First HoldCo Plc (FIRSTHOLDCO) Earnings Call Transcript & Summary

Good afternoon all, and thank you for joining us for the FirstHoldCo financial results conference call for 2024. We appreciate the time you are taking to join us on this call today and for your continued interest in FirstHoldCo. My name is Tolu Oluwole. We'll commence today's session with an overview by the Group Managing Director, and then we'll follow up with a question-and-answer session. [Operator Instructions] So I will now hand over the call now to FirstHoldCo Group Managing Director, Wale Oyedeji, for the overview.

Good day, ladies and gentlemen, and thank you for joining us to review FirstHoldCo's full year 2024 results. This is my first call as the Group Managing Director, and I want to start by saying how pleased I am to be speaking with you today. Many of you know the institution well and some of you have followed us for years. But this is also an opportunity to share with you how we see the road ahead and how we intend to lead through it. I'm joined by my colleagues, Segun Alebiosu, CEO of First Bank; Ini Ebong, Deputy Managing Director of First Bank; Wale Ariyibi, our Group CFO; Patrick Iyamabo, CFO of First Bank; Patrick Akhidenor, CRO of First Bank; and Tolu Oluwole, our Head of Investor Relations. Let me start by offering a quick perspective on the institution I now have the opportunity to lead. FirstHoldCo is not new to resilience. We're a diversified group built on deep customer trust, strong governance and a pan-African footprint with operations in the U.K., presence in France and China. Our portfolio spans commercial banking, investment banking, asset management, securities trading, trusteeship and insurance brokerage, with scale in Nigeria and growing reach across the continent. Our structure is now more streamlined now than ever. Following the divestment from our merchant bank, the key operating entities under the investment banking and asset management group are now directly held by the holding company. What has not changed is our ambition. We are recharging the platform with the right leadership, a unified identity and a strategy that speaks to where the industry is headed, not just where it has been. The leadership team we have assembled brings not only experience, but a deep understanding of the system, the operating environment and our role within it. At Board level, we benefit from strong oversight, clear alignment on strategic direction. Finally, a word on why we changed our name to FirstHoldCo. This was not just about branding for its own sake, it was a signal, a signal of integration, of evolution and of our commitment to serve our customers across key financial needs, not as separate businesses but as one group. With that context, let's turn to the performance for 2024. We made a strong progress against our strategic priorities. Gross earnings grew 106% year-on-year to NGN 3.2 trillion. Profit before tax increased 124%, underpinned by both interest and noninterest income. Net interest margin improved to 9.9%, driven by active balance sheet management and a 57% increase in our interest-earning assets. Cost-to-income ratio improved to 43.3%, reflecting our commitment to enhance efficiencies and scalable growth. We also completed a major transition in leadership. Following the retirement of Mr. Nnamdi Okonkwo, I assumed the role of Group Managing Director. Segun Alebiosu and Ini Ebong were appointed CEO and Deputy Managing Director of First Bank. These appointments reflect our investment in talent and governance at the highest level. Another key milestone was the successful completion of the first phase of our capital raise. We secured NGN 147.3 billion in net proceeds from a rights issue that was over 125% subscribed. This speaks volume about investor confidence in the direction we are heading. And as approved by shareholders, we will now move to raise an additional NGN 350 billion through private placement. This will support First Bank's recapitalization and investments in new business adjacencies. We remain one of the most trusted and established institutions in the Nigerian financial services space. Our deposit rose by 61% year-on-year to NGN 17.2 trillion. We are the clear leader in electronic payments, with over 20% of market share of commercial banking volume. Our operating efficiency remains strong with a 5-year OpEx CAGR of 26.1%, which is lower than the Tier 1 bank's average. Our agent banking network now includes more than 280,000 agents across the country, a critical pillar of our financial inclusion strategy. These are not isolated statistics. They are the product of long-term investments in capability, reach and customer trust. As you are aware, in 2024, the APEX regulator, the Central Bank of Nigeria, introduced new minimum capital requirements. First Bank, our flagship subsidiary as an international bank, is required to meet a NGN 500 billion threshold. We have a clear plan to get there. With NGN 147.3 billion already raised in net proceeds from the rights issue, the upcoming NGN 350 billion placement will put us in a strong position well ahead of the March 2026 deadline. The capital will be deployed strategically to shore up the bank's capital for business growth and development, support growth in earning assets expansion, investment in automation and digital banking in the first instance, then investments in new business adjacencies subsequently. We ended the year 2024 with a return on average equity of 29.8%, comfortably ahead of our 2024 financial target as we guided in 2020. Cost efficiency continued to improve as income growth outpaced inflation-driven expenses. On asset quality, I need to be clear, our NPL ratio rose to 10.2%. While this was driven by a single isolated oil and gas exposure, we took early prudential action with appropriate provisions. Excluding that loan, the NPL would have been around 5.4%. We view this as a test of our risk framework and one that we have indeed passed. The resilience of the broader portfolio remains intact and our risk oversight continues to improve. As we enter into a new strategic cycle, our focus is on disciplined long-term growth. Our pillars are: expansion, that is selectively growing in markets and segments where we are best placed to win; innovation, digitalizing our core processes to improve speed, reduce cost to serve and enhance customer experience; integration across the franchise, this is about unlocking value across our businesses by aligning capabilities and platforms; and lastly, sustainability, we will be embedding -- continue to embed ESG into lending, finance and community impact. We will continue to explore adjacencies and deepen customer relationships while delivering improvements in service quality, risk management and return on capital. Before we move to the Q&A, I want to thank all of our people across the FirstHoldCo franchise family. This performance reflects their hard work, resilience and execution amidst a challenging operating environment. We are clear-eyed about the macro backdrop, but we are also confident in our strategy, our leadership team and our ability to continue delivering value to shareholders and stakeholders. Thank you for your time. I will now hand over to Tolu Oluwole to moderate the Q&A.

