Fidelity Bank Plc (FIDELITYBK) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Fidelity Bank 2021 FY Earnings Call. [Operator Instructions] Please note that this call is being recorded. I'd now like to turn the conference over to Nneka Onyeali-Ikpe. Please go ahead.

Good day. My name is Nneka Onyeali-Ikpe. I'm the CEO of Fidelity Bank. It is my pleasure today to welcome you to Fidelity's full year 2021 earnings call. We have uploaded the investor relations presentation on our website. I hope you have had time to look at this. Nevertheless, I will give a general overview of our performance in the review period. But before I proceed, I would like to introduce my team. With me on this call today are Kevin Ugwuoke, the Executive Director, Chief Risk Officer; Ken Opara, the Executive Director of Lagos & South West Directorate; Stanley Amuchie Executive Director, Chief Operation and Information Officer, Lanre Showunmi, Chief Digital Officer; Victor Abejegah, the Financial Officer; Abolore Solebo, Divisional Head Energy and Power; Akintoye Babalola, the Treasurer; Adetunji Mustafa, the Head of Strategy; Samuel Obioha, Head of Investor Relations. In a few periods, there were very few positives in the macroeconomic environment. Year-on-year, we typically grew by 12%. Oil prices rose to almost $100, and the inflation rate moderated to around 15.6% in December 2021 from an all time high of 18% in April on the same year. However, we are just struggling with the headwinds like FX capacity and general insecurity. Despite the challenges in the operating environments, we were resolute in the execution of our strategy. We paid particular attention to the balance sheet optimization. We've also aggressively drove our digitization and on solution framework. We were able to increase our digital footprints. Migrated all customers to our electronic banking platform and automated our processes. These initiatives greatly reduced our cost to serve. During the year, we received awards and accolades, including the fastest growing bank at MSME & Entrepreneurship Financing Bank of the Year at the 2021 BusinessDay banks and other financial institutions banking awards. And we also won the Straight-Through Processing excellence awards from Citibank. This is the 10th consecutive year of receiving this prestigious award for efficient and error-free processing of international transactions which corresponding banks. We are pleased with the results that we are seeing, and I can assure you that we're continuing to maintain this trajectory. I will now speak to the numbers. Please note this information can be found in the investor relations presentation on our website. In 2021, we grew our gross earnings by 21.6% from NGN 206 billion in 2020 to NGN 250.8 billion. This was driven by 60% growth in noninterest revenue, a 15.2% increase in interest on similar income. Net interest income test margin came in at 4.7% from 6.3% in 2020. An average funding cost rose to 4.2% from 3.6%, while average returns on government securities remain low due to the low yield environment referring to the first half of 2021. In absolute sense, total interest on similar income improved by NGN 26.8 billion, while total expense increased by NGN 36.1 billion, leading to a NGN 9.2 billion decline in interest income. However, we were able to compensate for the drop in the interest expense income with a 65.6% increase in the fees and commission line. Total deposits increased by 19.2% to NGN 2 trillion from NGN 1.7 trillion in 2020, in line with our guidance for 2021 full year. The increase was driven by double-digit growth across all product lines, mainly demand, savings and tenor funds. Net risk assets increased by 25.1% to NGN 1.7 trillion from NGN 1.4 trillion in 2020. It's important note that the combination of on-lending facilities and the impact of foreign currency exchange were responsible for the 31.7% of the absolute growth in loan book. Nonperforming loans ratio dropped by 2.9% from 3.8% in 2020, which led to improved cost of risk to 0.5% from 1.4% in 2020. Our regulatory ratios remained above the required thresholds with liquidity ratio of 40.4% and capital adequacy ratio of 20.1%. In line with the guidance issued by Central Bank of Nigeria, we have commenced implementation of Basel III and the rendition of results under the title schemes. Our capital adequacy ratio competition on Basel III is well above the required maintenance. The common equity Tier 1 ratio was 18.5% against the replacement threshold of 11.25%. Capital adequacy ratio was 20.1% compared to the regulatory threshold of 15%. Liquidity coverage ratio was [indiscernible] compared to regulatory threshold of 100%. [Audio Gap] threshold was 6.4% compared to the regulated threshold of 4%. I would like emphasize our total commitment to achieve the long-term strategic objectives of Fidelity Bank Plc. Thank you. We will take the questions. Thank you.

