Fidelity Bank Plc (FIDELITYBK) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Fidelity Bank FY 2020 Earnings Call. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Nneka Onyeali-Ikpe. Please go ahead, ma'am.

Welcome to Fidelity Full Year 2020 Results Conference Call. My name is Nneka Onyeali-Ikpe. I am the Managing Director of Fidelity Bank Plc. As you probably know, the erstwhile MD, Nnamdi Okonkwo retired in December 2020, following the expiration of his contract. We uploaded the investor presentation about 24 hours ago. I hope you've had time to go through the report. Before I dive into the numbers, I'd like to give an overview of my professional background and tell you my strategy for the bank. In a banking career spanning over 30 years, I've held senior managerial positions at functional levels in different financial institutions. I have worked in treasury, legal services, all areas of marketing, namely corporate, commercial, retail and investment banking. I've been privileged to participate in structuring of complex transactions in different economic sectors, including commercial, oil and gas, aviation, real sector and exports. I was an integral part of the transformation agenda in Fidelity Bank having worked as an Executive Director in charge of the Lagos and Southwest region. The strategy of the bank has not changed. Our goal is to achieve Tier 1 status by 2025. We define Tier 1 status as attaining 7.5% market share across key indices, including deposits, risk assets and total assets. Achieving an ROE of 20% and a CIR of less than 60%. Build a customer base of not less than 15 million accounts. Increase digital penetration by over 90%. We have built all these on 7 pillars that will help us drive our strategic aspiration in the coming years. The first is the brand refresh. To increase the top-of-mind awareness of Fidelity brand by external and internal stakeholders. The second is workforce transformation to create a future-proof bank, supported by high-performing and empowered workforce. Thirdly, service excellence, which is intended to build brand loyalty through personalized and seamless customer experience delivery. The fourth is performance discipline to achieve a strong bank with strong fundamentals, good access quality and strategic cost management. In addition, digital transformation which will involve an end-to-end digitization across all businesses front, mid and back office. And finally, achieve a selected growth which will drive aggressive marketing -- market penetration and business diversification. I would also like to introduce the factors that influenced our performance in the previous year. In 2020, the monetary authorities implemented an expansionary policy. Hence, the major focus of the regulators was increasing output growth in the domestic economy. The reduction of the benchmark interest rates from 13.5% to 12.5% and later on 11.5% and a fall in the yield in government securities caused a realignment of rates on both sides of the balance sheet in the books of both -- of all deposit money banks. Our yield on earning assets decreased by 2.9% from 13.6% in 2019 to 10.7% in 2020. In the same period, the cost of funds reduced from -- by 2.7% from 6.3% to 3.6%. The cumulative effect was a marginal increase in the net interest margin from 6.2% to 6.3%, which is higher than our guidance of between 5.5% and 6%. The COVID pandemic obviously disrupted our operations. Quarter-on-quarter PBT was lower in quarter 2 at the height of the lockdown. Things, however, began to trend up towards Q3, quarter 3. One of the positive measures adopted by the CBN and other development agencies was the reduction of the net spread on intervention funds from an average of 7% to 4%. This adversely affected our profitability by about 23%, our risk assets were funded by interventional funds. On a brighter note, the pandemic gave us an opportunity to review our processes. The remote working arrangement and online meeting protocols meant that we spent less time on travel, training, premises maintenance and related costs. Savings from the remote working of staff led to a decline -- a significant decline of cost lines and cost savings of about NGN 3 billion. The review of the bank charges by the CBN which became effective January 2020, reduced allowable charges on a range of banking products, including income on electronic transfers, but despite the increase in the usage of our banking channels, our banking income -- digital income decreased. The volume of our transaction on our instant banking increased by 78% year-on-year, while that of our mobile banking increased by 37.5%. However, our digital income increased by -- reduced by 19%. Regarding our financial performance, gross earnings dropped by 5.4% from NGN 218 billion in 