FCMB Group Plc (FCMB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the FCMB Full Year 2024 Investors and Analyst 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 first speaker today, Ladi Balogun, CEO.

Good afternoon, ladies and gentlemen, and welcome to our 2024 full year investors and analysts presentation. I have today with me members of our executive team, including the CFO of the holding company, Mr. Deji Fayose; the Chief Operating Officer of the holding company, Mr. Gbolahan Joshua; and the Executive Director, Investment Banking and Coverage for the holding company, Mr. Femi Badeji. Also on the call today is the CEO of the Bank, Mr. Yemisi Edun; the CEO of Credit Direct, Mr. Chukwuma Nwanze; and the CEO of the Asset Management -- FCMB Asset Management, Mr. James Ilori. I will be handling the first part of this presentation today going through the highlights. I will then hand over to Mr. Deji Fayose, who will talk us through the performance of the group, the banking and non-banking divisions. And then our Chief Operating Officer for the holding company will also talk us through the digital business review that continues to be an increasingly important part of our business. And finally, I will share with you our outlook. I will move straight on to the slides, starting with Slide 4, talking through our performance highlights for 2024. So on Slide 4, we saw that the group recorded reasonable growth indices in terms of balance sheet, deposits and loans where we grew 59%, 39% and 28% respectively. Our AUM also grew 35% to NGN 1.4 trillion. Customer base continued to grow, reaching 14.2 million, reflecting the strength in the retail franchise. And we did have a fairly modest growth in PBT, which is only 7% by the end of the year, although PAT actually recorded negative growth as a result of the impact of windfall taxes. If we move to the next slide, we can go into a bit more detail as to on that. We saw, as I mentioned, PAT grew by just 7% -- PBT, I'm sorry, grew by 7% and PAT declined by 21% due to the impact of the windfall tax. We also saw that the earnings in Q4 was where we suffered a significant reduction with the earnings coming down to 22.9 -- from NGN 22.9 billion PAT to NGN 9 billion negative or loss for after tax because of the impact of the NGN 17.7 billion windfall tax. Net interest margin also compressed in Q4, coming down from 6.5% to 5.4%. We also saw a decline in non-interest income by NGN 12.1 billion, largely as a result of the decline -- an 87% decline in FX revaluation. We saw obviously an appreciation in naira in Q4. We do have slightly over $100 million of our shareholders' funds in dollars and that resulted in a revaluation loss for that quarter. And there was also a reduction in fixed income trading. This year, we are very much focused on both structural and strategic initiatives that we'll talk about later that will bring about a sustained reduction in the cost of funds and lead to NIM improvement. We've already seen this in Q1 as we have begun to benefit from the impact of the capital that was raised. In terms of asset quality, there was a slight uptick to 6% due to the classification of one of our obligors in the real estate space in the Nigerian Bank that is fully secured and we are working to resolve. In terms of recapitalization, we raised NGN 144.6 billion in the 2024 public offer, increasing our shares in issue to NGN 39.6 billion and raising the bank's CAR to 18% and resulting in the securing of the national license. We have started to see the positive impact of this capital injection in the Nigerian banking subsidiary. The funds came in at the end of 2024 in the month of December. So we really only started to feel the impact of those funds in January 2025. We also expect to close the second part of this public offer in Q1 2025, which is a convertible note of about NGN 22.5 billion that has already been raised and is currently undergoing capital verification. Subsequent phases will include a minority sale in our Consumer Finance business where we're looking at approximately about 25% sale and also our pensions business as well as an additional equity offer. We expect that while we will close the equity offer in 2025, we will not complete capital verification, and therefore, we expect that it would be included within the earnings per share and capital calculation for 2026 and not 2025. And we believe that once we complete these processes, we would have attained the benchmark and threshold for the international license before March '26. Moving on to the next slide, we see and continue to see significant traction in our digital businesses across lending, payments and wealth with digital revenues crossing NGN 100 billion in 2024, digital loan disbursements crossing NGN 357 billion and over 1.6 million in account. In our Consumer Finance business, which has successfully transformed itself into a digitally-led business. Having attained its vision of becoming and remaining Nigeria's leading non-bank lender, CDL is now charting a bold new vision to be Africa's leading embedded finance provider with a mission to make access to financial solutions a universal opportunity. It is doing this by building a capital-efficient business model that is both digitally-led and also embedding itself through credit in the payment flows and supply chains of its partners. And by so doing, it maintains a very low NPL ratio and also very low marketing and distribution costs for its products. In terms of sustainable development, which remains -- continues to remain very important to the group and a key driver of funding from the DFI community. We've seen the SME segment continue to be of critical importance in our lending activities. We saw the loan portfolio there grow 38% greater than the overall bank total or average to NGN 433 billion and 18% of this portfolio was distributed digitally and this is a growth from NGN 329 billion. We secured about $125 million of funding from DFIs and donor agencies who gave us grants to enable us expand funding to SMEs, both SMEs in general and women-owned SMEs as well as to the agricultural sector where we grew our lending to NGN 192 billion, which was an increase of 56.8%. We disbursed over NGN 29.6 billion to 22,300 women-owned businesses where we also held capacity building sessions for over 1,500 of such businesses. We acquired over 799,000 customers via our agency banking network, providing over NGN 23 billion to them in the form of micro loans through those -- that network form of micro loans to over 105,000 individuals and SMEs, including NGN 8 billion to micro SMEs and we saw a revenue growth of 41% in our agency business. I will now hand you over to Mr. Deji Fayose to talk us through the results overview of the group and its constituent parts.

