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

Good day, ladies and gentlemen, and welcome to the Guaranty Trust Holdings Company Plc Full Year 2023 Conference Call. [Operator Instructions] Please note this is being recorded. I'd now like to hand the conference over to Segun Agbaje. Please go ahead, sir.

Thank you very much. Good afternoon, everybody. Thank you for signing on. On the call with me today, I have [indiscernible], who's the Managing Director of the bank; and Banji, who I think most people know. He is the CFO of the group. We're going to be going into questions and answers since we already have the investor presentations on the website. I just wanted to make one quick correction. In terms of our forward guidance that went out, our net interest margin or NIM is actually 11%, not 8%. I think the 8% was last year, which was 7.8%, so I apologize for that. The forward guidance to the NIM will be 11%. So at this point, I'm ready to take the first questions. Thank you very much.

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

Congratulations on the result. I have a couple of questions. I think really a good place to start is on the recapitalization announcement by the Central Bank. And I guess there's been a lot of questions around execution of retained earnings. So just see if you could help us maybe understand that rationale, if you have a view or if -- so the rationale around execution of retained earnings. And second, we have the question -- some questions around market share. Where did you get the sense of your view of what optimum market share should be, ideally, for -- I guess for [ GTCO ], where you see as an ideal market share point of view from either the loans, total loans and total assets point of view? And I guess for the pension fund as well, where you see as ideal market share? On the back end side, I think there's concerns around your strength in market share. So we just compare you to other banks, you seem to be shrinking on the movements and asset points of view, whether earnings still remain strong. I guess the exact question of on the strength of [indiscernible] what point market share has been important, again where you see that? Maybe lastly, partially just around how the Central Bank should be moving back to normalizing policies in general, I want to get a sense on Amcon and where -- if you think the Central Bank will push front end of Amcon [indiscernible] Amcon is going fast and [indiscernible]. The burden its having on banks from an Amcon maybe point of view. So I'll close there on the questions.

Let me start from the last one, which is CBN's policies. I mean I think all of this we'll see that what the Central Bank is doing is really just doing business according to normal market macros, which is what we've all always asked for. So from that perspective, I do think that we're on the right track and all the policies are on the right track. With regards to Amcon, I think Amcon is in a winding-down mode, but obviously, you can't wind it down in one day. I'm sure there are many legacies they will have to clean up. So I'm sure that in the next probably 3 to 5 years, there'll be no more Amcon. I think what you see going forward is the winding down of Amcon. Well, it can't happen in one day. Now I'm going to take the market share question. First of all, I don't think we see ourselves shrinking in terms of market share because what we are doing is not compare ourselves to the balance sheet of other banks. We compare ourselves to the business we do. And that when you look at the balance sheets of a lot of banks today, what is really useful on the balance sheet of a bank, if from our perspective, are things like your deposits, your fixed income security, your loans. And then when we're taking on our LDR at 50%, it means that we are not even lending to the max. We also have not seen any transaction that we have been unable to do because of our balance sheet. If we had seen that, if you look at all our peers, there are 2 quick things you do. One, where our low-cost [indiscernible], which is why our cost of funds is 1.4%, but if suddenly we thought the balance sheet was too small, we would do one thing. We will take time deposits, which you'll see on the books of competitors, at about NGN 3 trillion. We have nothing. We would do other borrowings, and that would help us breakeven. So we never look at market share in terms of balance sheet size. We always think what portion of the business do we want to do. Ideally, from Guaranty Trust perspective, we'd like to be at about 8% to 10% market share of the indices we think are important. With the PFA business as well, we obviously -- it's a new business for us that we would like to obviously be a little more relevant, be a little more dominant. We will do it probably 2 ways. We have -- if you look at the capital, we have almost [indiscernible] capital of NGN 14 billion, which means we are in a position through acquisitions as well as continue to grow organically. So from the bank's perspective, we're very comfortable with the size. We have enough scale. There are no transactions that we have seen that we have been unable to do. And when that day comes, we will build this [indiscernible] to see that people think we should feel, but for right now, we're fine. And we think the profitability is strong enough, all the ratios are strong enough, capital adequacy and everything else. But I'm always ready to be engaged on this. I always believe banking is not [indiscernible]. It's not a business of size. It's a business of scale, and the bank has enough scale do whatever business it wants to do today within its own risk appetite. In terms of recapitalization, I think that recapitalization had to happen. In the case of the devaluation, the capital [indiscernible] have become inadequate for growth. When you look at it, most people's [indiscernible] went from about churn NGN 230 million or about NGN 180 million to NGN 200 million. So banks weren't just [indiscernible] devaluation to do the businesses. You talked about retained earnings, but I think you will always have different views on this. Most of the retained earnings of banks might not be liquid. Maybe that's why it's been excluded. Maybe what the CBN wants is the liquid capital that can be used to grow the businesses. So that could be -- you could sit on both sides. You could make a case for it. But like I said, maybe a lot of the retained earnings you were referring to weren't liquid, they might be tied up in fixed assets and all kinds of things, whilst any fresh capital that you bring in will be ready for growth. I think those are the 3 questions you had asked me.

