FCMB Group Plc (FCMB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the FCMB Group First Half 2025 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 our first speaker today, Ladi Balogun, Group Chief Executive Officer. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the H1 Analyst and Investors presentation. I have with me in the room and online a number of my colleagues, Mr. Gbolahan Joshua, the Group COO; Mr. Deji Fayose, the Group CFO. They will be helping me with the presentation and then supporting to answer questions; and also Yemisi Edun, the bank's CEO; Chukwuma Nwanze, the CEO of Credit Direct Limited; James Ilori, CEO of FCMB Asset Management, also on the Board of FCMB. Our Chief Risk Officer is currently on leave, but a deputy is on the call as well, Mr. Bimpe Odunuga; and we also have Mr. Tunji Onamusi of Investor Relations on the call. The agenda for today will be covering 6 items. I will take you through the group highlights and strategic updates. The CFO will then take you through the group performance review, the Banking division review and the nonbanking division review. The Chief Operating Officer will walk you through the digital business review, and I will take you through the outlook. If we move to Slide 4, please. Generally, we've seen a healthy start to the first half of the year -- for the first half of the year. Our focus was primarily on improving our efficiencies, particularly on the balance sheet. I think that some of our performance uplift is masked by the fact that there were material revaluation gains in 2024, and these are absent in 2025. But in spite of that, we were able to record a 23% growth in profit before tax. The balance sheet putting themselves only grew marginally 7% overall for total assets, but we did see low-cost deposits grow by 27% as we were paying down expensive deposits, we did not see -- or as we're paying down fixed deposits, we did not see material balance sheet growth. The cost of funds has been moderating in the first half of the year from a particularly high level in Q4 last year. We will begin to feel the impact of this more in the second half of the year, I believe. In spite of that, we did see net interest margins also rise to 9.1%. It actually peaked above 10% in Q2, predominantly driven by yields on the asset side, but also a marginal moderation on the cost of funds. We expect that from what we were seeing in the last couple of months of the quarter that the cost of funds will be trending down materially in the second half of the year. Return on assets picked up to 20.6%. Again, in Q2, it was materially stronger than Q1. And our cost-to-income ratio also trending down steadily to 57%, and we expect that, that trend will continue. On the asset management side, we saw 15% growth in our AUM to NGN 1.6 trillion, driven both by our Pensions business as well as our asset management business. And our customer base grew by 60% to NGN 14.2 million from its figure it was -- sorry, NGN 15.1 million from NGN 14.2 million at the end of last year. So a little bit more detail on the next slide in terms of our performance highlights and also touching on asset quality as well as our ongoing recapitalization program. So firstly, in terms of performance, the H1 performance was driven largely by improved yields on earning assets. There was also a moderation in the cost of funds, which rose from the improved deposit mix, as I mentioned earlier. And also, we benefited or started to benefit from the deployment of the capital that was raised at the end of last year. The NIM was 7.9% in Q1 net interest margin, but it rose to 10.1% in Q2. We expect that we will be able to sustain these NIMs above 9% for the second half of the year. And that's around where we ended H1 on average. Looking ahead, we do expect that we will be surpassing the NIM guidance that we have given at the beginning of the year, which I believe was in the 7s somewhere. Asset quality, specifically speaking to forbearance, our impacted exposures were approximately NGN 200 billion. These have now been aligned with CBN prudential guidelines, all impacted and the one obligor that was above the single obligor limit. That has now been brought within the single obligor limit. The impairments that we had to take in light of exiting the forbearance grew. So we saw NGN 36.2 billion growth in impairments in Q2. And our NPL ratio has also risen to 13.08%, inclusive of our forbearance obligations. In terms of recapitalization, we did successfully raise NGN 144.6 billion in 2024. We also raised NGN 22.1 billion net from a convertible that is now received CBN capital verification approval, and we're in the process of converting that into ordinary shares in this half of the year. So our issued shares will rise to NGN 42.8 billion before the end of the year. And the total amount raised from the capitalization program so far will be at NGN 166.7 billion. We do have 2 other phases to go, and we're quite advanced with those. We are selling minority stakes in our Consumer Finance and Pensions businesses where we intend to raise approximately NGN 80 billion. Whilst we can't give too much details on those today, we have received nonbinding offers from a number of investors, and we're on track to conclude those transactions well before the end of March 2026. What that would mean is that the balance that we will be raising in the market would be about NGN 160 billion, and that would enable FCMB, the bank to meet the requirement for the retention of its international license. We do not expect that capital verification will be concluded for that process until Q1 next year. So we expect that we would be ending the year around the same NGN 42.8 billion quoted here in terms of issued shares. Just in terms of progress on our strategy, something just like to highlight is that our purpose, which is to foster inclusive and sustainable growth, continues to remain central to the progress we have made. And there are 5 key areas that we are driving financial inclusion, promoting sustainable economic development, focused on sectors like SMEs and agriculture, driving exports and diaspora flows to help support the balance of payments and particularly non-oil exports, women empowerment and climate action. We see -- whilst I won't go into the sort of line-by-line, but the impact of this focus has led to a 10% growth in deposits in the first half of the year, almost entirely low-cost deposits at NGN 1.4 trillion from these key sectors and initiatives. Our lending activity stands at about NGN 984 billion across these initiatives, and we saw 34% growth in terms of lending across those initiatives. And the revenue from these areas led to -- we saw 62% growth in related revenues at NGN 115 billion year-on-year. Also year-to-date, it's important to note that foreign DFI funding has risen by 24% to about $276 million, while local DFI funding has increased by 10% to NGN 126.5 billion, demonstrating strong institutional support and alignment with our purpose-driven strategy that is seeking to support the development and growth of our economy. I will now pass you on to our CFO, JD Faucher, to take you through the results overview.

