Guaranty Trust Holding Company Plc (GTCO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Guaranty Trust Bank Full Year 2020 Investors and Analyst Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Segun Agbaje. Please go ahead.

Good afternoon, everybody. I hope everybody is healthy. Thank you very much. Welcome to our year-end 2020 financials call. We have circulated the presentation. I think that's been up for like 3 days. So I will take it as read, and go straight into Q&A, if that works for everybody. Thank you, and good afternoon.

[Operator Instructions] The first question comes from Muyiwa Oni from SBG Securities.

Congratulations on your results, given the difficult platform and environment. I have a few questions, and the first is, an update on the holding construction. So trying to understand where you are in terms of time lines and extra restrictions and cost synergy lists? So I would like to understand on what to expect with the plans for the wealth business, the men's business and also the Africa subsidy? And suppose -- also having -- what to expect in terms of succession planning, given that we can [indiscernible] and expectations in Central Bank should be up this year? So I'd like to [indiscernible] succession plan? And also think have...

Sorry. I didn't get your third question.

Muyiwa, if you don't mind just speaking up a bit, the third question.

Muyiwa, just speak up, and I didn't get your third question as well.

So the third question is on the Africa franchise. So as of succession planning. I wanted to get your...

Yes, that's the second one.

Yes. So third on the Africa franchise.

Hello?

Segun, are you able to hear Muyiwa's question?

No.

Can you hear me?

I only heard -- I heard the first and the second one.

Can you hear me now?

I heard [indiscernible] structure, timing and then I got succession planning, but I didn't get the third one.

Okay. Muyiwa, if you could proceed with the third question. Let's just see if Segun is able to hear you.

Okay. So wanted to get the sense of the -- for the Africa franchise, expect a contribution. So we're seeing improvement in income and asset contribution, but I wanted to get a sense of where things should be over the next 2 to 3 years? And then lastly, on your view on the current interest rate environment, how to -- I'm just trying to understand how quickly we should expect that yield to move or means to adjust given interest rates, particularly short term is increasing and I think [indiscernible] is increasing as well.

Okay. Hello. Can everyone hear me? Okay. Let me try and take the first question. And I always say I will only spend a little bit of time on each question because I suspect other people have the same questions, and then hopefully, it helps. In terms of holdco structure, I think -- let me first say thank you to shareholders for giving us the approval at the EGM. That was an essential step to moving forward. So we have that approval. After that, all we have to do is submit to the Central Bank. Things are working a bit more so because of COVID, because even the regulators are not fully at work. But where we are now, we're at the final stage of approval for holdco. So we've done physical inspection. We're just waiting for final approval and final license. So from our perspective, we're well on track. At the very worst, we will run a holdco structure for at least half of this year. In terms of succession, just like I had always told people, that we would not have a succession problem and that we would be done by the end of December 2020. Succession is completed. But you must remember -- and we did. We were done by 2020 in terms of bank succession. However, just as we've spoken about holding companies, so it's good into was your first question, is that apart from succession of the bank, we're also going through what you would -- you must imagine is a corporate reorganization by setting up a holding company. It therefore means that we're going to have a holding company Board, and we're going to have a bank Board. In order to keep the operational efficiencies around the organization, both from a cost basis and efficiency perspective, we're going to have a 7-person Board at holdco level, and we're going to have an 8-person Board at the bank level. That way, you will see that the 2 numbers will not be very far from what we have as a bank today. We have decided that it is appropriate, based on what I've just said, that we announced the holding company Board and the bank Board on the same day, which will be after we get final approval for the holdco. So where we are is internally at a Board level. Succession as far as Guaranty Trust Bank is done, holdco Board has been formed. Bank reorganized Board has been formed, how we will announce this, and we think the appropriate space to rebuild both on the same day after final approval so that investors and shareholders have a complete picture. In terms of the African franchise, as you rightly pointed out, African franchises today are 15% of the number, 20% of the deposit base and 15% of profit. However, one thing we had promised over the last couple of years, if you've been following our calls, was that we wanted the African subsidiaries by the end of 2021 to contribute $100 million, and we're well on track. They did $85 million last year. So we're pretty confident that we will meet the $100 million target. Obviously, in the perfect world, we would like to diversify our earnings base, part of what is taking us into the holding company structure's diversification of earnings. Earnings outside of Nigeria constitute diversification. So I would hope that over the next 3 years, you will see us pushing to 25% to 30% in terms of contribution from outside Nigeria to the whole, without Nigeria slowing down. Now you talked about the interest rate environment. I think that we're going to have the year of 2 halves, and we started to see that. In terms of open market, automobiles, we're at 10%, which is by 11% yield. So we've moved from about 1% at the beginning of the year. In terms of NTPs, we're at about 7%, so we started to move. What has not yet moved are loans or what I would call asset pricing. And my belief is that, that will start to move at the second -- by the second half of the year. There is some resistance now on the loan side, but I think it will happen. So my expectations of interest rates have started to play out, and they started to go up. And I think you will find that they will go up even more in the second half of the year. So I hope I've answered all your 4 questions.

The next question comes from Adesoji Solanke from Renaissance Capital.

This is Adesoji from Renaissance Capital. I have a couple of questions. So first of all, just 3 questions, relating to cash [indiscernible] special bills. So the first one is, I presume you received the CBN special bills in December. I may be wrong, maybe it was January. So I'm trying to understand why we haven't seen a reduction in your restricted balances vis-a-vis the special bills you received? And I mean on these special bills, when do they mature? And what do you think happens to them at maturity? And the third related question is, what are your thoughts on the likelihood of having your cash reserve invested in FGM bonds as the CBN securitizes with [indiscernible] loans with the Federal government? And what sort of pricing do you expect on these securities? My next 2 questions are just -- considering the significance of FX revaluation gains in your 2020 earnings, firstly, where do you see the FX rate settling this year? And secondly, can you run us through how you anticipate making up for those gains if they do not repeat this year, as you've guided for a NGN 5 billion increase in your profit before tax in 2021? Then finally, the provisions you made in Q4 real estates for loans? What did this relates to? In your slides in....