[Operator Instructions] The first question comes from [Ngozi Odum] from CardinalStone Partners.

Can you hear me? Can you please confirm you can hear me?

Yes, we can.

My name is [Ngozi Odum] from CardinalStone. I just wanted to ask few questions, and I'll take it in batches, if that's all right. First off, what's the strategy around your cost increase in term deposits, which may have nearly driven the June 4 increase we saw in your term deposits cost. Did you also reprice higher -- deposits higher to be more competitive in the year? Secondly, I'd like to know on your operating expenses, they were relatively more contained versus previous year. Do you expect this to persist, and what's the big influence here? And then speaking to the bank's ability to trade special bills, we've been hearing talks about certain restrictions on the bank's ability to trade special bills the way they would like. I just like to know if there are any such restrictions and how much special bills you are holding? And where is this reported in your financial? And also what's the effective CRR? And then lastly, for my fresh round of questions. Based on your internal [indiscernible] system, we saw that term loans rated below minus BB was more than 30% during the period. Should this elicit any concerns about the quality of your books and the likelihood of higher ECL charges in FY 2022? So I'll pause here.

[Audio Gap] which is volume of our special bills. Our special bills at the end of year was NGN 125 billion [indiscernible] Central Bank. So I'll have the treasurer speak to the restrictions that will have on execution of the special bills.

Yes. Okay. Thanks very much. My name is Victor Abejegah. Okay, talking about this special bills. Yes, when the Central Bank issued these bills, there were some restrictions in terms of who can consume this because it's actually meant to support liquidity, and was restricted for NGN 100 trillion. One of such restriction is for region. But in that time, I think the market has been free in using it for every order with the exception of repo. So in terms of its future, we cannot say it's totally restricted in that manner. Yes, we came [Audio Gap] what is optimally designed just on your repo [indiscernible] bills for the repo transaction. Now coming to the size of what we have in bills -- the special bills [indiscernible] December 2021. Where does it report to is under our treasury bills focus as you can see in the financials. Thank you.

Let me just talk about the OpEx. I think you mentioned that you saw our OpEx being compared in 2021 compared to the previous year. I mean this is a very deliberate effort by the bank. We'll be working on making sure that we contain our OpEx. And the [indiscernible] has also helped a lot in most of the OpEx lines we've seen coming. So we are taking advantage of all the learnings from digital process, and we'll continue to push even in the years ahead to make sure that we will be able to contain our OpEx. So looking forward in that direction the bank is very, very focused on that, and will continue to do that. I know you also asked about effective CRR. Currently, effective CRR is around 32%, and that's what it is. You talked about this strategy on the 40% increase in term deposits.

Yes. Our loan quality remains very strong. We'll stick to it -- the terms loans, yeah.

Thank you very much [Ngozi]. Concerning the growth in loans in the bucket rated BB, about 30% that you noticed. I'd like to just reassure you that there's no cause for concern as far as ECL going forward is concerned. Because we have a very rigorous expansion process that looks at the quality of our loan book and the quality of loans that we grant. So it's either we ensure that the structuring is very tight. And overall, that helps us to maintain a very strong loan quality as evidenced by our strong prudential ratios.

Next, on the growth in term deposits. What has happened in that? Currently, look, term deposits are up about 25% of our total deposits is in term. So what that presents for us an opportunity to manage our needs going forward. The growth we're seeing is just normal in the growth of deposits [indiscernible], reasonably in line with what opportunities are at a particular point in time. So it's not a cause of concern. For us, it is an area that the bank is working on to make sure that, in that bucket, we are going to bring in down as much as possible. And as we bring it down, it will pass into the capital level. So, if a bank for instance has [indiscernible], so that is what you can do, but we have that rule that we bring because everything we do there, as we work on it, it will comes into our performance going forward. So for us, we see that as an opportunity. I'm already working on it to make sure that is an area where we improve going forward, especially on deposit piece.

