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

Good afternoon, ladies and gentlemen, and welcome to the Guaranty Trust Holding Company, Plc's Half Year 2024 Investor Analyst Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Olusegun Agbaje. Please go ahead, sir.

Good afternoon, everybody. Thank you very much. Sorry, this call seems a bit rushed. We have the presentation online. We've decided to do this today because Monday might be a public holiday, and we're not sure yet, but we thought today would be a good day. Either way, the presentation was put up yesterday. So we're going to go straight through -- straight to Q&A and questions and answers basically. So I'm ready for the first question. Thank you very much.

[Operator Instructions] The first question comes from Kato Mukuru of EFG.

Congrats on a great set of results. I really appreciate the chance to have this Q&A. I guess, I went through the presentation, which is very detailed. And as I got to the end, the last page, I realize that your guidance for FY '24 has not changed. And I wanted to understand why? And if there is any sort of new guidance that you could give us because clearly, your half year results are so impressive that they're ahead of your full year guidance on the PBT. So I guess that's my first question. Should I ask 1 or 2 and then I'll drop off and then come back later.

Yes, sure, sure. No problem. I've taken the first one.

The second question I have is, with regards to the NGN 266.6 billion you have due to the CBN, which I understand is a swap contract. And I just wanted to understand why is it due to the CBN if it's a swap -- and what -- could you just give us a little more detail about that particular exposure? And then the third one, I promise, I've got many more, but I'll come back later. The third one I wanted to ask you is with regards to the financial statements, I see that you've actually given us a forecast for the naira going forward in 2025, 2026, 2027, you have a base case forecast. Should we be using those forecasts to try and estimate how the unrealized gains could move going forward. And then on that subject, is there any way we could understand how much of the unrealized gains on this -- particularly on the forwards will get unwound at the end of the forward period because there's no gain at the end as we've discussed a little with Banji. How much of that was unwind so that if -- I'm just trying to figure out how to forecast this going forward, so I can get a kind of a real recurring profit outlook figure.

Thank you very much, Kato. Let me start with the last one and then work my way up. In terms of naira forecast, I mean, to be honest, maybe I'll be George Soros, if I could do this correctly. So I think you got financial control people and auditors to come up with the forecast. So I think I would advise that most people come up with this. What I would say that this year, which I'm hoping the country can achieve based upon what I've seen is 1,500 plus 5/minus 5 and that's kind of how much I'm willing to go for this year, and we'll see what happens next year. Based off on that, you can see how much might unwind or not unwind of your risk unrealized fair value gains. But I'm not very enough or smart enough to say what will happen next year and I'd rather just take this one and go on. The swap with the Central Bank, like due to that you talked about is about NGN 563 million. It's no different from all the other swaps. Basically, we have their bills, they have our cash. The swaps will unwind on maturity. As you see, they were around about NGN 173 million of ours. We are pretty comfortable where we are. Our swaps are priced at about 1,300, so basically, that's the derivative on book. So I don't know how, again, they've reported it as swap to or swap from, but it's the normal traditional swap where they have our dollars, and we have their treasury bills. In terms of guidance, Kato, the reason why we don't change it, truly, we've never changed our guidance in the middle of the year. Where we were behind we didn't try to bring it down. And so we might have internal guidances that are different, but publicly we never change our guidance, we've never done. One thing I'd like to say, and sometimes if I expand because I'm anticipating another question, the way we look at this is that it's only half time really. These are half year results. We're going to have to remain focused and put our foot down and make sure we have very strong. So while we agree we're ahead, it's only half time result yet, we would rather not change it and we've never done in the past even when we were behind. So I hope that kind of addresses the 3 questions.

Our next question comes from Nabila Mohammed of Chapel Hill Denham.

Congratulations on your results. I have a couple of questions. Some have somewhat been answered based on the first speaker's questions. Well, just speaking to the groundbreaking PBT that you recorded in half year, I just want to get more color on those unrealized fair value gains from financial instruments and all transactions. And also does bearing in mind how sustainable the profit levels currently are going forward? That's my first question. Then my second question is on your capital raise. I just want to understand what staged up process is that and how soon would we see that be reflected in the company's books. My third question is with regards to the lower impairments that we noticed in H1. I just want to understand how that was able to be achieved given the current macroeconomic headwinds. And lastly, just speaking to your loan growth and your guidance, I just want to know if that guidance is core loan growth or is also factoring in the possibility of currency movement, given that we've seen that on a year-to-date basis. And that will be all for me. I'll come back on queue, I have more.