Thank you, Ladi. I'll now please take you through Slides 7 to 26, which covers our group performance review, our banking and non-banking divisions review. And we'll start from Slides 8 to 16, which is our group performance review. Gross earnings year-on-year have grown by 54%, driven by 28% and 9% increase in our net interest income and non-interest income respectively. And this was despite a 46% increase in operating expenses, whilst impairments reduced by 21% year-on-year, largely as a result of certain provisions that we took in the prior year as a buffer against future headwinds. On the next slide, we'll see that the group recorded a strong earnings trajectory from Q1 to Q3. However, we recorded a decline in Q4 as a result of a 24% and 32% decline in net interest income and non-interest income. Our interest income grew throughout Q1 to Q3, however, compressed in Q4 and while interest expense increased by 14%. And the factors of this led to a 24% reduction in our net interest income in Q4, and as a result, a reduction in our NIMs in Q4 to 5.4% from 6.5%. We have further details of our NIMs on Slide 14, which we'll discuss later. For the non-interest income, on the other hand, the decline was largely due to a significant reduction in our FX forward income, which had a cumulative effect of NGN 6.5 billion for 2024. However, we have seen a significant recovery from Q4 in both our net interest margin and our non-interest income from a reposition of the balance sheet and from a growth in treasury trading and digital banking income in our subsidiaries. Slide 10, please. The above factors that we just mentioned led to an overall growth of 7.1% in our year-on-year PBT. However, our return on average equity and return on average assets declined year-on-year, closing at 12.7% and 1.3% respectively, which was a direct result of the additional equity that we raised from our successful capital of NGN 140 billion as well as a 21% decline in PAT. The decline in PAT was actually due to the following pressure points, which impacted our Q4 earnings by NGP 52 billion, a decline in NIM from 6.5% to 5.4%, which I just touched on, that had a profit impact of PHP 16.1 billion, a decline in our fee-based income by 32% with an impact of NGN 12.1 billion and a [ 58% ] growth in tax liabilities in quarter 4 with an impact of NGN 24.2 billion on group earnings. However, we're beginning to see a recovery in our group ROE as this has begun to return back to the Q2 2024 levels as our earnings momentum improved in the current year. Slide 11, please. The year-on-year earnings growth by divisions of the group were Consumer Finance 34%, Investment Management 28%; the Banking Group and Investment Banking, a decline of 8% and 35% respectively. Contribution from our non-banking divisions have grown year-on-year from 19% in the previous year to 31% at the end of 2024, whilst the Banking Group contributed 69%. The next slide is just a picture of what we just discussed. We can please go to Slide 13. Group operating expenses increased by 45.7% year-on-year from growth in personnel costs following the upward revision of remuneration in the prior year as well as regulatory costs from NDIC and AMCON expenses. Overall, the group recorded a cost-to-income ratio of 59.9% at the end of the financial year. Slide 14. The impact of 122.3% growth in funding costs and a higher than average CI ratio in the Nigerian Bank was what led to a year-on-year decline in the NIMs that we discussed. And this was despite the growth in net interest income by 27.6%. And our cost of funds increased by 250 basis points to close at 8.3%, largely due to the upward review of the NPL rate and an increase in CRR. This also led the year-on-year growth in interest expense by 122.3%. We are, however, beginning to see moderation in the funding costs and expect to sustain this in 2025. In addition, to improve our NIMs in the current year, the capital raise in 2024 will be one of the 3 key initiatives that will be used to alleviate funding cost pressures. And the other 2 will be to focus on improving our digital payments and collection solutions and expanding our market share in the premium and institutional banking segments. On Slide 15, we look at our NPL ratio. Group NPL ratio, as you can see, increased by 163 basis points to 6% at the end of December 2024 from 4.3% and whilst the impairment also declined year-on-year by 30.7%. This resulted in an improved cost of risk of 1.8% from 3% in the prior year. Cost of risk improvement was largely due to the provisions that we spoke about earlier taken in the prior year. So despite the 160 basis point growth in NPLs, our coverage ratio remains over 100%, as shown in the bottom right of the graph. The next slide is just a table of the ratio calculations, which we have touched on quite a number. So we can please move to the next section, which is Slide 17 to 21, where we discuss the highlights of our banking subsidiary. Our banking subsidiary recorded a year-on-year growth in total assets of 60%, deposits 40% and loans 27%. However, we had a year-on-year decline in return on average equity and CIR. The return on average equity declined year-on-year due to the increased equity from the capital raise, as mentioned earlier, and the impact of the windfall tax of the bank in the prior year. The next slide highlights the performance of the business segment in our banking subsidiary with year-on-year growth in earnings recorded in Personal Banking, SME, Treasury, Corporate Banking and a decline in Commercial and Institutional Banking. The Personal Banking segment performance was led by growth in customer acquisition and increased adoption in our digital channels, which resulted in a 63% year-on-year growth in net revenues and a profit of NGN 6.5 billion at the end of 2024. SME banking equally recorded 14% and 4% year-on-year growth in net revenues and PBT with profits closing at NGN 11.4 billion, while the Treasury business also recorded a strong year-on-year PBT growth of [ 32% ] and closed at NGN 2.4 billion. Corporate Banking segment grew net revenues by 37% year-on-year and profits closed at NGN 5.1 billion. We remain committed to optimizing our operations and leveraging our strength to ensure a smooth recovery in our Commercial and Institutional Banking segment from the prior year results in the current year. And the next 2 slides are focused on our loan book. And on Slide 20 where we are now, we see that the loan book grew year-on-year by 28% to close at NGN 2.4 trillion, with 5 sectors accounting for 6% of the growth and the book remains well diversified with no sector accounting for more than 15%. At the end of 2024, 66% of the loans were in FCY, whilst 34% were in local currency, and all sectors remain within planned regulatory limits. Slide 21. The Banking Group NPL ratio increased by 180 basis points year-on-year to close at 6%, which was due to the classification of an obligor in the real estate sector. At the end of the year, 67.4% of the NPL were in FCY and LCY and all these loans are mostly secured and at various stages of workout. And to close, we'll now take you through the highlights of the non-banking divisions, which are from Slide 23 to 26. On the current slide, as you can see, gross earnings and PBT have grown by double-digits in our Consumer Finance and Investment Management divisions, while the Investment Banking business recorded a year-on-year decline. The NPL in Consumer Finance business also decreased by 50 basis points to close at 6.2% at the end of the year, whilst AUM has grown by 35% year-on-year in Investment Management business, closing at NGN 1.4 trillion at the end of the year. And the next few slides also show the highlights of the respective businesses. So for Consumer Finance on Slide 24, the Consumer Finance business added close to 90,000 new customers and increased disbursements by 65% year-on-year. This led to an increase in income from digital originated loans from NGN 16 billion in 2023 to NGN 38.4 billion at the end of 2024, representing 140% year-on-year growth. The Consumer Finance business continues to maintain strong liquidity to support growth in loan disbursements, customer acquisition and funding optimization. On the next slide, for Investment Banking, gross earnings and PBT declined year-on-year by 11% and 35% respectively, which was driven primarily by a one-off exceptional gain from a private investment loan in 2023. The performance in capital markets, however, was sustained by increased capital markets activity during the year, leading to a year-on-year growth in gross earnings and PBT by 57% and 60% respectively. Our Capital Markets business also led 345 transactions in the prior year, helping to raise over NGN 1.39 trillion for our clients. For Investment Management business, assets under management grew by 35% year-on-year to close at NGN 1.37 trillion with AUM management fees from digital products increasing by 48% and 24% year-on-year. Division also recorded a net inflow of NGN 2.45 billion from the transfer window at the end of the year, representing a year-on-year increase of 82%. Overall, the Investment Management PBT increased year-on-year by 27% to close at NGN 6.48 billion with the Pension business accounting for 55% of the profit. I'll now hand you over to our Group COO, Mr. Gbolahan Joshua, to take you through a detailed business review.

