First HoldCo Plc (FIRSTHOLDCO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the FBN Holdings Half Year 2020 Financial Results Conference Call. Thank you for taking time to join us on the call today and for your continuous interest in FBN Holdings. My name is Tolulope Oluwole, Head Investor Relations, FBN Holdings. Following an overview by the Group Managing Director of FBN Holdings, an interactive Q&A session will be available. But before I hand over the call to the Group Managing Director, I would like to go through a few conference protocols. [Operator Instructions] That said, I would like to hand over the call to the Group Managing Director of FBN Holdings, Mr. UK Eke. Please go ahead, sir.

Okay. Thank you very much, Tolu. Good afternoon, and good morning, ladies and gentlemen, and I'd like to add my welcome, warm welcome to you all. This, again, is the FBN Holdings investor and analyst results presentation for half year ended June 30, 2020. As previously announced, my name is UK Eke, the Group Managing Director of FBN Holdings plc. It is my pleasure to introduce my colleagues that are on this call with me today. As always, Dr. Sola Adeduntan, the CEO of FBNL, that's FirstBank, the commercial bank. We also have Kayode Akinkugbe, who is the CEO of FBNQuest Merchant Bank. Wale Ariyibi, the Chief Financial Officer of FBN Holdings; Patrick Iyamabo, the CFO of FirstBank; Segu Alebiosu, the Chief Risk Officer of FirstBank is also here. Ini Ebong, the group executive treasury, financial institutions and international banking, FirstBank is also here today to support us on this call. Just by way of background, and I'm sure you all have all the statistics. But across the globe, 2020 has been a very challenging, I guess I should say, unprecedented year as we continue to build with the health, financial and economic impacts of the COVID-19 pandemic. And any indications from the data available, monumental contraction across the globe. In the U.S., in Europe, other economic blocks all impacted. I think the only good news coming out of the global economy is China, which by Q2 of 2020 presented the globe with a semblance of, I would say, a V-shaped recovery trajectory. Otherwise, it's been one challenging sector or industry or region to the other. We do believe that the Q2 economic data for Nigeria itself will not be different from what are printed. The global trend should also impact Nigeria for obvious reasons, particularly on the back of the lockdown that we experienced for the most part of Q2 in Nigeria. Now notwithstanding these challenges, we are pleased to report a strong performance which, for us, is a testament to the resilience and the [indiscernible] strength of our institution. So having laid that background, again, I confirm that we released our financial statements on Wednesday, the 29th of July to the market, and we've also posted today's presentation on our website. I hope that you've taken time to look through because we would like for this to be interactive as much as possible. So I'll go straight to Slide 5 of the deck. And I am delighted to report that despite the very tough operating environment which I already alluded to, our gross earnings was up 5.8% year-on-year, as you can see. Now the profit after tax for the period was up 53 -- 56.3% on the back of very strong growth in noninterest income, and I'll give you the statistics momentarily. The progress we made in our noninterest income was driven largely by treasury activities. So we benefited from increased volatility in the marketplace, of course, as well as increasing market share in our e-banking segment. So just for us to understand the scale of the impact or the progress we've made, year-on-year, the non interest income line was up 47%. Interest income, obviously, was impacted by the low yield environment. And relative to the first half of 2019, net interest margin was down, but we are reporting very gladly, 110% -- sorry, 110 bps growth in net interest margin from 6.3% in Q1 of 2020 to 7.4% Q2 of 2020 supported by a drop in our cost of funds which was as low as 2.3% for Q2 of 2020. I think it's appropriate to emphasize the progress we made on our agent banking, which is a major contributor to the noninterest income. Our agent banking network increased by over 100% year-on-year. So we ended June with 59,000 agents, 59,000. And in terms of value of transactions processed, we are glad to report that we were able to achieve about 5.71 trillion in value terms compared to 1.61 trillion for prior period 2019, that is. Now this is phenomenal. If you imagine that we were able to grow that count and value by over 250% just in 1 year. So clearly, we are monetizing the agents banking proposition and its revenue contribution to the total e-business income continues to grow. Now the growth in the volume and value across the e-channels continues to offset the reduction in regulated fees, which has allowed us to keep the revenues on that line flat year-on-year. You'll recall that in January this year, Central Bank came up with a regulation which slashed fees on e-banking products by as high as 50%, so what would have expected a drop significantly on that revenue line. But based on the scale we have built, we were able to maintain very high revenue from that line. And therefore, we are glad with the progress we're making on that platform. In the second quarter under review, I also want to confirm, as you may have read already in the papers and watched in the news, we successfully completed the sale of our insurance subsidiary, the FBN Insurance Limited to our partners, Sanlam of South Africa. And that created the platform and the lever for us to inject additional Tier 1 capital into our flagship, FirstBank, effectively taking the CAR to over 16.5%. And this is before capitalizing the profits year-to-date. So this divestment is clearly in line with our mandate of delivering greater value to shareholders and strengthening the core business of the group. And the idea remains that we want to regain our leadership of the banking sector. That remains our brand ambition. I will then move on to Slide 6. And as you can see, we grew our top line and bottom line, while strengthening our balance sheet. Earlier I mentioned the positive performance in gross earnings and profit. I think it's not worthy at this point to say that despite the adjustment of the exchange rate, despite the rise in inflation and also the impact of the current pandemic, we're able to maintain the cost profile flat year-on-year. This is a clear indication of the commitments that we made that we're on track to keep our costs going down with a view to achieving over the next 3 years, cost-to-income ratio around about 55%. So we're on track on that line. We have also strengthened our balance sheet and growing the loan book. We grew the loan book about 8% from a very high base. And then the increase in the impairment charge which we are reporting was driven by translation impact on foreign currency loans in our books. And of course, the weak macro environment which was not unexpected during the period under review. Slide 7 shows very clearly the increasing shareholder return. It also demonstrates improved nonperforming loans ratio and strengthened capital position across our entities or businesses, which then gives us the capacity to deliver on the long-term ambitions we've set for ourselves. Again, just to emphasize, on the NPL line, we're happy that the NPL ratio has remained in single-digit territory and continues to trend downwards. What we see is 8.8% as of June. Recall that we closed December 2019 at 9.9%. So the trending down will continue until we're able to achieve sub-5. That is not the guidance for this year, by the way. But we see that ratio continuing to go down as we build our loan book and also improve on loan quality. And to give you insight into the loan quality, the vintage NPL loans made out in the last 3 years, they've remained below 1%. So we're on track. Finally, on that Slide 7. We continue to review our capital performance. As I said, for the Commercial Bank and for the Merchant Bank, they're all well capitalized. Slide 8, if I may just move quickly, gives a summary of what we have delivered to the market during this quarter under review. A very robust financial performance, and I think it speaks to the resilience again of our group and how successfully and deliberately we have executed our strategy, and this is across all subsidiaries. We have delivered earnings growth. We have strengthened our balance sheet. We have maintained very strong liquidity profile on both the local currency and foreign currency. And our dominance in the e-banking space, we reinforced it during the first half of 2020. We've also succeeded in keeping our costs low, or what I would say, under control, all this achieved in the most challenging period of the sector. And the economy as a whole gives us confidence that, yes, we're on track to deliver the commitments we've made to the shareholders and to all stakeholders. Now I would skip Slides 10 to 19 that basically provides in greater detail the numbers that supports the summary I have provided to you. And so I will go quickly to Slide 21, yes, 21, which basically provides the outlook. Now the outlook remains uncertain. To be honest, we see headwinds. We think that the remaining half of the year would also be challenged. There are broader macroeconomic concerns beyond the pandemic that we appear to be dealing with successfully in Nigeria, at least. However, we remain very steadfast. And we are focused on controlling those elements that are within our capacity, we will control them and we'll deliver. And so we will continue to innovate and maintain our distinctive advantage in the digital and agent banking space to build scale. That's what is important for us, scale up aggressively and significantly. We will continue to drive our transaction-led banking model, very important to us, and we believe that this will all translate to better financial outcomes at the end of this year. And as recent events have shown, we have successfully navigated and managed these storms, and so what is left for us is to maintain the momentum for the second half of 2020 and then close with a very strong result, which we're proud to share with you. So I'd like to pause at this point, having provided high level summary, but we would then proceed to the next segment of this presentation, which is the questions-and-answer session. Tolu, would please moderate this segment. Tolu, please go ahead. Thank you.