2019 to NGN 206.1 billion in 2020 due to the combination of the following factors. Like we said, lower interest and similar income caused by lower yields in the market. Net fee income declined by NGN 4.3 billion. However, key activity income lines like the account maintenance, digital income, trade income started trending upwards in quarter 3 and quarter 4 as the economy recovered. Trade increased by 48.4% between quarter 2 and quarter 3 and by 23.4% between quarter 3 and quarter 4. Account maintenance charge increased by 42% between Q2 and Q3 and by 12.4% between Q3 and Q4. Digital banking income increased by 20% between quarter 2 and quarter 3 and 19.56% between quarter 3 and quarter 4. Operating income increased by 14% -- 14.8% to NGN 128.5 billion while the operating expense increased by 2% to close at NGN 83.6 billion. The growth in operating expense was driven mainly by increase in the regulatory costs, but the year-on-year increase of 2% is a lot lower than the headline inflation rate of 60.75%. Cost-to-income ratio reduced to 65.1% in the review period from 73.4% in 2019 full year because the growth in the net revenue of NGN 16.8 billion, far outweighed the growth in the OpEx of NGN 1.6 billion. Operating profit, profit before impairment increased by 50.9% from NGN 29.8 billion in 2019 to NGN 44.9 billion in the reporting period. We closed the period with a PBT of NGN 28 billion, which translated to 7.6% drop compared to our 2019 PBT figures of NGN 30.3 billion. The drop in PBT was in line with our guidance. In view of the pandemic, we modeled for a PBT drop of 15%. We increased our loan loss buffer for the period, which led to a higher cost of risk of 1.4%. This resulted in an increase in the total impairment charge of NGN 16.8 billion from a write-back of NGN 0.6 billion in the previous year. We are maintaining a high buffer to ensure that our earnings are shielded from any relapse in the global scourge and its attendant effects on our business operations. Total deposits increased by 38.7% from NGN 1.2 trillion in 2019 to close at NGN 1.7 trillion in the review period. It was driven by the double-digit growth in all deposit classes. The demand deposits increased by 2.7%, saving deposits increased by 54.2%, tenor deposits increased by 55.1%. Going forward, we will pay greater attention to our savings book, by expanding our digital channels and increasing our agency banking footprint. We currently have 1,000 -- 14,000 agents. Net loans and advances increased by 17.7% to close at NGN 1.32 trillion. However, if we walk back the devaluation impact of 4.4%, the real growth was 13% -- 13.3%. About 29.1% of the growth in the loan book was created with on-lending and intervention facilities. As at December 2020, 42% of our loan books were foreign currency denominated up 41% in the period -- the preceding period. We think the government will continue to lend to critical sectors of the economy, so we'll continue to grow our volumes on the intervention funds. We see opportunities in for risk asset growth in the government through infrastructure development finance, manufacturing as well as communication and technology. We will continue to expand our retail loan book through the issuance of point-of-sales facilities, payday loans and other lifestyle products. Our NPL ratio, Stage 3 loans referring to the year came in at 3.8% from 3.3% in 2029 (sic) [ 2019 ]. This is due to the 37% growth in absolute NPL book to NGN 53.1 billion. Year-on-year NPL growth is partly due to our conservative stress test on sectors susceptible to global pandemic and economic lockdown. Coverage remains high at 139% with specific provisions on Stage 3 loans currently at 68.9% versus 60.9% of 2019. The sectors with the highest NPL growth are the transports, general commerce and public utilities. Other regulatory ratios remain above the required threshold. Our capital adequacy ratio is at 18.2% and liquidity at 37.8%. The nearly 10-year NGN 41.2 billion Tier 2 bond, which was priced at on January 7, 2021, we will qualify as Tier 1 capital from H1 2021, audited financial statements. Impact on capital adequacy ratio is estimated to be about 2,200 basis points. Looking forward, we expect a semblance of normalcy in the local economy as the spread of the pandemic begin to be moderated following the distribution of the vaccines. We are committed to delivering higher growth numbers in the coming months, starting from our Q1 2020 results. And for 2021 full year, we have guided for 10% to 15% growth in our loan book, 15% to 20% increase in the total deposits, cost of -- cost-to-income ratio of below 65%, and increase in our NIM and a 25% growth in PBT, which will translate to an ROE of 12.2%. Thank you for your attention. We will now take questions. Thank you.

