First HoldCo Plc (FIRSTHOLDCO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and thank you for your patience. And welcome to the FBN Holdings Plc Full Year 2020 Financial Results Conference Call. Thank you all for taking the time to join the call today and for your continuous interest in FBN Holdings. My name is Tolu Oluwole. And following an overview by the Group Managing Director of FBN Holdings, an interactive Q&A session will be available. However, before I hand over the call to the Group Managing Director, I would like to go through a few conference protocols. [Operator Instructions] With that said, I would like to hand over the call to the Group Managing Director of FBN Holdings Plc, Mr. UK Eke. Please go ahead, sir.

Thank you very much, Tolu. Good afternoon, and good morning, ladies and gentlemen. I'd like to welcome you to the FBN Holdings investor and analyst results presentation for the full year ended December 31, 2020. My name is UK Eke, and I'm the Group Managing Director of FBN Holdings Plc. I'm also delighted to introduce my colleagues that are on this call with me. As always, Dr. Sola Adeduntan is the CEO of FirstBank; Kayode Akinkugbe, the CEO of FBNQuest Merchant Bank; Wale Ariyibi, the CFO of FBN Holdings; Patrick Iyamabo, CFO, FirstBank; Segu Alebiosu, the CRO FirstBank; and Ini Ebong, Group Executive, Treasury, Financial Institutions and International Banking. Of course, Tolu has already introduced himself, the Head IR. So much has been said of the year 2020. Without doubt, a very challenging year for individuals, families, businesses and the world at large, bringing with it disruptions to global economy and recession across the globe. Nigeria, our home base, had its fair share of the challenges. And it went into a recession in the third quarter of 2020, but quickly recorded 0.11% growth in the fourth quarter of 2020. And that is the context under which we operated. Just to set the context for the results we're about to present, we believe overall, we recorded a very strong performance, which is a clear testament to the resilience of our institution. And the benefits we made over the years in strengthening our risk management architecture. Now our strong and resilient performance, which I have just mentioned, was driven largely by revenue diversification with increase in noninterest income. Also, we saw clearly our own assailable leadership in digital and agent banking. And then we also saw a well-diversified and solid founding base, which continues to enhance our liquidity position, both FCY and LCY. We further strengthened our risk management practice in control environment resulting in improved asset quality, as I would show in the slides that will follow after this introduction. So starting from Slide 6. The profit for the year grew by 22%, just rounding up, to NGN 89.7 billion, this is profit after tax. And the noninterest income recorded a growth of 26.7% year-on-year, closing at NGN 174.7 billion. And these results, we're proud to say were despite the very challenging rate environment, evidenced by a decline in fixed income rates and higher cash reserving requirements as we all saw in 2020. And also, this led to a decline to 10.10% -- sorry, 10.9% year-on-year on the interest income, closing at NGN 384.8 billion. However, we are glad to say that we mitigated the impact of the net interest income by containing our interest expense through a deliberate and carefully executed program around driving costs, low-cost deposits and also reducing the cost of deposits. You know, of course, that we are a low-cost producer and so this has reflected in the cost of funds, which you will see in the slides that follow. I also want to recall, I'm sure you remember, that 5 years ago, we applied our strategy, our intention to diversify our income stream by boosting the noninterest income through transaction-led banking model. We believe this decision we took 5 years ago has minimized the burden on our customers. Indeed, it came in very handy during the lockdown period by providing seamless access to banking services as well as supporting government's efforts, and indeed, the efforts of donor agencies in reaching endurance with COVID-19 support programs or palliatives. I would like to emphasize the very significant progress we made in our agent banking proposition. The electronic banking revenue increased by 1.3% despite the 50% regulatory reduction in fees. The growth was supported by expansive volume development and so we recorded a 28.1% volume growth in our USSD proposition, and we saw 1.0 trillion volume in terms of counts and then it was 3.4% growth in mobile banking volume to 248.2 million transaction volume as of December 31, 2020. Similarly, we are glad to report that our agent banking network increased by over 100% from the prior period of 2019, 50,000 to 100,000 agents across 772 local government areas of Nigeria. We're also proud to report that we crossed the NGN 9 trillion threshold for value of transactions processed from inception to date. We also processed NGN 9.78 trillion compared to NGN 3.1 trillion in the prior year. More importantly, we are monetizing our agent banking and its revenue contribution to e-business. As you will have noticed, over the years, we have seen year-on-year growth in the contribution of our agent banking business and the e-business income continues to grow relative to the total noninterest income. To further deepen our agent banking offerings, we enhanced our services and are expanding the reach beyond Nigeria. So this is a model we intend to replicate even outside Nigeria. We remain focused on driving our efficiencies and improving our cost-to-income ratio. We're happy to report that in 2020, operating expenses was up only marginally by 0.5% year-on-year, which is significantly below the inflation rate, and we can evidently confirm that the major drivers of the marginal increase were largely regulatory costs, inflation-induced adjustments or increases rather. And of course, we know the adjustment to the currency, which happened in 2020. Despite all of this and despite the sheer size of our operations and our group, we recorded only 0.5% increase in OpEx year-on-year. Now our customer deposits grew very significantly year-on-year also, which basically speaks to the strength of our brand, the security that we offer and the safety that we offer to the banking public. Net loans to