All right. Thank you, Ladi. Good afternoon, everyone. I'll start with Slide 7 to 14, which covers our group performance review. Slide 8, please. Slide 8 is a snapshot of our group income statement, where we see that our gross earnings have grown year-on-year by 41%, driven by a 5% increase in our net interest income despite a 6% increase in operating expenses, whilst our impairments have also grown by 16% year-on-year. For the details of this on the next slide. Slide 9. The growth in gross earnings by 9% and 41% quarter-on-quarter and year-on-year was a result of an improvement in our asset yield by the end of 2025, we saw interest income grow by 70% to close at NGN 458.4 billion. This resulted in 7% and 5% quarter-on-quarter and year-on-year growth in our net interest income and a subsequent improvement in our NIM from 6.3% at the end of 2024 to 9.1% at the end of 2025. Our noninterest income, however, declined by 35% year-on-year to NGN 61.3 billion, largely driven by a decline in FX-related income. This was, however, cushioned by 2% growth recorded in our net fees and commission. Slide 10. The above factors led to an overall growth in our PBT by 23% year-on-year, where our return on average equity closed at 20.6%, which was a 61% growth over our FY '24 position of 12.8%. This was a direct result of our improved profitability that we recorded between January and June 2025. The next slide shows our group earnings contribution across divisions, where we saw our Consumer Finance business recorded a 5% earnings contribution. The banking grew 41%, Investment Management 10% and Investment Banking a decline of 49%. Slide 12. The increase in our year-on-year group operating expenses by 46.1% came as a result of the growth in our personnel costs and regulatory costs from NDI expenses and increased technology costs. However, overall, the group recorded a cost-to-income ratio of 57% at the end of 1H 2025 from 59.9% at the end of FY 2024. This represented a [indiscernible] basis point improvement in CIR between the full year and the end of 2025. Our net interest margins have also improved from 6.3% at the end of FY 2024 to 9.1% at the end of 2025, driven by growth in the yield on earning assets for the period, we closed at 20.2% at the half year. Following a spike in our Q4 2024 cost of funds of 10.6%, which we talked at the last earnings call, we're beginning to see a moderation in funding cost for both quarters of 2025, where the cost of funds have declined from 8.6% in 1Q 2025 to 8.2% in 2Q 2025. Our interest expense also declined marginally by 2% quarter-on-quarter, which was supported by an improvement in our low-cost deposit mix, sorry, to 69.3% as of June 2025 from 58.2% in the same period the prior year. Group NPL ratios, inclusive of forbearance of recourse is 13.08% as at June 2025 from 6% at the end of FY 2024, whilst net impairments are also growing by 180% quarter-on-quarter to NGN 36.2 billion for the period ended June 2025 as our Nigerian banking subsidiary exited the CBN loan forbearance. This led to a growth in our cost of risk to 2.8% from 1.8% recorded at the end of 2024. Our coverage ratio at the end of 1H 2025 currently stands at 50.3%. The next section from Slide 15 to 19 is a deep dive into our banking division review. I will just take you through the next couple of slides from 16 to 19. Slide 16, please. The banking subsidiary recorded a 6% and 5% growth in total assets and deposits, respectively, from the full year position, whilst loans and advances remained flat. RoAE and CIR also improved to 19.7% and 57.7%, respectively, because of higher profitability levels at 1H. And whilst year-on-year profit before tax has grown by 41% to close to NGN 64.8 billion in the banking subsidiary. Slide 17 highlights the business segment contribution in our banking subsidiary. Deposit contribution as at 1H 2025 was 31% from Personal Banking and 25% from the SME and corporate banking segment. The loan book contribution was driven by corporate banking as at 10%, which translated to a 21% contribution to profits in the banking subsidiary, whilst the treasury business also contributed 52% to the bank's PBT at the end of June 2025. Slide 18 reports the loan portfolio classification by sector. Our loan book remains well diversified with no sector accounting for more than 14%. And classification on the foreign currency loans also declined year-on-year from 69% at the end of June, which implies that 67% of our loan book is in FCY now, whilst the 33% is in LCY at the end of June 2025. In terms of the loan book performance our loan sectors on Slide 19, the NPL ratio for the banking subsidiary increased to 13.4%, which we touched on already as the Nigerian Banking subsidiary exited the forbearance. And this led to an increase in our NPL volume by NGN 178.1 billion. We'll now take you through the last set of slides in this section, looking at our performance of our nonbanking divisions. I'm now on Slide 21. Gross earnings and PBT have grown by 74% and 55%, respectively, in our Consumer Finance business and 22% and 49% in investment banking. Our Investment Management division also recorded a year-on-year growth of 15% and 29% in gross earnings and PBT. On this slide, I think the other key metrics to note are the decline in NPL in our Consumer Finance business by 70 basis points from 7% to 6.3%, a growth in capital raise for clients in our Investment Banking business by 602% to NGN 3 trillion and a 29% growth in AUM from Investment Management with our Pensions business contributing 67% of total AUM of NGN 1.6 trillion. The next couple of slides, the summary of each of these businesses, and we'll start with Slide 22, Consumer Finance. For the Consumer Finance business, digital transformation continued to power scale and efficiency, with nearly 35,000 new customers acquired and a 33% year-on-year growth in disbursements in 1H 2025. Revenue from digitally originated loans grew by 77% from NGN 16.9 billion in 1H 2024 to NGN 28.3 billion in 1H 2025. Automation and self-service channel adoption continued to improve operating efficiency, enabling the business. And then the CIR business, we maintain a lean structure and delivered a cost-to-income ratio of 45.5%. This was a 252 basis points improvement from the previous year of 48%. In our Investment Banking business, gross earnings and PBT for the division declined by 22% and 49%, respectively. This was largely as a result of a one-off exceptional gain on the divestment in our stock broking business, which we recorded last year. However, the performance of Capital Markets business was sustained by increased capital market activity as companies continued to explore Capital Markets offerings. And gross earnings and PBT have grown by 120% and 211% respectively. And the Capital Markets business also led or participated in 26 transactions at the end of 1H 2025, helping to raise over NGN 2.97 trillion for our clients. In Investment Management and assets Under Management have grown by 15% on a year-to-date basis to close at NGN 1.58 trillion at the end of 1H 2025. And our AUM from digital products also however, decreased by 3% year-on-year, while Management fee increased by 5%. And overall, the Investment Management PBT increased by 10% year-on-year to close at NGN 3.85 billion with the Pension business accounting for 54% of PBT and the other business lines contributing 46%. I will now please hand you over to our Group COO, Gbolahan Joshua, to take you through the digital business review. Thank you.