[Audio Gap] efforts on the growth of the low-cost deposits because that would go a very long way to moderate the interest rates coming down in term deposits. We have put a lot of efforts towards growing our capital through our series and promo that's going on right now [indiscernible]. We'll also doing quite a bit on the foreign exchange -- foreign currency deposits. We're pushing very hard to ensure that we're getting all of those stuff that we believe will help with moderating the interest rate [indiscernible].

[Ngozi] does that answer all of your questions?

Yes. Thank you.

Do you have any further questions?

Yes, I do. So first -- I'll take them after.

The next question comes from Douye Mac-Yoroki from Renaissance Capital.

I just had a few questions. The first one is we've seen a trend of main Tier 2 players and also Tier 1 players embracing the holdco structure to salvage earnings and what we can term in a difficult operation environment. How is Fidelity thinking about this and also responding to this? My second question is in a bid to become a Tier 1 bank, could you please provide some market metrics against your 5-year strategic goal? My third question is earnings growth in full year '21 was largely supported by lower impairments during the year and normalize -- what happens in a normalized cost of risk environment and how much of your book is still under forbearance? I also wanted to get an idea of how Fidelity is thinking about interest rates environment? In 2022, we've seen a bit of an uplift in projected NIM for full year '22. So I just wanted to get an idea of how you're thinking about that. Lastly, could you provide some color on the quarter-on-quarter weakness that we saw in Q4 2021 in the noninterest income line, particularly fees and commissions and other operating income?

Thank you very much for those questions. On the question on the holdco, in Fidelity and what do you expect from Fidelity Bank? Right now, all the options are on the table. We will take advantage of opportunities when we receive them. We will not go [indiscernible] that will choose mostly our risk appetite criteria are most likely a very strong value proposition. Let me say, all the options are on table as we progress through there and communicate our plans. Thank you.

Speaking to the question you had on the payments and the part of our numbers benefiting from a reduction in impairment. Now you would notice that in 2020, 2020 was more like an abnormal year for us. We took significant impairments arising from our expectation on COVID and impact of COVID our books. Now 2021, we've seen that normalize somewhat. So yes we see the cost of risk that we have in 2021 as being more like the normalized forward -- that will continue to sustain going forward around that range, what is the value might -- just around that, something like that. That's all the steps going forward. And about how much of our books is still under forbearance. Today, it's about 16% that are still under forbearance. And these are largely loans that are under some form of severe intervention fund-driven loans, about 16% of them. They basically enjoy the reduction in interest rates from what it used to be before COVID are written about 9% to something about 5% today. So that is basically what they enjoy. And that's already factored into our projections also for 2022. So I hope I answered the question on the level of impairments and what we see going forward into 2020.

We'd also want to bring to your attention the fact that even though we didn't make as much impairment as last year, but you also have to recognize the loss that came from the drop in the NIM. A significant drop from 6.3% to 4.7% translates to loss of income, and we were able to recover from that. So that shows that when you [indiscernible] on the table that it compensates for what the less -- the lower impairment. So it's not that our numbers are looking good because we didn't take impairment, but we're able to cover from additional -- from all the income lines.

Douye, does that answer all of your questions? Do you have any further questions?

Okay. Super. Yes. Thanks for clarification on those questions. I also had another one. What is Fidelity strategy to compete in the payment space? We've seen banks and also fintechs come into the space quite aggressively. How is Fidelity reacting here?

So I'll have Chief Financial Officer speak to that.

Yes. So thanks for that question. With regards to the payments and the fintechs, we are not unmindful of their incursion and the effect its having on banking industry as a whole. Fidelity Bank is focused on 3 key pillars. One is continuing to drive the retail strategy, which is yielding fruits today and it's evident in the adoption of our customers and we have bought them on to our channels. Two, aggressively continue to increase the customers that we have. We're currently at 6.5, we're intending to go above [indiscernible] million by the end of the year. What we understand and what we believe to be the differentiator quality of service that we can render. And as far as spending an inordinate amount of time depending our processes, we think they are more customer-centric and pursued self-serve as the main strategic role. Speaking specifically to fintechs and payment specifically. We continue to look for opportunities to collaborate with them. Because we think at the end of the day, an improvement in the overall service quality to the customers will depend on where they would spend their money. So 2 things to synthesize it on to 2 points, we are enhancing our internal capabilities, while at the same time, exploring our collaboration strategies with this players to improve such offerings to our customers. Thank you.