Thank you, Deji. Good afternoon, everyone. My name is Gbolahan Joshua. I will be taking you through our Digital business covering lending, payments and wealth on Slides 27 to 33. On Slide 28, our Digital business delivered revenues of NGN 101.9 billion in the 2024 financial year, a growth of 69% from the NGN 60.3 billion delivered in 2023. Digital accounts for 13% of gross earnings, up from [ 12% ] in 2023, largely due to the growth in Digital earnings outpacing the growth in our gross earnings. Our digital loan portfolio of NGN 174.4 billion is split 53% between the Retail business, consisting of the Consumer Finance subsidiary and Nigerian Bank and 47% SMEs. Digital loan portfolio grew by 33%, driven by a 28% growth in the value of loans disbursed in 2024 to NGN 357 billion to 1.6 million customers. Digital payment revenues grew by 34% year-on-year from NGN 19 billion to NGN 25.2 billion, largely driven by our mobile cards and merchant payment products. On Slide 29, I'll speak about customer acquisition and digital adoption. We acquired 1.6 million customers in 2024, driven by revamped digital onboarding platforms for agency banking and mobile app. Digital customers increased by 1.3 million, driven by new-to-group customers and increased digital adoption by existing customers from improved product cross-selling. Slide 30 just shows an analysis of our digital revenues. 62% comes from the bank, 38% from the non-bank subsidiaries. Digital lending, which is the largest share of our digital revenues, grew year-on-year by 86% from NGN 41 billion to NGN 76.3 billion and lending revenues are split 59%, 41% between the Retail and SME business. Digital payments grew from NGN 19 billion to NGN 25.2 billion, 34% growth. And digital wealth, which is 0.4% of total revenues, grew year-on-year by 133% from NGN 173 million to NGN 403 million. On Slide 31, we just shows the trend of our digital revenues and contribution to gross earnings and interest income. We saw a consistent quarterly growth in our digital revenues in 2024 with digital revenues growing from NGN 21 billion in the first quarter to over NGN 30 billion by the fourth quarter. Quarterly growth was consistent across payments and lending, though there was a slight dip in wealth revenues in Q4 due to the pressure on margins. Though digital lending accounts for 7.4% of our loan book accounts for 13% of our interest income. Payments accounted for 16% of our fee-based income in the 2024 financial year, up from 13% in 2023. On Slide 32, we just shows our digital loans trend and contribution to total loans. We've seen a consistent growth quarterly in our digital loans portfolio with the portfolio growing from NGN 152 billion in quarter 2 to NGN 174.4 billion in quarter 4. Our micro lending subsidiaries, CDL digitally-led business model that embeds credit into the supply chains and payment flows of its partners accounted for 77% of the growth in our digital loan portfolio in the 2024 financial year, specifically about NGN 33 billion. On the last slide, which is on Slide 33, I'll just give key highlights of our SME digital loans, digital wealth, retail, digital loans and breakdown of our finance revenues. For SME digital loans, the value of loan disbursed for the year was NGN 208.2 billion, was up 17% year-on-year. Volume of loans disbursed slightly over 18,000 customers, average ticket size of NGN 11.5 million. Portfolio size grew to NGN 82.5 billion, a 10% year-on-year growth. For retail digital loans, value of loans disbursed was up 63% to NGN 148.8 billion. Volume of loans disbursed was to about 1.6 million customers, average ticket size of NGN 37,000. Portfolio size was up 64% to NGN 91.9 billion. Our Digital Wealth business, we now have 117,000 customers onboarded in financial year 2024. Digital revenues grew by 140% and a 48% growth in our AUM in the 2024 financial year to NGN 22.4 billion. Digital Payments, this just shows a breakdown of our NGN 25.2 billion Digital Payments revenues, largely driven by mobile, which accounts for 45% card, 38% alternative channels, which is likely 87% and our Agency Banking business another 7%. I'll now hand over to Ladi, who will take us through our outlook and guidance for 2025. Thank you.