[Operator Instructions] We will now take the first question from Martin.

Congratulations on your numbers, especially within these times, really impressive. My first question is on your loan growth outlook. Given the environment, it is not far-fetched to believe that loan growth is not something banks will be looking at strongly. However, do you see opportunities where you can expand loan book and try and claw back some of your sterilized funds with CBN at the CRR. What -- do you have any strategy looking at that? For loan book also, would you be considering an investment in the CBN infrastructure initiative that they have proposed. That's for loans. And for two, for the impairments going forward also on loan book, I know the CBN has expressed interest to accommodate restructuring of up to 60%, 65% of industry loan book. What are you considering to restructure? What percentage of your loan book, if you give us that guidance?

Okay. We'll take the next question, like we previously mentioned, we'll take them in batches of 2 or 3 before responding. So we take the next question from [ Soji ]. Please state your name again and then the organization when asking once called upon to ask questions. Thank you. [ Soji ].

I have a couple of questions. So I'm just going to run through them. So the first is I would like you to spend some time discussing the agent channel. So can you run me through the economics there? So the cost offset is up, so this is by agent on average. What would you say your average take rate is per transaction? What's the average transaction size? And how do you share revenue between the agent and yourself. My second question is, can you walk me through what's happening on your FX income line? It's gone from a 2.6 billion gain in Q1 to a loss of 6.2 billion in the second quarter. The third question is, you also made losses in Q2 on financial instruments fair value to the P&L, and saw a 50% reversal of dividend income reported in Q1 second quarter. So why is this the case? My fourth question is around costs. You have some cost savings in Q2. Can you just run us through where you've been able to save on costs? And to what extent do you think these savings are sustainable over the rest of the year? Then just finally on asset quality. What percentage of loans have you restructured year-to-date post COVID-19? Do you have a target for year-end? And what sort of terms are you giving to customers? And on your NPL, what percentage is in foreign currency, given that you said the cost of risk pick up is largely driven by -- it's partly driven by the FX component?

Okay. I think we can take -- or give responses because there's quite a lot on our plate already. I'm going to request Segu to take the questions by Martin, but there's also -- there are also 2 questions from [ Soji ] on asset quality and NPL. So if you can handle Martin's question and also [ Soji's ] question first, we will then invite Patrick to address the question raised by [ Soji ] on agent banking and costs. And Ini can help us tackle the question on FX. If you can kick off, please, Segu, CRO.

This is Segu Alebiosu. The first question is on loan growth. Our outlook for the year actually is not aggressive, looking at the determination of government to really [ re-inflect ] the economy. And then if you look at manufacturing, a lot of opportunities in manufacturing, you can see government trying to promote that. We see a lot of opportunities in health care, in agri processing. We see what is happening in the rice business which might follow. You see what is going on in maize, and all those opportunities there, telecoms and infrastructure that you also mentioned, these are big, big, big things that are coming. So we believe that we participate in that, and then they will be very good credit. We stand here today, we have a lot of that coming through. And we believe that we'll be able to [ utilize ] that. And the impairment, we've guided earlier. We don't expect impairment to be ahead of 2019 number in agri at the end of the year. But for the loan restructure, so far, 15% of the loan book. And to the question on what do we expect by the end of the year. Looking at what is happening, it appears to us that COVID has been -- to a large extent, agri economy is open. And the only difficulty that we see here is the foreign currency part, which is the transmission mechanism of COVID in the economy actually. Going through Nigerian markets and on Lagos, you see a lot of people already carrying out their businesses. I mean, so for us, businesses have opened. And we believe that we don't see so much deterioration in the sectors that are affected. Our exposures are actually limited. So for tourism, for example, which is on aviation, which our total exposure is less than $10 million. So whatever happens, since we are not exposed -- I mean, at post COVID, we can only be impacted with the extent of what [ will be ]. And if you look at what government did to state government in the last 5 years, once you have the allocation from federal government, you are secured, right? So the employees of state government that would have been impacted, the banks debt at the maximum, our books is less than NGN 10 billion. So if I pack everything in aggregate, I don't see myself losing I mean what about something material that can actually dense our NPL. And looking at foreign currency portion of our NPL is about 40%. So the translation impact of that came through in Q2, and we accounted for that in [indiscernible] plus the [indiscernible] macro which is our easier picture. Thank you.