Douye, do you have any further questions?

No, that will be all for now.

The next question comes from [Mariana Villalba de Oliveira from William Blair & Company.]

Can you hear me?

Yes. we can.

I have a couple of questions. First one is about the progress towards Basel III that you touched upon earlier in the call. Could you please disclose what's the capital adequacy ratio and the CET1 ratio under Basel III at the moment? And how does that compare to minimum regulatory levels? Alongside that question, we saw some banks operate in Sub-Saharan Africa issuing AT1s and Tier 2 bonds in their offshore bond market. Is that something that Fidelity would consider? And thinking about Eurobonds last year and you have a 2022 maturity this year. Understanding that the bond last year was prefinancing for this year's maturity. Are you -- is it still the plan to pay for that bond with cash in hand? And my final question would be on net interest margin. That was last year, the bank reported a miss in terms of the -- its guidance. I'd like to understand a bit on how confident you are -- you can meet that range between 5% and 6% and what would be the key drivers for NIM improvement this year?

Victor, about 2 questions.

Okay. Thank you very much for your question on our Basel II ratios. Pretty straight to the answer. Right now, our CET1 is at 15.5%. And the minimum is 11.25%. So we are well above that regulatory minimum. We also spoke about -- well, I think of AT1 and Tier 2. We currently have locally priced Tier 2 bonds running. We're looking to issue another in the near term. That depends on what the market looks like. AT1 is also -- is definitely an option that is also open to us, and we will consider it depending on what our needs are. But basically from a strict Tier 1 perspective, we are very much above the regulatory minimum and as [indiscernible] group show that we will continue to operate at that level going forward.

Sorry, in addition to what we said on the questions on Basel III, we are very comfortable with the position of CET1 of 15.5% in addition to that. I don't have 2 fundamental ratios on the leverage ratio. We are currently at 6.4% against the 4% regulatory I mean, minimum rate. Then on liquidity coverage ratio, which is also very key for the institution, we are almost 37% against the regulatory minimum of 100%. So we're very comfortable with our capital position.

Okay. So I need to answer your question regarding these. I know asked question on how confident we are about meeting our guidance on NIM in this 2022. I will say yes to that because we have opportunities. If you look at our P&L, you will see what is happening on interest expense. There's a lot of room for us to do so more than interest expense. And bank has set up a strategy to move [indiscernible] more positively towards low-cost deposits. Just to do that, which is currently going on, so what I see is that -- that is dropping off. So the level of growth we saw between last year as 2020 and 2021 on interest expense will not happen. So we have currently 25% of our deposits in high-cost term deposit as of yet. So anymore we do that is helping us to achieve the level of guidance we are given on this. So we are quite positive on that. I believe that the work we're going to do there will help us to achieve that. So that's the addition I need to make on NIMs.

[Mariana], do you have any further questions?

Just a follow-up. I think there was one question that I didn't quite get an answer. It is about the Eurobonds maturing later this year, the 2022's NGN 400 million. Is it the plan to still pay for that as cash on hand? Or what -- what's that the lower liquidity at the moment? And what's the strategy there?

So yes, sinking fund already for that payment when it falls due.

The next question comes from Tunde Ogunleye from SBG Securities.

I think my first question is around your net gain from your trading book. I probably might like to know what is revenue gain? And are we expecting that momentum to continue into 2022 -- early 2022, sorry? And also if you could partly share your outlook on the FX environment? Second question is no one is driving the growth in your debt instruments at amortized costs. It seems to have increased year-on-year from what it was in 2020. And also your derivative financial asset was up by 7x. Unless, no one is driving that growth, what percentage of this is CBN swap related? And if you could also shed more light on what is driving this 67.2% growth in your special cash reserve. My next set of question is on asset policy. On your loan guidance, you guided 10% to 15%. I'd probably like to know what steps you are taking to expand your loan book? And also, when I look at your Stage 2 loans, it seems to have few from what it was in previous year. I would like to know what is driving the growth in our Stage 2 loans? And also your individual and industry NPL ratio has also increased from what it was in previous year. This increased from 7% to 10%. So I would like to know what was driving the NPLs in the individual segment. And also NPL in also in the real estate segment as well. I also would like to know what is driving that. The final one is [indiscernible] strategy. You've mentioned that you are planning to become a Tier 1 bank in 2025. Are you considering any acquisition plan probably in the near to medium term? And are you positioning yourself against threats from the fintech? And the final one on strategy is just for you to publish more like on the nature of your partnership with OnePipe. Since you have partnered with OnePipe to create pay kit solution, so probably want to know what was the consideration for this partnership? Is it profitability split, and if so, what's the percentage [Indiscernible].