[Operator Instructions] Our first question is from Toyosi Oni of Renaissance Capital.

And my first question is your view on interest environment . We've seen an uptick in rates now. And I just wanted to get a sense of how Fidelity is looking at the remaining quarters of the year. And the next set of questions I have are more asset quality driven. So I noticed that there was a notable quarter-on-quarter decline in your downstream book and in your manufacturing NPL. Could you just please speak on what drove this? I imagine it's write-offs, but I just wanted to confirm from you. And then you have the part of your NPLs that are classified as others. And this grew by about NGN 10 billion year-on-year and NGN 7 billion quarter-on-quarter. So I just wanted to get a sense of what exactly is in that bucket. The next question is on your provisioning. So in Q4, you took about NGN 5.8 billion provision charges, which is quite similar to what you took in Q2, which was at the height of the pandemic. And the general sense was that things have had started to improve by the end of the year. So I just wanted to ask what drove this increase in Q4 in provisions? And during the call, Nneka, spoke about in 2021 going into intervention loans from the government. I just wanted to get a sense of how these loans have been structured. Correct me, if I'm wrong, but CBN has granted moratorium on rate costs previously. So these new loans, at what rate is Fidelity going into it? Is there any sort of forbearance period for the obligors to start paying back? And then I just had a question on the robust digital strategy that was discussed at the beginning of the call. And I understand that the intention of this is to drive growth at the bank. But I just wanted to get a sense of the impact on Fidelity's OpEx in the near to medium term? And then my final question is for guidance on your noninterest revenue for 2021.

Okay. Fine. Thank you very much. I'll take the first question. The first question is on the interest environment, our expectation, if I'm correct. Yes, since 2021, we have seen significant rise in the yields. The yields in government securities from both the debt and money market instruments. First year treasury bills and government bills are now at 4.2% and 8.6% from 3.18% in and 5.74%, respectively. And the long end of the fixed income now is at about 11.8% from 8.25% in December. This trend shows that we expect an uptick in the -- an uptick in the yields. And the reason why we believe that, that is the case is that the trend is expected to continue based on the following indicators. There is a need for us to -- for the government to fund 2023 budget deficit of NGN 5.2 trillion. And then the medium-term management strategy accommodates new borrowing to fund the budget deficits with a bias for 70% of it being served in Naira. We also expect -- we've also seen that there's an increasing preference for the FPIs to improve -- for the FPIs by the government. For that reason, there's an improvement in the yields so that they can get some FX liquidity in the -- FX liquidity in the country will improve. So based on all that, we expect that, that the rates are going to go up. We already see that, like I said, unlike you're aware, there was also concerns about inflation rates currently at 17.33%, so it needs to be tamed. So we expect that the trend will continue. And we are going to see -- we're also going to see a repricing of the risk assets. If this -- because we expect this trend to continue to quarter 2, so we're also expecting the repricing of the risk assets, especially in quarter 2 going into quarter 3.

Could you also please speak about your FX expectations for the year, please?

In terms of the FX, we expect FX to be, yes, we do know that there's an expectation of a further devaluation because there's still a gap in the funding, as which you can see there's a little struggle on that. So we still expect further devaluation. But I'll let my treasurer take that question further. Akin?