The next question comes from Timothy Wambu of Absa Bank Kenya.

Segun, just the first question is on portfolio asset mix. Going forward, as we deliver to you earlier, it's quite low at 33%. And I think I ask this question at almost every call, if the loan fund ratio still being [indiscernible], whereby the new number is 65%. And how do you foresee [indiscernible] exchange in the cost of 2024 or let's say, over the year time? The second question is on your recapitalization. And are you in a position to share how you tend to go about it? And then my third question is the impacts of the FCY regularization that was coming by end of January. With regards to compliance, are you not compliant? And what sort of impact did you have or are you looking forward to it in FY '24? And then just lastly, this relates just directly about [indiscernible] if you've got collateralized FCY deposits for your [indiscernible] loans. I just want to get a sense of how significant of an impact this could have on GT's numbers.

Okay. Let me start from the last one, which is FCY collateral. As today, it's not a way we used to do business, so as of today, quick sweep with our systems completely immaterial. I think we only found about NGN 400 million to date. So completely immaterial to us. We never really did business that way. [ NLB ] compliance, which is the next thing you referred to, we're completely compliant. We sold I think [ $500-something ] million to come within the zero NLB. So we are completely compliant. But what people must remember is that without NLB, we've got some [ net ] equity anyway, which is not in our NLB calculation. LDR. Well, before this normalization of 45%, our CRR plus special bills was 57%. So it was enormous. Mathematically impossible for us to meet the LDR 65%. However, we are looking to grow the loan book. If you look at our forward guidance, we're looking at about 30% growth. The asset mix definitely means that there will be some more loans. Hopefully, you will also see some more fixed income securities, which is only rational under the current situation. So we will grow them and we'll grow fixed income, and we'll keep the front down. So that's kind of what our asset mix will look like. We'll take on about 30% growth in loans. The rest you'll see pretty much in fixed income. Recapitalization plan. I think if you look, I don't think it's enormous secret because the AGM notice is out. The whole idea is to set up the program for about $750 million. In the first incident, we'll raise that up to a maximum of NGN 500 billion. That NGN 500 billion will be [indiscernible] and off of the sale, which means we're going to do a domestic transaction, where it has all the reporting requirements and clarity and documentation of the RegS/144A. So in the first instance, what we're going to go for is look for almost like a maximum of NGN 500 billion. And in general, it's about -- I couldn't share that with you.

Great. Maybe just a quick follow-up question on the NLB position. Let me just clarify. The [indiscernible] will be long, that's a first we wanted to clarify. Long, it's deep, that is, and one of the question here is if you just look at your NLB position on balance sheet, off balance sheet is in excess of $1 billion, I believe. And I think you've only mentioned that you sold and will have to comply [indiscernible]?

No. Before that, we have sold about $300 million, which we used even without the NLB to convert some dollar loans into naira as we started to see devaluation. We did it mainly to a customer called [indiscernible]. So by the time we [indiscernible] came we were about [ 900-and-something ] million, and we saw [ 100 million-something ]. Our loan position is about [ 800 million ] equity anyway, so which doesn't go into your NLB calculation.

Equity, you mean on balance sheet?

Yes. Equity on balance sheet, yes.

The next question comes from Oluwaseun Arambada of FBNQuest.

Congratulations on your results. So my questions will be around asset quality. You've already said you plan to grow our loan book by around 30% in 2024. And of course, I think that's on a constant currency business, right? So I just want to understand how you are thinking about the riskiness of your operating environment, how that is going to reflect on your NPL ratio and cost of risk. I see that there's a significant drop in the cost of risk guidance for 2024. So I really want to understand how you're thinking about the riskiness of the operating environment, especially in these high interest rates environment. That's one. Then on the other hand, I would appreciate if we can -- some update on your Aiteo [indiscernible]. I think last you talked about is you said Aiteo was considering a restructuring process. I just want to know if the restructuring is considered, and what's the update with WEMPCO. I think that will be all for now.