I'm really sorry. I kind of lost you. After FX rates and revaluation, you asked -- I missed you after that. You kind of cut off after that.

No worries. I'll just repeat my questions. So the first one was around -- considering the significance of FX revaluation gains in your 2020 earnings, firstly, where do you see the FX rates settling this year? And secondly, can you run us through how you anticipate making up for those gains if they do not repeat this year? As in your guidance, you expect a NGN 5 billion increase in profit before tax. As the provisions you made in Q4 on Stage 2, what did this relates to? Because in your slides, I believe you mentioned this was related to one specific client. Those are all my questions.

Okay. Thanks, Soji. Let me start with CRR. I believe that we took NGN 411 billion in special bills. So that is already in the figure you see. So when you look at -- if you look at it, our investment securities went up by 27%. The reason that increase is so high is because of the special bills. In actuality, we only have bills about NGN 336 billion. So the special bills are in the figure you see at year-end. In terms of what I see, as far as I know, these things are going to be rolled over. They've been rolled over every 90 days. So I expect that we're at about a 3- to 4-year program. And that they would be rolled over every 90 days, and now they're being priced at about 0.5. So I think we should look at the special bills like a rolling program like you would have a long program. If you were going CRR into bonds, of course, it would depend on the turn of the bonds, that will determine what type of yields I would like to see. Considering we're at about 1 year, and about 10 today, I would hope that you would be probably north of that. Can you still hear me? Because sometimes I'm on this webinar. I'm hoping that I'm not losing people.

We can still hear you, sir.

Okay. Fantastic. Now the second question, when I look at the resource, Soji, revaluation gains at NGN 37 billion. But for me, that is really not -- and I will still address your question in terms of FX rate. I'm not so sure that's what we did very well in the finances of 2020. I think what we did well in the financials of 2020 was the structure of the balance sheet, and that the fact that in a period where yields were dropping, the asset yields only went from 11.9 to 11. We were able to bring our cost of funds from about 2.3 to 1.1, so we had NIMs of 9.2 on a balance sheet that grew, even if you put in CRR. And that, that was the beauty of that result. That in an environment where everything was coming down, we kept the NIM, and we still kept interest income. And so the balance sheet contributed a significant part of the profit. And that the revaluation gain of NGN 37 billion, I think we'll be able to replicate it. Because even if you look at state rates, we converted it 4:10. We might go for 20:30, so that will make up some of it. When we took our revaluation gains as well, if you notice, we didn't take any revaluation gain on our swaps. So of our long -- out of our long position of NGN 1.7 billion, we only took revaluation gains on NGN 1.1. billion. It therefore means that if those swaps -- as those swaps are aligned, we're going to take almost like a 46 to 50 naira revaluation gain of $630 million, even if the rate doesn't move from where it is. So I think we will be able to make up whatever you -- we made on revaluation gains from the 2 things I've said, you might have a slight depreciation, which will give us something on the 1.1. And as the swaps unwind, we'll take the revaluation gain from the last time they were revalued, which was done at 3 64. Then Stage 2 loans. We looked at the environment. Coming out of COVID, we looked at our loan book. And we decided that we have every structure known on our books, which is WEMCO. So a huge -- it's a large manufacturing company. They have a lot of assets. But it's not necessarily assets that pay back loans, it is really cash flow. And so we've taken a prudent position to start to put some money away towards that. So we put away about NGN 9 billion -- NGN 9 billion to NGN 12 billion for WEMCO. And we're basically saying that if anything happens, and we ever have to take a haircut on that credit, we've looked at the assets. We don't believe the haircut will be more than that, and so we'll be fine. We won't have any haircuts in the future. It also gave us the chance to look at the ECL model and look at kind of build COVID into it a bit until we took our loan impairments up from NGN 4 billion to NGN 19 billion. I hope I've answered the question.

Yes. Just 2 quick clarifications. The first one is around...

Hello?

Segun, are you able to hear Adesoji?

No. I don't know if he heard me completely there.

I did.

Okay, sir.

Okay. So I just had 2 clarifications. The first one is on WEMCO. So for the WEMCO exporter, just remind us what's the size and what's the percentage provisioning overall you've taken on WEMCO? And the second question is, on your numbers for the $630 million, so let's assume, in 2021, you decide to [indiscernible] mature, you decided to take on the gains. What is the value of those gains? Is this simply 46 by 13? Is that the right way to calculate this gain?

Yes. Yes, yes, actually it will be about NGN 20 billion.

Okay.

So that more than compensates for the NGN 37 billion growth we had. On WEMCO, it's about a NGN 60 billion exposure, so we provided about 20%. So we decided that we've given ourselves a buffer of 20% on WEMCO, which is why we've kept about NGN 12 billion. And the $630 million, if you just take your evaluation from 3 64, will give us about another NGN 20 billion.

The next question comes from Ronak Gadhia from EFG Hermes.

My first question is on, again, NPL's restructured loans. Could you just remind us what proportion of your loans have been restructured? And what kind of performance are you seeing on these loans? My second question is, maybe if you could just spend a bit more time in terms of what GTB could look like post the holdco structure? I know you've spoken quite a bit about investing in your payments business, maybe acquiring a PFA business. So if you could just talk about what the structure of the business would look like post-holdco? And specifically within that, yes, just a bit more time on the payment side of things.