Thank you, Deji. Good afternoon, everyone. My name is Gbolahan Joshua. I'll be taking you through Slides 25 to 31, which covers our digital business, covering lending, payments and wealth. Slide 26. So year-on-year, digital revenues increased to NGN 73.6 billion, a 60% growth from NGN 46 billion in H1 2024, tracking ahead of our 50% guidance for the 2025 financial year. Digital revenues now account for 13.9% of Gross Earnings of H1 2025, largely driven by lending and payments. For digital loans, we disbursed over NGN 214 billion, that's up 27% year-on-year to about 870,000 customers. Total portfolio size is about NGN 211 billion. It's grown by 38% year-on-year, and the portfolio is split 53%-47% between the retail and SME segment. For digital customers, it increased by 6% year-to-date to 12.6 million customers, largely driven by a revamped digital onboarding process and increased cross-selling of our products via our digital channels. On Slide 27 just shows the trend of our customer acquisition. We acquired about 896,000 customers in H1. There was a 25% quarter-on-quarter growth in customer acquisition from about 400,000 customers in Q1 to about 500,000 customers in Q2. We expect to sustain momentum in H2. Slide 28 shows a breakdown of our digital revenues. Our 3 digital business segments each recorded strong earnings growth above 50%. Digital lending, which contributes the largest share of our digital revenues grew by 60% year-on-year from NGN 33 billion to NGN 52.9 billion. Lending revenues are split 61%-39% between Retail and SME business. For digital payments, which accounts for about 26% of digital revenues, grew 59% year-on-year from NGN 18.8 billion -- from NGN 11.8 billion to NGN 18.8 billion. And digital wealth, which accounts for 2.6% of digital revenues grew year-on-year by 65% from NGN 1.1 billion to NGN 1.8 billion. Slide 29 shows a quarterly trend of our digital revenues and the contribution of lending and payments to both interest income and non-lending income. Year-on-year, Q2 2024 versus Q2 2025, we saw digital revenues have grown by about 61%. Quarter-on-quarter, they were up 12%, contributes 12% to our lending revenues and digital revenues contributed about 34% of our fee-based income. For Slide 30 just shows a trend of our digital loan book. It's grown 21% year-to-date from NGN 174.7 (sic) [ 174.4 ] billion in full year 2024 to NGN 211 billion as of Q2. Digital loans account for 8.9% of the Total Loan Portfolio. The digital lending book is split 53%-47% between the banking subsidiary and our nonbank subsidiary, CDFC Limited. Slide 31 just shows key highlights. For our SME digital loans, we've disbursed NGN 125 billion for H1 2025. That's a 19% year-on-year growth. Volume of loan disbursed is about NGN 8,670, average ticket size of NGN 14 million. Portfolio size is NGN 99.2 billion. It's up 28% year-on-year. For retail digital loans, we've disbursed NGN 148 billion. It's up 128% year-on-year to about 995,000 customers. That's up about 34% year-on-year. Average ticket size about NGN 43,000. Portfolio has grown 50% year-on-year to NGN 111.9 billion. For digital wealth, we now have 110,000 customers. That's up 45% year-on-year. Digital revenues are up 65% year-on-year and it's a 5% growth in the AUM. And for digital payments, which is largely driven by mobile and merchant payment solutions that account for about 71% of the digital payment revenues. I will now hand you over to Ladi, who will take the outlook for H2 2025. Thank you.