Well, I don't know -- repeat the question, please. Your voice was cracking.

Let me just speak it rightly, so that you can probably get it. So first set of questions is around your net gains from trading book. Are you expecting some gains to continue into 2022? And what is your outlook on FX? And what is driving the growth in your debt instruments as amortized costs? Your derivative asset was up by [Indiscernible], what is driving that growth? How much percentage of this is PDN swap related? And if you could also shed more light on what is driving the growth in your special cash reserve, it was up by 67.2% year-on-year?

I'll take a question on the debt, the trading book. This was in a trading book. We did not hear you very well. Can you repeat through questions together.

Okay. Are we expecting the momentum in your trading book to continue this year? I want your outlook on FX?

Okay. Thank you very much. [Indiscernible] absolutely sure you are asking these question [Indiscernible]. Okay. yes, I think I heard your question on the net trading book. It's great we sustain this as it is. As you are aware, you know trading, it comes with multiple activity. If you have some inputs on before market changes, clearly you would pick the advantage and the [indiscernible] that cost actually coming from the valuation we have, coming from acquisition. We did [Indiscernible] yes, our strategy is still very positive, could be the market -- we're watching the market closely. We believe that we can still sustain this in current year. Talking about the derivative, yes, we saw some growth in the derivative there. Basically, the major one that we have is close to year end transaction of about $49 million -- $49 million to $50 million. I think the other one that seem close to that is the transactions, there are 2 as we close this year, which is about NGN 22.1 million equivalent, then cash about NGN 1.3 million, but cash has actually improved this year, so as far as that, yes we are okay.

I think this confirms one of your questions and that we should stick to one of the sectors of the area of our loan growth.

Yes, please.

And what we saw was a very strong recovery post-COVID. And the question was on the sector of our loan growth in the year 2021. And I was responding to the question by saying that we saw a lot of growth on infrastructure. We knew well. We saw growth in manufacturing, we saw a lot of growth in the e-commerce sector, we saw a lot of growth in the diversification through non-oil exports. We also saw a lot of growth in health sector. We also saw a lot of growth in information and technology, in transport and logistics, as well as general commerce, which is our strength. And I was trying to get into the conversation around the infrastructure growth. What you will notice is that the government had trust towards infrastructure renewal, [indiscernible] because of the decay and devastation. Those are the years the government will continue to increase spending on roads, railways and waterways, and we give it to all of those. So we have several project running both PPP and the direct funding by the government. So that's an eligible area of growth for us in 2021, and it's going to go into -- it's continuing into 2022. So we've done a lot of in the agri sector, and we're very [Indiscernible] in the export space, we claim very strongly there. So going into 2022, we're going to go on to the next level of export on agriculture, which is value addition, which is exactly what the Central Bank is speaking to right now. We have a e-commerce advantage, which we've done in very well on the cash costs. Now the next level is to capitalize them into next level, which is the value addition to also key into the incentives by the Central Bank on the race to NGN 200 billion non-export that are extending. So that's why it is now. So that explains our growth -- our double-digit growth in the [Indiscernible] side.

