FCMB Group Plc (FCMB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the FCMB Group plc 9 Months 2025 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 our first speaker today, Mr. Ladi Balogun, Group CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to the FCMB Group 9 Months Investor and Analyst Presentation. I'm joined on the call by a number of my colleagues, who I will mention, and then I will go straight into the presentation. In the room, we also have the Chief Operating Officer of FCMB Group, Mr. Gbolahan Joshua; we have the CFO of FCMB Group, Mr. Deji Fayose; we have the CEO of FCMB Bank, Mrs. Yemisi Edun; and the Head of Investor Relations, Mr. Tunji Onamusi. Also joining us online are the Chief Risk Officer of the bank, Mrs. Toyin Olaiya; the CEO of Credit Direct Limited, Mr. Chuk Nwanze; the CEO of FCMB Asset Management, Mr. James Ilori, who will be able to answer any questions that relate to our Pensions or Asset Management businesses and the Executive Director, Coverage and Investment Banking, Mr. Olufemi Badeji. Moving straight on to the agenda for the day. I will be taking you through the 9 months group highlights and strategic updates. And then I will be handing over to the CFO to walk us through the financial review at the group level, the Bank and Nonbank businesses. Our CEO will talk through our Digital business review, and I will conclude by sharing with you our outlook for the last 3 months of this year. So if we move straight on to the next section, which is the highlights and strategic updates. Next, I think what's also important to note is that the numbers that we are sharing with you today for the 9 months also include an audit of the banking subsidiary as we typically do a 9-month audit for the bank to enable us to upstream dividend to the holding company such that, that income to the holding company will be available for distribution at the end of this financial year. And this is the reason why the results came out later than most other institutions who also reported their 9-month earnings. So in terms of the highlights, however, we see that generally, we have maintained a positive trend. Although that has been more by way of efficiency than absolute volume growth, certainly with our balance sheet footings. Our total assets grew by 3% year-on-year, and our deposits grew by 2% year-on-year. But if we look at the low-cost deposit growth, that has been more robust at 18%, going from NGN 2.5 trillion to NGN 2.9 trillion. Our loan book actually declined, and we shall be explaining why later, by 3% year-on-year. And our assets under management increased by 16% year-on-year. Net interest margin grew robustly by 380 basis points to 10.1%. The return on equity has also risen strongly to 22.4%, which is a 970 basis point growth from the same time from financial year-end 2024. Our cost-to-income ratio has also continued to improve during the course of the year, is down to 55.5%, and we do expect that it would go lower by Q4 based on the fact that Q2 and 3 have been on an improving trend from Q1. Profit before tax, therefore, rose by 46% to NGN 134.5 billion, and our customer base grew by 11% to NGN 15.7 million. The performance in these 9 months has been driven largely by improved net interest margin from 6% to 10.1%, and this is due to higher yield on earning assets, largely driven by strong growth in high-yield retail and SME loans and an improved deposit mix that is resulting in a lower cost of funds. We are on track, therefore, to achieve the guidance that we've provided for financial year 2025 and by all indications to surpass it. In terms of asset quality, specifically as it relates to forbearance loans, as mentioned to you, we exited these at the end of Q3. We have been able to bring down the level of NPLs with significant paydowns as well as restructuring of what was left that has been deemed sufficient to make those loans performing. And as a result, our NPL ratio now stands at 5.2%. The next slide looks at where we are on our recapitalization journey, and there has been significant progress in this regard, although a slight shift in tactics that was necessitated by a regulatory clarification that Central Bank provided in the last couple of months. So we as earlier noted, had already raised or we're standing at about NGN 266.51 billion as at 9 months 2025. The public offer was very successful, and we are looking to absorb about NGN 224 billion approximately of the public offer proceeds. This is materially more than what we set out to raise. And what this means is that we will be scaling down the minority divestments to just approximately NGN 10 billion, around NGN 9.81 billion, which will be the sale of an approximate 10% stake in FCMB Pensions. This will take us to the NGN 500 billion figure. Now why have we shifted tactics somewhat? This was done to protect our dividend-paying capacity because in the month of November, I believe, after our public offer had closed, the Central Bank provided a clarification on a piece of regulation that had been in existence about the definition of paid-up capital with respect to the regulation that maintains that paid-up capital in the holding company must not be less than the paid-up capital of the subsidiaries that are owned by the holding company proportionate to the percentage, which the holding company owns of those subsidiaries. We had assumed that paid-up capital was purely the paid-up share capital but clarification provided, stated that this would include the share premium account as well. Therefore, a minority sale in which we would then be injecting the proceeds of sale into the bank would lead to an increase in the share capital and share premium account of the bank without a corresponding increase in the share capital and premium of hold co. And therefore, it would have meant we were in violation of that policy. So we have had to suspend the minority sale of the minority of Credit Direct from which we were expecting slightly above NGN 40 billion. And we have also had to scale down the size of the sale that we were doing of the Pensions business that we were looking at about NGN 20 billion. Accordingly, we have increased the amount that we will be absorbing from the public offer. This will not be 100% of the proceeds raised from the public offer but it will be a significant chunk of the funds that were raised. These actions, however, will still ensure that our EPS grows at an average CAGR based on projections of about 58% between 2024 and 2026. And also what it will assist in doing because of the very high dividend payout ratio and the very high ROE of Credit Direct, it means that our dividend projections would now benefit from 100% of the dividend distributions that come from CDR as opposed to 80% that would have been the case in the event that we had sold 20% of the business. So in summary, we remain on track. We expect that we will complete capital verification by the early part of the new year, and we will be able to absorb the funds into the bank before the end of January. We also have all terms agreed with the -- in terms of the minority sale of FCMB Pensions. And we expect that we will receive regulatory approval for that in the next few weeks, and those proceeds would then come in and would be inflowed into the bank within a couple of weeks of receiving those proceeds. So we do expect that end of February -- sorry, end of January, early February, we should have completed the -- all steps required to meet the NGN 500 billion requirement. I will now pass you to Mr. Deji Fayose, the CFO of the group, to walk you through the results overview.