Thank you very much, Wale. [Operator Instructions] We have a question from -- so start with Oluwayemisi Sunmola, Vetiva. Please go ahead.

Congratulations on your impressive performance. So my question would majorly be on the funding side. So we saw from your results, interest expenses came in actually higher than -- the rise in interest expenses came in higher than what was recorded in interest income, as well as we saw increased impairment charges, which came in higher than anticipated. So my question would be what would be the bank strategy as to maintaining costs as well as improving the general bottom line performance on the long run? Secondly, what would be the bank's view on future dividend payments and investor returns?

Thank you, Oluwayemisi. So that question will be responded to just after we take the question from Olumide Sole. Olumide, please go ahead.

Please confirm you can hear me?

Olumide, we can hear you. Please go ahead.

Okay, okay. Starting with, I would say, yes, the results quite good, quite impressive. And it shows, like you mentioned -- you mentioned in your presentation that the bank has been resilient and it showed -- the result definitely shows the resilience of the bank and the group as a whole. So my questions start with, firstly, NPL at 10.5%. In the presentation, it was stated that it was due to a single borrower. So please can you provide more details on that, which borrower and what's the current state of that? And also, I will also be asking, for capital adequacy ratio, I know in the past, the bank has been working on improving its capital adequacy ratio, and that's why we have not seen dividend payments get to the expected levels. So based on that, my question now on that would be where -- for capital adequacy ratio, when would the bank get to its target capital adequacy ratio, when it will be comfortable to start paying out sufficient dividends to shareholders? That's my question for now.

Thank you, Yemisi and Olumide on the questions. I'll have my colleagues on the call. I will have Patrick take the first question on interest expense outpacing interest income. I'll have Wale Ariyibi take the second question on the future view of dividend payments. The third question on -- thanks for acknowledging the impressive results, Olumide. On the NPL at 10.25% and the current state as well as CAR, I'll have the bank CEO address those questions. Thank you. Patrick, over to you.

So thank you, Wale. Good afternoon or good day to everyone on the call. So to the question around interest expense, the interest expense growth noted essentially reflects the yield environment. But I think it helps better to contextualize the full situation. So what you would notice is that even though interest expense increased in the course of 2024, again, reflective of the yield environment, our interest income actually grew much, much faster. And as such, the financial performance -- the strong financial performance acknowledged is significantly driven by a very strong growth in our net interest income. Indeed, the NIM for the banking group for 2024 is the highest we've seen in the last 7 years. And this reinforces the points we've repeatedly made on calls, which is that higher yield environments are very favorable for the bank. And we had indeed pointed out about 2 years ago that as the yield environment starts moving up, we should expect to see improvement in net interest income, improvement in profitability, and that's precisely what has played out. Thank you.