Next slide, please. Okay. Thank you. So we had earlier given the guidance at the beginning of the year of -- I believe it was NGN 185 billion PBT for the year. I think we are on track for that, and this should be achieved with sustained earnings momentum and performance across our operating companies, particularly from the Banking Group, as mentioned earlier, we expect that our net interest margins will remain strong, driven by the stronger capital position, a healthy yield on assets and a reducing cost of funds. We did have a guidance of 7.8% in -- at the beginning of the year. That we're increasing to around 9%, which is slightly below where we peaked in Q2 because we do expect yields will come down slightly, but our cost of funds have also reduced materially. And of course, with Q4, we usually -- all other things being considered, we see stronger profitability due to the non-recurrence of AMCOM levy. Our digital revenues, we also continue to gather momentum, and we expect about 50% year-on-year growth, and that's about NGN 150 billion. We're also expecting a strong performance from Consumer Finance with the performance trajectory to improve in Q3 and Q4, which is typically where they see over 60% of their profits. So we expect that 2025 should see -- or H2 2025 should see a materially stronger performance than H1. We begin to see that in the trend for Q2, but we expect that to pick up momentum in Q3 and Q4. We thank you very much, and we look forward to receiving your questions.

[Operator Instructions] -- Dear speakers, there are no questions on audio lines. I would now like to hand over to the management team for any written questions at this moment.

On forbearance, the first question is, please clarify the breakdown of affected exposures. What amount relates to the breach in SOL versus NPL -- versus classification as NPL. Are all forbearance loans now in the NPLs or are further classifications expected? The second question. And management guidance for impairment charges and NPLs for the forbearance NPL has been fully provided for any prospects for recovery? That's from [indiscernible] I will maybe ask Bank, CEO to answer that, please.