Okay. I think restructured, we're about 17%. And a large part of that is really the state governments, which we had to give them our term of 1 year. We haven't had any real explosions as a result of restructured loans. The one we feel a little bit nervous about, which is WEMCO, we've -- like I said, we've taken a provision on it. So I think in terms of restructured loans, the number is 17% really because of the state government loans, and we're pretty comfortable. Post-holdco, obviously, we have the banking business. The banking business will be Nigeria. As I've always said, it will be West Africa or East Africa. Then we'll have the payments business, and then I'll come back and talk a bit more about it. And at this point, we're probably 60%, 70% confident that we will have an asset managed business -- management business and a PFA business. Obviously, for -- I have a nondisclosure on -- we will make an acquisition. We're pretty far gone in terms of negotiations and agreements. Deals could always fall through, but I'll say we're about 60% to 70%, at least, on this deal. And we've agreed, all commercials and everything. So it's pretty clear that, that's kind of what we'll look like, and then there'll be the U.K. In terms of the payment business, we're still very excited about the payment business. We like the valuations. We think it will be a valuation checker for the group. What we are obviously going to try to do is leverage a lot of the business. Most people today, everywhere, if you look at Google Plex, if you look at Citi, if you look at Goldman, everybody is partnered with a fintech. The beauty about our situation is that we will be partnering with our fintech. So we think that you will see a lot of synergies. It will probably allow our fintech to reach breakeven and get to scale quicker than most people's, because you have a strong bank behind it. The one thing we will not do, and I must emphasize this, is we will not do transfer pricing. Any business that fintech does will be addition to what the bank would have done. So we're going to be very careful about that. We're not going to create a situation where we're just moving money around. So -- but we're very comfortable. We're very far gone, and we have basically finished the strategic plan of the payment company. We have the approval in principle. We're waiting for the final license, which we think will come out at about the same time as the holdco license. So that's kind of a bit around our -- we will leverage the bank. We'll have a merchant acquiring side. We will work with a bank on a mobile wallet strategy, and we will probably take the strategy to at least 3 countries. We will take it to Ghana, probably Cote d'Ivoire and Kenya, so that we can build up scale very quickly. So when you say what will GTBank look like post-holdco, we'll have GTBank Nigeria. We'll have GTBank outside of Nigeria. We've contributed 15% today, which we will try and push to 25%. We will then have new businesses, which we don't believe will really contribute materially in 2021, but we're hoping that at least it will take no money away from the group. And that, by 2022, they'll start to pay their own way and add 2 group figures.

Okay. Just on that, just maybe spending a bit more time on your payments. If I look at the USSD volumes, it's been growing quite sharply the last 3, 4 years. What's the industry comparables? Sorry for -- maybe if I'm sounding a bit naive here, but what's the industry comparable here? Am I looking at industry NIP volumes? And if that is the case, when I compare your USSD volumes to NIP volumes, it seems you have a roughly 2.5% market share, which seems quite small. So maybe you could just talk a bit more on that?

Well, first of all, you shouldn't look at that. I think -- well, first, when you look at NIP volumes, you should always look at transaction count, because that's where you make money off. You really don't make money off if you're doing large transactions, you make money off the count. And depending on what week you look at, we're easily on the outflow, about 18% of NIP volumes. And on the inflow, we're about 15%, 16%. We have a very, very, very high number. And if you look -- like I said, if you look at NIP volumes, value doesn't tell you much, because you make money off transaction count. If you look at our USSD, our USSD is growing about 37%. I will reserve my comments about USSD anyway because I think ultimately, we're going to go with end-user billing. You're going to see more of a migration from USSD to mobile banking, because USSD will become an expensive channel for users. But no, absolutely not. We're very strong in terms of our USSD volumes. I believe we're probably no further than #2 actually. And that's why in the outflow, we're about 18%. And on the inflow, we're about 16%, 17%. And what really counts is -- and what reason matter is count, not value because you don't make money on value, you are make it off a count.

Okay. Understood. And just one final one on this. When you look at the total value within the system, which segment is dominating the value in that -- value creation within that segment? Is it the banks? It seems like you have a significant market share? Or are the fintechs quite a big part of that equation? We've seen the likes of [indiscernible] and et cetera, raising quite a bit of money. So where does the value lie right now?

Okay. If you look at -- and since you know the NIP volumes, if you look at that, you will find out that the total combination of all the fintechs and all the MMOs is probably on the -- I think it's all on the inflow or outflow side, but correct me if I'm -- forgive me if I'm wrong, there's one part they're not even playing in. But I think on the inflow side, they're about 18%. So all of them put together, about 18% NIP. So if you take it from that perspective, it's still bank dominated. If you have the #1 bank, about 18%, 19% and #3 at about 16%, 17%. And then the #4 is very close, probably like 15%, 16%. So you're still talking pretty much bank-made because the fintech is only 18% of NIP.

[Operator Instructions] The next comes from Timothy Wambu from Absa.

Just a couple of questions that I want you to answer. So I just want to...

Sir, I don't want to interrupt you, but can you speak up a bit? It's very low. And I want to hear your question properly. Sorry.

All right. Can you hear me now?

Yes. Yes.

Fantastic. Great. So the first question I have is on what is keeping asset quality in Nigeria so pristine? I want to get your sense on that. I mean, we've seen what [indiscernible], with the GDP contracting. What is keeping asset quality so pristine? And I don't know in the same conversation, what impact I think intervention funds having from the CDN? I think they injected about, I believe, trillions of dollars [indiscernible]. Is that having -- I don't know, is it possible that one can use those funds to refinance on their exiting obligation? Just want you to maybe answer -- maybe that is contributed to the good asset quality? The second question, and maybe forgive my ignorance, is on the decline in your credit and in interest income, [indiscernible] related fees. I can see that, in addition, your right [indiscernible] related fees. I'm not familiar with what exactly that means. So will you just explain why we saw a fast decline, despite some growth in your loan book? On USSD, I think you've partly mentioned it right now. So what impacts would you see? I don't know if it's supposed to be to quantify it right now, but clearly will get an impact from the [indiscernible], the fees would be passed on to the consumer. What sort of impact might you foresee in 2021? And then just lastly on fintech, what will the fintech [indiscernible] that bank currently isn't doing? I mean do a lot of your -- when you plan -- on your banking platform, are you up? What does the fintech do outside of banks?