customers grew by 19.7%, nearly 20%, and we're very deliberate in writing checks, basically supporting trade finance activities and providing support to the manufacturing sector, to the power sector, oil and gas and general commerce. These were the sectors of growth. And so quality remains of utmost importance to us. And I can confirm that we have very limited exposure to those sectors that were partly impacted by COVID-19, specifically aviation and hospitality. We have very, very minimal exposures to those sectors. We have also maintained a very strong market access, again speaking to the strength of the brand. And you recall that it was during 2020 that we achieved our $350 million Eurobond issuance under the 144A/RegS 5-year senior unsecured Eurobond. Now the interesting thing about this issuance was that it was the first benchmark Eurobond issued by an African bank in 2020. Even on the back of the COVID, we're able to successfully issue this Eurobond, and it was well supported by global investors. So we are proud of that achievement, which has opened the door for other African issuers to do their own Eurobonds. Moving on to Slide 7. You can see very clearly that the strengthening of our risk management architecture, leveraging technology and credit administration and deepening the bench strength in the risk management division has continued to yield the desired results positively. Our asset quality position improved even further and we're able to bring the NPL ratio down to 7.7% from 9.9% that we saw in 2019. Of course, as we confirmed, really the last time we engaged you, we have continued to maintain a less than 1% NPL ratio on our vintage book. So we are proud of what we have achieved on the NPL side of things. During the year, precisely in June of 2020, we exited the insurance or the underwriting business by selling our stake -- 65% stake in our FBN Insurance franchise to Sanlam Group. The net proceeds of the sale were injected into the commercial bank. And together with the organic capital accretion of the group, the commercial bank has improved its capital position and closed the year 2020 with a capital adequacy ratio of 17%. I'm happy to report that all the businesses in our portfolio, that are regulated by capital, are running well above the regulatory capital requirements or thresholds. And that we will continue to accrete capital, so that we'll be able to expand our market share and report profits obviously to the delight of our stakeholders. Turning very quickly to Slide 8. As we progress along in our strategic planning cycle, I would like to show you on that slide the progress we have made so far. And as we can see very clearly, there were improvements across all metrics. These reports or these successes represent for us landmarks and a product of deliberate execution of our strategies, and we remain resolute that we'll be able to deliver our 5-year strategic numbers. And we will, in the course of our discussions, share with you when you ask your questions on what those targets for us are. Notably, I would like to reiterate the progress we have made in terms of asset quality and also remind you for those that have been tracking the company and further in our progress that in 2016, 5 years ago, we had the NPL ratio at about 24.4% and so reporting a 7.7% NPL ratio and continuing on that southward trend with a plan to go below 5% in 3 years, you can see the remarkable job we have done with transforming this group and positioning its right on the path of sustainable growth and profitability. I will turn to Slide 9, and there you will find some of the initiatives that we have implemented over the past year. These are expected to deliver significant growth, not just for 2021, but also beyond 2021 as we seek to expand our footprint and deepen our digital transformation. We believe this is key. We believe that it's no longer about bricks and mortar, but it is about transforming our platforms and providing the digital space for our customers to do their banking transactions. This will be instrumental in repositioning us into market leadership. It will also be instrumental in enthroning and sustaining the quality loan book that we all desire to have and so improving our risk management profile and providing us with a strong and solid funding base. This will be the major rationale for all of these initiatives we're executing, and we can say proudly that we are now well positioned to regain our leading position as market leader, not just in Nigeria, but in Africa. I would skip all the other slides and quickly go to Slide 24, to conclude. And to say that although there are signals for improvement in the global health conditions and also hopes have been raised on account of the vaccines that are now being administered, this year will still be full of challenges. There is no doubt about it. The renewed waves and the new variants of the virus cause concerns for the outlook, notwithstanding, we are resilient and we remain focused and steadfast. And we believe that those elements we can control. We can control them very, very well, and be able to deliver superior performance. We believe also that, as the economy reopens and as Nigeria's plan of projected to grow, 2,5%, 3.5%, we will be 1 of those institutions that would -- that certainly gain from the renewed optimism. We are well positioned. We have the enabling platforms and structures. We have the processes that would allow us to gain market share for 2021 and 2022 and beyond. Our focus areas are basically deploying the 2-pronged approach of driving our revenue through transaction-led banking model, whilst also implementing initiatives that are geared towards containing operating costs, and this will help bring our cost-to-income ratio. We believe that there's more work to do in that area. And we are committing to delivering -- steadily reducing cost-to-income ratio, not just for this year, but in subsequent years. We also believe that we will continue to strengthen and improve our investment in digitalization, in innovation and expansion in financial services. We will remain disciplined in executing our strategic initiatives, and we will keep evaluating our options, so we can support our vision of remaining a dominant financial services player in Africa, not just in Nigeria. And so I'd like to end here and invite Tolu to moderate the question-and-answer session. Tolu, please go ahead.