Yes. Okay. Thanks very much. Yes, in terms of our outlook for the FX market, what we have seen so far, we have seen 2 devaluations or 2 major devaluations within the period just within the first quarter. If you see where the nondeliverable features are but before that we sell as a hedge instrument. It will also give you an indication of what to expect this or where to expect this rates to be. If you look at those rates, for example, if you look at 3 months, say, June, June is currently at 402. And in the market -- in the middle market, it is at 407, 408 as that should be. What it means is that with this expectation, it's very likely that there will still be some uptick in that distribution. So from our own outlook, we believe that there will still be more to come in terms of the outlook. Again, too, yes, the government have been trying so much to stabilize. Just as Onyeali said, we have seen what they have done on the FPI side, trying to up the rate on the naira risk. And as well, too, if you look at the direction that we have been seeing in terms of where the FPI starts, they will need something to really give them some rule just to issue. Given this -- given the adjustment that was done around the remittances, I think that the net demand will be very much and because of the [indiscernible] that is still very on starting in terms of the [indiscernible], we expect that this will pick up the rate further by some expectations. Thank you.

Okay. The third question -- the third question was on if you correct me, was on the quarter 2 and quarter 4 provisioning for -- in our presentation.

Yes.

Okay. Yes, we're very conscious of the environment and the very unstable environment, and we're very aggressive on our position -- on our provisioning. As you well know, our total provisioning for the full year was NGN 16.8 billion. But I'll let -- I will let my CRO take it, but you are aware that the provision also went up due to the FX rates increase as well. So I'll let my CRO take the question. Thank you.

Okay. Can you -- am I audible? Can you hear me properly?

Yes, we can hear you.

Okay. The first question has to do with the downstream sector where we had a reduction of full year. Now basically, we had a major write off there and that's what led to that reduction. These are loans we have classified for -- classified for more than a year, and we keep that off. And that was about -- was about NGN 30 billion. On the manufacturing sector, we had an improvement. We had an improvement, as you can see from the 11.7% at Q3 to 3.2%, and this was also mainly from one of manufacturing obligors. The other, the other sector relates to one mainly one utility company where we had the recognition of the impact of COVID, we decided to basically take on more impairment as a conservative measure in that particular sector. So that's the variation and of course, the FX impact also contributed to some to these numbers. Thank you.

Yes. The fourth question will be on our robust digital products. In 2019, we had a refresh on our digital platform and infrastructure. And it was a lifesaver in the pandemic because we're able to migrate all our processes to the -- most of our processes to the platform as well as to the cloud. We have rolled several products that ensure that our customers were able to do business end-to-end from their homes. But I will let the CIO deepen this discussion around the digital products. Thank you.

Thank you, Nneka. So Toyosi, you also spoke about how it affects our cost base. For 2020, we had about 50% of our cost lines going down line on the digital strategy, #1, the remote working and number two, because we have migrated more processes online. Now how has that affected our cost? Going forward, CIR is down to 65% for 2020. Going forward, we expect it to be below 65% for this year. And in the next 3, 4 years, we expect it to be below 60%. We're still making some additional investments in that. The NGN 41 billion bond we issued 18% of the proceeds, 18% of the proceeds goes into improving our technology infrastructure. So what you're likely to see is that there will be more investments in that space. And then you'll see a gradual reduction in the CIR from the 65% levels to the 60% level in the next 3 years.

Okay. The last question, if you correct me, Toyosi, is on NIR and the growth expectations. Yes, we think that things are improving. The business environment is improving as the economy is opening up. So we think that the NIR, which is the income that comes from noninterest revenue is going to increase with the recovery of the business activity in -- since quarter 4, we can see from since quarter 4. Noninterest revenue as well was driven by activity from income and income from activity loans and all of the ancillary businesses. So with the economy opening up, we're expecting a higher noninterest revenue. And we're booking more loans and business activity has improved significantly. Thank you.

I think there was one question that I asked that wasn't answered and it was on the nature of the intervention loans that you spoke about. So I just wanted to ask how you were looking at these new loans given the current moratoriums on existing loans and the cost in interest rates that the CBN implemented in 2020? And if this would affect this new loans that you're going into? And consequently, what it means for your margin?