Thanks, Ladi. Okay. So for the breakdown of the asset breach of SOL versus classification of NPL, all are classification are NPL. We don't have any amounts relating to SOL as reported [Technical Difficulty] that we have that have been classified on for NPL on the IFRS who have done all the classifications of IFRS. [indiscernible] IFRS impairment charge provision. Have been [indiscernible] fully provided for same response, it's been provided for on the IFRS guidelines. So they are not to be 100% provided for because some of them are generating cash or underlying cash flow, but we have provided for them under the IFRS guidelines. Any prospects for recovery? Yes, there are prospects for recovery because we are restructuring some of those assets at the moment.

Okay. The second question is on May 31, 2025, you reported NGN 207.6 billion. So [indiscernible] so I think I'll take that. [Audio Gap] Okay. So the second question by [indiscernible] I believe, has been taken care of by the answers given to the first. On the convertible, the number of shares involved is 3.1 billion shares. And I think that also answers the next question. The additional shares will be issued in Q3. The next question comes from Stephen [indiscernible] asked, what's the update on loan delinquency in the real estate sector of the bank's loan book? And how much in percentage terms is real estate sector contribute to NPLs? I will ask the bank CEO. We'll just need a second for her to answer that. Maybe while she's preparing, I will move on to the next question. Can we please shed more light on the nature of the equity offer we will be doing? We expect that it will be a public offer. We expect that it will open at the end of Q3, and we would be raising NGN 160 billion. And that is all subject, of course, to necessary regulatory approvals, but that is the plan as of now. Okay. Going back to the earlier question on real estate.

Okay. Thank you. The question is about the update on the loan delinquency in the real estate sector of the bank loan book. And obvious is that we are still discussing with the obligor, this one particular obligor and it forms about 70% of the NPL. We are still in discussion with the obligor. And we are making progress, and we believe that we should be able to sort it out within this quarter.

Thank you. Next question, what was the net exposure that was reclassified in compliance with your exit from loan forbearance?

That's actually in the presentation, it's about NGN 178 billion. It's on Slide 38.

It was NGN 178 billion, and that's on Slide 38 or 39 of the presentation. Kindly speak more on the decline in NPLs in Credit Direct. Maybe I will ask -- should we ask the CEO of Credit Direct to take that or can somebody take that.

Slide 19.

So the earlier one was Slide 19, Apologies. Okay. So in terms of the decline in NPLs in Credit Direct, I don't know whether the CEO of Credit Direct will be able to speak to that. Chuk, if you're available.

Yes. Yes, I am. Good afternoon, everyone. The decline we've seen in NPLs is down to improved repayments across different segments of our portfolio. We expect to see that continue into the rest of the year across our public and nonpublic sector businesses.

Then management growth and earnings guidance for FY 2025. We gave that in the final slide. We expect that we are still on track for the guidance was given at the beginning of the year, which was NGN 185 billion. Simple way to work that out is when we look at Q2, we're doing about NGN 46 billion, I believe, sorry -- go ahead...

NGN 44 billion.

NGN 44 billion in Q2. We expect that we will see an uplift in Q3. And Q4 without the AMCON levy, which is about NGN 10 billion a quarter, we see ourselves to be broadly on track to attain the NGN 185 billion that has been projected. Thank you. Next question is that should we expect a similar run rate for impairment provisions for H2? Or have we peaked?

Because we took some forbearance charges in H1, we may see a decline in the H2 impairment provision.

Were your H1 '25 results approved by CBN? Have they acknowledged your exit from the forbearance regime? There's no approval required for the H1 results, but we have notified them of the fact that we have exited and not seeking any further. And we will be having an interim audit in September, which Central Bank will have to approve. What is your Q2 2025 CAR capital adequacy ratio?

Slightly above 15% with forbearance, but that's good.

Okay. Sorry.

With forbearance.

[Audio Gap] So it's slightly above 15% with forbearance. And we do expect that it will increase as a result of the audit for Q3 as well as the conversion of the convertible that is still -- the shares are yet to be issued. The next question is will we see additional windfall tax this year? If there's estimates of how much? Hold on, we'll confirm. [Audio Gap] sorry, so NGN 7 billion that we're expecting this year for windfall tax. Okay. No other question?

There are no questions on audio lines.

I think that's it.

I would now like to hand the conference over to Ladi Balogun for any closing remarks. Excuse me, Ladi, would you like to do any closing remarks? This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.