All right. Thank you, Ladi. I'll take us through the next 3 sections, which covers the group performance results as well as the banking division results and the nonbanking division. I'll start from Slide 7 to 14, which speaks to our 9-month performance results. Slide 8, please. Slide 8 is a snapshot of our group income statement, where we can see that gross earnings year-on-year have grown by 41%, driven largely by a 102% increase in our net interest income despite a 41% increase in operating expenses. Impairments have also grown by 29% year-on-year. And further details on the next slide, on Slide 9. We see that gross earnings have grown by 8.1% and 41% quarter-on-quarter and year-on-year, respectively, largely as a result of an improvement in our asset yield that closed at 21.1% at the end of September 2025, impacting our net interest income positively by 19.6% and 1.9% growth quarter-on-quarter and year-on-year. Noninterest income, however, declined by 34.5% quarter-on-quarter and year-on-year by 39.4%, largely driven by a decline in FX-related income in September 2025. Slide 10. Group profits have grown by 25.6% quarter-on-quarter and 46.5% year-on-year. We expect to sustain this performance trajectory in Q4, boosted by sustained net interest margins and a nonrecurring AMCON costs of NGN 11.7 billion in quarter 4. Our return on equity has also improved from the FY 2024 position of 12.7% to 22.4% at the end of September 2025, supported by 52.3% year-on-year growth in profit after tax. Slide 11 is our group earnings contribution where of the group reported year-on-year growth as follows: Consumer Finance, 78%; the Banking group 69%, Investment Management 28% and Investment Banking, a decline of 35%. The contribution from Nigerian Bank grew to 82% in 9 months 2025 from 68% in 9 months 2024, largely due to the additional capital that we deployed and a more efficient balance sheet. Slide 12, please. Increase in year-on-year operating expenses by 41.3% resulted from a growth in personnel costs, regulatory costs from NDIC and AMCON and increased technology costs. Overall, the group recorded a cost-to-income ratio of 55.5% at the end of 9 months 2025 from 57% at half year and 59.9% as at full year 2024. And this represents a 400 basis point improvement in CIR from the full year 2024 position. Slide 13, please. Net interest margins have improved from 5.5% as of 9 months 2024 to 10.1% as of 9 months 2025. Quarter-on-quarter, cost of funds grew to 8.7%, driven by a decline in domicile deposits during the period, however, remained flat year-on-year at 8.5%. Our low-cost deposit mix also improved to 66.1% as of September 2025 from 57.5% as at the end of FY 2024. On Slide 14, next slide, we'll see that group NPL ratio declined year-on-year to 5.2% as of September 2025 from 6% as of full year 2024. Net impairment loss on financial assets declined by 21.7% quarter-on-quarter. However, it grew by 28.6% year-on-year to NGN 57.1 billion, resulting in a growth in cost of risk to 2.8% from 1.8%. Liquidity and capital adequacy ratios remain above regulatory minimum, closing up to 54.2% and 17.8%, respectively, as at the end of 9 months 2025. Thank you. I'll now take you through the next section on Slide 15 to 19, we cover the highlights of our banking division specifically. On Slide 16, we see that the banking subsidiary recorded a 2% growth in total assets and deposits from the FY 2024 position and while loans declined by 3% from the FY 2024 position. Return on equity and cost to income ratio improved to 21.5% and 10.6%, respectively, as a direct result of improved profitability with year-on-year PBT growing by 70% to close at NGN 111.9 billion at the end of March 2025. Slide 17 highlights the business segment contribution in our Banking subsidiary where our treasury, corporate banking and SME segment have led the profit contribution to the bank by 50%, 20% and 19%, respectively. Slide 18 reports the loan portfolio classification by sector. The loan book is well diversified with only 2 sectors above 10%. Slide 19 shows the NPL classification by sector. NPL ratio for the banking subsidiary declined to 5.1%, reflecting the successful resolution of legacy obligors following the bank's exit from the CBN forbearance regime. This led to a quarter-on-quarter decline in Stage 3 loans by NGN 203.5 billion. I'll now take to the final section of my section, which is on Slides 20 to 24, which is the highlight of the performance of our nonbanking division. On Slide 21, snapshot, we can see that gross engines and PBT grew by 70% and 78%, respectively, in our consumer finance business and a growth of 24% and 28% in investment management. Investment banking declined by 11% and 35% and group assets under management led by our Pension franchise was up by 16%, closing at NGN 1.6 trillion at the end of the period. Further detail on [indiscernible] on 2024 and I'll talk of [indiscernible]. For consumer finance business, slightly above 67,000 new customers were acquired as of September 2025 and 38% year-on-year growth in disbursement. And revenue from digital oriented loans grew by 71% year-on-year from NGN 26.1 billion in September 2024 to NGN 44.6 billion in September 2025, demonstrating the scalability, cost efficiency and embedded resilience of our digital first operating model. The loan book also grew by 53% year-on-year to NGN 119.3 billion, driven by a 38% year-on-year increase in disbursements. Investment Banking. Next slide, please. Gross earnings and PBT for declined by 19% and 35% quarter-on-quarter and year-on-year, respectively, largely from our stock broking business from the one-off exceptional gain on divestment credit in the prior year. However, performance in our capital markets business was sustained by increased capital markets activity with gross earnings and PBT growing year-on-year by 47% and 68%, respectively. The capital markets business has also led or participated in 44 transactions for 9 months 2025, helping to raise over NGN 3.38 trillion for our clients from NGN 877 billion in 9 months 2024, a growth -- a year-on-year growth of 285%. Slide 24, please. Investment Management. Assets under management have grown by 16% to close at NGN 1.6 trillion. AUM from digital products also increased by 20% year-on-year, whilst management fees increased by 8%. The number of our savings accounts also grew by 3% year-on-year to 791,791 with registration via digital platform contributing 16% of the year-on-year increase. Overall, the investment management PBT increased by 28% year-on-year to close at NGN 6.2 billion with the Pension business accounting for 55% of PBT and the other business lines contributing 45%. I now please to hand over to our Group CEO, Mr. Gbolahan Joshua, to take you through our digital business review.