Okay. Thank you very much. Let me start with your last question. WEMPCO were fully provided for. If you look at our financial statement -- so forgive me if I elaborate a bit, people I have on the questions, we wrote off NGN 129 billion in 2023 against profit. And WEMPCO was NGN 89 million of that. So WEMPCO is completely written off. All this means is recoveries from now. Aiteo, we believe those structure is almost done. Aiteo, Monday, started coming in, if you talk to any of the other banks, you've probably heard about Nembe Crude, which is a new crude that's been lifted -- that's been lifted of the Aiteo field. And so money has started coming in where the debt is being repaid slowly, and then we're going to go into formal restructure, which I'm hoping will be done in the next 4 weeks. So WEMPCO, off the books. Anything from WEMPCO now is going to be a recovery, which we are going to do. We are going to recover money. We don't just write loans off and then go after our money. But after we write a few loans, we go after our recovery more aggressively. Then Aiteo, like I said, money started coming in, so we hope that, that will be done. You talked about asset quality. We have derisked. Because of the strong profitability of last year, Guaranty Trust Bank, we took a decision to derisk its balance sheet by writing off about NGN 129 billion in loans. So we are coming into 2024 with a very derisked balance sheet, which is why you see the cost of risk down to about 0.8%. We do believe that there will still be high-end business that you can do that can give you the 30% growth without bringing on too much risk. So I think the reason why we're old enough to go for a 30% [ loan growth ] because we've derisked the balance sheet of the profitability of [indiscernible]. And that's why we've got a cost of risk of 0.8% down from 4.6%.

All right. Any chance we'll be seeing a write back in 2024?

Yes, you will definitely see a write back in 2024. If you look at our 2023 financials, up from the NGN 129 billion, which we wrote off, we have NGN 103 billion, which we put aside for current possible credit impairment. We NGN 93 billion we can put aside probably financial assets impairments. Looking at the environment, we believe that at the end of last year, the environment was a lot more volatile, a lot more uncertain. Coming into the first quarter, we feel CBN has given us better clarity. We think we have better sight as to how the macros are playing out. And so yes, we will write back.

[Operator Instructions] Our next question comes from Curtis Schacht of Sustainable Capital.

Glad on a good set of results. I'm just trying to think through just on the noninterest rate side of things. Can you hear me? Hello?

Yes. Sorry, I was losing -- you were breaking. Yes, on the nonfunded income.

Yes, just on the nonfunded income side. I just noticed there was a big FX devaluation gain and also a large trading gain. Just perhaps walk me through how that happened? I mean, in particular, with the FX devaluation plan, was there not been any naira devaluation in the fourth quarter? I'm just trying to reconcile where that gain came from.

There -- in the fourth quarter, don't forget, we had booked this. It's not really just fourth quarter. [indiscernible] devalues from halfway last year, we closed last year I think something like, what, NGN 461, and we closed the year at NGN 907. So the devaluation probably in the last quarter is what you see. And it might not necessarily be a quarter devaluation. It's a year's devaluation which caused to NGN 421 billion revaluation gain for the year. So you would have to take the entire devaluation from NGN 461 to NGN 907. And the trading gain is just from regular trading arbitrage.

Okay. I mean it's a devaluation gain. I mean the devaluation took place end of quarter 2, if I remember correctly. So I mean, I would have thought that the whole thing would have been booked in Q2.

Well, I mean, what I've done is do the whole thing. But Banji, maybe you could answer the question, if it was a quarter 4 [indiscernible].

Okay. Like [indiscernible] said, what we're referring to is on incremental basis. So what you see on annual basis, which we put up there, is when you look at FY 2022 vis-a-vis FY 2023. When if you are looking at quarter-on-quarter, in the third quarter, [indiscernible] closes [ NGN 769 ] levels, and our fourth quarter, it closes now at [ NGN 7 ]. But to clarify financial statement, which we have put out, you have to look at what we [indiscernible] for it and what we close it, which is NGN 461 vis-a-vis against NGN 907.11, and our gain is NGN 421 billion.

Thanks, Banji. So I guess, Curtis, what he said is we did have the devaluation in quarter 4, which was from [ NGN 7 ], which quarter 3 closed at [ NGN 760-something, ] and then we closed the year at NGN 907. [indiscernible] Yes. So the NGN 907 hasn't happened by half year.

The next question comes from [ Fiane Ostrele ] of CardinalStone Securities Limited.