Thank you very much. Patrick, you may now take the questions on agent banking. I think you cannot actually continue with the response on -- to the FX and then the costs, let's just take those responses from you. Thank you, Patrick.

Thank you very much. So in terms of agent banking, the question specifically asked by [ Soji ] is quite detailed and goes into very specific elements of our business model that we would typically not announce in a general environment. But here's what we'll say about the -- about our agent banking. The model is a fee share arrangement. Customer gets charged a fee, and the agent gets a portion and the bank gets the balance. And so technically, we earn fees on a per transaction basis. And the greater the transaction volume, the better the fees we earn. It's -- in terms of the products we have there right now, we don't have credit products right there. So these are non capital consuming and income sources coming through our agent network. In terms of the cost, I mean, and to just share a high level in terms of the cost structure. So really, what does an agent have? For most parts, the agent owns infrastructure. So if the agent is a pharmacy, the pharmacy is there. The agent really owns the -- where the infrastructure itself, pays its power, does everything. The agent gets a POS, they also get collateral support from the bank. So really, from a cost perspective, it's really that POS machine, which is really where through which the transactions are done as well as the collateral support. The other cost element is really the software on which it rides and the IT infrastructure. But then again, the infrastructure itself is scalable. So over a certain threshold, the marginal costs actually keeps dropping as you increase your volume. And so overall, if you think about it, the revenue model is scalable, and it grows with our business volume. The cost model is actually much less scalable because you have a fixed cost component and you continue to drop your marginal cost to sell. The POS and all of that, those really don't drive our cost. I mean, a POS is, what, 70,000, 90,000, 100,000. So that's it in total. So which is why this -- our agent banking business has been very interesting. We've -- and as we've scaled the business, not only have we seen business deposits grow, but we've also earned income. We are able to monetize the income and the deposits. Now why have we been successful this far and why do we believe that this success is sustainable? First of all, we are a retail bank. We've got corporates, commercial, but we understand we've got a wide distribution. We've got all these customers, more than any bank in the country. We have the greatest penetration where you have the underserved. So we understand that business plan better than most of our peers. Indeed, most of our peers, you're not going to find many banks that are willing to make that infrastructure investment in terms of having business outposts in those locations today. So yes, our history, our DNA gives us that advantage out there. Secondly, to do agent banking successfully and has a strong relationship to the economics, you need to be able to service those agents. And so what does that mean? We are going to have cash management requirements. They build cash. They need a bank to put the cash in. They've got problems with their POS so they've got an issue. They need someone that will engage them. So one needs to be speaking with them to identifying the agents that are not the most productive and working with them to improve productivity. To do that, you need a home for all these agents. We have what about 59,000 agents right now, and home for those agents means you must have outposts in those locations. There isn't any other bank in the country that has outposts in that manner, which is why we more than most of our peers have been very successful with the agents because we're in the position to manage those agents for productivity and for service. What is the cost of doing that? It's really one person from a hub branch who hops around to manage a couple of agents. So again, the contribution to the cost is limited. That cost element is highly scalable. And so in total, we have a business model that is very scalable from a cost perspective. And so it helps drop our marginal cost to serve. We also have a business model that is very scalable from the rev perspective because we are riding off the infrastructure. And so as we grew the business -- grew business momentum, we can actually grow revenue. The bulk of what we're adding to that is really -- is noncapital consuming right now. From a product introduction perspective, we still have lots of opportunities to introduce products and that can be used to customize that, utilize that channel. Agency today contributes about 29% of our e-business revenue from next to 0, less than 3 years ago, and we still see significant growth potential. So that's a bit about the agent channel. I mean we're excited about it. For us, it's a low-cost way of growing our branch network and very importantly leverages on distinctive competencies we have to achieve that growth. And so we believe that, that advantage is indeed unsustainable. The other bit about cost savings, how sustainable? We believe that the cost savings demonstrated in H1 can be largely sustained into H2. Or should I say the cost profile delivered in H1 can be largely sustained into H2. We expect there will be increased cost pressures. But overall, our OpEx will come in below what you should expect, given inflation rates and given currency naira devaluation. Why have we been able to achieve this? We've been able to achieve this partly through some of the investments we did in the past years where we made investments in technology. And so that is a [ Linux skill ] and do things efficiently, even with COVID-19 in place. Secondly, some of the one-off costs we needed to deal with then, where there's 1/25 the anniversary and some of those charges to settle things have fallen away. So in other words, we are back to our previous track record of very disciplined cost management. I know last year is still very fresh in lots of people's mind because of the way the OpEx grew. But if you go back, if you take a look at our financials going 4 years back, we have -- if you look at the OpEx growth year-on-year or in terms of CAGR from, say, 2015, you would notice that we're consistently growing OpEx below our peers. So we've actually historically had disciplined cost management. But last year, we had things we needed to do, and we have to take them in. Would we have some surprises this year in terms of maybe exceptional cost? Yes, we can have some -- we have COVID-19. We've contributed to the COVID-19 impact of it support. And there are 1 or 2 other things we'll still do. We at FirstBank, we are interwoven with the society which we operate. And we will do what we have to do to support from a corporate social responsibility perspective this year. Could we confront 1 or 2 other surprises? Yes. Potentially, yes, this is an unusual year. But having said all that, we are very comfortable that our OpEx discipline will be likely maintained until the end of the year. So we're not too worried about that. In terms of the FX income, I think the point is being made -- was made around the fact that there was a loss recorded during the period. I think the way to just summarize it is we entered into structured currency transactions that necessitated an FX loss in the period. But overall, we were very comfortable about the commercial attractiveness of the transaction. And a lot of the income reports into the net interest income line. The transaction was really we've won, patchy. We will not want to go into the details of the transaction. But this is something we're deliberate about. We saw, we liked and the overall commercial consideration irrespective of which line this reports to, the overall commercial consideration for FirstBank Holdings is attractive, which is why we did that. There was a point around dividend income reversal. I think the way to just summarize that is that was a shareholder COVID-19 response to dividend payment by an investee company that the shareholders thought should be dealt with differently, given how we saw COVID-19 playing out and with that, an investee company. Thank you very much.