Let me start with the last question again. On loan growth, no, we're never building whether devaluation or not devaluation, so what we advised was 30% at the end of the year, we're at 25%. If you remove devaluation, we're at about 6%. So again, just like I said, to Kato, we're just going to continue to chase that. Lower impairments, forgive me, I'm going to spend a bit of time here and, hopefully, I might address other people's questions. Part of the reason we can do what we're doing is that if you look at our loan growth over the last couple of years, it's been very measured and we haven't grown our loan book like most people. So one thing I hope, as analyst, you started looking at is what's the Stage 2 impairment of banks are because that's beginning to tell you, it's not Stage 3 but what the loan book is looking like. Our Stage 2 is about 439, of which we've already provided and created capital buffers for over half of that even before this point. And so even though the macros are not looking that good, we've anticipated these macros over the years and so there's no need for us to do anything aggressive because for impairments, which are for us Stage 2, which are not completely impaired. We've already covered over 50% of it. So we really don't feel a need to do more than that. So you don't start taking impairments today. When you think of impairments, please compare them to what people have in Stage 2 because Stage 3, you would have taken care of it already. In terms of capital raise, as you know, where are we? We were waiting to submit and do capital verification. Everybody is subject to a capital verification exercise by, I think, 3 regulatory bodies, NDIC, CBN and I believe SEC. And so we will wait and see the outcome of the capital verification. So that's kind of where we are. In terms of fair value gains, you have to -- again, to what I said to Kato and do your own numbers. The fair value gains really is from our FCY balance sheet. And so it will always depend on what your projection of the exchange rate is. I've already told you what mine is. I said I counted plus 5/minus 5, 1,500. And if that's what it is, and we close half year 1,505, then you're kind of where you are. Of course, if you see another massive devaluation, which I praying we won't, then you might see an increase. And if we don't, then this is what it is that you have at half year. I believe those are your questions.

Next question comes from Josh Arowolo of Stanbic Pension.

Congratulations on the results, fantastic. My question is on dividend. I'll start with a bit of a prologue, if you don't mind. So last year, fantastic H1 results as well, half year 2023. And then we saw that increase in dividend, sizable in our interim dividend, I beg your pardon. Full year fantastic resort as well, but dividend was a bit underwhelming. Again this year, fantastic half year and then fantastic dividend. Can we take it as a tea leaf to sort of a significant increase in dividend for full year 2024? That's my first question. And then the second question is just to -- line is breaking here. Can you hear me?

Yes, I can hear you, you're fine.

It's back now. So I just wanted to then understand your thinking regarding the CBN's forbearance to the banking sector and sort of when you expect that to elapse or if there's been any communication at all from the regulators regarding this? And yes, if you could just share as well how much sort of impairments you would have to book, if, for example, we hypothesize that the forbearance elapses immediately.

Okay. Let me start with the second one. My belief is that forbearances fall away this year. There are some banks or people that say, maybe won't, but we're living our lives that forbearance would go away this year. Our major forbearance is Aiteo. I've got to be honest with you, Aiteo a syndication. It has not gone the way we like. We're a bit -- at least I, personally, I'm a bit tired of making excuses about Aiteo, so what I'll tell you what we've done. We have basically put ourselves in a position to write off Aiteo this year and it will not affect our P&L. I have said to you that Aiteo is in Stage 2, now we have over 50% in capital buffers for Stage 2 loans. So we will probably write off Aiteo this year and then go very, very aggressively on a recovery drive because we just don't like how it's playing out. So syndication is moving too slowly for us. So the simple answer to your question is the only thing that will happen in terms of forbearance is the Aiteo loan, which is the only one we have. We'll write it off this year. You won't see any P&L impact because we've already created the capital buffers. In terms of dividend, I think, I kind of apologized at the beginning of this year on year-end resources, financial year-end, we would like to pay more, but then we ran into all the revaluation gain problems and a 25% restriction because we had about 15%, 16% of forbearance loans. I just kind of told you that we will not have any at the end of this year rather than that will provide 100%. So I think you can count on a healthy end of year dividend, knock on wood for as long as we can keep this momentum going. Yes, it will be a healthy end-of-year dividend. I don't know if I answered both of your questions.

[Operator Instructions] Our next question comes from Randolph Oosthuizen of Old Mutual Investment Group.

So just to clarify my understanding, the dividend that you declared for last year that wasn't only a function of the CBN saying that you're not allowed to utilize foreign exchange gains. It was also a function of the CBN -- what is that -- yes, they've got those parameters for calculating how much dividends you're allowed to pay. So it was a function of that framework as well. So in terms of that framework, you were sort of higher than some of the thresholds, which limited how much dividends you could pay. Is that correct?