When we go into intervention loans, I can tell you, we don't -- the margins are important, but the bigger income is coming from the ancillary business around those customers. What we have seen is that our customers that we intervened for, the business has tripled in the last 1 or 2 years. So we have to also talk about the real sector fund, and that fund is releasing our CRR. Our CRR is at 0% interest, but anytime you lend to the real sector, it is funded from our CRR. So it's a gain for us as well. So you're gaining on 2 sides of the coin. One, you have annual income on the CRR. And then you're adding interest revenue on the CRR, which ordinarily would have been 0. And then you are also lending to the real sector and growing the business of our customers who are happy to borrow at this rate. In any case, this -- the loans -- the new loans that no moratorium for new loans. So it's just -- we just lend to them. There are no new moratoriums for the new loans. But 2 things I have said here, we enjoy the CRR income and the interest on the CRR, which normally wouldn't have interest. And then the -- we grow the business of our customers because these are real sector businesses. And we choose the customers that we lend to in this space very carefully. It has to be a customer that has ancillary business. Thank you. And multiple income streams.

Our next question is from Jerry Nnebue of CardinalStone.

I just have a few questions and then some of them are [indiscernible] jump in PBT for 2021. Can you maybe just drive on your intention of what the key drivers would be for this jump in PBT, just try and give what it has been last year. And I am also being very particular about if potential FX has seen more than 2x jump in FX earnings. And then in 2021, we did not see the valuation of the kind of quantum that we saw last year. So how do you make up for that kind of gap, while also ensuring that you accrue last year's performance by about 25%. Secondly, I also want to ask on the credit side of things, which in relation to what we're seeing in the new environment, are you repricing your lending rates accordingly? And if you do that, how responsive or receptive to not have customers for you. Also, the third one in that regard would be how we assess the credit environment also? Is it better than what we saw last year in the COVID year? Or do you still see some of the concerns because of COVID that is not making lending conducive at the moment. So are we seeing a better environment for lending in Q1. Based on your assessment of Q1 performance, was loan growth really good in terms of our expectations. For asset quality cost of risk are you going to retain the same kind of posture or aggressive posture that you had last year. Given the overall environment in terms of provisioning, so will you still be aggressive or you feel that you have been very aggressive last year. So you can take things a bit more slower based on the terms of the quantum of provisioning that you expect to do. So I think -- and then again, if you kind of also let us know what are your restructuring loans or [indiscernible] loans, how much of your loans are restructured, that will be helpful as well.