Thank you very much, GMD. Just as a reminder, I would like to reiterate the protocols again. [Operator Instructions] Just before we start, there are a few set of questions that have come in. And so we'll take those questions, and then we will move to the other function. So on the mobile -- on the -- so the first question, on the new mobile application introduced in FBN Sénégal, could you help in understanding the potential in other countries? That's the first question. And then the second one. Based on the issue of the telecom saga recently on the USSD in Nigeria that has been ongoing regarding who pay of the back charges due to telecom companies and the recent intervention by the government. More importantly, since USSD is still currently a major channel to reach on bank and recently banked customers, what are the alternatives -- what is the way forward for FBN outside telecom company channels who are now considering potentially major competitors via fintech, Flutterwave -- okay, et cetera? And then the third. Last year, management was on record as acknowledging newspaper rumor of FBN looking at potential measures between some partners, but this was not confirmed. So what is the way forward in this? So that's -- what now? Can the company put a statement out regarding Heritage and Polaris now even if nothing is expected to proceed? Is there a reason why this is still hanging? So those are the first set of questions.

Okay. Thank you very much, Tolu. I would like to request Ini that's in charge of International Banking, he will have to speak to the first question around mobile banking. And then I would request the CFO of the Commercial Bank, Patrick, to respond to the question on the telco saga and back charges on USSD. And I will also request that the CEO of the Commercial Bank, Sola, he will speak on the question -- the M&A question that was posed. Let's start with Ini. Ini, please.

Thank you, and good afternoon, everyone. With respect to the question on the prospects for what we see in mobile banking across the subregion. At the start of Q4 last year, we launched the brand-new mobile banking app for our Senegalese franchise. And thus far, we've seen very encouraging results with respect to uptake and acceptability by the market place. And we believe that this portends a strong area of potential growth across the subregion. When you look at many of the markets we operate in, where we're present in 5 West African markets and 1 in Central Africa, ideally, they lag where Nigeria is today in terms of the infrastructure associated with mobile digital banking. In some cases, the deployment of central switches, integration and so on and so forth are still in the infancy. That's notwithstanding, we believe that as has been demonstrated in more mature markets, this represents variable tools for rapid financial inclusion and -- plus growth in digital banking products and revenues. So we're very optimistic around it. We continue to push it aggressively, and we work with regulatory authorities in the various markets that we're presenting to drive the environment that we will promote the growth. Thank you.

Thank you, Ini. Patrick, would you want to take the question on the telcos on USSD segment?

Thank you. The USSD saga is really about how much the network fee should be and possibly, but importantly, who should bear that cost. Interestingly, customers used to bear the cost of -- recession costs until a couple of banks came together with some telcos to figure out how they could drive the growth of the whole channel. And that's the -- and that's shifted away from the customer. And by the way, the channel growth plan was successful. So I guess we're back to -- with the agreement to -- of the cost at [ NGN 7 ], we are now back to where we used to be before. And the critical option on the table is really to have the customers do what they used to do, which is take on these costs. But the beauty of this cost is being capped for the transaction itself as opposed to the previous arrangement, which was by session, which could have been extremely expensive for customers today. Now having said that, the other question is what does it mean for adoption and growth of that channel. Customers taking on that cost, I mean, one option would be you might see some attrition, particularly from customers who just used to use the channel for no particular fantastic reason. But we think overall, the big difference between now and what used to exist is that the customers have come to experience the channel. They see there's a lot of -- they appreciate the convenience, They see the value. It's now a way of life, and we don't think the use of the digital solution is going to just change, because you are now being charged [ NGN 7 ]. And if you want to compare that compared to [ NGN 50 or NGN 100 ], you will spend, if you have to travel from one location to the next, to be able to pay, be able to cash only and things like that. So having said that, we think overall, looking at the digital channel attrition towards cash, which is alternative solution, will be less. Speaking specifically to USSD, where we see more happening, if at all, the adoption rate drops, is that the customers might choose to use another digital channel that's available to them that is equally convenient. It could be mobile, it could be ATMs as the case might be. But either way, whether they still use their USSD at [ NGN 7 ], which is similar to what used to happen before only that the cost is better controlled or whether they move to mobile platforms or they use the ATMs where we are waiting -- we are available to serve them. As you know, we are very strong across all these channels. Last year alone, we made about NGN 48 billion in revs. And from these channels, including the agency, we're #1 and #2 on almost -- basically the various digital channels. So pretty much at home, available and ready to serve them. So in summary, we see that cost being borne by the customers. In terms of overall digital revs, I mean, there might be an initial impact, but on a sustainable basis, we don't see much changing in terms of the trajectory, growth trajectory of the digital channels. And because of our strength across all the channels, we are very well positioned to benefit -- continue to benefit from the growth of digital business. Now that said, I mean our viewpoint in spite, we will continue to actively track price elasticity of demand. Because within that boundary, we have the flexibility to do lots of things, to modulate things as necessary. So yes, we see the issue, but the beauty is that the solution is on the table. And because there's a solution on the table, it makes planning an outcome a lot more predictable, and we think -- we believe we're in a very good position to continue to drive USSD growth or there's a shift to other digital channels. and dominate those channels as well.

Thank you very much, Patrick. I believe we have just 1 more question, which the CEO of the Commercial Bank can take for us. Sola, please?

Thank you, UK. When the -- when rumor broke out in the course of FY 2020 about FirstBank being involved in some M&A conversation, what we had said on our call then is that as a serious mandate institution that has been in existence now for 127 years, an integral part of our business strategy is to continuously evaluate our options over and above what we do in terms of the organic growth. And depending on where the market is, depending on the type of opportunity, we'll make up our mind. That statement and that position hasn't changed. We will continue to scan the environment to look for opportunity to do transactions. If we find, we'll go ahead. But if we don't find anything that meets our very strict parameters and criteria, we'll continue to focus on our organic business growth. Thank you.

Thank you. Tolu, I think you can go back to the Q&A since we've cleared the questions you received earlier.

That's correct, sir. So just good to -- so the question, so we can have -- we have the question from [indiscernible] has his hand raised. So please go ahead with your question, [ Kumar ].