Okay. Sorry, I'm just scribbling very quickly here, fintech, new peers. Okay. The first question on asset quality. I think that if you look at it, if loans are going to go bad, especially where you've been granted concessions by the Central Bank right now, you've been given moratoriums on a lot of things. And so maybe it's early days. So let's see what happens in 2022, when a lot of variants like concessions are taken away by the regulator, what will happen to it. But for right now, like you said, they seem to be holding up quite well. You have been giving more lenient restructuring terms. People have been given moratoriums. So let's wait and see when those go away. The one thing I can tell you about intervention funds is you cannot use them to refinance. In fact, they're allowed to be used for refinancing. So that would have little or nothing to do with the asset quality. Intervention funds have probably worked, and that's probably why Nigeria got out of recession so quickly. I think most people didn't think we'd be out of recession as quickly as we did. But with the amount of money pumped in, which you can refer to as a stimulus that went directly to businesses, I think it helped us get out of recession. In terms of what I mean by credit fees, under the old banker's tariff, you used to be able to charge management fees at renewals of facilities, now you cannot do that anymore. So for example, if you had a 5-year facility, and you took a credit fee in year 1, under the old banker's tariff, in year 2, you would have been able to take a management fee on outstanding balance, which I'm sure you're very familiar with, because that's a lot of how the multi-laterals give loans. But under this, it means that you can only take a credit charge or a management charge on a loan once in the lifetime, irrespective of how long the tenure is. So of course, that affected our fees a lot because in the past, we'd have taken that loan book and essentially charged a management fee on all the outstanding loans, but we couldn't do that anymore with the new banker's tariff. And that's what you see as the drop in fees or what we explain as the drop in credit fees. Look, for USSD, like I said, USSD grew 37% last year, whereas mobile banking grew 48%. I think that mobile banking is a quicker, simpler and it's become a cheaper option, when you start doing end-user billing for the users of it. I also believe that as you've seen in India, it wasn't very successful. And that as it becomes a more expensive channel, the cost of data is really what is prohibited now in Nigeria. I mean I don't have the exact figures, but I think data in Nigeria is about 100 -- there is about $1.27, it's about $0.03 in India. And that at 698 [indiscernible] for USSD, people will move to mobile banking. I don't think those banks will lose a lot of money because when charging for USSD streaming, what we're charging for are things like NIP, which are regular banking services, bill payments, statements, are regular banking services that will be chargeable when you came off any other channel. What I expect you'll see is the shifting from USSD to mobile banking. So I don't expect you'll really see any material impact in 2022 financials. If you looked at our -- sorry, 2021 financials. If you look at 2020, that hit already taped. Our NIP charges went down by NGN 23.9 billion because a new TED charge was introduced. What are we going to do differently? I think we're going to have -- as a fintech company, first, we don't have a strong merchant acquiring businesses bank. I think you will see that the fintech company will have a very strong merchant acquiring business. I think the other thing you will see is that the bank, as well as the fintech company, will have a very robust mobile wallet strategy, which the bank doesn't have today. But on the back of the fintech technology and platform, we will have an aggressive mobile wallet. And that's what I mean, that's the color bridge you're going to see between the fintech and the bank, where today, the bank is not built into a mobile wallet strategy, we will, going forward, on the platform of the fintech. The other thing we're going to do is please don't look at our fintech as only just there to serve the bank. I think you will find that our strategy around our asset management company, as well as our PFA is going to revolve around the technology platform that fintech builds as well. So we're bringing more than just banking solutions when we're talking about the fintech we're creating. I don't know if I've answered your questions.

Yes, the answer is good. Perhaps just lastly, I think last year half year call, you did state that those who value your bond portfolio -- your fixed income portfolio. But -- and our operating income, there's a massive increase from [indiscernible] in your MTM. I think you really [indiscernible] MTM what your -- on your fixed income portfolio? Just to clarify on that.

Okay. I'll pass that to Banji. But as far as I know, I think I know what it relates to, but let me give -- let him give you the technical answer. Hello, Banji, are you there? I think he's trying to get in. Hello?

[Operator Instructions]

[indiscernible] I could just [indiscernible] On the fintech, I just want to also get a sense of -- is he back on the line? Sorry. He is?

No. This is the operator. Can you hear me?

Okay, like I was saying, we really the value the portfolio, well it depends on the profiling and it depends on origination. So what we did was, most of our deals were fair value to on other compensate income because, at the beginning of those deals, we are trying to provide them as being [indiscernible], with fair value [indiscernible]. For the ones which is like NGN 19 billion, which we are a fair value to P&L. You see when we translated [indiscernible] on other income, that's only recognized NGN 4.5 billion. Because when income is, within the portfolio is far better than the [indiscernible] of our market. So when you convert that to pricing, you see that resulted in NGN 4.5 billion at bank level and also NGN 4.5 billion on group level. So why the other one because as all those OCI cycle out, at reduction, and you see that in our lack of basic income, with a second there, income statement. I want to find that on that when you can, OCI, we have NGN 2.3 billion coming through this year compared with NGN 4.2 billion of last year. So had we a chance, what we said [indiscernible] at NGN 4.3 billion and through OCI, NGN 2.3 billion. So they are actually disclosed in the financial statement, [indiscernible] on that income and under the [indiscernible] of present income, you see the NGN 2.3 billion. That's [indiscernible] to P&L. So you must see that in income statement. [indiscernible] you call slate OCI, other operating income. So that is the way we are retaining in GT.

Thank you, Balaji. Thank you very much.

So are you saying that you on [indiscernible] on the T-bill book and not the order book? Is that what you're saying?

Yes. Can you repeat the question, please. I can't hear you.

Sorry, apologies for that. Let me ask again. I'm asking -- so are you saying that the evaluation is only on the T-bill book and not on the bond portfolio?