Thank you, Deji. Good afternoon, everyone. My name is Gbolahan Joshua. I'll be taking you through our digital business on Slide 25 to 31, covering lending, payments and wealth. For 9 months 2025, we generated NGN 113.6 billion of digital revenues. It's a 54% growth from NGN 73.6 billion generated last year. Digital now accounts for 13.7% of gross earnings, largely driven by lending. For digital loans, we disbursed over NGN 340 billion for the year. It's up 31% to over 1.3 million customers. Portfolio size is now NGN 246 billion. It's grown 53% year-on-year, and the digital portfolio is split 52%, 48% between retail and SME business. For our mobile and Internet banking users, it's grown 14% year-to-date to 7.1 million customers, outpacing the growth in customer numbers by 11%. Slide 27 just shows our customer acquisition trend. We've acquired over 1.5 million customers for 9 months 2025. And on the second side of the slide, you just see the adoption from a mobile and Internet banking perspective. It's moved from 44% to 45% despite the 11% growth in the customer base. And for the new customers we've acquired, over 54% of them are enrolled on our mobile and Internet banking platform. Slide 28 shows the breakdown of our digital lending revenues, 40% of the revenues comes from our nonbanking business, 60% on the bank, lending, which is the largest contributor at 74%, had the fastest growth for the year at 59%, moving from NGN 53 billion to NGN 84.5 billion. Lending revenues are split 61.9% between retail and SME. For digital payments, which contributes 24% of our -- for payments, which contributes 24% of our digital revenues, it's grown 40% year-on-year from NGN 18.7 billion to NGN 26 billion. and wealth, which is 2.6% of our digital revenues has grown 58% year-on-year from NGN 1.9 billion to NGN 3 billion. Slide 29 just shows a trend of digital revenues moved from about NGN 27.6 billion quarterly Q3 2024 to NGN 39.9 billion Q3 2025. That's a growth of about 45%. We continue to see traction. Digital now contributes 11.5% of interest income as of 9 months 2025 and 36.5% of noninterest income. On Slide 30, which shows the contribution of digital loans to the total loan book. Digital loans have grown -- have grown 41% from NGN 174 billion to NGN 246 billion, now accounts for 10.7% of the loan book. The digital loan book is split 54% and 46% between the bank and our nonbanking subsidiaries, largely CDL and the contribution of our digital lending portfolio is one of the key reasons why we've also seen an uptick in the average yield of our earning assets in 2025. Slide 31 just shows key highlights of the digital business. For SME loans, value of loans disbursed about NGN 197 billion to about 13,875 obligors, average ticket size of about NGN 14 million. Portfolio size is about NGN 117.5 billion. For retail digital loans, we've disbursed over NGN 142.9 billion to about 1.35 million obligors. Average ticket size is NGN 44,000 and portfolio size of about NGN 128 billion. And for the wealth proposition, we have over 120,000 customers onboarded, revenues have grown 58%, and we've seen a 17% growth in AUM over the 9 months. The last chart just shows the breakdown of our digital payments revenues, largely driven by mobile and merchant solutions, which together contribute 68%. Then we have Rova contributing 13% and our card business, 11%. I'll now hand over to Ladi, who will take you through the outlook for the rest of the year. Thank you.