It's being quite informative. I have a couple of questions, mainly on the NPL and the Commercial Bank's capitalization. So the first question, what do you expect the NPL ratio in Q1 2021 or even H1 2021, given there have been some forbiddance policies last year? So do you think whether there will be any backlog of increase of NPL this year? And what is the current NPL coverage ratio? And also, you've mentioned that the group is trying to decrease NPL ratio to below 5% in 3 years. What kind of strategy that you are putting in place in order to realize this objective? This is my first question. The second one. It's really good to hear that the Commercial Bank's capitalization has improved, but still, we can see that it's still slightly below the peers. So I'm wondering what kind of strategy or actions will be taken or expected to be taken in the near future?

Thank you. Let's take 2 more questions. We agreed to batch in pairs. So next question, please.

So the next question is from Ronak Gadhia. Ronak, please go ahead.

Firstly, I'd just like to say congratulations with the increase in capital. It seems like the turnaround is finally complete. You had your doubters, me being one of them. So once again, well done and -- especially for proving me wrong. With that being said, just a couple of follow-up questions, maybe just on that. Firstly, the previous caller mentioned, we saw a big increase in capital or capital adequacy ratio. Within that, there was -- if I can look at your capital ratio on a year-on-year basis, there's a big deduction of around NGN 40 billion related to your regulatory risk reserves, which didn't recur in 2020. Could you just talk about why that was? So that's the first question. The second question is on your 5-year strategy. You indicated that there is a new 5-year strategy because the turnaround is complete. So maybe you could just talk about that, specifically, as you mentioned, the focus over the last 5 years was just to clean up the balance sheet. As a result of that, the PBT of the bank is now much lower than peers of a similar balance sheet size. So could you just talk about how First Bank will go from a PBT of NGN 80 billion to NGN 100 billion to around NGN 2 billion to NGN 20 billion where some of your peers are? And the third question is on your NPL cover. If I just look at your specific NPL cover, it's around 35.7%, which seems very low relative to historical levels that this bank used to maintain and also very low compared to peers. So if you could just talk about why that is so low and if you're intending to increase that.

So in line with -- we will just take 1 more question. So okay, with this, I think before going to the next question, if it's okay, I think we can take those questions, if that's fine.

Okay. Thank you. Thank you very much. I think there are 3 questions on NPL, including the one on the plan to achieve 5% during our SPP. There is also the question around coverage. So I would request that the CRO of the Commercial Bank take those questions. And then after that, the CFO of the Commercial Bank will take questions on capital. There's also one on regulatory results. So let's go on this. But Patrick, you will also note the question that was raised, I think it's general really around what we intend to do to improve profitability. This is by Ronak bringing it to the hundred level. So perhaps you can also take that question. Thank you. Segu, please start.

Thank you. This is Olusegun Alebiosu, Chief Risk Officer of FirstBank. With the forbearance coming to an end, we don't expect a spike in our NPL. Noting the fact that most of the accounts affected at that time were the sectors affected by COVID. And you will agree that Nigeria has recovered faster than expected and cash flow has resumed. Indeed, oil and gas upstream where crude price plummeted at that time. It's already up at about $63 per barrel. You can imagine what is going on in oil and gas upstream and services. So what we will expect will be spike in NPL. What else is going to happen? What do we see going forward will be the NPL coming down. We did promise last year that the NPL will come down further, and we delivered that, from 9.9% to 7.7%, more than 200 basis points. And for this year, we will see further reduction in NPL, because we are working towards the 5% strategy that the GMD mentioned. And for us to achieve the 5% NPL, as set by the Board, one, is for us, with the opportunity environment improving, to improve on recovery. So recovery will be same, trust that. I can indeed, I mean, explain to you that and confirm that we've made a lot of progress in respect to that. Of course, there will be loan growth. Loan growth will have a way of balancing things out. Global restructuring and then it will be asset realization and write-off, because again, if you recovered collateral and if you [indiscernible] everything, whatever is left, of course, will have to be checked. So you're able to have that. We are confident that based on our plan what we are seeing that we will achieve this 5% NPL as set. On coverage, Ronak, what you've seen is basically our model. And also the reason why we see movement in -- we do risk reserve because if -- what we can see through your books, your model is predicting that this is the real impairment charge. Of course, we did exactly that. We've explained earlier, and I'm willing to explain again that our policy is based one particular [indiscernible] for sale value. For loans to be at [ 40x ] coverage, I'm saying to myself that I would have lost over 65% of the value of that collateral for me to do -- to realize at least [ 40% ] of my money. So you know that in reality -- really in real estate -- in market like Nigeria, real estate hardly depreciates faster the way than we expect. In recession, properties are going up. So we don't see that. I mean model has predicted it well, and that's what we have seen across. Going into 2021, we plan to increase coverage, not because the model is not wrong, but because we want to build overly. So build overly in 2021. Thank you.

Okay. Patrick, please.