No, we do not have a large portfolio of bonds, which is why when you look at our fixed income portfolio is 99% to our T-bills. So what we've done is to look at how do we profile, like I explained, and how we feel about it through P&L at origination, how we profile through and amortized cost of [indiscernible] to OCIs. So you will not see any significant value coming at the back of bonds, because less than 1% of the portfolio.

Okay. Thank you. Yes, you had one final question on the fintechs, I think, before Banji came on.

Yes, just to -- with the -- with our P2P's possibly one of the -- there's opportunities perhaps, just trying to find out. And the fintech [indiscernible] with mobile money -- sorry, if I sound very foolish, but let me just give me an ounce of that, then thank you very much.

We're not going to start that way. I think like I said, in terms of what would resemble mobile money, we will work with the banks using their mobile wallets. However, as a holding company, if we think there's an opportunity there, the holding company will be allowed to apply for a PSB license. So if we think there will be opportunity in that space, it might be something we will do.

The next question comes from Gloria Fadipe from CSL Stockbrokers.

[indiscernible]

You'll have to speak up a bit, please.

Okay. So -- yes. I just want [indiscernible] clarification on the holdco. So I'm a bit curious about the PSA. I understand that [indiscernible] to PSA [indiscernible] is bit quite steep at the moment. And I'm wondering what you intend to do to get the kind of scale that will justify the kind of valuations -- bank valuations you will be probably in? And then just to get the sense for all of what you said, it looks like the payment business was the best perspective amongst these 3 businesses you're going to be taking on. Would that be correct? And then finally, on the loan growth for last year, please can you just tell us which was [indiscernible]? And what percentage of that was the result of devaluation?

Okay. Let me do the easy question first. We're at 10.8% as group. We're at about 8.9% as bank. About 7% of that was down to revaluations. So you're probably looking at about 3.8% bill growth after you take out devaluation. In terms of PFA, well, I guess you'll have to tell us if the valuations were rich when we announced to you how much we pay for it. I'm not so sure that is as rich as -- I'm not so sure we overpaid. Also now anyway, you can move your RSA, so that creates an opportunity for a good PFA. Guaranty Trust Bank has a very, very healthy, strong retail base, has a good brand that we can leverage. When I look at the PFA space, I think most people are still playing very wholesale, and then we have an opportunity to create a retail PFA business. I also think we have the opportunity to do the same. So yes, you might think I'm really excited about the payment business, well that's because that's what I had a lot of time to X-ray. I'm just as excited about the asset management business and the PFA business because what you look at, is what we're creating here, is a financial services company that once you do business with us, we'll meet all your needs or we'll meet your retirement needs. If you look at the business model of Guaranty Trust, it's a low cost of [indiscernible] cost of funds 1.1%. That's delivery. It has a mix of 89 21. That's deliberate, which means that we lose some money to people who are looking for high yield. We will lose that money to ourselves in the asset management company. So we're excited about everything because everything's a synergy, and what we're doing is creating an ecosystem with holdco. So we are very excited. The payco will do merchant acquiring, give us a technology platform that is quicker, easier, cheaper. Asset management will allow us to play with customers who want more yield. The PFA will allow us to deal with your retirement. So we're as excited about every business we're going into. It's very deliberate.

The next question comes from Lanre Buluro from CHD.

It's Lanre from Chapel Hill. Just time lines. I know you talked about approvals and everything, but guide us on when you think the holdco will be unveiled, fully approved? And similarly, just in line with that, too, is -- and the -- I guess, the [indiscernible] holdco, which for yourself, also is that CBN approval for that? Then you talked about your PFA. Maybe you can guide us around what besides you think AUM type, I mean, the targets that you're looking at? Can you give us a ballpark? Let's give specifics?

No. In terms of time lines, honestly, like I said, every time I hear this, may be because we've been at this for about 18 months, we realized how much work has gone into putting together a holdco. So the one thing I can assure you is that we will run for a holdco for at least 6 months of this year. That's the worst case you will see. So by the second half of the year, we will run as a holdco. If we're able to do best in that, we will. Everything, just like I said, in -- as far as the holding company -- in final approval of the holding company, all the appointments and the Board of holding company, which includes myself, will be done. We will go for the approval of the Managing Director of the bank after the announcement. We've looked at the criteria and we've looked at the eligibility. The person is obviously an Executive Director today. So we don't think we'll have any problems with that as well. PFA, we're not going to just -- the way the -- I think it was [indiscernible] who calls from CSR had said, the valuation's really bad. So we force a fairly small one. And the reason we've also done that is because we're not intending to do a wholesale strategy in terms of our PFA. We're going to do a retail strategy. So I think the less legacies we have in what we buy, the easier it will be for it to implement our own strategy.

Okay. Great. And just to understand where the question is coming from is it's while the macros -- the market is quite volatile, we've seen the share price somewhat come down, at -- it was stagnant for a while. We try to realize -- we're trying to see if it's the uncertainty around holdco? Around new management? Do you have any view on why your share price has been turbulent?

No. We like our share price, actually. It gave you a dividend yield of about 9%. I don't think it's -- like I always tell people, I really don't worry about the share price, I worry of the fundamentals of the business. So if you were smart enough to buy it when it was coming down, then you've got a dividend yield of 10%. I don't think our share price has done any worse than anybody else's. I think after we announced our results, we went up by about 6-point something percent. So I actually think the market's given us value for the fact that we're transiting. The other thing which I am thanking shareholders for is the -- when we went to the EGM, we got overwhelming approval for the holdco structure, which tells me that our shareholders are behind us.

Okay. Great. And I guess one more thing, is just on the FX. I think that your answer earlier around your views on where you think it should -- what should be the narrow dollar exchange rate like ideal?