Okay. Tolu, I think you may proceed to the next batch of questions.

Okay, sir. So the next question, we'll take it. That's [ Mary Anne Dabyri ].

Good afternoon. Just have 1 question. Just wondering how much exactly was injected into the bank and based on the divestments from FBNHL.

Thank you, [ Mary Anne ]. So in line with the protocol we'll just take 1 more question before responding. So the next question will be taken from Jerry Nnebue. Jerry. [Technical Difficulty] Okay. We'll take the next question then. From Muyiwa Oni. Muyiwa.

This is Jerry from CardinalStone. I may just have a couple of questions, and some of them are follow-up questions to the previous caller. So the first is on your cost. So yes, we appreciates the fact that we've seen an efficiency ratio improve so far. But I would just say my [indiscernible] assessment when I saw the numbers was that I guess my expectation was much higher than that because, last year, like you have said, a lot of concerns regarding cost levels. And even if you look at the absolute numbers, it looks like costs hover and along those levels, whereas I would have thought that we would have seen a much better improvement in terms of absolute costs. So if you can speak to that. Specifically, are we still seeing some of those drags from some of those one-offs, maybe related to the HR optimization that you talked about on costs, and that will be helpful. And then secondly, also, I want to envision a scenario where the lockdown measures may have also impacted how you do business. For example, cost savings from stationaries, cost savings from travel and all of all those things. Are you seeing them really because I feel like if you have all of these into your numbers, then you probably would have seen a much better improvement in terms of costs for the period. And also related [ to this ] are the NGN 2.6 billion [ verse ] on operational losses if you can give some sort of clarity to what that is would be helpful. Then speaking to loans, I just want to have a sense of what organic loan growth was like in Q2, if you can just give a sense of what that was. And also in terms of your conversations with obligors especially following the pressure easing of lockdown across different cities, are you seeing some sort of respite or relief, especially when you talk to them compared to the initial fears of the headwind, the virus was at its peak and everyone was really concerned. So any sort of relief in terms of easing of lockdown and the [ general ] business is [ surely ] on the credit side of things. Then if you can also help with liquidity ratio as at H1, that would also be helpful. I think those are my questions for now. Thank you.

Okay. I think -- should we go ahead responding to this, and then I will come back to you with the next -- in the next batch of questions. So I think...

Thank you. We would have to request Patrick to come in again and address the questions around costs and liquidity ratio. And then there's also a question around capital injection into the commercial bank. And that question will be handled by the CFO of the holding company, Wale. And finally, Segu, I think you need to clarify further on loan growth for Q2. So that will be after Wale has spoken. Patrick, please?

Okay. So to -- a couple of questions have been asked. The first is OpEx, where he expected OpEx will be this year? A couple of things to note. The first is really around the fact that this year is an unusual year. So between currency devaluation and inflation, there is quite significant pressure on OpEx, that's the first point to note. The second is we have to deal with -- we dealt with some residual exits cases earlier in the year and certain payments were made. We also, in the earlier part of the year, we also went through a process of salary adjustments. And so that showed up in OpEx as well. So in all, we've been driving down OpEx in a way that -- or we've been managing OpEx in a way that has not undermined our strategic ability to compete or to continue to make investments or to continue to support our people. Now having said all of that, you would notice is the approximately about NGN 5 billion from 2 lines, the increase in our maintenance costs. And maintenance costs really reflects the investments we've made in IT because you have to pay for those [ licenses ]. Perhaps one of the biggest jump is still around regulatory costs. You might probably notice about NGN 3 billion there. The increase in regulatory cost really reflects the growth in our business. So as the business grows, we have to pay more to AMCON, we have to pay more to NDIC and you are [ accrue ] for these things. So what are we seeing? About NGN 7 billion of OpEx in the period can be ascribed to 3 things: maintenance, which is not unexpected; the things we have to do with our staff, either the redundancy payments or the reviews we had to do; and regulatory costs. So to make adjustments for those, and then you factor in the fact that you are dealing with inflation, you are dealing with currency movements, you can see how well this cost is managed. By the way, throw in all the COVID-19 support we've had to do which will be, for us, a one-off. But we -- in our viewpoint, we are convinced it's the right thing to do. So I mean, I hope that helps put the OpEx in perspective. And so when you sit back and you look at the core business as it rests, the OpEx is indeed on the very good control. Our liquidity ratio is on the quite some -- how will I put it. It is technically or theoretically under pressure. And I use the word technical or theoretical because a lot of it just reflects the CRR debit by the CBN. The CRR quarantined or our funds quarantined or our liquidity quarantined to the CBN has gone from about NGN 800 billion to about NGN 1.6 billion. So theoretically, we don't compute that as part of liquidity ratio. If we were to, then our liquidity ratio is in the region of maybe about 40% and the reality is the substance of that quarantine is if the bank does need it, the CBN is the first and the CBN makes [indiscernible] bank. So really it's part of the liquidity ratio, but technically, theoretically, it's not. So our liquidity ratio is still strong but under a lot of pressure, primarily, because of the CBN's quarantine. If you look at our actual deposits, you would notice that our deposits have grown more than NGN 300 billion year-to-date. So the deposit mobilization engine is still strong. And we are actually restraining the level of deposits uptake that is coming through the system. In terms of operational losses, so that's reflected a conservative position around a loss situation that did not fully materialize or played out differently in Q2. And so that charge in itself was no longer necessary during the period. So I think that bands out the questions around OpEx savings. I think the second point is around operational loss savings and then liquidity ratio. And the [ bid ] of our capital injection, Wale Ariyibi, the CFO for FBN Holdings, will speak to that. Thank you.

Thank you very much, Patrick. Just before Wale comes in, just to clarify, I think Patrick meant to say NGN 1.6 trillion CRR liquidity quarantined, NGN 1.6 trillion, not NGN 1.6 billion. So just not the doubling of that number year-on-year. Wale, please go ahead.

Thank you. Good afternoon, everybody. My name is Wale Ariyibi, CFO FBN Holdings. We just said from the holding point -- holding company point of view, we injected NGN 25 billion into FirstBank of Nigeria Limited, and this injection has cleared all regulatory orders and approval. Now that was not the amount or the contribution for selling our investment of 65% holding in FBN Insurance, but that was part of the net profit because from the gross proceeds, we pay, I mean, some charges, fees and taxes and things like that. So we added own funds to make up the NGN 25 billion that was injected into FirstBank. With injection, FirstBank leverage this and the capital adequacy ratio increased -- improved from 15.3% as at Q1 to 16.53% as at Q2 2020. Being that as it may, we have also released to the market some press release to see precisely what we [indiscernible] to FirstBank for the markets to be aware. Thank you very much.