Okay. Thank you very much. So I think the 2 questions that have been posed, the first is really the movement in regulatory risk reserve. And then the second is how to grow PBT to the level of peers. But when I get to that, I'll modify it a bit, because we actually do not need to have -- I mean by the time we grow our PBT to level of peers, we would have very outrageous ROE, particularly relative to peers. So I would modify that a bit when I get to that. In terms of regulatory risk reserve, if you recall, regulatory risk reserve is really the regulator coming in and applying general accounting principles under local standards to make adjustments to capital reserve for credits for potential NPLs. And so essentially, what happens is you've gone through the model, the CRO just spoke to you about that. You've articulated the credit reserve you need and for the quality of your risk assets. That is tested, validated and that is locked down and considered sufficient. But the regulator still maintains a model it's been using for, I don't know, a little bit more than 20 years now. And so it's based on that model, what else do I need to do without necessarily recognizing the intricate nature of each of those asset class as you would -- as we do under IFRS and the ECL model. So what has happened this year? And if you track some of the discussions we've been having on this call, we've consistently made the point that we expect RRR to keep going down, because the quality of our books is getting much better, the concerns on that end gap actually falling away. The regulator may have taken -- may have been slow to respond to those changes, but that capital reserve that the regulatory has been taking off it -- has been taking off the table will have to be released once it's clear, the trajectory of our loan quality vis-à-vis our ECL. So what does really happen is regulator appreciating what we've been speaking about and testing what it is we've done and being comfortable with what it is that we've done and considering the RRR less relevant compared to prior years. It's going to have -- it's taking its time to come to this realization, but we are finally there. And we just happen to have been explaining to the investor community ahead that this was coming to pass. To the second point around what do we need to do to get our PBT to the level of peers, if you permit me to rephrase that, that would perhaps be to get our ROE to, say, let's say, 20%. We're currently at about -- we closed last year at about NGN 12.5 billion, NGN 12.6 billion. But the reality is that to move from NGN 12.5 billion, NGN 12.6 billion to about NGN 20 billion and 20% is really about NGN 60 billion, maybe a little less than that, which frankly is doable. And so what are the various levers we have to play around with? The most important one is -- has to do with interest income. Just note that we'll come back to that shortly. Now if we look on the cost side, and I'm speaking about costs really broadly. So we have the cost of funds, cost of risk, OpEx. I'm speaking about costs broadly. Cost of risk, we're in a much better place than we used to be. We have a much better handle of it, and we expect that to continue into 2020 -- 2021. And so therefore, we think we should not really be far off from where we used to be. In terms of cost of funds, you've noticed our cost of fund trajectory. It's been heading south, which is a good place to be, and that has supported earnings. Even though we expect the overall yield environment to improve to the end of the year, we think based on the funding options available to us as well as our tactical decisions, we can keep cost of funds reasonably around where it is right now. It is to go up maybe just a few basis points if cost of funds is to go up. So again, that lever, we believe we have a good control over. OpEx, you would notice we've consistently said a lot of the initiatives around technology, a lot of the initiatives around process. A whole bunch of things we're doing were oriented towards improving our OpEx. And if you look at First Bank on a benchmark basis to other Tier 1 banks and look -- you look at the OpEx CAGR over the last 5 years, we're actually best-in-class. We don't think that is going to change in 2021. So in summary, on the cost end, part of what we will do to get our ROE where it is we want to get it to is to continue to do all the great things we've been doing to control our costs. So we're now into the realms of revenue. There are 2 big buckets of revenue, interest and noninterest. I'll get to interest last, but interest is perhaps our biggest lever. In terms of noninterest income, we've repeatedly discussed and explained the things we're doing around noninterest income, the -- and the transactional activities whether on our mobile, on our digital platforms or in trade. So mobile USSD, what we are doing around agency, You look at the volumes, look at the trajectory, they've been growing. We expect that they will continue to grow into 2021, pushing our ROE into the realms we want to get the ROE. In terms of trade, you'd also notice on a year-on-year basis, our trade revs went up. We expect it to continue to move up as we continue to improve our trade capabilities. And we continue to benefit from the ability to properly price trade transactions under the current and operating environment. We made some trading gains last year. And volatility creates opportunities. We took advantage of those. We still see some of that volatility happening this year. And so we expect that will continue to happen. But overall on a transactional basis, particularly given the growth trends we have in trade or agency -- agents -- our agent banking business in terms of transactional account grew about 90% on a year-on-year basis. So agency, mobile, USSD, all [ SWOT ] those volumes will keep growing. And we beat our revenue, which will close the ROE gap to 20%, using 20% as the benchmark. The last one, which is where I started from, but I'm coming to it last, is really around interest income. What you will notice is that our -- is the significant interest rate sensitivity of our balance sheet -- of our earning assets. So whilst that had penalized us when rates were crashing the last couple of years, particularly last year when they really plummeted, as the rates begin to move up, we should see our NIMs opening up. And if we deliver on that cost of fund constraint -- control that we spoke about earlier on, the increase in yields almost all translates into increasing NIMs. A 7% increase in our cost thereabout -- or yield thereabout and translates into about NGN 28 billion in -- increase in interest income. So if we were to flip that differently, just growing, for example, NIBOR increasing by 1% would translate into more than NGN 50 billion increase in profits based on what it is we've seen in terms of how our cost of fund modulates and our yield modulates. To be very specific, part of what we've shared in the financials, that would translate into about NGN 58 billion increase in profits. So if you pause for a moment and appreciate the fact that we can do a great job or we can continue to execute what we've done well to control our cost base, and I'm using costs really broadly, OpEx, cost of risk, cost of funds, and we have the capacity to continue to drive our transactional income. And in the digital space, it continues to grow. And we are in an environment where yields are beginning to move up. Then you can appreciate how that gap can be closed. The reality is, depending on how quickly yields move up, that gap can be closed in 18 months, 24 months, 12 months. It all depends, just playing around with these variables. I hope this helps. If you need me to clarify any of them, I'm happy to do that. Thanks.

Okay. Thank you very much, Patrick, and Segu also. I think we can move on to other questions, Tolu?