Thank you, Patrick. Wale Ariyibi, please.

Thank you, GMD, and thank you, Yemisi and Olumide for the question. The question is on future view of dividend and investor return. We're very concerned also about the payment of dividend with respect to what we've paid to the shareholders over the years. But if you followed us, you'll notice that deliberate as -- [indiscernible] is a deliberate strategy to conserve capital and build capacity for the future. As you'll notice, between 2024 and 2023, we paid 150%. It was NGN 0.40, but this 2024, it's NGN 0.60. We are not unaware of the need to pay a decent dividend. We also know that NGN 0.60, it's not the kind of dividend we planned. But in an environment -- at a time when we are raising capital, we think it's counterintuitive to also be paying out money, particularly from the holding company that is raising the capital. Let's look into the future. By H1 2025, which is a couple of months from now, like 2, 3 months from now, we expect that we will have at least gotten the bank to the threshold and slightly beyond as we embark on the NGN 350 billion additional private placement to ensure that we're ready to recapitalize the bank in a manner and to state that the bank can take back its rightful place, which is a crown jewel in the community of financial institutions in Nigeria. Once we're done with recapitalization to the limit and to the threshold, and even beyond that CBN has recommended, which is NGN 500 billion for the financing that we have with First Bank. From then on, you will see better performance. And we -- in our plan from 2025 financial year ending December 31 and onward, the dividend will improve and we shall see it. Thank you.

Thank you, Wale. Bank CEO, please.

Thank you. On the issue of increased impairment, GMD alluded to the fact that the NPL ratio was that high because of material single event that actually accounted for about 50% of the NPL ratio you are seeing. And of course, when you have that, we need to take impairment allowance. And as you know, First Bank is very prudent. But we will do that and ensure that we comply with regulation. That is what we will do. Now looking at the future, it's better for your bank to be this resilient and to be able to deliver quality revenue in the future. We don't expect -- I mean, it's not that we don't expect this trend to continue, but at any point in time, if we need to confront issues, your bank will confront those issues professionally. So -- and I'm sure you also saw across the industry that impairment for the year was a bit elevated. Again, more importantly, the operating environment was also tough in 2024. And so our impairment model will actually reflect those events in the macroeconomy. Thank you.

Thank you bank CEO.

Thank you all. So Olumide and Oluwayemisi, I hope that answers your question. [Operator Instructions]. So we'll go to -- okay. There are questions in the Q&A. Okay. So the first question here from Gideon Oshadumi. So he wants to know what's the reason for the drop in capital adequacy ratio year-on-year? And then the next question is from Akpifo who wants to know the cost of the head office. And then to Gideon again, so the 3 questions here, which is what's the reason for the drop in capital adequacy ratio, which was earlier asked, so we just take this batch of questions from Gideon. So the first again, just to repeat, what's the reason for the drop in capital adequacy ratio year-on-year? And then what's the status of the previously conducted rights issue? And can you shed more light on your plans going forward? And have the shareholders approved the private placement? And when -- he goes further to ask, when should we begin to expect a better payout ratio? And then finally, from Gideon, that's concerning the recent decline in global oil prices, what are the steps towards your oil and gas loan exposure? And can we shed more light on forbearances? So we take this set of questions before moving to the next set.