Thank you very much. Oyewale, thank you. Before we bring in Segu to talk about the loan growth, Jerry, I'm sorry, I did not specifically acknowledge the question you raised around business outlook and feedback from customers. So that's a very brilliant question. And Ini would handle that after Segu has responded to the question around loan growth. So Segu, please go ahead.

Thank you. For H1, loan growth, organic loan growth was 70% of total loan growth we saw. And for H2, depending on what happens to currency. The currency remains where it is, of course, what do you see in H2 will be almost 100% from organic. So that's it. The opportunities are actually there. Thank you.

Okay. Ini, please. Ini, you are on mute, please. You need to unmute, Ini.

Sorry. In terms of business outlook, generally speaking, I mean, the -- what is preoccupying most customers now is the current FX environment. But that said, what we are seeing is an increased demand on the trade side. So clearly, where banks like ourselves have strong market access to FX, good line availability from correspondent banks, we see an upsurge in trade volumes. So at times like this, we typically see the Central Bank reverts to its playbook where there's an increased focus on import substitution, backward integration and the like. So clearly, the players that have domestic manufacturing capacity are the ones that have a much more upbeat or much more optimistic view on the current environment. And if you think back to what happened 5 years ago, those were largely the players that ended up being the winners in that period. So we're seeing incremental demand for trade finance facilities. We're seeing incremental demand in terms of orders as people try to ensure their supply chain over this period. So it remains strong, especially around the trade finance side and having the capacity to do that becomes a competitive advantage. So we've seen that in terms of our volumes grow because access to FX and ability to keep trade flows going becomes a clear advantage and a tool to use to build and gain some degree of market share. On the liability side, we're seeing growth associated with that because the cash flows will typically follow the trade volumes. So the momentum generally looks a lot more encouraging at this point. Thank you.

Sorry to -- just a follow up. If I may so see on the outlook, do we have [ obligors ] that are sounding more confident in terms of the ability to meet obligations versus initial [indiscernible] that we had when all of this crisis started, again, based on [ impartialism ] of [indiscernible] and the fact that people are becoming more comfortable or adapting better through the situation on hand. So that's one. Then also if I may take you back to the question on the OpEx. We talked about the redundancy payments and it says that we got -- or that I got last year was that this is not really likely to recall the following. It was just saying that [ product ] you mentioned, is it safe to say that it's likely going to repeat, so recall for the rest of the year, some of those pressures you've seen on costs? And also if you can just talk at what was the actual liquidity numbers is ex what you have seen with CBN? Just want to have a sense of the pressure that the money authorities are putting when it comes to the CRR, the discretionary or LDR limited. That will be helpful.

Patrick, do you want to clarify?

I think he's asked 2 questions. One around OpEx, the second around liquidity ratio. Yes, we did make significant and redundancy payments last year. And we made some more this year. But the amount mid this year in the -- I mean compared to last year is much smaller. We're a business. We'll continue to do these things. But in the context of my total OpEx, that really isn't -- doesn't move the down much. But in explaining how my OpEx has moved, I thought it was important and you know, I also mentioned the beta around salary reviews, so that's layered into the OpEx. But if you look at my personnel cost year-on-year, my personnel cost year-on-year hasn't really -- had not really moved that much. But again, it's what -- what has happened in personnel costs. Again, to the OpEx. The OpEx -- our OpEx, there is nothing -- the OpEx is under control. And you can tell that in 2 ways. You can tell that from what is happening year-on-year. You can also tell that from what our cost-to-income ratio is. And our cost-to-income ratio is in the mid-60s in spite of the significant pressures we are seeing on the net interest income end, which is very unusual. We spoke just now NGN 1.6 trillion in CRR, unless you want to assume 50% of that should have been there. And you just had NGN 800 billion, and you did have to liquidate your bills to make those payments. Even if those bills are just at 10%, that is NGN 80 billion right there. So it's not so much a cost -- a problem we have now because that itself is under control. It's putting everything together and having to deal with the macroeconomic environment to further boost reps for you to fully appreciate on this scale of business, how much improvement there is in the cost-to-income ratio. So again, this is what we've shared for half year. Our viewpoint is that up to the end of the year, we are comfortable. We have a good lead on that. And we do not expect cost-to-income ratio to be materially different from prior year in spite of all the things that are going in. In terms of liquidity ratio, it's shy of 31%. It's about 30.6% thereabout, after we backed out all the CRR considerations. But like I said, we are not -- I mean, we have to focus on the substance and not the technical issue, particularly in an environment and a time like this. And in terms of the substance, that CRR we have with the CBN is really in, what you say, behaviorally, that CRR is really a liquidity for banks, only that it will be made available on the other circumstances. We can continue to improve our LDR by doing less to -- by doing more to encourage all the deposits that want to come in, where we've made a tactical decision to restrain the deposit inflow. We are benefiting from risk from flight to safety at a time like this where we've made the conscious decision to control the liquidity that comes in because at the other end of the spectrum, there is a tactical bid that has to do with the regulators. We don't have full control over. I mean you could take another liquidity now. The liquidity ratio moves much higher and then you get an additional CRR debit. So from an operational viewpoint, we are balancing all these things. And liquidity, we have. Access to that liquidity, we have. We're not excited that we have NGN 1.6 trillion in CBN. We have no intention of doing anything that will increase the amount of CRR that the CBN is going to have quarantine -- and so these are the considerations we are balancing. Now you need to see this in the context of the LDR and the discussion that we're having. Thank you.

I hope you're okay with the responses, Jerry, but come back in to clarify. So with that, we can now move on to the next set of questions. Tolu?

Okay. Thank you, sir. So Muyiwa, you have raised your hand. Thank you for the question. Please go ahead with your question.