Well, ideal is always a relative word. It depends on so many things. If we were having this conversation when it was 28, I might give you a different answer. Now we're having here around 64, we're coming from about 70. So I always see, look, on the worst day, even if you take somewhere between 4 20 and 4 30, I think we're fine at the kind of oil price we have, at 4 20, 4 30. And if you do that and you take the yield -- so if you take the yield on the 1 year, even if you did a 4 20, 4 30, it means you'll get a real return of about 6%, 7%, which is probably better than a lot of African countries today. So pretty comfortable at about that level.

[Operator Instructions] The next question comes from Abe Musa from Meristem Securities Limited.

So I want to congratulate you, your wonderful financials at the end of the year. So quickly, given that you intend to grow noninterest income by diversifying and is based on the holdco structure, I'd like to know what measures the Guaranty did to drive interest income? Seeing how muted it is at about 1.5% growth?

Thank you very much. Unfortunately, the 1.5%, in my opinion, considering what the operating environment has been like is actually very good. If you look at those financials, we actually grew deposits 38%. We grew the loan book. But as you can imagine, a lot of your growth goes into CRR, which was earning 0 for the most of the year. And then even when you got bills as 0.5, which is what special bills are. But what we will continue to do is just continue to grow the volume and continue to scale up. We're not going to cry about CCR or cry about all those things, that's the environment we're in. What we're looking to do is we will do a lot more aggressive customer acquisition. We will grow our deposit base. So we've shown you that we intend to grow the deposit base by about 25% in our guidance. We were going to loans and look for about 10% growth. And so rather than focus on just our interest income growth, I think if we can focus on the growth of the balance sheet and we can focus on preserving the NIM at the 8% we've guided, then we'll be fine. The key is less the interest income growth, more the growth of the balance sheet, which on the deposit side and the loan side and the fact that we can keep our NIM at about 8. I think if we do that, the balance sheet will give us the type of money we need.

The next question comes from Wale Okunrinboye from Sigma Pensions.

I just have 2 questions. One is on your staff headcount. I noticed the number is down, I think this probably the first time in a while. What's going on there? And then secondly, can you talk me through the losses in the U.K.? And the Tanzanian subsidiary, what was driving? That. And then if you could provide some color, what you discussed about the Board changes at the bank on the holdco level? I didn't really get that. [indiscernible] That will be all.

Okay. Let me start. If staff is going down, and you're still -- you -- I think we're getting more efficient anyway, and that the business is going away from a lot of bodies and you're using a bit more technology. So I think we're fine from that perspective. Our staff attrition was 7% for 2021 -- sorry, for 2020, which is the lowest -- sorry, I mean 2021 -- for 2020. So the staff attrition was 7%. We're not very worried about absolute headcount. The attrition for the 2 previous years was actually worse than that. Losses in Tanzania. In Tanzania, what we've been led 2, 3 years is greenfield. It bothers us too. We haven't achieved enough scale. I think once we finish achieving the right amount of scale, we'll be fine. So just like we used to tell people about Cote d'Ivoire to please bear with us and give us a bit of time. We think this will be the last year of losses in Tanzania. In the U.K., we're very careful. We don't export risks into the U.K., and we don't import risk from the U.K. And as you can imagine, a lot of what we're doing in U.K. is really mortgages and placements. And there's really been no yield whatsoever in placements or surplus funds, so that affected us a lot. They're being paid out with mortgages. Because of COVID, there was not a lot of traveling and a lot of booking of mortgages, basically we only make our money from them in the U.K. So our highest earning assets in our mortgages, which we didn't book a lot. People were not traveling. Placements, we really can -- place yield is very low. Healthy business on transit. It's going to be a low year. We try to keep a low-risk model in the U.K. We're hoping that things have picked up this -- as things pick up, this year will be a little better. What I said about the holdco Board and the bank Board is that holdco Board will consist of 7 people, bank Board will consist of 8 people. It means that when you take the size of both Boards together, we will be very far from what the bank Board used to be. That way, we're not just piling cost into the holdco. We're not just bringing things on to the holdco that will take money away, and that, as an institution, we've always been known for our cost containment and our efficiency and that this sort of structure will ensure that we continue to preserve that.

The next question comes from Timchang Gwatau from Meristem Securities.

[indiscernible] So follow ups on the [indiscernible] question...

Sorry, go on.

[indiscernible] question on the [indiscernible]. If you could you comment on...

Sorry, you're breaking -- Sorry, can you get something that's stable? Because you keep breaking.

[indiscernible] Is this fine now? [indiscernible]

Yes, it's clearer now.

I need to ask that you comment on your African business in general? How you are thinking about it? And the question of future agreements and the -- I mean what is the comparison from there? And your whose [indiscernible] your comments on what we [indiscernible] seeing a decline in tax?

Wait -- sorry, I caught African expansion. Now the new one starting, I haven't heard because, sorry, like I said, your connection is breaking. Yes.

Apologies for that. Is it better now?

Yes, it is. Thank you.

Okay. So I'm really asking about your taxes. So at the beginning of 2020, when the Finance Acts came on board, the decision was that we should see a significant decline in taxes [indiscernible] time. I've seen that peer out in your [indiscernible] of your peers. And I'm wondering why it hasn't played out for Guaranty? Any comments on that?

Okay. I'm not an accountant. But before I bring accountants in, I will tell you my own layman's understanding. The act helps you, if your income, a lot of your income, is what they call noncash flow income, which I'm not necessarily sure is good for your quality of earnings. But if a lot of your income is cash flow income, which means it derives from your balance sheet, then you will not see as much tax saving. And that's the very simplistic answer. But I'm sure a tax person can do better, but I don't want to complicate it. But that's really what it is. A lot of your income is cash flow-based, comes off your balance sheet. You won't see huge tax savings. But a lot of your income is noncash flow-basis, then you will see that advantage. Now let me try, and if I don't, please forgive me and ask many again because the line was breaking. In terms of African expansion, I think what you were talking about, I said earlier on that African expansion, when you look at the slide, you will see that those African subsidiaries today are 15% of loans, 20% of deposits, 15% of profit. But that's really not what excites us here. What excites us here was that we had said to ourselves that by the end of 2021, we wanted the subsidiaries to contribute $100 million. They did $85 million in 2020. So we're pretty comfortable we're going to hit that target. We think our African subsidiaries will become more and more relevant. We're going to pay more attention to them, and we're going to drive the subsidiaries a bit. It's easier to drive from the base where the subsidiaries are than it is to drive from the base where the bank in Nigeria is. So African subsidiaries will become, I think, more important going forward in terms of contribution to group.