Thank you very much, Patrick. Thank you very much, GMD. So the next question is from Soji Solanke. Soji, go ahead with the question.

Yes. This is Soji from Renaissance Capital. Let me just ask one -- I mean I have a few questions, but if Patrick can just clarify the numbers he just gave. And I think I had 1 percentage point NIBOR increase drives NGN 58 billion increase in profits. Was that what you said? If you can -- and you also said something about a 7% increase in yield translates to NGN 58 billion increase in interest income. I mean just clarify those numbers again, that will be helpful. But let me just sum all the other questions, because I get caught up. The first one is around your agency banking transactions. Can you kindly break this down into withdrawals, deposits, P2P transfers and bill payments in terms of share of transaction volumes? And then also just on agent banking, so for last year, how many customers transacted via agency banking roughly? And what was agency banking revenues in 2020? Then also just still on -- holding on to agency banking, I mean, we just got off Access Bank's call, and they report having less than half of your number of agents. And they did NGN 8.5 trillion in agency volumes, right? From your slides, I see roughly NGN 10 trillion in TTV for agency and you have double their agents. Why is the gap so little? What do you think explains -- I mean, from your point of view, what do you think explains this? Then just a few more questions. On FX revaluation gains, from your slide -- sorry, from your financials, I don't really see a clear reporting of FX revaluation gains. Could you kindly clarify what was the size of FX revaluation gains last year? And what's the size of your net long FX position? And if you can just tell us guidance for a few key things. So margins, noninterest revenue growth, OpEx growth, cost of risk, right? And do you have an ROE target for this year for 2021? And also the expected growth in the loan book and deposits? So I'll leave it there for now. Thank you very much.

Okay. Thank you very much, Soji. All those questions are for Patrick. But I would just say that with respect to the last bit, guidance, we obviously have not provided any guidance. And we will not at this time. The market and industry, the nation is still in a flux. So we are still studying the variables. And when we have everything properly knocked out to give guidance, but we're not going to give you guidance in today's call. But the second bit, I think questions around agent bank and then comparison with other banks and all that, Patrick will take that. But if you can [ just pause ], Patrick, and we'll take another question. I think there's another hand up. Tolu, before Patrick responds...

Yes. So that's correct. There's a another hand from -- that's from Ronak and then -- we'll take question from Ronak and then we'll respond to the questions. Go ahead, Ronak.

Yes. Thanks, Tolu. Yes, just a couple of follow-ups. One of them was very much in line with what Soji asked. If you could just clarify what the net of composition for the bank is, because it seems like you recorded an FX revaluation loss, which I'm finding it hard to understand as you had guided that the bank has a long USD position. So that's the first one. The second one, maybe just a bit of a follow-up from what Patrick was saying specifically on trading income. Yes, could you just give a bit more guidance? And specifically, for the trading income you earned last year, could you just maybe give a split in terms of how much of that was proper trading income and how much of that was due to mark-to-market gains on your investment securities portfolio? And the final one, also a follow-up, this one from what Segu said earlier. It does seem like the NPL coverage is going to go up this year. Is there any specific target that you have in mind?

Okay. Tolu, do you want to read any question you have received previously or want us to go ahead and respond to these 2.

I think we can go ahead, given the number of questions from those 2 analysts [indiscernible].

Okay. Thank you. Patrick, if you can just start. And then Segu will comment and speak to the coverage question raised by Ronak.

Okay. So thank you very much. These are quite a number of questions. So in terms of the interest rate sensitivity, a 7% increase in NIBOR translates to about NGN 28 billion increase in our PBT. So that's interest rate sensitivity. So what I then tried to do was to translate that into NIMs as would impact our books. And that is how I came about 0.5% about that and about 1% going on to about NGN 58 billion, NGN 59 billion in profits. Okay? Now in terms of agency, specific questions about breaking down by, for want of a better word, by specific product on the agent channel, whilst we would not go into that, because it's -- this is a call, right? And this is not information -- tactical information that you really want to throw out there. I can provide some guidance in terms of how our agency business is doing. Like I said, we grew count on a year-on-year basis by about north of 90%. We currently -- last year alone, we did about 294 million, 295 million transactions on our agents -- through our agents, and in terms of revs, NGN 15 billion. I can't speak for Access figures, because of the name you put on the table, but I can speak for our figures. The figures are really great. And we see traction, and we continue to roll out agents. We continue to grow that business. Number of customers, I hope the point around transaction accounts is helpful. And we track that much better than we track number of customers because the count is really what speaks to business and momentum going through that channel. In terms of FX, we did about NGN 6 billion last year, but we had an FX trading loss that eventually shrunk everything to, I think, about NGN 2 billion last year. So yes, we are long, but yes, not as long as some of our peers that are reporting NGN 58 billion on some of those and other nice figures. The GMD earlier spoke around guidance. He's discussed that, so I'll skip that. Then in terms of trading income, we -- speaking to fair value to P&L, and that would be about NGN 16.5 billion for the banking group. And then speaking to actual trading gains and positions, credit and all that, that will be about NGN 45 billion, NGN 47 billion for the year. Thank you.

Segu.

Yes. Thanks, Ronak. The GMD spoke earlier that at this time, we will not be in a position to give guidance. We love it. What I'm permitted to say that we don't -- and we see that coverage will be less than 60% this year, at least. Well, I'm sure by half year, you'd have clear [indiscernible]. Thank you.

