FCMB Group Plc (FCMB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the FCMB 9 Month 2022 Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ladi Balogun. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen. Welcome to our Q3 investors and analyst presentation. The releasing of our results was delayed as communicated due to the fact that we were conducting an audit of the Nigerian banking subsidiary, which was completed. So the numbers that you have here for the Nigerian Bank are also audited as of 9 months. In the room with me today, and who will also be speaking, we have from the holding company, the Chief Operating Officer, Gbolahan Joshua, and an Executive Director. We also have the Executive Director in charge of Investment Banking and Coverage with the holding company, Mr. Femi Badeji. And we have the Chief Financial Officer from the holding company, Mr. Deji Fayose. We have also from the holding company, Head of Investor Relations, Tunji Onamusi. Now we have on the call the Managing Director and Chief Executive Officer of the bank, Mrs. Yemisi Edun. We also have the Chief Risk Officer of the bank, Mrs. Toyin Olaiya. And from our other operating companies, who will be speaking on the Investment Management business, we have James Ilori, and we have, speaking on consumer finance, which is primarily our subsidiary Credit Direct will be Akinwande Ademosu. I would also like to use this opportunity to mention that the CEO of Credit Direct, Akinwande Ademosu, will be retiring at the end of this year. [Technical Difficulty]

Excuse me speaker, we are unable to hear you. [Operator Instructions]

Can you hear me now? Okay. Can you tell me what you had last? Or no, probably not. Okay. Well, I was mentioning that we will be saying farewell to the Chief Executive Officer of Credit Direct who has served meritoriously for 15 years. He will be succeeded by the current Chief Financial Officer of Credit Direct, Mr. Chukwuma Nwanze. I will now move on to the main body of the presentation. So on Slide 2, we have before us the agenda. I will be taking you through the results highlights as well as updates on our strategy, then I'll be handing over to the CFO of the holding company that will talk us through the results for the 9 months overview. The chief operating officer will talk us through the digital business review. And then Yemisi, Bank CEO, will talk us through the performance of the bank, Akinwande, the performance of Consumer Finance, Femi Badeji, the performance of the investment banking business and the investment management... Sorry about this. The investment management business will be shared with us by James Ilori. And then I will wrap up with the outlook. So moving on to Slide 3. We can see that the business has performed fairly well across all indices with the exception of an uptick in our nonperforming loan ratio. We see that our balance sheet has risen by 25% to NGN 2.9 trillion. We also see that our profit before tax has been announced is up at 9 months by 68% to NGN 26.5 billion. I think a few other highlights to pick up is a significant improvement of our cost-to-income ratio to 65%. And at 970 basis points. And also, we are steadily seeing our ROE pickup, it is now at 12.1%. And we expect by the end of the year, will improve even further. Outside of the banking area, we see Asset Management recording a strong year-on-year performance as well with assets under management rising by 48% to NGN 756 billion. Our customer base grew year-on-year by 16% to now stand at 10.4 million customers. Moving on to the next slide, a quick summary of our strategy, and then I will talk you through where we are on some of the key performance indicators of this strategy. So our unique group structure reflects the ecosystem that we're trying to build, but this extends beyond our own companies within the group to cover the various platforms that we have, which are in Banking, Consumer Finance, Investment Banking, Investment Management and new technology platforms that we're also building that are now either in pilot/private visa or they are actually launched. Also, of course, our products, which are the traditional banking, asset management investment banking products. And we also seek to sell third-party products. In terms of capital, what we try to do is deploy both our own capital, which is balance sheet, as well as third-party capital through either DFIs, development finance solutions that we partner with or through our investment banking business towards supporting the customers within our ecosystem. And that customer base has risen to 10.4 million. And one of the key things that we're seeking to do is bring all this together by consolidating and harnessing data across different parts of the ecosystem to create more value for our customers. So this summarizes the