So I have a couple of questions. My first one basically around -- my question, so the target for cost of risk is currently at -- it's about 0.8%. While looking at the results of 2023, it was actually about 4.5%. I know that it was that high in 2023 because of the decision to basically increase provisioning on the stage 2 loans. So looking forward to our 2024 now, how does the bank intend to achieve these target of 0.8%, given that it also wants to grow it's loans by about 30%? My next question is on -- so for the banking, the ex-Nigeria banking, the contribution to profit before tax was about, for 2023, was about 21.5%. But the target for the next year of 2024 is about 23%. I believe this is a bit -- it is quite conservative. So could you shed more light on that? And the expectation is that earnings from the nonbanking subsidiaries in the holdco will strengthen our contributes about 2% to 3% to be used for [indiscernible] in 2024. How exactly [indiscernible] be achieved as the client contribution is below 1%? And lastly, so how is the bank looking to better manage its credit risk in the current economic trends, given how the economy is lagging, its possible impact on [indiscernible]?

Okay. I think your last question is very closely related to your first, which is how is cost of risk going to go to 0.8%. Just like you said, I think you had answered very articulately that we basically put aside about $103 billion. And so we upped our cost of risk. So even just by writing that back, your cost of risk comes down to 0.8%. There is another thing we are all assuming. First, because we tooled up our loan book, we're not carrying any legacy NPLs into 2024. Therefore, the only way cost of risk can go up is if we're reckless in 2024, and we book loans that are bad. We do think even under these macros, there will be good loans in 2024 that will give us 30% and will not go bad, and that many of the loans people should worry about that might go back in 2024 are the ones that were booked pre-2024, not in 2024. So I think we're comfortable with the customer risk of 0.8% and a loan growth of 30%, even under these macros, because I think everybody is more discerning as to what the environment will throw up. The companies are probably better prepared. They probably won't be taking account of devaluation losses they took in 2023. They will have to continue doing business, and for as long as they are in business, we're also in business, and I think we can find the 30%. You said subsidiary contribution at 23% is conservatively positive. But at the end of the day, we are going to push our subsidiaries. We're going to make sure they attain their full potential, but we're also going to hope that Nigeria is going to continue to do so well. And the reason we have the 77% from Nigeria is there's something that people should notice in our financial statements. There is still a tailwind on the book of the Nigerian bank and the pricing of the derivatives. We have not priced our derivatives like most of our competitors. Our derivatives are still priced very, very conservatively. And as the macro settle, we will reprice these derivatives, which will get Nigeria a tailwind. So we might not be as conservative at 23% as you think because we still think there's a tailwind in Nigeria. But if we are, then the results will be better for the subs. We will continue pushing those. Nonbanking subsidiaries is 0.9%, which is really 1%. You can round it up. So what we're looking for from the nonbanking subsidiaries is another 1% or another 2%. These banking subsidiaries are basically 1, 1.5 years, and they are doing very well and they're growing exponentially. If you look at the growth rate of the profit of the nonbanking subsidiaries, you start to see figures like 655% growth, 355% growth. If that kind of growth rate can sustain, they will get to 3% of growth. So what makes us comfortable, given that 2% to 3% is their historical growth rate, because if they're growing at 600%, 300%, then they'll get us to the 2%, 3%.

So just an additional question. So looking at the loan growth from 2022, 2023, I know that grew out organically and also due to the devaluation of the naira during the year. So just by looking at the growth in the loan book basis, just on the side of the organic growth that's basically backing out to the foreign exchange impact, what is [indiscernible] going to look like?

It's actually in the investor presentation. It's 2.4%. And in 2023, we decided we were not going to book loans aggressively because we were very, very uncomfortable with the macro. So there was just too much volatility. And in our opinion, we made the right decision. We think 2024 is a bit more settled than 2023.

The next question comes from Kato Mukuru of EFG.

Great set of results. I mean it's incredible what you were able to achieve given the tough environment. I wanted to start my questions by asking about the guidance. I see you have NGN 806 billion of guidance in 2024. Is it before the NGN 500 billion of capital that you expect to raise? And if it is before, that means isn't it clear that the risk to this guidance is clearly to the upside with an additional NGN 500 billion of capital? And also the return on equity that you have given in terms of guidance of 40%, is that also pre the NGN 500 billion? That would be my first questions. I have one after that.

Okay. No, it is actually post, but also, we're not even sure yet. So it's post. We built in whatever additional capital coming to the business, but we've tried to be conservative based upon when the capital might come in and how much of the year we will have to work it, and that's why it's NGN 806 billion. Obviously, it comes earlier in the year, then we have a bit more time to work it. It comes late in the year, then we don't have quite as much time to work it. So it's built into the NGN 806 billion and the 40-odd percent ROE is also after that. So we're pretty comfortable that if we bring in NGN 500 billion capital into this bank, we will give you the NGN 806 billion, which will give you the ROE of 40%. But so the numbers you'll see are built in a capital raise, yes. And for us, we're comfortable that if [indiscernible] this capital raise, we can still have an ROE of about 40%, then that's a good downside. And that every other thing is an upside, both from an ROE perspective and a PBT perspective.