Okay. Let me stick to the question on the asset quality. And you had a question about the growth in the Stage 2 loans. That's one of the questions. Now the answer to that is that these has been from a recovery from our Stage 3 loans. You may remember that 2020, 2021, we had impact of COVID. We had growth in Stage 3 loans. And then -- sorry, 2020. I mean 2021, we are seeing a recovery. So you will notice that the total Stage 3 loans reduced from NGN 53 billion in 2020 to close out NGN 50 billion in 2021. That's speaking to the improvement. And that reduction is going to Stage 2 and Stage 1. So it's basically a reflection of an improvement in the loan book itself. Now on the individual or the growth in the pre-loans for the individual projects of our loan book -- the consumer loan pocket of our loan book, this was basically an abnormality that occurred in 2021. We had a glitch, a technical glitch in announced -- a third party provider of settlement services for customers that we gave individual loans to. So basically, what this third party does is to aggregate repayments on a monthly basis and release once that payment is due. Now the only glitch that lasted a few months, covered altogether about 4 months actually. And that's basically was in the last quarter of 2021. Now it's fintech ability of that third party provider to remit those funds to us and that led to the buildup of the Stage 3 loans. I'm happy to report anyway that, that has been resolved. And we've seen that technical glitch corrected. And if you see that in '20, it was lower in December, you see it effected in January going forward. It's an abnormality. And I don't -- you will not see this kind of NPLs repeat because we've -- since then we've strengthen the monitoring of those kind of loans. Once this kind of thing happens, it will not go beyond Stage 2 maximum before we get -- before we need it to the board. So basically [indiscernible] that happened in 2021, we don't see that repeating itself going forward.

I believe one of the questions that was asked with regards to the partnership we have with OnePipe. And I want to just speak to that topic about this [indiscernible] about our strategy and our organization with regards to payments and interest. I have said that what we're going to do was to continue to increase capacity and seek collaboration opportunities. This partnership is one of such opportunities that led to the launch of our pay kit platform. Essentially, it is a payment platform that we -- we just now enhanced feasibility, working with OnePipe and collaborating to make that platform more robust and its got functionality. And of course, diversify to offshore by which payments can be processed. So we up skill this capacity by giving our [indiscernible]. So we want to support by [Indiscernible] initiatives. We're going to support direct debits. And on transfers, it's [indiscernible] just to name a few. I think just to give it in context, it's consistent with our position with regards to payments and seeking to our regional opportunities.

I believe there was a question on the outlook on FX rates. Okay, so our answer to that is that we think the Central Bank has done very well in boosting FX inflows into the economy, which has helped to manage the pressure on the Naira. For instance, the expansion of the Naira for dollar incentive scheme, the RT200 FX Program that's just been launched, as well as the ban on the BDC operations, which boosted FX [indiscernible] includes into the country. And that has a positive impact on the reserves and has seen [Indiscernible] current trend of crude oil and including in production with a number of 1.5 million barrels a day in 2021, we believe CBN will continue to support the Naira against the dollar in the short term, especially in the official market. And we have seen a lot of efforts on the export side and the increase of the dollar includes from the export and the support that the Central Bank is giving to it. So we believe that, yes, with the challenge, but will continue to be stable to some extent in the near future. I'm not sure to answer on your question [indiscernible]. So here are questions. Is there anyone that who want to remind us of?

Yes, please. I wanted to know if there's any acquisition plan in the near to medium term? And then also, what was driving the growth in debt [Indiscernible] amortized costs? And the growth we saw in your cash reserve as well -- especially cash reserve, if you can shed more light on what is driving that growth? And are we expecting any re-pricing of your loan book and going to 2022 -- in 2022, sorry?

Right. The only thing I heard is the acquisition plan and that will also be [indiscernible] on the table. We are opportunistic and review every situation that comes to us and depending on what the market strategies are. But for now, our strategy of that growth -- to grow organically, along of the lines of our strategy that we shared with the market for now.

Tunde, do you have any further questions?

I think all my question has not been answered. So the one on the debt is at amortized cost. I want to know what was responsible for that growth and the growth we saw in special cash reserve, what was driving that growth as well? So those are the final 2 questions.

Sorry, I don't want to [indiscernible] debt instrument at amortized cost. Are you talking on the Eurobond, are you talking of the [indiscernible] instrument that we are holding? Or lending?

When I look at your balance sheet position, I noticed some decline and some increase. So I saw the debt instrument at amortized cost, there's a line item there under your investment securities that speak to the -- so there was a significant increase from what it is from previous year so that is why I was asking what drove that growth?

Yes. That monthly, the Eurobond that we used in October 2021, $400 million, $400 million.

The next question comes from Konstantin Rozantsev from JPMorgan.