I have a number of questions. I think the first is around your loan book. And in the slides, you highlighted opportunities in the FCY loan book. So I just wanted to understand what kind of -- what sectors you see the opportunity? And then also around your restructured loans, you highlighted about 15% of the loans were restructured from 6% historically. So I suppose there's a 9% that is related to COVID. So just wanted to understand how you see that evolving until the end of the year because if you -- if I recall, there's been interaction from the CBN highlighting a likely 60% of the sector loans being restructured. So just want to see how from you -- from the FirstBank point of view, things are evolving. And then on NPLs as well because you highlight opportunities in the agriculture sector, but we also see that the agricultural sector account for a reasonable component of the NPL book. So just wanted to understand where -- so within the agriculture sector, what the opportunities are where you see less risk given that steady interest? And then on liquidity or should I say, monetary policy, just wanted to get a sense of when you think we get back to a more normalized monetary policy environment. So if you think about the CRR, you've highlighted that is [ sterilized ] from your bank. I think the Central Bank highlights close to about NGN 10 billion -- NGN 10 trillion of stabilized funds. Just want to understand from your view, when you think that can -- will be reversed and particularly when you think about the potential impact from an interest income point of view for the sector for your bank as well. And then lastly, just I think on guidance. Just trying to understand at what point you'd be comfortable giving guidance again? Because if I recall in the last 2 interactions you've had with investors, you haven't made guidance. And I suppose it's because of the uncertainties on -- because of the pandemic. Just wanted to understand at what point you'd be comfortable giving guidance, given the more positive think feedback you seem to be presenting from a client interaction point of view? Those are my questions.

So in line with our protocol, I will take the next question from [ Kaitlin Byrne ]. And I would take the response to both questions after the question from [ Kaitlin ].

I've just got a few short questions. Could you give us some comfort around the coverage ratio being below 50%? So if you just compare that sort of NPL coverage to your peers who are sort of close to 100%. How do we get comfort that, that's high enough? And then you mentioned the structured ForEx transactions. And would that also link to the sort of large increase we see in the derivatives on -- in your results? And maybe you could just give us a little bit more clarity around exactly which lines in your income statement are affected by this. Is there -- so you mentioned it comes through in your net interest, but does it come through a noninterest revenue as well? And then just a question around the e-banking income. Remember last time that there were issues with ForEx. E-banking income received sort of exceptional income. Well I think the money couldn't get transferred to Visa or something linked to that. So if you could just sort of clarify if there's any -- sort of exceptional noninterest revenue coming from the issues with ForEx in the country. Thanks. That's it.

Thank you very much. We want -- [ Kaitlin ] for those excellent questions. We will have to bring -- shall go back to answer the questions around the loan book. And there's also the question around the coverage. But Ini would take the question on monetary policy, and I think there's also the comment from -- question from [ Kaitlin ] on derivatives. But let me spend time to talk about your question on guidance. You are right, we -- in announcing the full year 2019 result, we did give indication that we will be providing guidance on this call. But you will agree that between the time we made the announcement and now, so much has happened. And whether you're looking at the American market or you're looking at Europe or Asia, it's difficult to really identify any company that has fully dimensioned and understood the impact, financial impact of the COVID-19 pandemic. That's why it's a black swan. Nobody seems to have fully understood it, not any country, not any company. And so what we decided to do was to kind of provide kind of a forward-looking commentary, if you will, on how we see the market evolving. I did say that only China has given the globe a V-shaped recovery trajectory. Which countries are our trading partners? So you look at in America, you look at China, then you come down to Europe. And if it's difficult for us to estimate how does countries will recover, I mean, America is down under water. Europe is down under water. As a matter of fact, GDP growth for Europe will be negative 8%. America will be down about 3%. So we don't know. China only managed to grow about 2.6% in the second quarter of this year, all right? So if the macro is that challenged, it will be difficult for us to make any projection with a high degree of certainty, and we should be able to defend the guidance that we'll give you. So regrettably, we are unable to just slice and give you the numbers that we cannot obviously influence. I did say in my introductory comment that there are certain controllables we will be able to drive our business. Agent banking is an area -- e-business is an area. There are things we are doing. Cost is an area. Capital might [indiscernible] an area. All of those things that are within our control, we will definitely deliver, all right? But how the bigger macro issue plays out? We don't know. Monetary policy, we don't know what Central Bank may decide to do, whether on the part of CRR or regulating charges on bank products or the fiscal policies. So you will have to sympathize with players in this market, which -- those are running businesses that there are so many moving parts. And when you don't have controlled about the variables, then you must exercise caution so that you continue to be believed. What we want is to be believed in the marketplace. When we give you numbers, we should be able to defend the numbers at the end of the trading year. Unfortunately, again, I say, we don't have control over so many levers, and they just are not that [ adding up ]. Now will our results be better than 2019? We believe so. We believe we will do better than we did in 2019, and the numbers are there. Look at the ratios we gave out. On any metric, on any basis, just look at what we have delivered, despite the challenged macroeconomic environment, we have delivered. But -- so now pin it down to specific ratios and numbers. I'm afraid we may not be able to be that precise. But we can assure you that at the end of the year, you are going to see a much more improved group. The commercial bank and the merchant bank are all looking very good in terms of projections. But let's see what happens as we wind down this year. Thank you. Segu, if you are ready, you can take the questions on the loan book and also the coverage. Thanks.