Wouldn't the capital ratio be much higher?

Yes. It could be, actually. You're right. The capital ratio should be much higher then because we should have deployed it by year-end. So yes, it will be, but we built into the profitability ratios and the other ratios.

And if I could ask another question, I mean you and I have the benefit of being through this before in terms of mapping capital raising systemic-wise. And we have seen a lot of people die with a lot of capital over the years. If we look forward, what do you think is going to define the winner in this next round of capital increases that everybody is doing? What should we see as the winning formula for a bank in Nigeria or as a Pan-African bank as well? If I look forward over the next 10 years, what do you think is going to be a determining factor?

I think that the first thing is if you've been through this thing before, the worst thing you can do is to rush and deploy it into risk assets. If you do, you will lose [indiscernible] because in trying to work the capital to give you a return too early, you're going to waste it and pick up NPL. So you must be able to hold your nerve and deploy that capital in a very methodic way and not rush the capital into loans. I really think that is the major thing. The second thing is you really must have cleaned off your loan book. If not, you are going to use all the profitability of this capital to clean up the NPLs you haven't. So if you ask me who's going to win, it's going to be someone whose loan book is well-derisked already, where when the NPLs start coming, they're not going to be using the profit of the new capital to defray those NPLs, and then mature and patient enough to work the capital productively and not pick up bad loans. I think once you start to see that and also maybe deploy some of the capital into their businesses that have 50% ROE that have potential within and outside Nigeria, and then you start to see people who truly understand the power of that capital, the patience in deployment and the current returns it can give.

[Operator Instructions] The next question comes from Josh Arowolo of Stanbic Pensions.

Congratulations on your results. Pretty strong set of financials. I have 2 questions. First one is on the bank, and it's essentially considering the strong growth in core earnings, it would just be great to get better understanding of management's decision to cut the final dividend, which led to margin growth in dividends. And was the decision at all impacted by the new capital requirements? So that's the first question. And then the second question is a follow-on question to Timothy's, is on the [ NAT ] or the bank's long position. So if I hear you correctly, it's about NGN 800 million still on the equities. So does that mean that for [indiscernible] moving forward modeling, should we still expect to see a revaluation gain every time, or if [indiscernible] down, it sounds like, if there's more depreciation to the naira?

Well, I'm happy you put the [indiscernible]. For us to see any revaluation gain today, you would -- well, sorry, maybe I'll be speaking -- at year-end, you would have to be over NGN 907. In first quarter, you'd have to be over NGN 1,300. But the answer is yes. If you go above NGN 1,300 a day, after the first quarter, there will be revaluation gains. Yes. The dividend, we have to restrict the dividends. I think the Central Bank has been [ ruled out ], so we did our calculations where if you have a forbearance loan, you are encouraged. There's no point to go in and get a pushback about how much of your profit they would like you to retain. We have one major forbearance loan, which is Aiteo, which is about NGN 300-odd billion. It, therefore, restricted the ability of our calculation of how much dividend we could pay. But like I said to you or I said earlier on in this call, Aiteo money started coming in. If, by the time we get to half year, Aiteo has been properly restructured, then we can take away the forbearance status of it and be a bit more bullish in our dividend payout. So the simple answer is we were a bit more conservative in our dividend payout because we have the Aiteo forbearance on our book still.

The next question comes from Karim Sawabini of Moon Capital Management.

Congrats on the results. Two questions for me. One is, what is the FX assumption you're making when you provided the guidance? And then the second is on NIM. You guided to 8%. Just wondering, if you look at where spreads are today on the naira side, I think you've taken NGN 500 billion, what is the -- what are you assuming will be your spreads for the year on the naira side?

Okay. Sorry, Karim. You weren't told at the beginning, that was actually an error, and I apologized at the beginning. Our NIM is actually 11%. And what was picked up in the forward guidance was basically last year's, which is 7.88%. It was rounded up to 8%. So the NIM guidance is actually 11%. In terms of FX, what we've tried to model in into our year-end figures was NGN 907.

Okay. So we obviously spot that there's upside to that number.

Yes, which is what I was explaining, I think it was [indiscernible] as well [indiscernible], but in that NGN 806 billion, we have modeled when the capital will come out and put it late in the year. If it comes in early in the year, as you know, we're in a high interest rate environment. Even without seeing anything crazy, we believe we can make a good return on it, or we try to model it coming in a bit later in the year. So there is, in that NGN 806 billion, my belief on upside, yes.