Thank you. So we expect a good year this year, and we do anticipate that we are on track to exceed our 2025 PBT guidance. This will be driven by improving net interest margins. We started the year with the inflow of the proceeds of the 2024 public offer. We didn't really see the impact of that until Q2 because we had to cycle out fixed deposits that have been raised prior to the end of 2024. But by Q2, we have started to feel the impact and so we've been benefiting for that in the last 2 or 3 quarters in Q2 and Q3, and we expect that will continue in Q4. Of course, the proceeds from 2025 offer will not impact the capital position in the year 2025. Asset yields will also remain strong. Even though interest rates are coming down, robust growth of our retail and SME loans will enable us to sustain decent yields on the asset side. Cost of funds is also coming down, and this has been as a result of 2 factors. Number one is overall rates in the money markets are trending downwards. So our fixed deposits are also less expensive. And in addition to that, our continued momentum in low-cost deposits. As a business, for now, FCMB's earnings actually are enhanced when interest rates come down for as long as we are seeing robust growth in our high-yield loans that offset the impact of lower yields on our earning assets -- on our liquid assets. In terms of operating expenses, we think this will moderate in Q4 due to the nonrecurrence of the AMCON levy. And finally, we do expect sustained digital revenue growth driven by retail and SME lending and payment volumes. And we expect that both of these will see some degree of acceleration in Q4 due to the holiday season and period. In addition, we expect overall digital revenues to hit about NGN 150 billion by the end of this year, which is a 50% growth from what we were doing last year. So I will end it here and look forward to responding to your questions.