Thank you very much. Your first question was on the 12% PBT growth. If you remember from the intro that I did, I guided for 10% growth in risk assets and a 25% growth -- 20% to 25% growth on our loan -- on our deposits. We achieved a 38% growth on our deposit last year. So that is -- that shows that we can achieve it. I mean, we achieved a 17.7% growth in our loan book last year, which shows that we can achieve these numbers that we guided. And if you remember, the actual -- we made a provision of NGN 16.6 billion -- NGN 16.8 billion for our NPL provisioning. And if you add back -- if you add that back to our existing PBT to well over NGN 44 billion. So we are not worried about 25% growth in PBT. We think we can drive it. And we also intend to reduce our cost of risk by the several processes we have put in place, and we play in the commercial sector. So the pricing is easier for us to reprice. We play -- if you look I'm sure you know Fidelity is very strong with SMEs and commercial. So we're able to manage the pricing with them with our customers. It's more difficult to manage the pricing and increase pricing with very big corporates, but our strength is in the commercial. We intend to increase and optimize our balance sheet. How do I -- what do I mean by that? We have been able to achieve a 3.6% low cost of -- I mean, cost of funds. We're going to try to keep it at that, is going to pick up no doubt, that we have been able to maintain a NIM of 6.3% even in the COVID period. So if we maintain all of that, we'll grow our business, we are certain that we'll be able to do 25%. So with improved environment of trade, we'll also increase our FX income. And we've done quite a bit on our own on the export side to increase our income on -- I mean, to increase our -- the FX flow from exports. We have a lot of export customers. So we're using that to fund and then to sell to our customers in the commercial space. So that's been of great help. So with the cost savings embedded from the COVID-19 and the operational structure, so we're going through it right now as we speak, we are working with consultants to ensure that we have tough optimization and to continue to sustain the benefits of COVID-19 remote -- COVID-19 remote banking process that we went through during the lockdown. We want to make sure that we don't lose sight of what we gained. We're ensuring that we're working with consultants like I said. So we're going to continue to bring down our costs. So if we bring down our costs and increase our top line revenue, I'm confident that we'll achieve 25% PBT. And I'm going by what I'm seeing in my first quarter, I think it's very achievable And the second question was on our customer base, an increasing of lending rate. I already spoke to that by saying that we are stronger on commercial than in big corporates. So to adjust our rates upwards or tick it upwards, we were not very aggressive in bringing down the rates. That's another thing to say. But however, we did adjust, but to also take it up again, we would have to do that in the -- if not second quarter, by the third quarter. But because of the place where we play, it's a little easier to deal with it, the repricing because of the commercial sector segments where we play majorly as an SME bank. On the third question, I mean the fourth question was like what are we seeing in the market? We are seeing a lot of growth. We're seeing a lot of growth in the retail loans because of the digital outplay that we have launched. We have seen a lot of growth in technology area. We're seeing a lot of growth in manufacturing. We are seeing a lot of growth in education. We're seeing a lot of growth in infrastructure. As we speak, we are very big on infrastructure lending and very big opportunities coming now. As a matter of fact, quarter 1 was very good in terms of the growth on all the indices because I think the economy is truly opening. And then for us, from what we are seeing, the numbers are going to look good. And the health sector also came through with a lot of very good credits. So the yields this quarter will be good and going forward and like I said, the 25% PBT is very achievable. So the third question was on the yield. Like I said -- the third question was on the yield. Yes, we will be able to achieve the same yields that we did because like I said earlier on, even though the deposit rates are increasing a little bit, we're also going to reprice our lending rates. And like I said to you earlier on, because of the segment where we play, we have the advantage of being able to reprice not -- it won't be such a big problem repricing our loans with our customers. But I'll have Gbolahan take more on the issue of the PBT guidance.

Thank you, Nneka. So Jerry, if you look at our total earning assets, it's about NGN 1.8 trillion. Now based on our guidance of 10% to 15%, which Nneka spoke about, if we take 10% of that, you get about NGN 180 billion. Now even if you look at the lower end of our NIM guidance, which is 6%, you take 6% of that, that droves up an income of an additional NGN 10 billion. Even if we keep noninterest revenue flat, which we plan to grow by 5% to 10%, operating income will already get to almost NGN 139 billion. And because we expect CIR to be below 65% and a lower cost of risk, if you just model that, just with the lower end of our guidance, you already arrive at over NGN 35 billion. So we think it's very achievable, as Nneka said, even using the most conservative bit of our guidance.

Reframe me in terms of funding for the growth of the interest earning assets. In the last year, we saw although it was still early, we were able to grow the funds as a result of the [indiscernible] environment that we're in, right? So it is easy for banks to grow their funds and as also important assets -- interest earning assets. For this year, we've seen some sort of reversal. Do you expect that kind of funding or the kind of quantum that we saw last year, that would justify a very strong growth in interest earning assets for this year?

Okay. Yes, we still expect that.

Yes, go ahead.