FCMB Group strategy. And on the next slide, we give an update on some of the achievements in the first 9 months of different elements of this ecosystem. Our operating platforms, our 4 operating platforms all gained traction and also grew in profit. We saw banking grow by 75%, consumer finance by 31%. Investment Management aided by the acquisition of ICO pensions as well as strong organic growth, particularly from digital wealth management grew by 221%. Sorry, investment banking by 221%, and investment management, which benefited from the acquisition of ICO as well as strong digital wealth proposition, grew by 47%. We have been working throughout the course of the year on developing 2 technology platforms. The first is a borderless banking platform out of the U.K. embedded within [indiscernible] in the UK, which is focused on the African diaspora. This is currently in private beta and it will be moving to public beta imminently. We're confident that this will be accretive to earnings by the year 2024 and then, potentially, very significantly beyond that. The second platform is a Banking as a Service platform, which we have also been developing over the course of the year, where we leverage our technology as well as the various licenses we have within the group, regulatory licenses, such as banking and so on, to enable technology-enabled companies provide banking services. And we're starting here with virtual accounts, wallets and payment APIs. We will begin to give some indication of the performance and the financial impact of our bank as a service business from 2023. However, that business has commenced and has currently been incubated within the Nigerian bank. From a customer perspective, we've already mentioned that we grew our customer base by 1.2 million. And just a quick summary of what we're seeing across our products. Payments, and if we just look indicatively of what we've seen as mobile and USSD and this is reflective of the general direction of our payments revenue. We saw it grow by 22% to NGN 242 million in the 9 months of 2022 compared to the same period in the prior year. Our lending business overall grew fairly strongly with 23% year-on-year growth to NGN 1.2 trillion. In terms of treasury activities, we generated over NGN 7.6 billion in the 9 months in treasury sales income. Our current and savings accounts also grew fairly robustly with those deposits growing by over 30% year-on-year to NGN 1.3 trillion. In terms of Wealth Management, again, we've already mentioned the 48% growth. Our brokerage activities also saw 140% year-on-year growth to NGN 70.3 billion, and this contributed significantly to the 55% year-on-year growth in brokerage commissions. In terms of financial advisory and capital raising, we saw an 88% increase in the fees that we earned year-on-year to be at NGN 678 million at 9 months. When we look at third-party products, we're generating about NGN 806 million revenue from the sale of insurance products to our customers. In terms of airtime and data, we generated about NGN 1.2 billion, which is up 25% year-to-date in terms of airtime and data sales. We have also launched a buy now pay later business with a fintech partner, which is currently in pilot and it's enabling our customers that would qualify for consumer credit to be able to get that consumer credit at the point of purchasing goods and services from identified merchants. So this, we expect will be increasingly a distribution channel for our consumer lending business. In terms of how we're deploying capital, we grew lending to all segments during the course of the year, NGN 97.5 billion growth in loans over the last 12 months in corporates, NGN 75.3 billion in SMEs, NGN 10 billion in institutional, NGN 9.4 billion in Personal Banking and NGN 1.5 billion growth in personal banking. Our Investment Banking business was also able to facilitate the deployment of almost NGN 600 billion of third-party capital into investments across various sectors of the economy. And this is up from NGN 463.9 billion last year. We have also been successful in mobilizing capital and funding totaling about NGN 314 billion in the first 9 months from development finance institutions and other funds to support productive sectors of the economy. And this is up 65% from last year. What this really demonstrates is the fact that we've been able to bring together various aspects of our group to work symbiotically together and create significant value. We're seeing cross-sell synergies. We're seeing efficiencies from economies of scope as well as scale. And this is really what is helping to drive the fairly strong top line growth that we're seeing across the group. We do believe that this trend and momentum will continue. But I will now hand over to Deji Fayose to talk us through the results overview.