Thank you. Thank you for the question. I have assumed that the bank CEO have taken the question on capital adequacy, but he will come back and provide more coloration on that. You -- someone -- Gideon, I think, raised an issue on the cost of the head office. We broke ground. And I'm sure you might be aware that we bought that land probably more than 15 years ago. So there's a process, it's early days. It's still early days right now to comment on costing and all of that. On the status of previously conducted rights issue, if I get you right, we have deployed the net proceeds of NGN 147 billion, and that has been given to the bank and that now forms part of their capital. And like I mentioned in my opening remarks, we had a 125% oversubscription. So that's been dealt with. And the shares issued to the various shareholders listed on the NGX, so that's been concluded. Regarding the private placement, we have all the requisite approvals for the private placement, and we will commence in due course the raising of capital under the private placement program. As mentioned, we're looking to raise NGN 350 billion, which will not only help us to meet the capitalization requirements of the bank, but we'll have more than that to give the bank and also to explore some business adjacencies. You had raised a question on better dividend payout. I think the CFO-ED of the holding company, Wale Ariyibi, had spoken to this. In a period where we're conserving and trying to raise capital, it really would have been counterintuitive to have gone ahead to have huge dividend payouts. But watch out, like he had mentioned, in subsequent years the dividend payouts will be greatly enhanced. So the question on drop in oil prices and the measures we are taking on our oil and gas book and our exposure in that space, I will yield the floor to the bank CEO, Segun Alebiosu, to take that up. Thank you, Gideon. Bank CEO, over to you, please.

Thank you, GMD. On the issue of drop in capital adequacy ratio year-on-year, it's about growth. And I'm sure looking at our portfolio or looking at our balance sheet year-on-year, you have seen the material growth. And so -- and those material growth will also consume capital. More importantly is the fact that the growth are positive and will lead to bigger, better profits in the future. On the issue of declining oil prices and our oil and gas portfolio, our oil and gas portfolio, one, many of them are syndicated. Many of them are hedged. We don't have oil and gas exposure with Naira receivables, so they're all foreign currency receivables. So we're not exposed to currency risk. In as much as oil price is above NGN 45, we will likely be fine. In financing commodities or natural resources across the world, because of price volatility, whether it's copper, it's gold, it's oil, it is lithium, whatever, we always have a period of higher prices, normal prices and low prices. And so what you do is [ sculpting ]. If at any point in time, if oil price should fall below NGN 45, you have to reassess the cash flow and then [ sculpt ]. So you might just have to take in interest during those periods when those things are bad. And then when prices go up, then you pack up [indiscernible]. So when you lend to natural resources, so you must prepare your mind they're going to have the price fixed over the period. You sculpt and that's what you do if the price fall below NGN 45. If the price does not fall below NGN 45, it will likely be all right. And as of today, I'm not sure it's below NGN 60. So we still have the buffer for us to proceed. On forbearance, this is an industry issue. And the good thing here is that counterparties, they are not dead transactions, they are living transactions. But what is just required is for us to restructure and lower them. Most of our forbearances are in oil and gas actually, and power sector, and there is no country in the world where people expect oil and gas loan to finish paying loan in 3 years. It's not trading, it is oil and gas, it is power assets. You can't say you want a power plant that can last for 35 years, and instead in 5 years you finish paying the loan. And in fact, there's no [indiscernible] investment, of course, that it [ slow ]. And so, it is for lenders to structure, to see how cash flow comes into the assets, and then we'll all be fine and [indiscernible]. So I don't have any concerns. It's about the industry and I'm sure the industry will address it accordingly. Thank you.

Thank you. Tolu, more questions from you.

Right. So we'll take the next question from -- okay, the next question is from [ Toyin Aju ]. Given the bank has a Eurobond maturing in October 2025, will the bank look to issue another Eurobond later this year?

Thank you, [ Toyin ] for the question. Ini, please, can you help attend to that?

All right. Thank you. Good afternoon, everyone. Well, yes, you're right, we do have a Eurobond that matures in October. You'll be well aware that overall foreign currency liquidity levels have improved dramatically in the Nigerian market since the change in FX policy stance by the Central Bank. So we will look obviously to redeem as we have in the past. You will note this is our fourth Eurobond that we've issued, and we've always redeemed them in full without the need to refinance or reissue at the same time. So we'll redeem it in due course. We will look at market conditions. And if there is a need and the market conditions are right, we may choose to tap markets at an opportune time. Thank you very much.

Thank you, Ini. Tolu?