Thank you, Gbolahan. So we expect that 2025 should be a much stronger year. If we look across the different elements of our business in the Banking Group, we do expect that net interest margins will improve, not just from the additional capital that was raised last year and the convertible that will be converted into equity later in the year, but also a focus on increasing our low-cost funding. We are repositioning our Retail business so that in addition to what we do in financial inclusion space, we're also much more active in the premium retail end of the market and also strengthening what we're doing in the Institutional segment. In addition to that, we expect that a number of digital and payment solutions that are in their relative infancy will be gaining traction this year. And that will also help drive transactional balances with an aim that we have this year of moving our low-cost deposit mix to about 80% plus of our total deposits. In terms of digital revenues, we expect that we will sustain the momentum across board and grow that by about 50%. And that will be to a figure in excess of [Technical Difficulty] will be across board on lending, payments and wealth. Investment Management, we will also see increased market share in our Pensions business and Digital Wealth, and therefore, the associated growth in management fees. Investment Banking, we expect to see sustained performance in the -- we expect to see sustained performance in -- due to higher deal activity and we're also expecting a fairly strong year from our Consumer Finance business. If we move to Slide 36. Just to talk us through each of the key lines that we're providing guidance, in terms of profit before tax, for the reasons explained earlier, we did not achieve the target guidance. We expect that this year that we should be in the range of NGN 185 billion. This does exclude the potential gains from minority sales that could be material. We also expect that we -- sorry, if we look on the loan growth line, last year, we achieved our guidance of -- or exceeded our guidance, I would say, of 20% to 25%, a 28% loan growth. This year, our guidance is the same as last year at 20% to 25%. In terms of deposit growth, we also achieved the guidance, attaining 39% versus a 25% to 30% growth. We expect that this year, deposit growth should be in the range of 30% to 35%, but I think what will be critically different is that the mix will be trending increasingly towards low-cost deposits. We do expect recovery in our net interest margins. Last year, we had guided to 7.4%. We closed the year at an average of 6.3%. In 2025, we're looking at net interest margin of about 7.8%. Indications from Q1 is that we are well above this 7.8%. And we expect that barring any sort of major tightening in the market as the funding mix continues to improve that Q1 should ideally be a low point, and therefore, we should be able to surpass this guidance on net interest margin. Digital revenue growth, we guided for 40%. We attained 69%. We expect this year we'll be over 50%. Cost-to-income ratio, we guided 55%, we attained 59.9%. We expect that we'll be well below 60% this year. And on cost of risk, we guided 2.5%, we ended at 1.8%. And this year, we expect that we will be similarly below 2% at similar levels that we were in 2024 actual. The key factors that affected the missed guidance for 2024 were the fact that we assumed we would have achieved our capital verification by the end of Q3. Unfortunately, that didn't happen until end of Q4. So the impact on that was about NGN 10 billion. That also impacted our net interest margins, which we saw a variance of 0.9%. And this was largely what drove the missing of the -- both the net interest margin and the cost-to-income ratio. And I think broadly speaking, net interest margin was tighter than anticipated throughout the year. Thank you very much. And we'll be glad to move on to answer your questions.

[Operator Instructions] Mr. Balogun, at this moment, there are no questions on audio lines. Please kindly proceed with any written questions.