Thank you, Ladi. Good afternoon ladies and gentlemen. I'll now take you through Slide 7 to 10 with respect to the key highlights of [Audio Gap]. Our revenues grew by 9% and 34% quarter-on-quarter and year-on-year, respectively, driven by growth in both our net interest income and noninterest income. Our net interest income grew by 3% quarter-on-quarter and 42% year-on-year, largely from a 33% increase in our interest income as yields on earning assets grew from 10.6% to 10.9% and a loan book growth of 23%. Our non-interest income [indiscernible] also grew by 36% year-on-year, which was largely driven by growth in our services and commissions from LCs and trading income despite a decline in foreign exchange revenues. Operating expenses also declined by 3% quarter-on-quarter. However, it grew by 18% year-on-year due to increased regulatory costs, our core investments in technology and general inflationary pressures. Impairment charges grew by 22% quarter-on-quarter and 293% year-on-year on the back of increased provisions on risk assets on the balance sheet. And overall, group PBT grew by 68% year-on-year from NGN 15.7 billion at 9 months ended 2021 to NGN 26.5 billion in the current year. Slide 8 now. This slide looks at some of our key performance ratios. I'll just touch on 1 or 2 of them. So from an ROE perspective, our 9-month ROE grew to 12.1% from 8% in the prior year, a year-on-year growth of 51% as a direct result of our growth and profitability. Our net interest margin also increased by 2.9% year-on-year by growth in our any assets yield as discussed on the slide before. Cost-to-income ratio also improved by 7.2% and 12.9% quarter-on-quarter and year-on-year, respectively, which was actually a direct result of our gross operating income. Slide 9 looks at our group earnings contribution from all operating companies with the PBT provision for the 9 months. And from there, we can see that all our operating companies recorded double-digit year-on-year growth, with down 75% from the banking group, the 31% from consumer finance, 221% from personal Banking and 47% from the investor management. Whilst the banking group contributed 73% of our group profits, all our other bank nonbanking subsidiaries contributed 27% or 12% from the consumer finance group and 10% from investor management and 5% from the investor banking group. Next slide, Slide 10. Slide 10 is a snapshot of where we were between 9/1/2021 are now, and it shows that all of our operating companies have recorded strong growth between last year and the current year. In Absolute TAM, this quarter has been NGN 10.7 billion from NGN 15.7 billion, 9/1/2021 to NGN 26.5 billion in 9/1/2022. I'll now please hand you over to Mr. Gbolahan Joshua, our Group Chief Operating Officer, to take you through the next section.

Thank you, Deji. My name is Gbolahan Joshua. I'll be taking us through a review of our digital business, covering lending, payment, wealth, and agency banking. From Slide 12 to 18. On Slide 12. We generated NGN 27.6 billion as digital revenues, a 51% year-on-year growth. Digital accounts for 14% of gross earnings driven largely by lending and payments. From a lending perspective, we have disposed over NGN 167 billion to 690,000 customers over the period. Portfolio has grown by 59% to NGN 77 billion and digital lending accounts for 62% of total revenues. We've seen a growth in our digital customers from 7.4 million to 8.7 million customers, a growth of 18% on a year-on-year basis. Slide 13 speaks to customer acquisition. Over this period, we've acquired 1.27 million customers, largely driven by automated account opening and increased cross-selling of digital products on our various channels. We've seen digital customers move up from 7.4 million to 8.7 million as we distribute more products on our mobile channels. Slide 14 speaks to our agency banking business, which is a key focus area for the group. There was a temporary slowdown in quarter 3, which we announced on our previous call, as we implemented some new operational risk measures. Year-to-date, we generated revenues of NGN 0.5 billion from that business. We've acquired 152,000 customers from our agency banking business, which is actually 12% of customer acquisition over the period. Slide 15 speaks to the breakdown of our digital revenues. Lending contributes the highest chunk at NGN 17 billion; followed by payments, NGN 10.3 billion; agency banking, NGN 0.5 million; and wealth, NGN 0.1 billion. The retail lending book, SMEs and the digital lending book, SMEs and retail has grown by 38% and 65%, respectively, year-on-year. Between lending and payments, they account for 98.6% of our total digital revenues, but we've seen a lot of traction in our digital wealth business, both from revenue and AUM perspective, it's grown by 132% and 159%. We expect to see increased contribution from this as we launch new products, including the dollar variance of our wealth management product. Slide 16 shows the trend of our digital revenues moved from NGN 6.8 billion quarterly to NGN 10.3 billion as of Q3 2022. We've seen consistent growth in 2022 with NGN 1 billion revenues every quarter. We've seen digital contribution to total gross earnings moved from 12% to 14%. That's despite a 33% increase in gross earnings from NGN 150 billion in 9 months 2021 to NGN 200 billion in 9 months 2022. We've also seen increased contribution from digital in terms of interest income contribution from 