Thank you very much, Ini. So we'll take the next set of questions now. And this is from Ifeanyi Osele. So the question goes, a lot is going on around asset quality with significant write-offs seen in 2024, which were greater than the total write-offs between 2021 to 2023 combined, and a significant rise in NPL specifically from terms loans and NPL. So could you provide us with more color on what is happening around the loan book? And FirstHoldCo -- the next question is FirstHoldCo recorded the strongest expansion in NIM when compared to other Tier 1 banks. What does the bank do differently or more efficiently to enable this outperformance? And then the next question is, what are the plans for management to drive performance in 2025? And then that follows with FX derivation grew by 3.7x in 2024, driven by surge in currency swap. What is the time line for the majority of these swaps? And to what extent would FY 2025 profitably be hampered if these are not rolled over? And finally, and there's a question on dividend payout, which has previously been responded to. So we'll just take this set of questions before moving to the next. Thank you.

Thank you very much. There are about 5 or 4 questions. On the third one, let me just take that quickly, what are our plans to drive performance in 2025. We are at the commencement of our strategic planning program, diligent execution of our strategic imperatives, continue to grow our volumes and drive growth in segments where we plan to win, like I mentioned, a disciplined approach to cost and exploring other business adjacencies, and just playing to our strengths in the retail banking market, are some of the things that we will be doing to push and sustain performance in 2025. On the question on asset quality, I'll have the bank CEO take it. On the second question on the FirstHoldCo growing significantly across a lot of lines, I'll have the HoldCo CFO take that. On the maturity or the maturity of the swaps, I'll have Ini take that question. Thank you. Bank CEO, please.

Thank you, GMD. As stated earlier, the elevated NPL as a result of a single exposure -- which you all know, I'm sure you've read in the media. That singular exposure is about 50% of the NPL that you saw. Without that, we will all be on the same level with our peers at about 5.2%, 5.3% levels. That is exactly what you will see. This is not what we expect, and this is what will continue. So this will moderate. Of course, if that singular issue is resolved, of course, the NPL will drop actually. So I can assure you that. You have seen that in the last 4 years, the NPL ratio has been trending downwards. And notwithstanding the macroeconomic environment, we have been able to weather this. So you can have this [ 5.8 ] from a single customer. But the more important thing that I want you to take away is that you have a bank that is resilient and strong enough to withstand shocks. Thank you.

[indiscernible]

Finally, the question on dividend payout ratio and what we expect in the future, that's question 5 from, I think, Ifeanyi. The payout ratio is not 4% really. That computation is not correct. It's actually wrong. The payout ratio was 95% in 2023 and 82% in 2024. You will observe that all of the dividend that HoldCo received from subsidiaries, you check depending on the year you're looking at, then '14, '15 or '16, over the years, you will see how HoldCo has aggregated dividend from the subsidiary companies. And virtually all of the dividends actually paid out to the ultimate shareholders. Now earlier on, I've answered that going forward, that from H1 2025, from end of H1 2025, we'll have achieved the minimum capitalization requirement of central bank and even surpass it. And as we begin to do our capital plan, capital raise, which is NGN 350 billion that the shareholders approved on November 14, 2024, we're going to -- we have been able to do up to NGN 350 billion. Once we conclude the capital raising exercise, the performance will improve. And once that happens, we're going to pay better dividend going forward. Just watch out for dividend that we're going to be paying from financial year ending 31st December 2025. That is the answer to that question. So at HoldCo, we always paid minimum 80%. And the lowest we've paid in the past 4 years will be 2024, which was 82%. Otherwise, 96%, 97%, 95%. And the reason, as I said earlier, this year, we're raising capital to recapitalize the crown jewel, First Bank, in line with CBN and even for the business experience that we see ahead of us. So that's why we pay 82%. We're going to do next round of private placement capital raise and transfer it to First Bank to achieve the target we have. From 2025 year ending, we'll be paying a better dividend than what you've seen before. Thank you.

Thank you. Can we have Ini take the issue on the swaps?

Okay. As part of our normal treasury market activity, we engage in swaps with a variety of counterparts, and these are usually cross-currency swaps or simple foreign exchange swaps. Tenors vary, but they're usually long term -- usually short term, sorry. We don't typically have anything long term in our books. So you would typically find that we have tenors of anything below 1-year, on the outside 2-year tenors. So we have a variety of swaps in the books that will mature in the course of the next 12 to 18 months or less. Thank you.

Thank you, Ini. Tolu, next set of questions.