And just last question on my side is on the capital raise, assuming that you won't be able to deploy that, that rapidly. I'm -- the assumption is it's going to be invested into short-term duration securities. What is the yield you're assuming on the naira security book for the year?

20%. We assume that, that capital can be 20% from when we get it to when we deploy into risk assets in the short term.

The next question comes from Curtis Schacht of Sustainable Capital.

Olusegun, just with regards to the stress in Ghana, am I correct in saying that the securities down there, that's all kind of now been fully provided for, and kind of going forward, that situation's all kind of -- it's all -- the dust has settled? And then also just to kind of, again, [indiscernible] questions on the Q4 numbers. If you could also just walk me through the loss moving forward and also just why the effective tax rate was so low?

I think we lost you.

Not a problem. Where did you lose me?

Yes. So can we do the -- okay, I've got the Ghana question, but can you please start the second question again?

Sure. No problem. Yes. So just with the -- just again an account-related question on the Q4 numbers. Could you just please walk me through the -- I thought there was a loss related to the forwards? And then also just why the effective tax rate for the quarter was so low?

Okay. I'm going to let the CFO take the second question. I'm going to take the first. In terms of Ghana provisions, Ghana's restructured everything but the Eurobonds. So we have -- there's no problem with that. The real problem is still around the Eurobonds, because they haven't fully done that, and with different stages of provision in different jurisdictions. What I would say, we're about 50% provided, with different jurisdictions providing different things. So Ghana obligations, all done apart from Eurobonds. Total Eurobonds exposure of the group is $97 million. We've probably got about $45 million to $50 million provision. So if Ghana was to go completely cash [indiscernible], it would be about $47 million hit. But I've got to make it very, very clear that we have no intentions of a [ green ] sector on the premium Eurobonds. We believe that if a sovereign takes debt, it just takes debt, so we will not concede for a haircut on this premium Eurobonds. But in the worst case, we are making our provisions. I'll let Banji answer question 2 on the quarter 4 loss on the forwards and effective tax rate.

For the effective cash rate, it's going to be low, because like we have seen earlier, exchange rates at the third quarter was [ NGN 79 ], and at the close of business FY '23, exchange rate closed was NGN 907.11. So the reduction gain impact, some saw like [ NGN 140 billion ], and that's not possible. So that's what impacts the effective tax rate. And the loss on forward has to deal with mature swaps, which we had not [indiscernible] so we couldn't do the valuation [indiscernible], which [indiscernible] the rollover [indiscernible] devaluation, [indiscernible]. So when mature swaps mature, what it does is that [indiscernible] 2023.

Also a [indiscernible] explanation to that lot of the swaps is you will notice that the liquidity ratio was 31%, and that was because the swap hasn't improved. Right after the swap was booked, that liquidity ratio went back up to about [ 30% ].

Our next question comes from Johan De Bruijn of 337 Frontier.

Segun and Banji, I appreciate the time and the insights. My question is -- and forgive me here, just trying to understand this capital raise. Is this purely as a result of the CBN regulations? Do you, as a business, need this capital? And can you just talk me through the mechanics of the raise? How much of it is equity versus bonds over any other form of capital? And then lastly, if it is in equity, and part of that is, I assume, as an issue or a specific equity raise, do you have shareholders that are willing to underwrite and to back this? Just thinking of this in context of all the other banks, and some of which are in much more dire capital positions than you and requiring a lot of capital to be recapitalized. So can you just talk me through the mechanics of this, the need for this and just how you see this playing out over the next year?

Okay. First of all, I do believe that the banks need capital. At year-end, the devaluation of the currency was over 100%. It therefore meant and it still means that your ability to do business from one of legal perspective has diminished. At one point, you could do as transaction size on your own if you were Guaranty Trust about $330 million. After the devaluation, this dropped by as low -- went as low as, I think, 180, 160. I think we're back up at about 200. So if you're planning for the next 5 years, unless you're in the no-growth scenario, whether the CBN asked you to raise capital or not, you must raise capital so that your deal sizes will not shrink because you can't have a devaluation. So in dollar terms, you're one of the guys going down, your ability to do transactions and that -- you need to pivot for growth, and you need to prepare for growth over the next 5 years. And there is no way that in this type of devaluation environment, you could keep the same capital and grow over the next 5 years. You wouldn't have grown. You would have just actually shrunk in terms of the business you can do. The second thing about the capital raise, you said you wanted our own modalities. First, we've done a program for 750 million. But we are not -- or we're going to try and get approval for the program of 750, which means it could be equity or bonds. But we're not starting with bonds. We're starting with straight equity. We're going to try to raise about NGN 500 billion, up to NGN 500 billion. Do I believe the money exists? Absolutely. I think you must remember that we do have the domestic market. We have PFAs. We have retail individuals. Guaranty Trust has about 15 million active customers, has about 20-odd retail customers. You have institutional customers. So domestically, there is much. I also would like to believe that Nigeria and the macros have improved and that the currency has stabilized and that most people who wanted to take their money out of the country from a liquidity perspective have been able to. And when we look at the valuations of Nigerian banks to date, there will be investees who might be, this is a good time to invest for the growth. That will probably happen to the banks who play this right over the next 5 years. So I can't speak for everybody, but from the perspective of Guaranty Trust, I do believe there's more than enough money to give us the capital we need to grow.