So we do have questions from 5 people and I will read them out. Those that I can take, I will take. Those that I can't, I will assign them to my colleagues. So from Gideon Oshadumi. First question is, should we expect future dividend payouts at current levels or higher? Second question from the same person. Can you shed more light on how you've been able to make recovery in your NIM? Thirdly, on your digital loans, should we expect stronger growth in that line? And how do you intend to go about it? And #4, can you give us a time frame for when you expect the sale of the minority interest in your Consumer Finance and Pensions business? And can you shed more light on your upcoming equity offer? So starting with dividend payouts, it is our anticipation that our dividend per share will rise. We expect that it will rise significantly in 2025 for the year 2026. And thereafter, we expect that it will continue on an upward trend. In terms of how we intend to -- or how we are making recovery in our net interest margin, the trend for the last 2 quarters of Q4 of 2024 was downward. What we are doing is focused really on restructuring the funding of our balance sheet, the various equity injections that will be coming into the bank from minority sales as well as from the public offer that was closed at the end of last year. In addition to that, which will come in at the beginning of 2026 in our view, that these will have a material impact. But equally importantly is the increased focus on segments that we think we were underrepresented, Institutional Banking, in particular, as well as the premium end of the retail market. And finally, Digital Payments and Collection Solutions. The early stages of our digital strategy was very much focused on lending. We believe that we are at a position now the investments that we've been making in terms of technology for our payments and collections activities will begin to bear fruit in 2025. And we expect that these will have a material impact on net interest margins and low-cost deposit mix. We will continue -- in terms of digital lending, we will continue to see strong growth in that area, both in Credit Direct as well as what we do in the bank under consumer and SME digital lending and these will be supportive also of our net interest margin. Now in terms of time frame for the sale of minority interest in Consumer Finance and Pensions business, both of those we expect to close before the end of this year. In terms of the upcoming equity offer, to shed more light on that, we expect that, that will happen by the end of this year. We are already in discussion with a number of investors where we have strong commitments. And as mentioned earlier, it will be in the region of about NGN 160 billion that we'd be raising. It will most likely flow into equity after capital verification in Q1 of 2026. We have a series of questions from Abdul Mukhtar. First question is on the plan to issue convertible notes to shore up capital. Is this core equity? And would it qualify? Please provide color. So let me take them one by one and pass on the ones that I can't take. So the convertible will convert into core equity. It will convert into core equity in the second half of 2024. The second question, the gap to meet the NGN 500 billion eligible capital or paid up capital is huge, especially given the small footprint of the U.K. business. Any consideration to divest from U.K. and retain the national license? If the international license is retained, are there any plans for expansion into geographies ex-U.K.? So I think to answer that question, we are really just at the beginning of our international expansion. The reason that we sought to pursue the international license is that we think a key part of the next phase of our growth will be expansion into other markets. And so we do expect that, that will form a key part of the next phase of growth of the business and that is why we're choosing to retain the license. Third question was, there are a number of banks that recorded net interest margin expansion, while FCMB declined. What drove this, especially with a strong focus on high-margin sectors such as SME and consumer loans? Speaking to that, what I would say is that the impact -- there were several issues that affected our net interest margins, more on the cost of funding side than on the interest income side. The cost of funds was unduly sensitive to price increases because our low-cost deposit mix was relatively lower than a number of other banks, I think in the 60s, if I'm not mistaken. And we're in the process of correcting that and moving that to the 80s this year. And so that really is the main reason. Yes, it's correct that we do enjoy a reasonable amount of SME and consumer lending. Those -- the level of repricing that we do on both of those books and the timing of it was not sufficient to compensate for the significant increase that we saw in the cost of funds. But we have seen continued improvement in the yield in Q4 and also in 2025 Q1. So you will see when we announce our 2025 results that there's a far better yield on earning assets. So it's really the timing of the repricing that we did in those books that was in Q4 as well as the impact of a fairly low-cost deposit mix. Question #4 from Abdul was the top 2 shareholders now corporate entities, one in the agro allied space and then power. Are these strategic investors? And please, he'd appreciate more color on these 2 entities. I do not believe that these would probably be the top 2 in the public offer. In absolute terms, we need to probably look at that in more detail because a number of investors hold shares in multiple entities. So it would be difficult to provide you with details of the top 2 on this call. But all investors we have currently are financial investors and not strategic investors. We'll move on to questions from [indiscernible] hope I pronounced that correctly. The first question there is, were the proceeds from the capital raise utilized in repaying expensive deposits that were acquired? I will -- actually, in terms of the details of use of proceeds, I'll defer to our Chief Operating Officer that led that call. I don't know whether, Gbolahan, you can provide more details on that.

Sorry, which of the questions again?

Sorry. The use of proceeds from the capital raised in 2024 and how this was used? Whether it was used to repay expensive deposits?

Some of it was used to repay expensive deposits. And I think as a follow-on on that, the Banking business, by the time we release our Q1 numbers, we will see that we've seen a reduction in funding costs on a quarter-on-quarter basis and we've also seen an improvement in the asset yield. So it has translated actually positively to an improvement in our NIM in 2025.

Okay. The second question basically speaks to the same thing that the CASA ratio was at its lowest point since 2022. Are there plans or strategies to increase the current and savings accounts for 2025 to tame the funding cost pressure. I don't know whether, Yemisi, you want to speak more to the CASA ratio, things that affected the CASA ratio in 2022. I mean, post 2022, particularly in 2024. And I've already given some of the details [Technical Difficulty]

As you mentioned, you have already given some of this. So in 2024, we had to respond to some of the funding gaps that we were faced with through regulatory pressures majorly, as you recall, increase in CRR was there, then there is the discounted CRR that was no longer funded by CRR that has to be funded through balance sheet. So we focused more on increasing deposits to meet liquidity ratio, to meet our liquidity requirements and stay above all those regulatory limits and trade it. We traded profitability for that. So that brought down -- that made us to increase our tenured deposits significantly to ensure that we meet our funding needs. But having done that, and we are now -- and we now have this capital injection into the business, we are better positioned to focus more on growing CASA again and saving our tenured deposits. So as Gbolahan has mentioned, that had commenced in Q1 and we are already seeing improvements in the -- in our local deposit mix, in CASA growth as well as in NIM.

The third question, he'd like us to shed more light on the surge in deposits from banks. I don't know whether that was coming from -- I assume that was coming -- Yemisi, would you have any insights on that?

All right. And I think I mentioned that as well before as part of my response before. So the surge in deposits came about as a response to the increase in -- well, partly increase in CRR because most of the funds that we gathered was increased to [ 50% ]. We had to -- I mean, so then is that some of the deposits are now not available to use. So definitely, there has to be increase in gathering deposits to be able to meet liquidity needs. So it's just -- so the surge that was from bank generally was a response to meet the liquidity needs when there was increased CRR.