[Operator Instructions] The next question is a follow-up question from Ronak Gadhia from EFG Hermes.

I've got 3 follow-up questions. Firstly, on your deposit growth, I see in your presentation, you're targeting deposit growth of 25%. Could you just break down -- break that down in terms of what your expectations are for industry-wide deposit growth and market share gains? And also, how achievable is that deposit growth target? Because I would imagine a big chunk of the deposits that you gathered last year could potentially leave the system as depositors find alternative asset classes or find asset classes with higher yields. So could you just talk a bit more about the deposit growth? The second question is on staff cost. Maybe just a follow-up question from what Wale was asking. So if I look at your average staff cost, it's roughly about 40% to 50% lower than what your peers are paying within the Tier 1 space. So could you just talk about how that is possible? And how sustainable that is? And the final question is on your payments. Sorry, if I heard everything you said today, it seems like you're in the process of setting up sort of a financial supermarket kind of model. What's the addressable market for that type of model? We know Nigeria has 200 million people, but the per capita GDP is low. It's been declining, given the low nominal GDP depreciation, et cetera. So what's your addressable market for that kind of business model?

Okay. Let me start from the bottom, and I'll start from payments, which comes -- it's a bigger question you've asked me. Nigeria has 200 million people. But every time people give me these stats about GDP, I always laugh. If you look at Guaranty Trust, 52.5% of our deposit base comes out of retail. Over 50% of that comes from what you would call poor people. So I guess what I would say to you is that 5, 5,000s, 10, 10,000s add up to a lot of money. So when we look at even the payments business, or the asset management business or the PFA business, we're ready to go down market. 5 years ago, we said we were going to 25 million customers, we're at about 23, 24. And that is the strength we see coming through of the retail base. And just like I said, please, that retail base is not all high end, because half of that deposit base is what you call mass retail, which is little, little bits of money that come up to a lot. That's why we have about 21 million savings accounts. So I think in terms of what you can do with payments, depending on which product you're selling, if it's your mobile wallet product, you will see that you can probably get to -- I mean when you look at the telco numbers, how many people have mobile phones? That is your potential market for people who will have wallets. And so if there's a bank, you have a wallet strategy and you have a payment engine to drive it, your payments business will grow, same with the merchant acquiring side. Even if we -- every other person in Nigeria is an SME. So the market size for merchants acquiring, depending on how you position it, is large. So I really think these are businesses that can scale up across board. And I think we've proven that with the bank, and the bank has shown us that. In terms of staff cost, it depends. It's not really the numbers, it depends what the staff you'll carry. Because probably if an assisting general manager to managing director, you might find that, that is 40% to 50% of your payroll. So if your staff composition is more of a triangle, with a wide base, then even with the larger number, you might have a smaller payroll because you're running the bank with more junior staff, and you may have organizations that are running the bank at very and much senior levels where the staff were a bit more expensive. So staff costs, the numbers will not necessarily give you the answer. You have to look at the composition and the levels. You're right, deposit growth is going to be challenging, but we have one advantage that we think we can still play. When we finish 2020, our mix was 89% low cost, 11% time deposits. We think we can still -- we can talk with that mix without damaging our NIM. So part of our growth can come from the fact that we are willing to pay a little more, alter our mix a bit. And that will give us some growth even amongst people who are looking for yield. I don't know if I've answered your 3 questions?

No, you have. Just a final one, on payments. Is there any specific companies globally that you've seen that you'd like to model GTB to become?

Yes. I think more Alipay.

The next question comes from Abdul Bello from WSTC Financial Services.

Yes, I have a couple of questions. So my first question is that earlier during the presentation you mentioned that demand did impressively well with slight reduction in asset yield from 11.9% to 11%. So I want to ask how you were able to achieve that, if I remember? And my second question is that I saw a max loan growth in the agricultural sector in the composition of your loan book, about 49%, thereabout. And so I just want to ask what the driver of that was? Okay. And so I also saw that the oil and gas sector accounts for about 39% of the group's loan book. I understand that the bank sort of has some hedging policy in that regard, but I'd just like you to tell us [indiscernible] at least in order to manage the potential bricks that would come with such a significant exposure? And on Page 42 of your financial statement, there were less customer complaints in 2020 in terms of [indiscernible] introductions. But in terms of amounting for... [Audio Gap] Million thereabouts. So I'd just like to ask what the bank would need to improve customers' experience in terms of [indiscernible] downtime, your online banking platforms, erroneous messages on websites and other issues?