7% contribution in 9 months 2021 to 9% contribution in 9 months 2022, and that's despite a 3% growth in our interest income. Slide 17 just shows the trend of our digital loan portfolio. It's moved from NGN 48 billion a month 2021 to NGN 7 billion, 9 months 2022. Contribution of digital loans to total loan portfolio has moved from 5% to 6.5%. We saw a 13% reduction in our retail digital loan book from NGN 16.9 billion to NGN 14.7 billion due to some NPL write-offs in the bank. And when we look at our retail digital lending book, the split between the bank and Credit Direct, which is our consumer finance business, 60% comes from Credit Direct and 40% from the bank. Slide 18 just shows key highlights of our digital business across lending, wealth and payments. For SMEs, we've disbursed NGN 137 billion to over 18,000 customers. Average ticket size, NGN 7.5 million; portfolio size, NGN 62.3 billion. For retail, we've disbursed NGN 31 billion to over 672,000 customers, average ticket size of about NGN 40,000, portfolio size of NGN 14.7 billion. For digital wealth, we acquired over 60,000 customers this year, AUM has grown by 139%, and we've seen a -- sorry, AUM has grown by 132% to NGN 8.6 billion and revenues have grown by 139%. The last slide just shows a breakdown of our digital payment income. 9 months 2022, it's about NGN 10.3 billion, 60% of that comes from the mobile business, 23% of that comes from the card business. Together, they account for 83% of our payment strategy. I'll now hand over to Yemisi, the [Audio Gap]

Thank you, Gbolahan. Good day, ladies and gentlemen. I will be speaking from Slide 20 to 28 on the review of the banking group. Slide 23 is the dashboard showing the key performance metrics. Customer deposits grew year-on-year by 29% and 11% quarter-on-quarter to NGN 1.82 trillion. The growth was the result of the execution of the retail strategy in the shape of a challenging operating environment and increased competition. Gross net loans grew 23% year-on-year to NGN 1.16 trillion, while third quarter growth was 6%. The cost of risk grew 8% quarter-on-quarter, closing at 1.3%. This was due to increased impairments on the loan book, most especially in the power and energy, commerce and government sectors. Revenue witnessed a 34% year-on-year growth and 11% quarter-on-quarter growth. This was driven by increase in our noninterest income and net interest margin due to growth in loans and advances. Return on average equity for the quarter increased 26% quarter-on-quarter to [indiscernible]. Cost to income ratio trended downwards from 67% to 54% at the end of 9 months 2022. This was due to growth in revenue for the period. Moving on to Slide 21, which contains the analysis of the banking group's performance for the period. PBT grew from NGN 10.9 billion to NGN 19.2 billion year-on-year, amounting to a 75% increase and a 17% growth quarter-on-quarter amidst challenging macroeconomic environment. This growth was largely due to significant performance recorded in net interest income and noninterest income, not especially in our corporate, SME and treasury and financial market segments. Net interest income improved by 3% quarter-on-quarter and 47% year-on-year. The year-on-year growth was predominantly driven by protein domes and advances. Noninterest income also increased by 6% quarter-on-quarter and 29% year-on-year. While quarter-on-quarter was driven by growth in FX and other income year-on-year was driven predominantly by the increase in fees and commissions, trading income and other income despite the lower FX income net during the period. Operating expenses declined 4% quarter-on-quarter. It, however, grew 10% year-on-year due to increase in regulatory costs, high inflation environment, currency devaluation and IT maintenance costs. Risk assets grew 6% quarter-on-quarter and 22% year-on-year as additional funding was provided to productive sectors of the economy. Customer deposits also increased by 11% quarter-on-quarter and 29% year-on-year, respectively, driven mainly by customer acquisition via retail channels. Slide 22 contains noninterest income analysis. Net fees and commissions grew by 25% year-on-year, and 80% quarter-on-quarter. The growth was predominantly driven by growth in electronics fees and commissions. Trading income declined by 40% quarter-on-quarter. It also grew by 23% year-on-year due to higher trading activities in government-backed securities. FX income increased by 17% quarter-on-quarter. However, declined by 42% year-on-year due to minimal FX revaluation gain. Other income declined 19% quarter-on-quarter due to modification loss from restructured facilities, which, however, grew by 152% year-on-year due to dividends received on the investments. On Slide 23, we have our PBT distributed by segments. Our partner Banking segment PBT marginally grew by NGN 0.03 billion quarter-on-quarter, both declined year-on-year by NGN 3.7 billion. This was largely due to increased branch operating costs, growth in impairments and the one-off write-back charge in 2021 of about NGN 1.7 billion. The performance of this segment is expected to improve in subsequent quarters. Our pathway to consistent growth impact on our banking includes, but not limited to the following: one, optimize continuable costs, such as card operating costs and impairment charges; two, aggressively increase the transaction fees; three, increased contributions of new features launched from the mobile app and