Okay. And then on question #4, also to you, Yemisi. What are the expectations for loan growth in FY '25? I think you can speak to the bank. And maybe, Chukwuma can also share in terms of Credit Direct. Seeing as we maintain the guidance for 2024 and what is going on with the real estate book in the bank? So maybe, Yemisi, you can take that for the bank.

So for the bank, as we have said in the presentation, the bank will still maintain the 20% to 25% as well as the group. So there will be a bit of movement in the mix. Therefore, there are areas that we will focus more into -- I mean, we continue to focus on our digital loans, especially in the Personal Banking business and Business Banking business that is our Retail business. And some of the sectors, we will slow down on them. But generally, guidance still remain what we said around that 20%, 25%. For real estate book, because you also mentioned that we are still also still monitoring that cautiously, majorly because the needs of the real estate is large in quantity, in volume and with increased interest rate environment. So we still need to stay cautious. So we will look at those real estate. So we'll look for real estate support that the tenants are short and see what we can do to support them. So that's what we are doing in real estate. And then for bank, as I said, guidance is we maintain that 20%, 25%. And Chukwuma can share what the Credit Direct guidance will look like.

So we expect to continue to see growth in our risk assets around the borrowings to government workers, to private sector, merchants and partners we embed our financial solutions to. We anticipate in 2025 to see something in the region of about 60% year-on-year growth in risk assets for the year.

And I think if we perhaps keep in mind that the CDL book is about I think less than 10% of the total group's loans, then I think we also have to just adjust accordingly in terms of the impact on the overall loan growth, which is probably about 5%. Okay. We also expect that there would be modest growth in the U.K. loan book as well, but I don't think subject to currency devaluation may not be as significant. The question around -- the next question was asked is what happened to interest income in Q4 as it was largely flat when compared to Q3? And I guess, this is in the context of the interest rate environment. And I don't know whether, Yemisi, any reactions to that?

It's our interest rate environment. And yes, there was a bit of uptick in interest rate, but we are able to pass that very quickly to our customers in Q4. So the interest income remained relatively flat to Q3. Some of the repricing has been done and we're seeing that reflect in 2025 interest income.

I think it's also important to note that over 50% of our loan book is in foreign currencies. So it will only be about 45% plus of our loan book that will be eligible for repricing due to naira interest rate movements. I think the key solution there is -- would be to ramp up our liquidity ratio to ensure that the uptick in interest income will come more from liquid assets or as much from liquid assets as it comes from the loan book. There was a question around what was done to reposition the balance sheet of the business? I believe that's been answered already. Guidance for impairments, provisions and cost of risk in the current year. I think we've also guided that, that would be sub-2%. The PBT guidance -- next question from the same person. PBT guidance provided indicates targeted growth of 60% for FY '25. How exactly do we aim to achieve this given the high base of '25 and the currently elevated CRR and NPR? Key to achieving this is bringing down the cost of funds. The bank's cost of funds is fairly high. And we expect that as that comes down through the impact of equity raise and through a gradual shifting of the low-cost deposit mix that we will see quite a bit of income flow through to the bottom-line. We are broadly in line with our forecast for Q1, more or less. So we expect that we will continue to see momentum to deliver on the 2025 numbers. We also have clarity on what windfall tax is likely to be as well, so although you're asking about PBT. So we are not expecting material -- any surprises in that regard. In fact, for 2025, windfall tax will be materially less than in 2024 based on current estimations. How -- so you asked that we also walk you through how the delay in receipt of cost of funds impacted the realizations, the 2024 target. As mentioned earlier, we expected that we would have the NGN 140 billion plus or thereabouts throughout Q4. And we also had a marginal cost of funds in Q4 of about 30% or even higher. So if we just do 30% of NGN 140 billion, it would have been over NGN 40 billion. And we expect that we'd have that NGN 40 billion for all of -- well, we'd have that for all of Q4, which would have given us about NGN 10 billion of earnings. Unfortunately, the funds came in right at the end of the year. So we only enjoyed those funds for a few days at the end of the year. So that was part of the impact. I mean that accounted for some. There was also, as mentioned, some naira appreciation. So we did not anticipate the naira appreciation. And we have a portion of our shareholders' funds in dollars and that saw a translation loss. And those 2 factors combined was what really led to the missed guidance. Credit Direct and the holding company were major catalyst for the increased contributions for non-bank businesses of 19% and 30%. What strategies were deployed for the increased contribution from non-banking subsidiaries from 19% to 30%? Sorry, what has deployed for this impressive performance? And are they sustainable in coming years? In the case of Credit Direct, they've gone through a -- actually, maybe I'll just allow Chuk just to speak to that. Chuk, maybe you can just talk through the strategies for Credit Direct and whether you feel that those contributions are sustainable.

All right. Yes, I think in the last couple of years, we have been working on digital transformation for the business and we are beginning to see the dividend flow through. So yes, I do believe it's sustainable into the future. We estimate, for example, that year-on-year in '25, we'll be growing north of 90% in terms of profit growth. This is driven basically by our ability to use digital channels to reach a larger customer base. We are also able to do this efficiently, bringing down the cost of funds and also optimizing our asset quality, bringing down our NPL ratios. We know that the market is still somewhat untapped. We believe that the addressable market will keep -- we have the resources to grow market share in this addressable market into the foreseeable future. So we expect to continue seeing strong growth as we become more efficient, leveraging digital channels and our proprietary technology stack to achieve this.