The next question comes from [ Keno Tibi, the CEO ] of [ Marcy ] Asset Management.

Yes. I just wanted to follow up, and then I have similar questions to Johan. So basically, just to confirm that the 750 or 500 will be a rights issue basically to local investors.

No, we're not doing a rights issue. We're doing it off of the sale. It will be a domestic transaction, but all the reporting and disclosure requirements will be through RegS and 144A in disclosures. That is the kind of the transaction we're doing. So for any foreign investor who wants to invest, the documentation will be documents that you're used to and can go through compliance from a RegS or a 144A perspective.

The next question comes from Timothy Wambu of Absa Bank Kenya.

Just a couple of follow-up questions, just two actually. The first one is a follow-up on the question asked by Curtis. So these net impairments on financial assets, it's been significant of late. I look through your comprehensive financial numbers. I can see that it's largely due to impairment done on contingencies. Are you in a position to just give us a view on outlook and also the drivers for this? Because I can see the kind of questions that are significant as contingencies. And then the second question is on -- can you hear me?

Yes, sorry, I lost you for a minute. Yes, you said you could see the [ drawdown ] portion, yes.

Yes. Doesn't seem to be as significant as the impairment of contingencies. So kindly just give us an outlook or a view and the drivers going forward as to how we should look at these net impairments on other financial assets. It is a significant portion especially recently. And then on the second question, I've been tracking your capital ratios and [indiscernible], and I noticed that your Tier 1 ratio had declined, but I see it's because you used your half year retained earnings. Is there any particular reason why you don't use your full year retained earnings? [Technical Difficulty]

Ladies and gentlemen, apologies for the delay. Please remain online. The main speaker will be rejoining us shortly. Thank you.

Hello. Sorry. Yes, sorry, have some technical problems. Can you -- can I go back to the last speaker? And I remember the question was about impairment on financial assets. Is that correct?

Yes, if you can hear me, I can proceed.

Yes. Sorry, I really apologize. I think you had asked a question on financial assets, which I was ready to respond. Yes, you're right, which is why I said to an earlier speaker that you will see a write-back because now that we know what the Ghana situation is, we've done our worst-case analysis. We probably have about $40 million, $40-something million. So yes, we will write back, which I've said to an earlier speaker that when we take in impairments, when the macros become clearer, so you'll see a write-back of some of those impairments, yes.

[indiscernible] but the impairments on the contingence that exceeds the Ghana exposure. So I was trying to get an idea, what's the driver here? And is it also bound to improve or correct with improving macros? Is that the way we should look at your balance of the contingence?

Yes, please. You look at the impairments that way because we were just looking at -- like I said, I think the macros at 12/31 were a bit more clear and a bit more volatile than they are today. So you will see a reduction in that, yes.

All right. My other question was, when I look at your core capital ratio, I notice that it has declined, and [ they are a bit better ] given that you have straight -- you have seen very strong growth in earnings. But I think in the company breakdown, I can see that you used your half year retained earnings. Is there any particular reason that is the case? If you had used your full year retained earnings, what would have been the core capital ratio? And then just lastly, just if we look -- sorry for this question, it's really on that NLP exposure. We've heard other banks say that [indiscernible] be long completely, you cannot be long, almost telling us that the era of FX devaluation [ kings ] is behind us. Maybe just clarify that kindly.

Look, I really can't talk for other banks. You asked me a question which you had to ask. You have to ask the banks if they have any dollar equity. I think with your dollar equity, you can [ be involved ]. The second thing is the reason why we use half year results is that's what the Central Bank ask us to use for the capital [ adequacy ratio ]. And I believe that if we were to use the year-end numbers, the capital adequacy ratio would have been about 28%.

The next question comes from Isaac Osaro of WSTC Financial Services.

Can you hear me?

Yes, I can.