U.S. FD; and fourth, increased contribution of agency banking from NGN 600 million to about NGN 2 billion within the next quarter. For SME banking, we continue to see traction in SME as we remain on course with our strategy of using innovation and technology to drive the business. On year-on-year basis, PBT grew by NGN 5.8 billion and NGN 1 billion quarter-on-quarter. Treasury and Financial Markets segment PBT grew by NGN 2.2 billion year-on-year, driven by treasury sales and fixed income trading. It, however, declined by NGN 1.4 billion quarter-on-quarter due to low fixed income trading activities in government securities. Our Corporate Banking closed with a NGN 0.8 billion loss. Though the business is still making losses, we have seen a significant reduction in these losses with losses reducing by NGN 4.4 billion year-on-year and NGN 1.1 billion quarter-on-quarter. The segment is being repositioned, and we expect it to become profitable by the end of the year. Our commercial banking segment PBT, improved marginally year-on-year by NGN 0.03 billion and declined by NGN 5 billion quarter on quarter. This segment has also been repositioned to return to profitability by the end of the financial year. Our Institutional Banking segment PBT declined NGN 1.3 billion year-on-year, however, improved by NGN 0.5 billion quarter-on-quarter. Moving on to Slide 24, which analyzes the deposit trend for this period. Total deposits rose 11% quarter-on-quarter and 29% year-on-year. The low-cost deposits now account for 71% of total deposits. It grew by 7% quarter-on-quarter and 31% year-on-year [indiscernible]. The retail deposit that is personal and SME banking deposits now constitutes about 52% of total deposits, growing by 9% quarter-on-quarter and 9% year-on-year respectively. On Slide 25, we provide the cost analysis and reduction plans for the year. Operating expenses decreased 4% quarter-on-quarter but grew 10% year-on-year due to an increase in regulatory costs and technology enhancements, coupled with the double-digit inflationary environment and currency devaluation. Regulatory costs, that is NDIC & AMCON, remained flat quarter-on-quarter. However, grew 25% year-on-year due to growth in balance sheet size and deposit liabilities. Technology costs declined 84% and 0.3% quarter-on-quarter and year-on-year, respectively. Technology costs accounted for 7% of operating expenses by year-to-date 9 months 2020. Our reduction plans include, but are not limited to internal process automation for greater cost efficiency, resources reallocation for optimization of performance and focus remains on driving efficiencies and reducing costs to sales. Slide 26 summaries the group loan book by sector, currency and segments. Our loan portfolio remains well diversified across Texas segments and currency. We achieved a growth of 22% year-on-year, in line with our plan for the year 2022. The quarter ended with a 4.7% growth quarter-on-quarter. Year-on-year growth was largely driven by our focused sectors that is manufacturing at 61.2%. Agriculture, 93% and individual 16.8%. These sectors contributed 52% to the year-on-year growth. The 4.7% quarter-on-quarter growth in the loan book was largely driven by the following sectors; manufacturing, 29.5%, agriculture, 17% and general, others, 76.6%, while 33% of the growth was induced by 3.9% exchange rate movements. Concentration on foreign currency loans remained flat quarter-on-quarter at 40%. Foreign currency loans, however, grew by 5% at the end of the quarter, partly induced by movements in the exchange rate. Corporate Banking as a segment gained 2% of the portfolio share against a drop in SME as we take opportunities within the segments lightly through intervention funds. All sectors are within the plant and regulatory limits. On Slide 27, we show our loan book performance by sectors, currency and segments. We had a 3.7% drop in NPL ratio to close at 4.4% due to loan book growth. The quarter-on-quarter growth came largely from the power and energy sector, which came from the classification of the power aspects. Restructuring is being discussed at the syndicate level. The drop in real estate, oil and gas downstream and individual is largely due to the write-off of long outstanding nonperforming loans in line with regulation. These assets are under workout and recovery. The assets written off in oil and gas downstream in the furthering debt, whose payments have been delayed. The loan is being worked out for recovery through other cash use available to the customer. The assets in real estate is a commercial property. The property has been offered in full with different offers being considered. 84% of NPL are currently coming from the LCY portfolio while personal and SME segments contributes 59% of current NPL. The quality of our loan book remains a major focus for us. Slide 28 speaks to the trend in our NPL, cost of risk, net impairments and coverage. Quarter-on-quarter drop in NPL ratio was likely due to loan growth and balances written of memorandum. Recovery drives our ongoing financial recovery. Cost of risk was 1.3% with 10 beats quarter-on-quarter. This was due to the charge for growth in NPLs and Loan books. Accumulated impairment dropped 16% quarter-on-quarter due to write-offs. Coverage dropped to 89.8% quarter-on-quarter due to write-offs. We plan to build this back to 100% coverage before year end. 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 performance.