Next question is, what is the status -- sorry, in terms of the group and holding company's performance, the holding company does also have a portion of its capital in hard currency. So it benefited from some revaluation gain. Beyond that, I think that we would expect to see the contribution from the holding company. Whilst it will be remained positive, it would not be at the same level assuming constant currency. So in terms of strategies for -- sorry, the status of the migration for proprietary core banking to all group -- the whole group members. So this -- sorry, let me finish the question. What is the state of migration to the proprietary core banking platform of all group members? Also, when do we expect to start seeing cost savings from technology ownership since technology expenses remained a key driver for operating expenses in FY '24. So in terms of migrations, we're not doing a big bang. We've successfully migrated Credit Direct fully and that is partly responsible for the agility of its performance currently and the platform has been very stable. We have migrated the wallet platform for the main bank in Nigeria, FCMB, and we're initially deploying that for our collections products and something we call Banking as a Service. And again, that is stable and working well. We have deployed for our U.K. digital banking platform under the brand name Rova and that is also stable and working well. And we are in the process of migrating the rest of the U.K. bank for its wholesale business. We're also in the process of migrating our lending products for the main bank in Nigeria. At that point, we would take a pause to see how things are moving and determine what elements of the rest of the group, particularly the Nigerian Bank that we would move on to our proprietary platform. I think what's very critical to stress for us is that we have intentionally developed a technology stack and core banking platform that can be deployed product by product. And so our focus is really more on the customer-facing products, current accounts, savings accounts, deposits and loans, which allows us to be able to offer -- and wallets, which allows us to be able to offer digital solutions to our customers that can be better customized. When do we expect to start seeing cost savings from technology ownership? I think the way to measure this will be technology costs as a percentage of revenue. I would say that in the next -- we've been very much in build phase at the moment, but I would expect that in the next year, we should start seeing technology costs as a percentage of revenue definitely trending downwards. And there -- so that's where we are in that. I think part of the reasons that we saw a more significant jump this year was because of currency depreciation on the elements of our technology costs that are sort of driven by the dollar. What new products from Consumer Finance business led to the increase? I think Chuk has already touched on that. And does the plan for interim dividend payments for FY '26 still stand? I will request HoldCo maybe to answer that. Gbolahan, do you feel that we're still on track for that?

Yes, we're still on track for 2026 interim dividend. I think someone also asked on dividend policy. So if I could just touch on it on the same thing. So the plan is to maintain a 25% -- average 25% payout ratio for this year because of the impact of the windfall tax. But going forward, we intend to maintain 25% payout ratio on PAT and commence interim dividends in 2026.

Okay. Moving on to questions from Sodiq Safiriyu. An insight to the reason for the higher windfall tax, 16% of PBT relative to peers that was between 4% to 7%. I don't know whether, Yemisi, you can take that.

So the windfall levy is not a function of PBT, but a function of foreign exchange transactions. And the computation at the end of the day was slightly different from what was in the law, it was competitive and the computation was based on FX transactions and so on. So I would say that the percentage of this that I have checked at 16% of PBT that seems higher than others. It could be attributable to 2 things. One, the foreign exchange income earnings that foreign exchange earnings was about 16% of PBT. And because -- sorry, 16% of gross earnings, not 16% of gross earnings. And since the windfall tax was based on the income on transaction, so that aligns with the level of FX transactions that we earned and on level of FX earnings during the year. The second attribute to your computation would most likely then be the base of PBT because the base of profitability will then also show what the percentage of the windfall tax will be. But in a nutshell, the windfall levy was not directly a computation on PBT. It was computed based on foreign exchange during 2023 and 2024.

Second question from Sodiq, an insight to the reason for significant jump in PAT attributable to AT1 bondholders, causing the share of PAT to equity holders to reduce to 90%. Is this expected to continue? I don't know whether, Gbolahan, you...

So I'll take that. So we had 2 tranches of AT1 that we issued. One of the tranches was late in 2023. So in terms of interest expense impact, the full impact of the 2 tranches came in, in 2024. So 2023, we didn't have the full impact. So is that trend supposed to continue in terms of the interest expense on the AT1? Yes, that trend is expected to continue. In terms of the share, it will be out of profits, it will be significantly less because of the higher profitability going forward.

The major reason for not achieving the 2020 -- sorry, guidance for NPLs in 2025. I indicated the cost of risk will be slightly -- will be below 2%. In terms of the NPL ratio itself, I don't know whether, Gbolahan, we can give a group-wide estimate or guidance.

So maybe I'll take that. If we are able to deal with the real estate sector, one account that -- one of the figure that we're working with now, which is fully collateralized, if we are able to deal with that figure, we should be able to be within 5% NPL during the year. If we are able to deal with it in 2025 and it peaks into 2026, then 2025 will still be above 5%, but higher at single-digits.

And then how do we estimate the impact -- sorry, what is the major reasoning for not achieving the FY '24 target PBT? We've gone into this in the presentation, but I think just to recap, delayed receipt of public offer proceeds was one; the naira revaluation in Q4 was 2; the higher than expected cost of funds, which was partly market-driven, but also driven by the fact that we had seen fairly significant hikes during the course of the year in our cash reserve requirement, most significantly something which Yemisi touched on, the discounted CRR, which we had received funding from to support growth in our agricultural book where we're fairly strong. We ended up having to fund that with deposits from the market and pay CRR on those deposits at the 50% CRR. So that journey just led to a significant increase in CRR for us, which in the short-term, we were funding from purchased funds. And that led to, particularly in H2, steady increase in cost of funds peaking in Q4, but we've started to see a decline in the cost of funds as equity is flowing through, as also our low-cost deposit mix is steadily improving. So those were the key reasons, however, for what we saw in 2024. How do we estimate the impact of lowering oil prices on the loan book? I don't know whether, Yemisi, that's something you can take, the bank.