Okay. Thank you. Ronak, we will continue to engage on this matter. I know how important it is to you. So this is April. Hopefully, by June, when we'll have done 6 months, we can respond in more detail to some of the issues. We are not in a position to talk about right now in terms of guidance. Okay. Tolu, other questions, please?

Thank you very much, sir. So there is -- I'll take a question from Labi Williams, which says could the -- various banks are looking at becoming holdcos with various plans. What is FBN's strategy for holdco aside from core bank? So that's one of the question, the question we have in the chat room. Just to check, Soji, I still see your hand and Ronak, is that the previous or this is additional set of questions. So that -- we can start with the question with Labi. Okay. So those are old hands. So we'll just take the question that I just read out. That'll be fine, sir.

Okay. Okay. I can take that. I can take that. Thank you very much, Labi, for the question. I think would have been immodest. Let me say that we were kind of clairvoyant in seeing the benefit of restructuring through the holding company model about 8, 9 years ago. What other players are looking to do now, we saw the opportunities and we saw the need to diversify away from the commercial bank 9 years ago. But to remind us, because your question alluded to, aside from the core bank, we are not just in the commercial bank, we also have investments in merchant bank, okay? And then we also have investment in asset management company, all right? So that's one area that we need to flag and is -- that business is doing very, very well, albeit consolidated into the Merchant Bank business or the Quest Group. We also have investment in a custody business expansion pension from custodian business. So that's another area some of the banks I want to now restructure through what the company want to get into. We are quite active also in Insurance brokerage, as you know. So really, we are a diversified holding company, and we will continue to review the market opportunities. I'm aware that there are a few other sectors that are looking good, but the benefit of having a portfolio is you constantly review and then you get into the sectors that are looking good. And that is what we do as a holding company. So to your question, we are already well diversified. How we enter other spaces that are looking good will now be a matter of the returns we see and then the regulatory environment and, of course, how quickly we can position. Because we don't want to play, if you like, a second fiddle. We like to enter the sector and dominate the sector. That is what all our businesses have come to deliver to us. So we will keep reviewing the opportunities out there and then take decisions in the best interest of our stakeholders. So it goes beyond commercial bank currently. Tolu?

Thank you very much, GMD. Okay. I think we have a fresh question from Soji. So Soji, please go ahead with your question.

Yes. Just have 2 quick questions. So the first 1 is perhaps Ini or someone else would clarify what's your -- I know there's a lot of talk around expectations for an increase in interest rates. I mean -- but by how much do you envisage interest rates could rise this year? And also what's your outlook for the currency as well? It's currently around 410. The second question is perhaps more for Segu on risk. Could you clarify what the ongoing issues are with Aiteo? There's been a number of articles in the press with Shell, court cases, et cetera. I mean what's happened -- what's really happening there? How do you think this will get resolved? And for your bank itself, what's your exposure in dollar terms? Where is this currently classified? And to what extent have you provided for this?

Please go ahead, any another questions.

Yes. So there's -- we have -- so we have a question from [ Kato ] and then we can take response to the questions after [ Kato ] speaks. [ Kato ], please go ahead with your question?

Hello.

[ Kato ], are you there?

Can you hear me?

Now we can, yes.

I was speaking to myself. I had a strategic question really for UK and maybe Ini. I know Ini and myself have been watching a lot of these fintech valuations in Nigeria and the multiples to revenue that PE firms have been paying. And not one of these companies even does 10% of your electronic banking revenue. And some of these guys have been given $1 billion valuations. What can you do strategically to kind of monetize what it is? Because you've built an unbelievable machine that is digital, but the world just doesn't seem to get it. What can you do to kind of realize that value for the asset that you have built? What are the options available to you that you're thinking internally? Because -- is it possible to spin it off? Because it's just illogical that someone is paying so much for businesses that aren't even a 10th of your size, more than your current market value. And just want to know what you're thinking about in terms of realizing your true valuations?

Thank you very much, [ Kato ]. That's a very interesting question, and we'll respond to that. Did you want to take another question or we just clear these ones. First of all, Ini can speak to the questions around the interest rate outlook, and then Segu would take the question on IT. I think there was one on IT and current classification. Please go ahead, Ini.

Okay. Well, basically speaking to the outlook. I think we all agree that interest rates need to move up. Nigeria is not a low interest rate environment, especially when you look at where inflation levels are. Again, also, I think we can also agree that the currency also needs to depreciate somewhat. When you look at where it is officially at 410, you look at the -- where the parallel market is, we look at the issues around the lack of liquidity that still persists. So we're far from normalization. And normalization will need and will require an adjustment of both of those variables. Unfortunately, both of those variables need to weaken. So interest rates need to move a little bit higher as well as the currency. Now the question will now be depending on how you push or pull either lever, that will determine the quantum of movement on either side. When you look at what the Central Bank has done thus far, we've clearly seen, one, it's made an adjustment in the currency. So we moved from the 360, 370 hurdle to 410, 411 hurdle. They've made an adjustment on interest rates. So we've seen the former rates move back to double digits to around 10%. I would posit that we're still pretty far from equilibrium. So more adjustments need to happen. But I think they are meaningful adjustments. And my view is the bigger lever that needs to happen is on the domestic interest rate side. So [indiscernible] were closer to where they should be, the overall level of domestic interest rates is way too low. So you can't have corporate deposit rates, retail deposit rates in the low single digits. That's not going to work. So we've got to see an aggregate move in the overall level of rates in the environment. Then that will probably limit the amount of currency adjustment that could potentially be required to put things in equilibrium. So as Patrick alluded to, we believe that in the course of the year, those adjustments will happen, especially on the interest rate side. And that will probably modulate some of the needed adjustments on the currency side to bring things closer in that. So we think there's still some growth. Thank you.