Yes, we still expect that. If you -- what we've seen in quarter 1, for what we've seen in quarter 1, and we've seen the NIMs hold up pretty strong. Yes, interest rates have gone up from a fixed income perspective, which impacts our time deposits, but when you look at our time deposit book, it is 25% of our total deposits. And then the other income funding that we have they are not susceptible to interest rate movement. So for example, the long-term borrowings we have, the Eurobond we have, those ones, they're not affected by the movement in interest rates. So from what we see from a quarter 1 perspective, we think an NIM is likely to increase for us, and that's why we've guided from 6% to 6.5% this year, even though we did 6.3% last year.

Yes. Maybe to add as well is that the relationship is not really linear because only the loan borrowing customers can buy T bills and government bonds. So it means that the pool of customers that we have, we still have to -- will still have to be with us on the normal deposit rate. So the rising yields are challenged quite right. But offering customers higher rates will ensure that they remain with Fidelity. But in all of that, we spend our service offerings to ensure the loyalty of our customers and to sustain what we have to do. And remember, we just recruited a new CIO and a lot of digital play that we're going into all that would generate some level of deposits somehow. So we -- in the last 3 years, we are going to deposit at the average rate of 30% per annum. So what we've targeted this year is very achievable going by the -- even if we take into consideration that some way that may slow down due to the rates that are ticking up or due to the fact that they're going to be able to invest in other products. We still guided for lower growth as opposed to what we've achieved year-on-year. So somewhere in between all of that, we'll find the balance. Thank you.

Next question is from over Babatunde Ogunleye of SBG Securities.

Apologies if some of my questions have been answered. I got cut off during the call. Just a little question on the digital banking revenue. So you're guiding a 90% penetration rate and there's a regulation on signing open banking initiated by the CBN. So given the open banking initiative, I'm expecting that this is going to create competition in the sector. So how do you see this 90% penetration rate coming into play. And also on the back of that there has been the recent tussle between the telcos and the bank on USSD charges because I believe USSD is to have the high volume transaction. I would say that you can easily increase your penetration rate. And then given the impact of the [indiscernible] are billing and debt owed to telcos, if you could speak on the impact of this pandemic that seems to affect you achieving the 90% penetration rate for digital banking. And my second question is going to be on your outlook on the interest rate environment. And I'm expecting that given the rise in interest rates, I'm expecting your cost of volume should also go up as well. Is it possible to give guidance as to what we should be expecting for cost of funding and then for 2021, basically. And the final question is basically on your asset quality. So I noticed there was an increase in Stage 1 and Stage 3 loans and we could basically see the trends towards [indiscernible] value. And also, given the impact of the regulatory forbearance, like what percentage of the loan portfolio is restructured and in what particular sector are these loans restructured?

Okay, I'll start from the last question. 35% of our loan books were restructured well, following the government forbearance. But I'll leave it to my CRO to give the details of the sectors. Thank you.

Okay. Thank you very much, Nneka. With respect to the sector that we had the restructuring, we are quite a bit in intervention funds and intervention funds are likely from -- unlike the public sector-based interventions. And so we had a lot of restructure in there. We also had some in oil and gas. Oil and gas upstream, which, of course, you know COVID affected so much of that sector. And we also did restructuring in power. Then, of course, the general forbearance and what CBN did on retail loans. So quite a bit of that also happened. Manufacturing also and transports, those are some of the other areas that we did some restructuring by way of sectoral distribution. But, overall, that 35% roughly of our loan book that was restructured and... [Technical Difficulty]

We have been reconnected with the Boardroom. Please go ahead.

Okay. So the next question. Can I go ahead.

You can go ahead, ma'am.

Okay. Sorry for that disruption. The question -- the next question was on our digital banking penetration. And yes. So to speak to that, our digital banking penetration rates, as we speak, in 2020, was 88% -- we were able to achieve 88% of our transactions on our digital channels. So -- and that is the proportion of transactions that -- our transactions. So achieving a 90% of that is not difficult as you can well see. We have done that successfully. We have improved on all our platforms. we have migrated more of processes to the cloud, and we had to improve with the lockdown. So I think it's very achievable, and it's easy to achieve. So I'll allow the CIO to speak to the numbers.