[Operator Instructions]

Okay. Okay. Thank you. So the first question that I have here is from [indiscernible]. If you don't mind, I won't try and pronounce the name. And so the question is why the switch from a minority sale in Credit Direct to FCMB Pension? Good question. The reason is that Credit Direct as a business delivers for us about 100% plus return on equity, and we pay out about or thereabouts of the earnings as dividends or will be doing so going forward. As a result, it is a business that we would rather retain 100% of if we didn't have to sell. And so when faced with the prospect of really just wanting to do NGN 10 billion from the minority sales, we took the tactical decision that it was better to do that from pensions. The other reason was that we already had a specific buyer for Pensions NGN 10 billion, whereas in the case of FCMB -- in the case of Credit Direct, investors that we were speaking to were looking at significantly higher stakes, although I believe that if we had needed to sell that, we could have probably got them to reduce their stake as long as we were willing to give them the minority protections that would have come along with the larger stake they were seeking. But really, this was done most importantly for economic reasons that the sale in Pensions would be a more accretive option for us than that of Credit Direct. The next question was whether we can shed more light on the decline on loans. Secondly, should we continue to expect a dividend for 2025? And thirdly, are there any updates on your pension business recapitalization? I will maybe ask the MD of the bank to update us on the reasons for the decline in loans.

Thank you. So the decline in loans came as a result of treatment of the forbearance loans in the book as well as our general review of our book to see the ones that we can put on. So out of the 5 forbearance assets, that we have, we actually put about 2 for sale and also an additional one that wasn't part of forbearance on our book. So we sold a quantum of over NGN 200 billion on the -- from our loan portfolio. So whilst we grew our loans in some of our focus sectors such as ag, SMEs, which are like manufacturing trade and general and also personal banking, we saw the sale of assets from the forbearance loans and the specific real estate NIM that we had on the book before. We saw those still more than the actual growth that we have. So net-net, the loan book declined 2%.

With respect to the last 2 questions, we think that there will be a lower dividend most likely than the NGN 1, largely because of the fact that we will be taking more equity from the public offer and the equity holders or the investors from the public offer will be eligible for dividend in 2026. So we will be coming out, I think, in the region of about -- well, I shouldn't say but it won't be dramatically less, but it will be proportionately less based on the level of oversubscription that we are taking. And unfortunately, that's been necessitated really because of regulation. So our hands were tied there. In terms of the Pensions business recapitalization, that is on track. I believe that we are looking at 2027 now, if I'm not mistaken, it's year-end 2027, that will need to be completed. We are, of course, in a number of possible acquisition discussions. There's absolutely no guarantee that any of those would close before the deadline. But if any of them does, then, of course, the amount required would be reduced. But the plan is that the holding company will fund the capital injection. Pardon me, I don't have the exact numbers of what will be required now that we are looking at 2027 year-end because we would, of course, have some additional retained earnings to further capitalize the pensions business. But suffice to say, we certainly won't be raising any equity at the holding company level nor would we be raising or selling equity of the Pensions business to anyone other than existing shareholders for the proportion that they already hold. But yes, we expect we will comply before the deadline. Next question is, what is the outlook for loan growth in 2026? And which particular sectors are we focused on? Also, how do we think the rate cuts next year will boost demand for credits at FCMB? Next, what is the outlook for the CASA ratio for 2026, considering that the majority of expensive deposits have been repaid using proceeds from the capital raise. Regarding cost of funds and asset yields, this is question 3, the expectation was to see muted or stable cost of funds in recent quarters. However, we have observed more significant increase in asset yields. How was the group able to achieve this? And why have we not seen a moderation in cost of funds? Finally, following the exit of forbearance loans, which spiked the cost of risk as of 9 months, are we expecting a reversion in cost of risk to pre-2003 levels? So I will take the questions first. So outlook for loan growth in 2026, well, what do we think overall because we have CDL as well as in total, not just [indiscernible]. So I suspect we're about 20% or...