Okay. Segu, please.

Thank you, Soji. The issue of Aiteo is not what you read in the press. Let me address this way, Aiteo is an asset that produces between 85,000 to 100,000 barrels a day. So if you have an asset that can produce that, moving with oil price where it is today, [indiscernible] cash. Aiteo has 20-year license renewed in 2019. We have 18 more years to go. We also know in commodity market that you must do skirting, because there will be time that the price might be low that you just need to -- you take care of your interest. And at the time of [indiscernible], you have to now claw back and move ahead, you're going to have smooth pivot. Three, the real people are struggling there. Basically, we see parties to the contract. But more importantly is that Shell is the offtaker of the crude being produced by Aiteo. Shell is a good handler. Shell is a lender to Aiteo. It's an asset. So when parties disagree this way, it's much more beyond capacity. So we lenders, we see capacity as strong. We see cash flow as good. But issues that need to be resolved are just issues of how and where I would put my goods and how do I sell it? As simple as that. And if you read in the press about in Montego, I think DPR came in on 1 or 2 issues as well as the issues of dispute on what could be lifted and not could be lifted and all of that. So well, now because this is before the court, so I think we allow the court to decide on some of this. We don't get involved in this however. But one thing is clear is that you have assets that has capacity, have an asset that can [indiscernible]. You have an asset with 18 years license more on its back. And you have offtake agreements that allow you to stabilize [indiscernible]. So what worse that can happen is for the lenders to restructure over 5, 6, 7, 8 year and you get kicked out. And if you have 10 years to go, you have asset that can produce for the next 40 years. I mean, why don't [indiscernible] and just allowed us to pay down self. As for [indiscernible]. And I think it's still too across, because we still have cash coming in. It's not really stopped producing crude. It's not that their crude has stopped selling. It's just because of dispute that parties are trying to resolve the other way. And I think we've gone to a level where all parties have agreed now. They'll just have to just sit down and resolve it and allow this to be down in an orderly fashion. Thank you.

Okay. Thank you very much. I would request the CEO of the Commercial Bank to take the question on digital business and the valuation of fintechs. Sola, please go ahead.

Thank you, UK. Before I respond to the question on digital [indiscernible], a closing remark on Aiteo. The relationship is currently troubled, like Segu said. But the consortium of lenders, of which we are a key part of that, we are doing all that is necessary to ensure that we get to the destination safely. There isn't much that we can say, given the fact that part of this is before the -- it's prejudice at this particular point in time. But be rest assured that we are working as a team, the consortium of lenders. We meet regularly, and we're on top of this situation. There isn't much that we can say. And there's actually a periodic meeting of the CEOs of the lenders. So this gets to the highest level within each of the lending institution to ensure that we give you the attention that is required. Regarding the valuation of digital, you're absolutely right. We are very proud of the kind of machine that we have built today. You're looking at USSD business where we currently have over 11 million active users. So you are looking at the mobile and, indeed, you're looking at agency banking. We have our strategy around what we need to do regarding this formidable machine that we have built in terms of what to do with them strategically and ensure that we get the appropriate valuation upside. Again, there isn't much that we can disclose on this call. But we are fully conscious of the fact that the market is not giving us the right valuation as far as this machine is concerned, that's number one. Two, we are also fully conscious that we have successfully built by far the largest bank-led agency banking business in this part of the world. If you recall when the GMD presented [ some fee ] side, this is one area where we have built some incredible capabilities, and we expect that we would -- we are already exporting these to other African locations or jurisdiction where we have businesses. Imagine what this could potentially mean in a country like DRC Congo, controlled by 80 million, 85 million people with landmass [indiscernible] the size of Nigeria. So we're quite fully conscious of what the upside could potentially be, and we are strategically evaluating our options. Thank you.

Thank you very much, Sola. And we'll turn back to Tolu to continue with the questions.

Thank you very much, GMD. Thank you, CEO. There are no other questions -- additional questions on the chat room. What I see -- and yet another from Soji, Is that -- okay. I just saw that -- I think that's previously. So at this point, we have no further questions, GMD. So in view of that, I will now invite you for the closing remarks.

Okay. Thank you very much, Tolu. First, I would like to thank all the attendees. We've got like over 80 that connected to this call. That speaks to the interest -- sustained interest of you all on this company. This is just confirming to you what we said last year, that this 2021 would be a very remarkable year. We believe the group has been transformed. And you can see all the metrics you are tracking showed positive trends, and that is going to continue. We do think that we have built a strong platform, and our systems are now well positioned to take advantage of the growth anticipated for 2021. We are looking forward to announcing the first quarter results. It will be this April once we conclude our reviews. And you see that the strategy is working and we'll sustain it. And so I thank you for attending. If there are questions that we haven't fully taken up or satisfactorily answered, the door is open. As always, Tolu, will be here any time to respond. Or you can come directly to me, as some of you do, and would be glad to give further context to the performance for 2020 and the plan for 2021. I look forward to hosting the next investor and analyst call. And I do look forward to seeing all of you and more joining us to understand our growth plans. With that, we would bring this to a close, and I thank you for participating today. Thank you.

Thank you very much for your participation. You may now disconnect.