Yes. So the estimate -- we don't expect the estimate to be anything significant at all because the assets we have on the book were actually appraised at a lower price during and before giving those assets out. And so we had already estimated that oil prices could drop during appraisal and we have sized that into giving -- into providing the funds to create these assets. So yes, oil prices are going down, but they are not even anywhere near the sensitization that we get these loans out. So we don't expect the lowering of oil prices to impact our loan book in the immediate.

Final question. Because we've already taken on dividend policy, a final set of questions. Can management elaborate on the key drivers behind the NIM compression? Particularly, how much of this was driven by asset yield or funding cost pressures? And what will drive the increase in 2025? I believe I've touched on that already. The 2025 increase in -- I mean, first of all, the distribution between asset yield and funding cost pressures, I think clearly came more from funding cost pressures. There were adjustments in asset yield, but in terms of timing of that happening wasn't sufficient to compensate. In 2025, we do expect NIMs to improve materially. We've guided at 7.8% in Q1. I think it was 7.8% in Q1. We are ahead of guidance for the full year. And I think a number of the strategies around repositioning of the sort of deposit book have not yet really kicked in. So we do expect that we will see increased NIM in 2025. Next question from the same person. Given 66% of our NPLs are in foreign currency, how is management balancing the risk of further NPL deterioration? Can we speak to the provisioning strategy for 2025? I'll ask Yemisi to take that question.

Okay. So as I mentioned earlier, the NPL spike to 6.4% was actually from [indiscernible] exit of the group. And that's one that may be -- that contributed fully to the 66% of NPL in FCY. It's an FCY facility and the devaluation that occurred had expanded the naira value of this asset. And so it's just one particular obligor that we are dealing with that makes up that 66% for FCY. So having said that, the loan book, it's properly managed. We have strengthened our risk acceptance criteria. Our risk management framework is really working and our NPL is under control. So we do not expect any deterioration that is on plan to be on the book. As I've been guided, if we are able to deal with just this one obligor in 2025, we should be able to have an NPL sub-5% in 2025.

So a couple of more questions from Gideon. Is the equity offer a private placement? What I would say is that there are a handful of targeted investors that are being solicited and from whom we are getting currently some soft commitments. In terms of the form of the offer, we're still in the process of working that out. And so I don't think we'd be in a position to articulate that yet. But it is not expected that the offer would occur before -- at the earliest Q3 -- late Q3 of this year. So you'll certainly hear from us. You'll get an update by the next -- the H1 investor conference call, which I believe will be our next call. The final question asked, why disposal of certain holding is being done on credit lending arm and pension arm? Do you see significant growth that will make-up for that towards the attainment of an international license? What makes international -- what markets on the international markets are you looking at? And outlook on that, please. So the first thing that we have seen is that the disposal of the minority interests based on the valuation indications that we're getting will be EPS accretive to our shareholders. 2 things. Based on the valuation indications that we're getting, one; and two, based on what we expect will continue to be a fairly tight monetary environment. The opportunity cost of -- or the yield for us or return on such funding or equity for us is typically above 30%, especially when we factor in the impact of cash reserve requirement on any deposits that we have. And any equity raise will go into pay-off deposits on which we would now release cash reserve. So these disposals typically are going to be at multiples of book value such that -- and then when we look at the ROE that we are generating compared to the return that we would be getting on those funds, we are very confident it will be EPS accretive. Those disposal on sales will also, according to tax law, will not be subject to income tax because they're invested in equity in that year. So overall, they will have a positive impact, not just for the year at which we make those disposals, but on an ongoing basis. We think that we'll be able to leverage that equity to grow it more significantly. We do believe as well as our Consumer Finance and Pensions business do, we think there is still very significant growth and optionality in the banking industry. And we think that is a sector where as we bring down our cost of funds, you will begin to see very, very strong ROE. And therefore, it's -- we're still very bullish on banking. So I think that answers that of growth domestically. But internationally, we see opportunity as well. We're not in a position to disclose the markets yet because we're working on those right now and it will be subject to where we find the right targets. But we are focused on both ex-Africa as well as within Africa markets that have strong trade investment, and I'd say, strong trade investment and remittance flows with the continent and Nigeria. But equally importantly, the markets where we also, in terms of products that we are strong, there's very much going to be a product-led strategy will be the markets that we would be looking at making fairly targeted investments. But as of now, we wouldn't be able to articulate which specific markets. But what will be very important to us is also make sure that those investments are also strongly accretive to the earnings of the business. I believe that is the last question we have here. And if there are no more questions, I think I'll hand it over to our hosts who can...

Mr. Balogun, there are no questions on audio lines. If you would like to complete the presentation with any closing remarks from your end?

Thank you very much, everybody. We will not be, as mentioned, be holding an investor conference call for Q1, but we will be doing so for Q2. We expect that the Q1 numbers will be published in this month of April. And of course, our colleagues will be available from the Investor Relations unit if you do have any questions either on this presentation or anything that you would like to inquire about from the Q1 numbers. We thank you very much for listening, and we look forward to seeing you in July.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.