It will be double digits.

Double digit.

Close to double digits. Typically, we'll give a full year guidance on our full year investor call. But typically, it will be double digits. And if I could just also use that to speak to the question on funding costs, yes. So yes, it looks like we've not seen a decline in funding costs. But if you look at our funding cost from quarter 3 last year to quarter 3 this year, you'll find out that as of quarter 3 last year, our cost of funds was 9.3%. By the end of last year, quarter 4, it was 10.6%. It's come down from that 10.3% to 8.2% in quarter 1 and then it went to 8.2% in quarter 2. There was a spike in quarter 3 to 8.7%, and that was largely due to what the CFO spoke about, a decline in domiciliary deposits over that period. We'll expect that by the time we get into quarter 4 and into the full year, we should see more moderation coming in below what we ended the full year. Thank you.

Okay. How much do you think rate cuts will boost demand for credit for FCMB next year? I think naturally, there will be an increase. I think Gbolahan has already indicated that it will be double-digit growth. At this point, we wouldn't be able to give clarity on exactly what the percentage is until the full year results where we will give guidance for loan growth next year. In terms of CASA ratio for 2026, sorry.

We give the guidance.

Yes. So we will give the guidance there next year. Now regarding cost of funds and asset yields, we've observed more significant increases in asset yields. How are we able to achieve this? I think as mentioned earlier, we've seen robust growth across the group, including CDL and the retail and SME business in the loan growth on those sides. And we've also been able to generally defend the pricing in the rest of the book and haven't seen any reductions there. Following the exit from forbearance, which spiked cost of risk in 9 months 2024. Do we expect a reversion in the cost of risk to pre-2023 levels? I can't remember what the pre-2023 levels were, but certainly, we do expect cost of risk will be coming down to far more moderate levels. The lender is classified as a significantly important bank with international licenses. Sorry, this is the next question. Will you leverage on that to open units outside Nigeria post recapitalization in which countries and why? So I think absolutely that once we conclude the recapitalization exercise and we meet the NGN 500 billion threshold. We do intend to open more units outside Nigeria. We cannot be specific on which countries as of now but suffice to say that we are currently at the advanced stages of due diligence in at least one opportunity. The next slide, cost of funds and why that grew sharply. I think that's been explained and how does this impact our funding cost outlook. We expect that it will come down over the next few months. And obviously, with the injection of another NGN 230 billion something of capital, I think, will come down further. So the capital injection will have a material impact on our cost of funds. Any update on CAR and how comfortable we are at comfortable levels, where will be capital adequacy ratio?

So 9 months, we're at 17.8%. Definitely after the capital raise will be significantly above 20%.

Okay. So we should be next year from January, significantly above 20%. We are comfortable with those levels. We don't think there is reason to expect it to fall materially below that, certainly not in 2026. Were the loan sales done at a discount? If yes, by how much was the discount? And would the proceeds from the sale be channeled to -- I'm sorry, where have the proceeds from the sales been channeled to if cash was paid upfront? You mentioned an ROE for Credit Direct. Is this ROE 9 months or ROE over the last few years? So first of all, the sales and the discount, maybe Yemisi can speak to that.

Yes. Yes. The sales discounts vary between 10% to 15%.

Okay. And then in terms of credit direct ROE...

Sorry, there's another question that the proceeds -- where have the proceeds from the sales in cash liquid assets. So they were invested in liquid assets.

So yes, cash was paid upfront and they were invested in liquid assets. So finally, the ROE that was mentioned for Credit Direct, is that ROE 9 months 2025 for ROE over the last few years. I think we're closing this year around 100% ROE for Credit Direct. I think we were probably around that figure in the late 90s in Q3 annualized, and we expect that we will sustain for that in 2026. I believe that is the last question unless there's any questions from -- by voice.

Dear speakers, please be advised there are no questions from audio lines.

Okay. Well, I believe we can bring it to a close. Thank you very much, everybody, and wishing you all seasons greetings and a prosperous 2026.

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