Thank you. On the loan book, we were -- we said we will grow our loan books in manufacturing, health care, agro processing trade. And of course, with the current liberalization of oil and gas downstream, we should expect the -- as is for importation of a loan product, we now do more coming through banks and that will have to be done. Of course, the cycles are short. Was -- there are things that you now see [indiscernible] taking everything. We now see a lot of that coming to the banks. We are going to see growth along those parts. But more importantly, in manufacturing or looking at what government is trying to do. Well have it in mind that before you can develop as a country, you must import capital to export capital. And so all the machineries that will come in for the manufacturing firms, the medical equipment we are all expecting for the hospitals, they won't have to be imported with foreign currency actually. The petroleum product [indiscernible] in foreign currency [indiscernible] don't produce anyone who would have it. [indiscernible] and so even for agro processing, all the equipment you will use in the factories, they are all also have to be imported. So at the end of the day, you have to, I mean, end up importing them. When the annual trade books, of course, then we show up in foreign currency. Well know that, you go ahead and [ look ] foreign currency. But of course, those are trade that you need to do and then bring in those equipments, and then you perform the part of what you would do. And then, again, the manufacturing companies will also import raw materials. On the restructured loans, the jump from [ 6 to 15 ], basically because of public sector. The gov [indiscernible] had said, loan to state government for the next 1 year, restructure it, allow them. I mean justify who's [ to fine ] interest for the next 1 year, that assuming that listed government don't have money to pay. Well government was just being very smart because the last time, 2015, 2016, instead government were only able to pay salaries and that affected aggregate demand. The recovery of the economy took longer than necessary. This time around, they were fast and smarter, and they're already saying, don't pay, leave them so they can continue to pay salaries. When they pay salaries -- unable to pay -- I mean, hospitals, expenses, all kind of things, of course, the demand in the economy will continue and the recovery will be faster. It just don't die. So whatever happens, they will be there to pay their loans provided these loans are properly contracted. So we see that. On the agric sector, you saw the NPL there. There are 2 segments of agric. The food and other processes are doing well. I mean we fund that and will continue to fund many of the participants in the rice business, for example. And so the type of volume we see in those businesses are heavy. You can imagine what it means in this country, people eating rice. So you could [ have moved ] economy toward us and it's something that is growing by the day. We've seen growth in cotton. Now people come in to cotton. People are trying to do a massive maize program. So -- because they need to buy maize for poultry. However, we do have some NPL in poultry and animal husbandry. But these were loans originated in the past, nothing new. I mean it was about 5, 6 years ago. Some of them were loans that to set up abattoir that went the other way and all that. Well again, the opportunity is to get them together because with the dairy program, those locations are now available for people to use, and then cash will become the source -- the opportunity for us to do that. But the real problem was in food and you know that poultry business will be majorly where you have bird flu and you have all of them -- many of them going the other away. And of course, the insurance will be there, but we do know the environment we operate. And so most times, what you get back will clearly be able to take care, of course, you need to start all over again, unless you know how best and that was what led to the other NPL you saw in agric. Otherwise, agric is a very, very good one, and we are into now going to now go to capture processing. So you see [indiscernible] capture processing -- we're seeing a lot of that because there's a lot of value to be added and a lot of money to be made in that cycle. Then on the coverage ratio. IFRS 9 did not specify 100% provision. There's loss given default. And so you have collateral, and our collateral policy is protected. We have -- we do want 30% for safe value. So for me to do 100% provision, it means that, I'm saying that, I will now realize a guy from the collaterals I hold. That's not correct because for every loan that originates, it's only our investment-grade NIM that will lend to only greater pledge, even our [ own collateral ]. Even our retail loans, our personal loans, we have insurance on that. So if you lose their job, how we paid for at least 1 year salary of that borrower? If your borrower should die, I get my entire loan balance as [indiscernible] of the person's debt. So if there's disability, I get my full money on the date of that business [ as it is ]. So the review -- we go back testing our [ AGD]. It shows that in the worst of situation, in the worst of situations, we lose like 47%. So -- which means that if I'm going to lose 47%, that's what I [ cannot ] be provided for. Even for personal loans are unsecured because the way we are [indiscernible] and the way we plan our risk is such that we enlist counter parties. So the first thing -- the first, they were governance -- is from the principles. So if I have the principles, then I'm right. Now okay, what type of employees do you employ? What type of governance do they have? How does that protect me? And that mean a very, very comfortable situation. Will I get my money back? [ Can we ] have benefit? There are kind of things that come in to the system to help me reduce my risk. So looking at it. Yes, our peers can be 100%. But in reality here is that we don't have to go 100% because -- except I'm assuming, they are not going to get anything out of all what I have, which is not right. However, for the year, it is our plan to have coverage of about 60%, not because of anything, but because we wanted to increase the cover to give more comfort, not because today we are not protected. We are more than that because at 130% collateral coverage, it means that I would have lost 70% of the value of that collateral coming to be at 50%. I mean -- so property of $1 million, I would have lost $700,000. I will be selling that for $300,000. And that's exactly what my colleague is talking about. That was [indiscernible]. Thank you very much.

Okay. Ini, please, can you comment on the monetary policies and derivatives?

Okay. There are 2 questions on -- I'll take the 2 questions. On monetary policy, when does it normalize? I think we all agree that the Central Bank's policies generally described as being unorthodox at this time. And unfortunately, at least in the near term, we don't seem to believe there will be an unwind of that. We think fundamentally, domestic interest rates need to rise. We think that despite what we say with respect to what they've done on the policy rate and other things, their policy bias remains extremely tight. It's not likely that, that will change near or medium term. But I think what's more fundamental is that there needs to be a correction of domestic interests. Where we have domestic interest, it's low single digits. It's just simply unsustainable given where inflation is, and more importantly, given where the FX rates are. We think that the key driver will be around what they ultimately intend to do in the -- with their foreign exchange policy. They have stated they want to unify their rates, and in some ways, have taken some steps towards that in some of their windows. Now as they seek to reopen markets, which we believe will happen, perhaps later in the year, there is -- there should be some scope for some unwinding in the current policy wherein we find ourselves in. But will it fundamentally changed their bias? We don't think so because the pressures on foreign exchange will remain. Again, all this in the ambit of oil prices still remaining where we are. So it looks like more or less this go through the near term, maybe a slightly more medium term, but was probably towards the end of the year, we start to see a bit of the online. Now there were questions around what we're doing in derivatives and other things. I think the GMD highlighted in his overall presentation that there have been unprecedented levels of volatility, both domestically and globally. I can't recall -- I believe the last time we had interest rates of these kind of levels in Nigeria was way back in the early days of the Sanusi era as the Central Bank Governor. So it has presented opportunities, right, both in interest rates base, whether it is in terms of government securities and then prices as well as FX opportunities as well. So fundamentally, whatever derivatives we've entered into are largely playing on these differentials or mispriced interest rates or exchange rates. So in terms of where the revenues will sit, the underlying economics makes sense, wherein it's net accretive to the bank. So sometimes you give up some on foreign exchange to get the benefit on the interest rates or net interest income end. And this will translate either in the gains or losses on securities or vis-à-vis the vice versa on foreign exchange. So you will see them being -- you will see an offset in either the [indiscernible] or the interest in government securities line, depending on what kind of transaction you've done. You also had another question around any other extraordinary FX-related income as it relates to -- I think you were thinking back to the kinds of spreads we made 4, 5 years ago, when we had an opportunity around pricing on card usage. This case is not the same. So that opportunity actually doesn't quite exist. Bear in mind, we're actually locked down. So the incremental card usage or volumes that were created historically, and the opportunity to maximize incremental spreads on those card usage, it's not an opportunity we're seeing at this time. Rather, there's more benefit that's being seen in the growth in trade -- on the line trade business. So it's not quite the same. So that opportunity actually doesn't -- is not something that's been replicated in this crisis. Thank you.