Yes. I've got 3 questions that I wanted to ask. The first one, I think you mentioned earlier on the call that the fraction of the loans which are subject to moratoriums is about 16%. So I just wanted to -- you might have addressed this already, but could you please speak to the risks in that affected portfolio? Do you expect much of that portfolio to be recovered and not impact the credit cost, the P&L of the bank? The second question is about the Stage 2 loans bucket. So you're reporting that in this bucket, you have about 18.5% of the total loan portfolio. Could you please speak to the risks that you see in this bucket? And also how conservative you see the coverage of Stage 2 loans, you currently show it at 8%, how conservative is that in your view? And lastly, could you please mention what's the net open FX position of the bank combined on and off balance sheet in FX?

We have approximately 16% of our loan book with conventional loans and under forbearance is 5%. And I think you wondered whether we have already credit risk to those loans? Those forbearance was not because the loans were bad, but because the government gave forbearance because of the COVID situation. COVID has been passed and we have seen a lot of recovery in our customer businesses. If you speak of our numbers, we have seen a lot of growth and lot of revenue from customer activities, which means that customers activity has returned back to normal. We do not anticipate any problems when we forbearance is over because we've seen strong growth in the activities within the customer businesses, and that has translated to income for us even on the e-com side. So [Indiscernible] about that?

Just taking on from what -- from where my MD has spoken to. We actually think that the risks from this sector is very, very well contained. Given that these are largely loans to sectors that are very crucial to the economy. They enjoy single-digit interest rate, much reduced from what it was. We are currently meeting all repayment obligations. I think what the Central Bank has just done is basically to just give more time. So from a risk perspective, we are not concerned about these loans. We believe that at the end of this further expansion, we basically just focused on reduced interest rates. There's no moratorium now -- principle repayment, there's no moratorium now on interest. Interest is running, just is running at a lower rate than what would have been pre-COVID. So we really don't have concerns about that. And we believe they all will recover. You will notice that the loan that we restructured before now. Before now, we have 32% of our loan book, now it's down to 16%. All of this reduction are just because we had a payment in line with structure, and more about this reflecting in the overall portfolio quality that we have, the NPL ratio at 2.9%. So basically, we see the trend has been positive. On the Stage 2 loans coverage. Yes, we are comfortable at this level. The overall coverage 128.3% on Stage 3 loans, overall. So we remain comfortable, and we've -- and I think these are improvements on what we had in the last 2 years. So basically, from our perspective, we are comfortable, and we continue to monitor that ratio going forward. Now on the annual acquisition, I'll call our treasurer Akin to speak to that.

As you look at the balance sheet and look at the gap between the assets and the liabilities, you will see it [Indiscernible] million loan position there. And that shows the strength that we have and also in terms of our ability to meet the number of obligations. We also further believe that clarity because of our sales is about 2.3. Out of this 2.3 that 2.9% of the [Indiscernible] on the NGN 7.3 billion and that relates to cash and short-term replacements. I don't know if this answers your question.

[Operator Instructions] The next question comes from Vinod Surendran from Alliance Bernstein.

Am I audible?

Yes, you are. Your volume is a little bit low. So if I may just ask if you could please just speak up.

My question was specifically with the dollar balance sheet. We have seen the dollar position, especially the dollar cash in hand as you compare it to June 2021. I would now assume that post-October 2021, $400 million bond issuance of the dollar [Indiscernible] have increased. So could you please explain and give more clarity on what was message of the dollar bond issuance? And what are your plans to refinance the October 2022 dollar bond?

So I just want to confirm that your question is first to tell you how we were ready for the repayment of the Eurobond for October 2022?

I mean what are you plans? How are you planning to repay it? I mean, are you going to refinance it via an external issuance or through internal cash?

No, we don't have any plans to refinance that bond that -- I answered earlier on. There was initial question on that. Now how [indiscernible] together, and we are ready to make the payment for -- to repayment in October 2022. We intend to pay back the dollar bond at majority.

Right. And just on the use of proceeds from the dollar bond. Could you please explain what are the use of proceeds?

I hear you very well. You asked about the use of proceeds on the $400 million risk in October last year, right? Details to this, if you look at the guidance that we gave and when you look at the prospects, we said, it's actually to support [indiscernible] transactions. That is kind of what they want the [indiscernible] we've been deploying that at that time.