Yes. Good afternoon. Thank you. My name is Akinwande Ademosu. I will just take you through Slides 30 to 32 and that is on non-banking mandated business. It's just performance for the period 9 months 2022. So on Slide 30, even though I'm not saying the slide, I'm diving in from the form, I know that side represent the business performance for the 9 months. Gross earnings grew by 15% from NGN 9.1 billion to NGN 10.3 billion, resulting in a 13% growth in interest income and profit before tax, respectively. Return on average equity comped by 600 basis points, while operating expenses dropped by 2% and NPL also dropped by 500 basis points. On Slide 31, that slide shows the financial performance highlights. The business loan book expanded by 16% year-on-year to NGN 27.3 billion. Profit before tax also grew by 31% year-on-year, though there was a slight drop quarter-on-quarter, which reflects the cycle of our business. Net interest income dropped slightly by 2% quarter-on-quarter but then grew by 5% year-on-year. Net noninterest income grew by 2% quarter-on-quarter or 35% year-on-year. This was attributed to the growth in our fees and commissions. Operating expenses dropped by 3% quarter-on-quarter and 2% year-on-year. On the quality of our risk assets, net impairments declined by 16% and 26% quarter-on-quarter and year-on-year, respectively. And this were driven by the improved risk management framework of the business. And currently, our integrated digital channel accounts for 30% of our global sales. And this was from 22%, that is it was same period of 2021. This trend is expected to continue as the business continues to deploy digital channels. On Slide 32, this shows the business performance ratio. I'll just take you through the Q1. profitability ratios, return on average equity improved by 26% for the 9 months. The quality of our loan book, the NPL as a percentage of our total loans dropped by 36% year-on-year. The business liquidity and capital position remains strong and resilient. I will now hand you over to the Executive Director, Femi Badeji, to take you through the group investment banking business performance.

Thank you, Akinwande. Good afternoon, everyone. My name is Femi Badeji, and I'll take you through the Investment Banking section of the presentation, which are Slides 34 through 35. Gross earnings net noninterest income and profit before tax were all up significantly year-over-year, with gross earnings recording a 103% increase to NGN 2.8 billion, noninterest income up 97% to NGN 2.5 billion and profit before tax of 221% to NGN 1.3 billion. Whilst operating expenses grew year-over-year by 32% to NGN 1.5 billion, mainly due to inflationary pressure, the cost-to-income ratio for the business fell by 2,900 basis points from 82% to 53%, and the return on average equity improved from 8% to 29% for the business. Moving to Slide 35. PBT for the investment banking business grew by 178% and 221% quarter-over-quarter year-over-year, respectively. Year-over-year growth was driven by increased capital markets activity during the period, coupled with a strong pipeline and good execution, which led to an increase in capital raising and financial advisory fees as well as improvements in brokerage commissions and trading income. The value of stockbroking trades grew 140% year-over-year from NGN 29.3 billion to NGN 7.3 billion, contributing significantly to the 55% growth in brokerage commissions year-over-year. Trading income, which grew by 555% and 284% quarter-over-quarter and year-over-year, respectively, was driven by an increase in proprietary trading activities. Overall contribution from the business to group PBT has improved from less than 3% at the end of 9 months 2021 to 5% as of the end of 9 months 2022. I will now hand you over to James Ilori, CEO of FCMB Asset Management, to take us through the Investment Management section of the presentation.