Thank you very much, Ini. At this point, there are no questions in the -- no hands raised at this point. Just going through the question we have in the Q&A, and that's from [ Randolph ] in -- from Old Mutual. He asked, what are the potential risks of agency banking? That's one question. And the second question is when, in our view, do we think AMCON will stop? That's the question we have in Q&A.

I think Patrick will have to take the 2 questions, potential risks and the agent banking model and AMCON. Patrick, please?

Yes. Thank you. I'm not sure I quite got the AMCON question. If, Tolu...

It was around the possible sunset for AMCON because, I guess, it's been linked to the regulatory costs, which you clearly mentioned. We also entered into our revs and profits. So the question was around this sunset that for AMCON and how soon that will happen.

Okay. Thank you very much. If we start to the AMCON bid, I think the -- based on the -- AMCON should expire in maybe 2, 3 years' time. I'm not sure I quite remember now. But no one is holding his or her breath for that given where things are with AMCON. But yes, the regulatory cost is quite high for us. Between AMCON and NDIC, we're spending about NGN 40 billion and we're incurring about NGN 40 billion in OpEx. And by all means, we certainly want that [ to follow ], at least the AMCON bid very quickly. AMCON is about half of that. In terms of agent banking, the risk depends on the products you have on the channel. So as it is right now, we don't have credit products yet on the channel. So most of the -- so the risk can really be summarized as operational risks. Operational risk from having someone who pretends to be your agent and is not your agent and creates maybe, well, reputational risk, or your agent collecting funds from, for example, customers, and not exactly transferring or placing the funds the way the customers expect those should be handled. And we put a couple of other things. But frankly, we've looked at that whole thing end-to-end. The operational risks we see are risks we can largely significantly manage, and we've been on this for about 3 years now. So we know we understand it. We're not saying everything is guaranteed. But again, this is retail -- 59,000 agents, something goes wrong here and there, we've actually diversified the risk by virtue of the number of people you have in there. Now I'd mentioned something -- and maybe we speak to 2 things that address some of the potential biggest exposures there. Everywhere in the world, and we are seeing that play out here, how you manage your agent network from a capabilities and an intense -- intensity viewpoint is so critical to managing operational risk. So an agent -- we have hubs from which these agents are managed. You have people whose primary responsibility is to manage these agents. And so if things begin to fall between the crack, that is one of -- they are quick to pick these things on. And if there are concerns the agents might have that could crystallize risks because you manage the half of agents, you're getting that feedback and you can respond quickly. So it really comes on to how quickly you want to respond to these things. And whether it's cash in, cash out, cash movements and all that, we have that sufficiently managed or managed to an acceptable level for us. The other thing we are very [ allowed ] too is really the relationship between the agents and the people that come to transact with the agents. And there are 2 big things we do around that. The selection process for the agent is really critical. So we don't onboard you because you say you want to be an agent or you have what it takes to be an agent. We go through the full KYC. Now very importantly, the agents we select -- so if you go to a village or a locality, it would typically be someone who is present in the business, you cannot just uproot free -- I mean, that easily, who's -- who from a reputational standpoint is largely trustworthy. And so it could be the only chemist in the village. It could be the only supermarket -- well only shop -- not supermarket, but if you understand what I mean, in that locality. So these are people that everyone -- you can easily do a KYC around and you can have comfort, and they can just get -- [ uproot and leave ]. And in any case, they already have communal trust built in them. So that also helps manage the risks significantly. The first thing, again, still the relationship between the customers and the agent that it's subtle that it makes a huge difference. The POS' we use with a -- for our agent networks are POS' that generate receipts that -- and the receipts are printed, and the software is recently printed in a way that the customers actually take their receipts and for them is their deposit slip. And you'd be surprised how seriously they take those -- they hold on to those slips as if those slips represent, and they actually do, the monies they have in the bank. And since they're just a POS transaction that, okay, someone said, yes, it does happen, it has gone. You actually have a slip that the customer has and the customer knows that this money has gone or this money has been deposited to this cash-in transactions. Again, this convenience is an experience for the customer, but it's also managing operational risk. The third big risk bucket is really around the IT/security domain. And our partner selection and the arrangement we have with the developer of the software is distinct from what most parties will have with such a strategic partner. And from a security perspective, it goes through the full vetting process of standards for FirstBank. And so in summary, there are different risk points, but part of why we've been successful is not just the things we spoke about, branch network, hubs, you can grow reps, you know the customers, you have differentiated proposition, but frankly, the various risk points we have largely managed on acceptable level. Do things go wrong now and then? Yes, things go wrong now and then, just the way things can go wrong even within your physical branches. But are there things we can typically manage? Yes. Are they occurring at acceptable level? Certainly so. Do we have a track record to demonstrate or give us comfort that we are managing the operational and associated risk in our agent network and structure? Yes, we've been doing this for 3 years. We've grown aggressively. We are monetizing what is coming out of it, and we are managing those risks at levels that we are comfortable with.

Thank you, Patrick. At this point, there are no further questions. So in the absence of any question, I will now invite the GMD for the closing remarks. Go ahead, sir.

Okay. Thank you very much, Tolu. Well we've spent what, over 1 hour 45 minutes on this call, and we had about 100 participants. So we are quite delighted by you following our story, and then we thank you for being part of this presentation. Our lines remain open. If there are further engagements you would like to have, maybe follow-up questions or comments you'd like us to provide, please feel free to reach us. Tolu remains the key contact person, but the execs are available to attend to any of your inquiries. What is left now is to thank you again, and then to say, we will be ready to present our third quarter results sometime in October. We'll be advising you on the specific date. So we thank you for your participation, and I wish you a very productive August. Bye-bye.

This concludes the FBN Holdings 2020 Financial Results Conference Call. Thank you for your participation. You may now disconnect.