Okay. So looking at your forward guidance, you mentioned that your profit before tax for 2024 is around NGN 806 billion. Yes, I know you mentioned the fact that with the new -- if you have to raise capital, when you're coming NGN 500 billion, that should probably put your profitability to around NGN 800 billion. But when I look at your 2023 profitability, which is profit before tax, one of the major driver is your FX gain. And if I have to strip out the FX gain from PBT, we will not get up to $300 billion. So does that mean that you also factored that in the '24 guidance? Or what is really the driver of '24 guidance in your PBT?

First of all, I think all the drivers of PBT will be in 2024. If you look at what our interest income was, which is our core business, it grew by 69%. If you look at our commissions and fees, it's growing by about 80%. So the core business itself is growing. Do we have some FX revaluation gains in there? Not really. What we have in there, as I mentioned earlier on, are derivative gains, which are derivatives still priced way, way below even [ 906 ]. So I think we're very comfortable. And I think you should give us some credit about our guidance. We're not known for giving guidances which we don't need. You can see what we gave in 2022 as a guidance and we'll be right. So we are very comfortable that the drivers of the profit for 2024, it will be partly core business. We believe we will get some of it from the profit pricing, new pricing of the stability of our derivative book. And thirdly, there's some capital, which we will work in 2024. And then all those factors make us quite comfortable and confident about NGN 806 billion for 2024.

Our next question comes from Kato Mukuru of EFG.

Just one more question. When the CBN was discussing the capital increase with the banks, what is the -- what was the CBN's comments in regards to shareholders? I know -- I understand that the system needs capital on its whole, but this kind of seems pretty tough on shareholders who actually take huge dilutions. Was there any discussion of at least -- and also, you were also limited on being able to provide a big dividend. So was there any discussion on returning capital to shareholders in another way, such as the buyback, for example? Just I think just keen to understand what they were thinking in terms of how shareholders have responded to all this [indiscernible].

Well, honestly, Kato, again, you're trying to make me operate above my pay grade. I can't speak for the regulator, but I do believe that the regulator was thinking more in terms of financial stability, financial system stability and that on the back of the type of devaluation we had, they felt that a recapitalization was needed for the financial system stability. I also believe that for investors and shareholders, truthfully, who are thinking long term that coming up with the capital will make a lot of sense over the next 3 to 5 years. I remember the last capital raise we did as the bank was in year 2007. And it was after that that the financial crisis happened. And that capital allowed us to ride the financial prices both from the NPLs we picked up and from a growth perspective. So I'm a firm believer that shareholders should give the capital now, and that the banks who are well capitalized, back to your question, who do the right things are really going to be much, much stronger in the next 3 to 5 years. And then if you take a long-term perspective on your investment as a shareholder, it is probably the right thing to do to raise capital now.

Our final question comes from [ Ngozi Chokunika ] of [ Ngozi ].

I wanted to ask concerning your derivatives. You made mention that you price derivatives more conservatively against your peers. So given the application of the currency we are seeing now, what's your outlook on derivative gains into this year? And then on your possibility of potential write-back, I want to know, is it on 2 fronts? Is it on the loan front and also on financial assets? Are you seeing a possible write-back both on internal charges on loans and also for the financial assets? And then for your NIM guidance, I wanted to get clarity. You do make mention that your new guidance for this year is 11% as against to what we are seeing on the presentation slide of 8%.

Yes. And I apologized at the beginning that I think what was picked up was last year's NIM, which was 7.88%. So NIM guidance is 11%. We will write back both loans and financial asset impairments this year because like I said, we think things are stable. I really cannot speak for whether other banks will have reversals in their derivatives. But we're pretty comfortable that if your derivatives [ sort of ] trade about 461 that you still have a pretty long runway for derivative gains in respect of the appreciation and where we believe the currency will settle. And I mentioned earlier on when [ Tarun ] asked me what we were looking at in our 2024 figures and I've said [indiscernible]. So we do believe there's still derivative gains on our books, but I can't speak for others because I don't know how they price their books.

And then lastly, on the capital recapitalization, are you positive that you're going to be getting the 500 billion that will be concluded this year and would meet the CBN [indiscernible] time line of 3 years? Are you positive that you'll be getting that this year? Any price increase you're guiding for this year?

Well, if we price [indiscernible], there must be reasonably [indiscernible] into that rate here, so I would say yes.

That was the final question. Can I hand over for closing remarks?

Well, thank you very much again. I thank everybody who's kind of been with us. Hope we've given some clarity as to what we did in 2023. We always have to be a bit careful what we say about 2024. But I think I'd just like to say we're pretty optimistic in what we -- as you can see from our guidance. Thank you very much. Have a good evening, and God bless you all.

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