Thank you, Femi. Good afternoon, ladies and gentlemen. I was taking you through Slides 36 to 39 on the performance of the Investment Management division. So I'll start with Slide 37. gross earnings increased by 49%, with 95% of that amount coming from noninterest income, which rose by 47%. Looking at operating expenses, that increased by 52%, with costs related to the ICO acquisition being one of the drivers of the increase. Return on average equity rose by 10% to 23%. Moving to the next slide, Slide 38. We grew assets under management by 3% quarter-on-quarter and by 48% year-on-year to close at NGN 756 billion with AUM from the ICO acquisition contributing about 21% of the closing AUM. Investment income accounted for 51% of the quarter-on-quarter AUM increase, with the balance coming from net contribution from customers. Our Pensions business contributed 84% of AUM at the end of the third quarter compared with 78% in the same period last year. Looking at the number of retirement savings accounts, that rose by 2.4% in the 9 months to September 2022 to close at 729,500 accounts. In addition, registrations by our digital platform accounted for 61% of the increase in the number of retirement savings accounts. In terms of the transfer window, there were a net recipients of funds with a net inflow of NGN 3.9 billion at the end of September 2022. Looking at costs. The acquisition of ICO accounted for about 30% of the year-on-year cost increase. However, we are on track to achieving NGN 1 billion cost savings synergy targets. In terms of PBT, that rose by 5% on a quarter-on-quarter basis and by 47% year-on-year as the acquisition of ICO pensions continue to positively impact earnings. Our Pensions business accounted for 75% of PBT compared with 65% in the same period last year and 74% in the second quarter of this year. Moving to Slide 39, which provides updates on our primary goals for this year. I'll start with the first item there, which is the ICO Pensions integration. The benefits at the end of the third quarter from the ICO acquisition are captured under 3 headings: assets under management, cost savings and PBT. Looking at assets under management, that increased by NGN 6 billion. That's in addition to the NGN 154 billion inherited from 2021. Cost savings rose to NGN 784 million as we continue to benefit from synergies and PBT increased by an additional NGN 871 million. Our year-end projections include incremental AUM of NGN 11 billion. So total AUM contribution from the ICO acquisition would hit about NGN 165 billion, and that includes the NGN 154 billion from last year. We're looking at cost savings of NGN 1 billion and additional PBT of NGN 1.3 billion. The next update is on digital distribution. Here, the implementation of our digital distribution plan continued to gather momentum. AUM and management fee from fit-out grew by 132% and 19% in the 9 months to September 2022. We expect a strong growth in AUM and fee to continue following the launch of the U.S. dollar variant of our digital investment products and as we signed distribution deals with internal and external parties. Lastly, in terms of our alternative assets initiative, we remain on track to launch our first fund in alternatives and have appointed required parties to be offer. We are completing arrangements to submit the registration requests to the industry regulator, the SEC, and plan to raise at least NGN 10 billion on the Series 1. I will now hand you back to Mr. Ladi Balogun, who will provide an overview of the group's plans for the rest of the year. Thank you.

Thank you very much, James. So we are on track to exceed our initial target for year-on-year profit growth by... the target was 40%, but we believe we will beat that materially. This is in spite of a slower Q4 relative to Q3. But this performance will be driven by a number of factors. First of all, traditionally, we see that our Q4 is generally stronger because of the nonrecurrence of AMCON levy. However, this year, it will be tapered by a lower volume of earning assets because at the end of Q3, we were hit with some fairly large CRR cash reserve requirement ratio debt. We also expect to see continued growth in digital revenue with about 30% year-on-year growth from digital lending and payments. Our current run rate of digital revenues were expected to exceed NGN 34 billion by the end of the year, a growth of over NGN 8 billion from the NGN 26.2 billion delivered last year. On the investment management side, we expect that AUM will grow by about 50% year-on-year. And so will the associated management fees. This will be driven both by our PFA acquisition, modest gains in terms of market share in the pensions industry as well as our digital wealth management platform that continues to gain momentum. Investment banking, we think will have a relatively strong Q4 as we do have a number of debt capital market deals that are closing during the course of this quarter. And we expect that the consumer finance business will continue on the same sort of trajectory that it achieved in the prior quarter. We thank you very much for listening and I now open to questions.