Thank you, Nneka. So yes, right now, we're doing about 88% of our transactions on the digital channel. Now in terms of the customers we have who are using our digital channel, our mobile and Internet banking, we have about 52% of our customers using that. So out of about 5.7 million customers, we have about 3 million customers using the channels. Now we intend to grow that customer base to about 15 million. That means we're going to bring in about 10 million new customers. Obviously, for this new set of customers, we expect a very high penetration ratio. If we can achieve about 90% penetration ratio on the new customers we are bringing that already takes us to about 85% penetration ratio. So as we improve the penetration ratio, it will also increase the number of transactions that have been done on the digital channel. Competition from the fintech, yes, we acknowledge that. We're much stronger in certain areas, but we've done a lot of collaboration with the fintech. We collaborated with a fintech from a lending perspective, from a payment system perspective. So it's not in all areas that we compete with the fintech and in some areas, we collaborate with them, and we intend to continue that collaboration and we have a digital lab where we sort of work with them on building new ecosystems. So we're confident that with all that, we'll be able to achieve both penetration rate from a customer perspective and then on the number of transactions we do on the digital channel and that's part of the reason why we are guiding for a lower CIR over the next 3 years.

Just to add, we recently employed and setup -- we employed a Chief Digital Officer that's to show you the focus that we have in this segment of our business, and then we employed a CDO and a CTO. So that's to show you the focus we have on this segment of our business and all the numbers that we put there are achievable. There was another question on asset quality. We guided for -- close to the 3.8% on our NPL. That's a good ratio. And we are guiding for about same next year, I mean 2021. So I'll let the CRO speak to this, to the specific segments that make up this see -- this 3.8% and the quality of our assets. For sure, the quality of our assets are very high. Our asset quality is very high. We ensure that we lend our FX portfolio to only customers with FX revenue receivables. We also ensured that we lend -- we don't lend to customers that don't have deep experience in what they're doing. Overall, the decline of our NPL over the years, in the last 5 years shows that a good job has been done on asset quality, and we intend to keep it at that. So I would like the CRO to deepen this discussion.

Thank you, Nneka. We had a growth in our Stage 1 loans, riding on the back of the growth in general loan book itself. You may recall that we said we had a growth of 17.7% thereabouts in the loan book of which 13% was from just basic growth and then the other balance was from devaluation. So that led to that growth that you see in our Stage 1 book. Stage 3 is all driven by the conservative approach we adopted this year, riding on the back of the impact of COVID-19. And that's why we had the net increase as we discussed much earlier, the cost of -- we were pretty aggressive on impairment this year because of our view of on COVID. So net-net, the loan book grew by NGN 215 billion, NGN 194 billion of that came from Stage 1, NGN 6.7 billion Stage 2 and then NGN 14.4 billion in Stage 3, of which the bulk of it is in the transport sector, as we've mentioned earlier, general commerce and then the utility company, where we also have to take some extra impairments on.

Babatunde, do you have any other questions?

That's all for me. Thank you.

I would also like to state that we have no further questions on the line. Nneka, ma'am, do you want to make any closing comments?

Hello. Can you hear me?

We can hear you, ma'am. There are no further questions on the call.

Okay. Fine. Thank you very much. Thank you once again for participating on this call. Over the years, Fidelity has reported strong growth across all key indices. In our over 3 decades of existence, we have never failed to pay dividend. The dividend yield on our share in the last financial year was among the top 2 in the industry. I want to assure our esteemed stakeholders that we'll sustain this trajectory in the coming months. We will innovate and disrupt using technology as a leveler. Thank you very much for making out time to attend this call. If you do require additional information, please reach out to our investment -- investor relations team. Thank you very much.

Ladies and gentlemen, that does conclude today's conference. Thank you for joining us. You may now disconnect your lines.