I think there's a question here that says that we have -- that FirstHoldCo has recorded the strongest expansion in NIM and when compared to other Tier 1 banks. And what does the bank do differently or more efficiently to enable this outperformance?

Okay. Thank you. I'll have the bank CFO, Patrick, to take that. Patrick, please.

Okay. Thank you, GMD, and thanks for the question. I think it really comes down to the way we think and approach ALM and also the way we think and go about the customer portfolio. I've mentioned to you -- managing our customer portfolio. I mentioned earlier that when yields move up, you see very, very solid results from the bank. And so it's down to how we prioritize the different aspects of the portfolio versus the yield environment at play, the various products we offer to the various customers in the various portfolio prioritized to match the yield environment we are playing in, the pace at which we respond in terms of our yields and pricing, the way we approach our funding considerations and to minimize our cost of funds and for as long as possible, and ultimately, everything around ALM. So it's really tactical in terms of portfolio and product prioritization. We're strategic in terms of how we deal and approach the customers. And it's also, again, very much tactical in terms of [ ALCO ] and how we manage our cost of funds. But then, ultimately, what we always ensure and what we've consistently delivered is the capacity to accrete much more value for shareholders in environments like these. Indeed, as we've repeatedly said, every time you have volatility and things appear difficult, we've repeatedly and consistently been able to demonstrate that we have the means to accrete value for shareholders in those circumstances. And we expect that would continue to be the case. Thank you.

Thank you, Patrick. So we'll take the next set of questions. And so this is from Damilare. And the question is, can you give us an update on your capital raising program, especially as it concerns meeting the new capital base of NGN 500 billion for a Tier 1 lender like you? We're aware that the first tranche of capital raise was a success last November, December, but an update will be critical. And the next question is, secondly, why is your dividend significantly trailing? So we talked about the dividend earlier. I think we responded to them 2 occasions earlier in this call. So the next set of questions is about the Eurobond, and Ini also responded to that earlier on. And the next question here is kindly confirm your payout ratio and calculated numbers from the financial risk 3.2 and 4.7 in 2023. Wale Ariyibi, the CFO of the holding company, I think also responded to this. So just to touch on that, as you look at the company, the EPS of the company is what you use rather than the group, which is where you will get your payout ratio as the company actually pays out the dividend. So in view of this and the question to -- we have another question now from Damilare, which is the issue of the capital risk program and then the guidance towards the NGN 500 billion Tier 1, the NGN 500 billion to recapitalize the bank. Thank you.

Thank you, Damilare. On the issue of the capital raise, we have spoken to this earlier on. As you rightly said, the capital from the rights issue is coming. The gap to meeting NGN 500 billion for the bank is NGN 122 billion. The proposed capital raise via private placement is NGN 350 billion. We have all the requisite approvals, shareholder approvals, regulatory approvals to proceed with the raise. And in the next few weeks or months, you will be kept abreast of developments in that space. Be rest assured that well in advance of the March 2026 deadline, First Bank of Nigeria will be capitalized to a minimum of NGN 500 billion under the CBN proviso or requirement. I think it's also important to remind you that we went into the market to raise NGN 150 billion under the rights issue. We got NGN 189 billion or NGN 187 billion from our shareholders, which is an indication of the confidence that our shareholders have in the franchise. And if you understand how the private placement works, that confidence has also been displayed and would manifest. So be rest assured that we would get the bank to the NGN 500 billion minimum requirements in due course, well ahead of the March 2026 deadline. I hope that clarifies all questions on the prospective capital raise. Thank you.

Thank you very much, Wale. [Operator Instructions]. All right. Thank you very much. There are no further questions at this time. So I will now invite Wale back for the closing remarks. Thank you.

Thank you very much, everyone, for joining the call. We appreciate your interest in the franchise. We appreciate the questions and the comments that you have passed. Thank you for following us. And we just want to assure you that in 2025 and in the new strategic planning period, we intend to continue to deliver value to our shareholders, and we will come with impressive results that will let you know that we are in the direction towards regaining our leadership in the Nigerian market space. Thank you for your support, and thank you for your interest in the franchise. Have a lovely evening. Thank you very much.

Okay. That concludes the FirstHoldCo Full Year 2024 Financial Results Conference Call. Thank you for your time, and you may now disconnect.