[Operator Instructions]

Okay. While we're waiting, we have one question, rather, series of questions coming from FBNQuest. I'll just read it out. Thank you for hosting the call. I just want to get a sense of expectations for the economy next year, being an election year. What are our major concerns, economic concerns for next year? how do we see it affecting our loan growth rate? How we think about inflation next year, a risk still just tilted towards the upside? And how do we think this will affect the interest rate environment? Could we also give guidance on loan growth, deposits, cost of risk, cost to income and net interest margin for 2023? And also being a little behind on the story of our digital transformation drive, they would be glad to be brought up to speed on our action points and successes. Okay. That's quite a few questions. In terms of the view or expectations for the economy next year, I mean, we think it will be slow in the first half as we lead up to elections and a transition. But we think that things should normalize by the second half of the year with a new government, and we're seeing with all the candidates, an eagerness and a willingness to impress by focusing on the economy. So I would say that we are relatively optimistic that whilst things will remain tough, we should begin to see signs of improvement in the second half of the year, probably towards late Q3 or Q4 as the new government settles in and business activities resume to the norm. Now how is this likely to affect our loan growth drive. I would say that we may see, and I can't recall exactly where our projections lie because we've obviously finalized our budget. But I don't think loan growth will be as aggressive next year as it was this year, generally because we expect interest rates to still remain relatively elevated. We think this is also partly because inflation will still remain quite high. It may taper a little, but I don't see it being below the mid to late teens for next year. How do we think this will affect the interest rate environment? I think rates will remain elevated and relatively high. And so in terms of our guidance for loan growth, deposits, cost of risk and cost to income ratio, I would say loan growth will certainly be still material, but lower than we were last year. I'm just asking my CFO, if you recall, roughly what we're looking up for loan growth next year. So probably in the region about 18%. And we expect deposit growth will be faster than that. We're seeing customer acquisition, the use of digital channels, our whole ecosystem strategy, banking as a service. All these things are going to have an impact on deposits. So the hope is that deposits will grow faster than loans, and that will be our intent certainly in a high interest rate environment where we would be able to benefit from the resulting spreads. Cost of risk, I think cost of risk will probably be similar, if I'm not mistaken, to where we are this year. So looking at somewhere between 1.6% and 1.8% for next year. We think cost/income ratio will continue to downtrend, probably beginning to head towards about you asked about 64. And net interest margins, we think, will probably remain about 7%, which is more or less sort of levels that we are now. So overall, we're looking forward to a better performance next year driven by really growth in volumes of our business. And as we continue to achieve greater scale, we will see more efficiencies and therefore, more profitability. In terms of our digital transformation, the action points in the successes. So I think the first thing is we took a decision several years ago to build our own app from the ground up. This has allowed us to basically be able to innovate, particularly with the app and be able to add on a series of products onto the app from lending products to investment products. This has also enabled us, therefore, to drive a lot more aggressively, not just payment revenue on the app, but digital lending as well as digital wealth, and that's been a major factor. On the digital lending side as well, we have been able to fully digitize the process all the way from origination to underwriting as well as distribution. And that has seen significant growth due just to the speed of which we're able to take decisions, and we are increasingly leveraging data science and are able to take lending decisions, both within the SME and the personal banking space within a matter of minutes. And this has led to significant growth in both digital lending and the personal banking and the SME side. And we've been able to keep loan loss provisions and loan loss expense very much within tolerable limits as a result of the data algorithms that we are using to make these credit decisions. We currently lend really to customers that have some transactional history with the bank, and this has proved to be quite successful. So these are the factors that so far have led to the success in terms of digital transformation. We see a number of areas beginning to come through more strongly in 2023. So platform revenues that we're going to get from things like banking as a service and payment revenues that we would get from things like borderless banking and a renewed focus on merchant services and merchant collection as well as continued growth in terms of customer acquisition with the app and continued cross-selling. So we're gradually, very gradually and slowly migrating towards, what we believe, will ultimately be a super app, where we will be cross-selling a number of our group products and more third-party products to the increasingly large number of customers that we will onboard onto the app. So this will summarize what we see as the future of the digital banking business. We don't see any other questions on the console. And I'm not sure there are any questions.

Dear speakers, there are no further questions over the audio lines.

Okay. All right. Well, thank you very much. We wish everyone a happy festive season, and we look forward to seeing you in the new year when we will be sharing with you the results for the full year 2022. Have a good evening.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.