Vinod, do you have any further questions?

Actually, I have one more question. Could you also give us a forecast for the USD Naira rate by year end?

Unfortunately, we have just lost Vinod's line, if he could please just reconnect to ask his question again. In the meantime, we will move on to the next question. The next question comes from Nick Dimitrov from Morgan Stanley.

A couple of questions. I got to say most of my questions have been answered. But I just want to make sure that I understood correctly. So the bonds that mature in October '22 will be just repaid, right? They don't need to be refinanced. I just want to clarify this. And then the second thing is, I didn't quite get your net FX position. I think Konstantin asked that question. I think I gathered your net loan dollars, but can you quantify the position?

The answer to your first question is an absolutely yes. We are going to repay bonds in October 2022.

Okay, yes. So the net dollar position if you wanted to get a clarity, it's mentioned that we have net positive above $345 million. But if you -- we will have some receivables. So receivables are expected that next of that loan book. So if you look strictly at [Indiscernible] was the financial, you probably will see [indiscernible]. But the combination of the 2, I'll give you a forward receivables, I'll give you the figure of $345 million. That's how the positioned is.

I'm sorry, just the last time, before 25, you broke up for a second.

I think $345 million, that's what I said $345 million.

The next question is a follow-up question from Konstantin Rozantsev.

Yes. I just wanted to confirm on the Basel III implementation in Nigeria. So my understanding is that Central Bank still provides some leniency towards the banks in meeting the regulatory minimums introduced alongside Basel III. And so temporarily, there is an allowance to -- not to be formally in compliance. I think from the recent guidance, I got from another bank until May of this year. So could you please confirm what's the regulators' outlook on this? And since what point in time would the formal compliance with those minimums be strictly required?

Okay. [Indiscernible] And our numbers are very strong. I'll have [Indiscernible] speak to it.

Indeed, we are currently in parallel [Indiscernible] situation between banks [indiscernible] and Basel III. So there are no -- there's no leniency of any kind from the CDM. Basically, what they're doing now is asking banks to send in the ratios on a monthly basis. This is going to [indiscernible] 6 months and then invest that [indiscernible] another 3 months depending on what they see. And once that [indiscernible] is over there, we will kick into the full -- we will come up with a final guideline or final kickoff date, so to speak. Now in terms of the minimums, of course, we [indiscernible]. And we are currently at 15.5%. On capital allocation ratio, [Indiscernible] 15%, 20.1%. On the liquidity coverage ratio, it is 100% minimum. We have 177.5 [indiscernible] stood at 4% minimum and we have 3.4%. So that's basically what we are tracking in the next during the [indiscernible] period. And then after that we will wait for further guidance for it. So there's no question of whether there's any leniency.

Konstantin, do you have any further questions or is that it?

No further questions.

The next question is another follow-up question from Vinod Surendran.

Just a follow up on the earlier question. I was looking at the dollar balance sheet and the outstanding net exposure on the dollar side is NGN 5.9 billion. Could you please help me how it reconciles with an outstanding position of $345 million?

[indiscernible].

My question was regarding the net dollar position. If I look at the balance sheet -- the dollar balance sheet, the net dollar position that I see is NGN 5.9 billion. Could you help me how it reconciles to it the amount that you mentioned, it $345 million?

Okay. So the answer is that, the [indiscernible] has said that we have an NOP position of $345 million. I also mentioned that if you look at dollar balance sheet, you cannot be able to see that amount, but there is a lag as a [indiscernible] forward of receivables that is not probably showing the FX balance sheet that you see in the area list. So by the time you just for the receivables, you will have the $345 million [Indiscernible] at the end of 2021.

At this time, we have no further questions in the queue. Nneka, can I hand back to you for closing remarks?

I want to thank you all for participation in this call. Over the years, Fidelity has reported very strong growth across all indices. We will sustain the current performance trends and believe that a very strong set of results for the year 2022. And just to tell you that if you have further questions or you need additional information, then please reach out to the Investor Relations team. Thank you and have a very good day. Thank you.

Thank you very much, ma'am. Ladies and gentlemen, that concludes today's conference. Thank you very much for joining us. You may now disconnect your lines.