I think, would obviously subject to what happens to monetary policy during the course of this year, but all other things being equal, as we can't predict monetary policy, we expect the cost of funds should continue to improve as we acquire more customers and we drive utilization of our transactional channels, be their agency banking or mobile. Effective tax rate -- hold on for just a moment. Almost doubled. Yes. So we think it will be almost double, prior to what we've paid lot in 2021. What is our outlook on the REIT environment, our outlook on FX and would there be any repricing of our loans within 2022? There's certainly -- As retail loans are growing as a percentage of our portfolio, I think the ability to reprice is slightly stronger than I would say, in the corporate book. Our own outlook, I think, is very difficult to predict. We think that monetary policy will remain quite tight just because of the fragile balance payment situation in the country and the relatively high inflation. But I think the tightness of that managed property will be largely achieved through the means that have been done till now, which is using things like cash reserve requirements and so to take money out the system. So we do expect to see increased cash reserve requirement debt, although we will try to manage that to a minimum as possible by making sure that we grow our loan book. On FX, I think rates will be stable throughout the year. I don't anticipate, especially with the high oil prices that there would be devaluation. And yes, I talked about repricing of the loan book. The next question was asked about the AIICO acquisition, which was asking that our FCMB has a 60% stake in AIICO which is below 75% shareholder agreement for AIICO performance to be consolidated within the group. Are we expecting further increase in stake in addition to the NGN 6.7 billion already paid? If so, what price? Then, how is the valuation -- how is the valuation of this acquisition determined? So we have indeed increased -- we got approval. I think it was at the beginning of this year. In February to acquire the balance to take us up to about 90-something percent, or 96% of AIICO. It was the same price as we had acquired the earlier 60-odd percent. How did we determine the valuation. It was a competitive process. We factored in a significant a significant portion of the synergy gains. We were able to outperform those synergy gains. So I would say that there was still some upside from an LTV perspective from what we see. And we are quite confident that, that larger base would also lead to us being able to perform better in the transfer window and take more market share, which we're beginning to see already. So that's what I can say on the AIICO question. Income line was the next question that we were asked. On our trading income, what is driving the growth in FGN bond and T-bills. Trading income, what is the amount we have outstanding with CBN in swap? I don't know if you can answer that question. Bank CFO or -- Yes. Yes, could you give that a go, please? Do you have that? Yes. Yes. Would you like me to repeat the question? Okay. So on trading income, what is driving the growth in SGN bonds and T-bills trading income? What is the amount that we have outstanding with CBN in swaps?

Okay. So it's actually the opportunities that we see in the markets that we're taking on the FDA and the treasury bills -- desk. And so we have a robust portfolio that we try as much as possible to monitor the market. So that's just literally, market driven. On swaps, we don't have any outflanking amounts with CBN.

Okay. Thank you. Next question was asked, what strategy is the group employing to curtail the high cost income ratio? What is driving growth in promotion expenses and directives in volumes, which rose 68.7% and 24.5% year-on-year? In terms of strategy to curtail the high cost income ratio, a number of things are happening in that regard. I mean, the first is that CIR is definitely a key focus for us to try and bring down after spending a few years aggressively investing. I mean, investing would necessarily slow down, but what we are beginning to see is the results of those investments. We expect that there will be a significant improvement in corporate institutional and commercial banking, revenue and profit. Traditionally, corporate and institutional banking are very low CIR businesses. For the last few years, they've been a drag on earnings. We think that drag is going to reduce, and certainly, therefore, we will see positive CIR impact on that. The second thing is that a lot of the business that we're doing going forward is digitally driven. A lot of our revenue growth is digitally driven. And this will also be fairly low CIR growth. So I think between digital, as well as the sort of corporate and institutional banking business is where we'll see the CIR improvements in the bank. Across the rest of the group, we're expecting to see the nonbanking subsidiaries continue to contribute more. And most of the business for us, actually about fairly low CIR businesses that operate sort of between and 30%, late 40s in terms of cost/income ratio. So as the profits grow, I think they will also help further dilute the bank's cost income ratio. On promotion expenses, I don't know the driver of that. We'll probably have to get back to you. But...

Do you want me to give that?

Yes, yes, go ahead, please.

Yes. So it's basically the not promotional but about the group. It also includes the donations that we made for [ Costco ], as well as security funds. Today, is the same, but...

So these were donations that the banker committee made jointly. And on directors and monuments, we have had a number of new directors join, both executive and nonexecutive, that's the only thing I can think that would have led to that, but there hasn't been a material increase in our directed volume and certainly, nowhere near 24%. Asset quality, what is responsible for the Q-on-Q, quarter-on-quarter jump in impairments? What is driving the growth in 28.4% year-on-year growth in Stage 2 loans and 60.8% year-on-year increase in NPLs? What is causing the high NPLs in manufacturing, oil and gas, real estate and agriculture? And what percentage of our loans are intervention loans? So I don't know whether Yemisi -- whether you want to have a go at it or whether we also out to the [indiscernible] call.

Maybe, [indiscernible].

Okay. So Toyin if you're there. First question is the jump Q-on-Q in impairments for Q4.

Okay. So like we had mentioned, in Q4, we actually had to impair facilities to a major client in the oil and gas services sector and another client in the manufacturing. So those 2 accounted for the jump in the impairment that we saw in Q4.

Okay. The second question is what was driving the 24.4% growth year-on-year in Stage 2 loans and 60.8% year-on-year increase in NPLs?

Okay. So for the Stage 2 loans, witnessed them past the obligations in the consumer loan book, which arose from some delay in the payment of salaries for this typically [indiscernible]. And then mainly, we also witness that jump due to the exchange rate movement that we saw in the following currency facilities that are mainly in the stage 2 loans. So that was what caused the year-on-year growth in stage 2 loans. I think the next question, the year-on-year increase in NPL. So yes, the 2 clients that I mentioned. So there's a particular group in the manufacturing in the sector that we had to impair into the facilities. There were 2 of them. One was impaired in Q3 and another one in Q4 and then another major client in oil and gas services sector. So those are the 2 customers, they accounted for middle part of the year-on-year group in NPLs.

Okay. Thank you, Toyin. Next question is what percentage of our loan, our intervention loans, I believe are 15%? I'm sorry?

About 11%.

Okay. All right. It's 11%. No, apparently, it's 15%, sorry.

Okay. So we -- I excluded the BUI, to off-balance it. So if we add off balance, this purely on balance sheet is the level.

Okay. But the total is 15%. Okay. Then the last question that we have there is Basel III. How will Basel III impact the capital structure of the group liquidity and leverage ratios? Who wants to take that? Okay.

Okay. I can take that.

Okay. Yemisi.

Okay. So we most likely will see EBIT increase for our capital. Because currently, we run 2 parallel reporting to PBM, whereby we did -- we do the capital ratios on the Basel II and also, the Basel III computation. So most likely, the Basel III impact will not be significantly so. However, we may be requiring to show our capital EBIT is required. Thank you.

Okay. I think -- So in terms of liquidity and leverage ratios, I don't think it will impact liquidity ratio at all. In terms of leverage, I would say that in the event that we do take some non-dilutive capital during the course of the year and depending on the form of that capital, it would most likely reduce the leverage slightly. Okay. I believe that's all the questions we have for now. Yes. Okay. And hand it back to the organizer of the call. Thank you very much for listening, and we'll be having another session for our Q1 results, correct? Yes. So next month.