Okay. Let me start from the bottom up, it's just always easier. In terms of customer complaints, let me first start by apologizing to anybody who's a customer, who's experienced some of it. I think we've been stable. What we found is, that first, we have to go in and look at everything we've built. As you become a larger organization and you build more technology, you find that your architecture gets a bit more complicated because you're adding on a lot of services. So we've gone in. We've looked again at our IT architecture. We've hired top firms, who are now going to help us support it. And can we design the architecture, and we think we're kind of out of the woods. So we apologize. There will always be complaints. We will always have the channels, but the idea is to make sure that we are proactive in making sure those things don't happen. So I apologize, it was our IT architecture that had gotten a bit too complicated and too complex in design. In terms of oil and gas risk, we look at oil and gas risk very differently from the way you have. In terms of the risk of the upstream, it's very different from the risk of the midstream and the risk of the downstream. In terms of obviously a risk, that's where we do a lot of hedges, because truthfully, it's not bad risk. As long as you keep producing and you hedge it, you pay your way out, even in a downturn. And if the pricing goes beyond your hedge, you can always elongate and we've always told people that, which is why you see that the losses in our upstream book at next to nothing, even when we went through the whole [indiscernible] shut down, people eventually paid. When we look at midstream, we try to be a bit more careful, because that's where you have people who do pipelines. We don't do a lot of vessels, by the way. So when you look at our midstream, it's not really vessels. There's a lot of like pipelines and infrastructure, and that's tied to a lot of IOCs or marginal field operators. And so as long as they're doing well, the midstream is doing well. So we're pretty comfortable with our oil and gas risk. And as you can see, knock on wood, we really haven't lost money there. The place we think is a bit riskier is downstream. And so we're very careful, and you can see that's only 1% of our loan book. So we dimension the risk in oil and gas very differently. We don't look at it the way you looked at it. And we don't look at it as 39%, we take the risk of upstream, we dimension it. We take the risk on midstream, we dimension. And we look at it as 3 sectors with different vagaries of risk. At [indiscernible] growth, I think we did a couple of interventions. So even though the percentage is high, the absolute amount is not high. If you look at it because these are interventional loans, and we started from a very low base. How are we able to maintain our yield? Very simple, it's like 2 or 3 things. The first thing though 2019 went long on our bills. So for most of them, or a large part of 2020 [indiscernible] bills. Also, the other thing for you to remember is that if you look at the composition of our loan book, it's 25% local, 55% foreign. 55% foreign side, there wasn't really any reprices, so. When you take the loan book portion found in FX, do you take the fact that we went long on our bills, that's the explanation of why we do have a yield crash on the asset side. I hope I've answered your question, sir?

[Operator Instructions] The next question is a follow-up question from Adesoji Solanke from Renaissance Capital.

Yes. I just have a few more questions. The first one is on the cash flow there, I'm just trying to understand, are these securitization conversations happening with the Central Bank? And do you have any possible time lines on when CBN potentially allows this conversion from cash to bonds to happen? That was the first question. The second thing is, ever since you didn't publish digital revenues in the slides this year, can you give any guidance in terms of what you anticipate fintech revenues look like on an annualized basis in year 1 or year 2? And what sort of EBITDA margins do you think fintech has? And two more questions on fintech. In terms of the core tech spend to build out fintech, what sort of nominal annual trends do you anticipate these units would have? And in terms of the fintech hub out itself, just to understand your personal distinction, what are you actually separating from the bank, right? And the question is on M&A. For your banking businesses in West and East Africa, you've previously spoken about M&A in some of these countries. What is your thinking up today? Whether it's in Kenya, Cote d'Ivoire or and other countries? Or even Ghana, for example? Thank you.

Okay. There's no discussion on at least [indiscernible] on conversion of CRR to bonds. So I'm unable to share any light on that. I apologize that we don't give you digital revenues. We dropped from about NGN 13 billion to 9-point something. So we lost about NGN 4 billion. Let me explain what that loss is, really. That loss came from NIP. If you remember, before January, we used to charge NGN 50 for every NIP transaction. That then became like layered, where if you do transactions on NGN 5,000, well you will pay NGN 10. If you do transactions of between 5,000 and 50,000, you paid NGN 25. And if you did any transaction over 50,000, you paid NGN 50. So even though we grew the volumes, we actually dropped, in that the average charge went from NGN 15 to NGN 18. So we went from about 13 to 9-point something. So I apologize that we didn't disclose it. In terms of what I think we're going to do in fintech, I've already started to spring some of it. I think that, like I said, you're going to see us do a lot of mobile small payments. You're going to see us do a lot of merchant acquisition business. Their services today, which third-parties give us, which we're going to take away, because our fintech can do it. And that's why I said, it's not transfer of pricing. If you're giving us the service that we can build and we can give ourselves, then we're not going to pay someone else. So we have some of those. So I mean, what I think the operational cost that we think, including a huge part of the cost is the cloud cost. Because if you're going to have technology that works flawlessly, you're going to host a lot of it on the cloud, which a lot of banks are not comfortable doing. But as a fintech, you can. So we think our operating expense, of which a large part is cloud costs, will be about NGN 1 billion a year. So when we joke amongst ourselves, we always say, before the big payment, the payco pays itself any money, has to make NGN 1 billion, and that's kind of what we set ourselves. That once we cover NGN 1 billion, we're paying our bills and then we're just growing. In terms of the subsidiaries, I think the place we'd still like to do business, do an acquisition is Kenya. I think Ghana is doing well enough. If we change 1 or 2 things in Ghana, we can grow ourselves. We're like #6 or #7 now. There will be some decisions that will make -- that will allow us to grow more internally. So if we're thinking of any sort of acquisition, it'd still be Kenya.

So just to understand that -- just to clarify, on the fintech side, so there's -- so my understanding previously was that there are certain payment franchises that are currently within the banking entity, which should now be listed on the payment unit? We've also mentioned that there are certain expenses in I think was the third party is, which now bring in-house. Is that pretty much what this fintech entity is? Was adding automation on a product like wallets?

Of course....

[indiscernible] offline about this?

I'm not going to sit here and tell you my payco strategy, which I -- has taken me 3 months. This is a public call. I'll tell you what I think is important. [indiscernible] what we wanted to do is just an add-on, then we wouldn't have separated it. The whole idea is for this company to stand on its own and make it sell money, without the bank. And that's why I told you that the merchant acquiring business is very important. In fact the people who are running this fintech are very -- it's very important to them, that they have their own identity and they have their own business model. That's the best way I'll put in.

[Operator Instructions] Mr. Agbaje, we have no further questions in the queue. I hand back to you for closing comments.

Well, thank you very much, everybody who has listened in. And I hope at least we've given you some comfort and we've answered your questions -- to some level of satisfaction and that would be perfect. Thank you. Have a good day. Bye-bye.

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