Yes. Like I said, they have different thresholds. If you're above -- if you're like 15% to 20%, I might not be exact, but I know if you're above 15%, then you had to withhold 25% of what you could pay out as dividend. And like I said, this year, forbearance loan will fall away. We will make sure we have none on our books, so we will not have that 25% restriction. So yes, apart from the revaluation, we fell into the restriction as a result of the percentage of forbearance loans that you have on your balance sheet. Yes.

I usually assume that you wouldn't have any restrictions on that one, but obviously, I guess, happens to the best of us.

Yes, we have one forbearance loan and, you must remember, it's a percentage of your loan book. So maybe if we had a loan book of NGN 7 trillion, it wouldn't matter. But if you're sitting at about NGN 3 trillion, then it's a percentage of it, so we fell into the 15%. Like I said, we've also been -- we've always been very open for what the loan that has given us a headache is, which is Aiteo. And I said to the earlier caller, we do have enough capital buffers and provisions to write it off this year, which we will do and then we will be able to pursue a very aggressive recovery. So that 15% was the size of the loan book, not necessarily quality of the loan book.

So just so I understand, when you say capital buffer, you mean you've provided enough so that you can write it off?

Yes, we can write -- we can take a 100% provision on it this year.

Our next question comes from Konstantin Rozantsev of JPMorgan.

Yes, I was on mute. Congratulations on the results. I had 3 questions that I wanted to ask. The first one is, apologies if you've already commented on this early on the call, but this first one I wanted to ask for more color on the windfall tax that has been proposed with respect to the banks. So I understand that there are still some uncertainties with respect to how this tax is going to be calculated and applied to the banks. What's your sense as of today? Where are we in this process and what's the likely outcome? How do you see this tax being calculated and applied to the banks ultimately? The second question on this fair value gains. Thank you for the comments earlier on the call. My sense, correct me if I'm -- but my sense has been that banks have already closed their open -- loan open dollar position. So I'm still struggling to understand where these FX gains or fair value gains are coming from? You mentioned that this relates to some exchange rates projections or movements. How are these gains possible if the banks are net zero on the FX side. And the third question, it doesn't relate specifically to GTB, it's more of a question on the Central Bank's approach in dealing with weak and failing banks and it's more on the credit side, to be fair. So if -- the question hypothetically, if the Central Bank intervenes with a weak bank, how likely do you see a possibility that it goes on with bailing in its senior unsecured debt. Is that scenario realistic? Or is it completely excluded?

The third one you would really have to ask the regulator, but I've never seen a situation where in a banking wind down unsecured debt is taken care of. So I would assume following normal banking practices that unsecured debt over and above what the insurance is, which is what the NDIC assurance would be for depositors, I don't believe that unsecured debt in a regulatory situation is ever dealt with. So I'd say the banking wind down or liquidation unsecured debt goes to 0. In terms of the fair value gain you spoke about, our NOP position is 0, you are right, which is why you don't see trading gains, but they are fair value gains on your foreign currency balance sheet. And if you look at the foreign currency balance sheet of Guaranty Trust, it has foreign equity and so the fair value gains are unrealized fair value gains on financial instruments on your FCY balance sheet. So this has nothing to do with your NOP, which is why you don't see these trading gains. In terms of the windfall tax, we really -- I don't think anything has been administered yet. But our understanding as Guaranty Trust Bank is the trade windfall tax will be charged on realized foreign exchange trading gains and we will have to wait for more color on how that is applied. I think most banks will probably have engaged their auditors or the tax people at this point to try to get an idea for what type of figure that is looking like. So I hope I've answered your 3 questions.

Yes. Just a quick clarification on this fair value gains, so you mentioned these relate to the revaluation of equities, right, FX-denominated equities?

Your entire FCY balance sheet because at the end of the day, if it's revaluation, we actually took revaluation losses of NGN 22 billion.

The next question comes from Sodiq Safiriyu of SBG Securities.

Congrats on the interesting results. So my first question would be considering the critical fiscal regulatory reforms, just as was mentioned in the presentation, what possible opportunities and risks that you see in the banking sector, in general? And as it pertains to GTCO, how are you seeing the opportunities and risk for you and for the banking sector? And second question is surrounding technology and technology costs. I know you highlighted that some of these costs, majorly, the IR cost was due to weaker currency and inflationary pressure. I just wanted to get a sense of how that is shaping the issues surrounding technology, one. And also considering a discussion around real-time retail businesses, what is the bank doing regarding technology issues, be it digital apps and all of that, in general? Those are my questions now.

Let me start again with the second question. Technology cost, as you know, most of the technology costs are in foreign exchange, unfortunately. So even if they stay the same in FX, by the time we translate into naira, they're on the way up, you'd see them higher. But the good thing about us is I think we went a bit ahead of some of the devaluation and we have basically paid for our core banking software, which we're going to change. There might be some other hardware costs that will come through. In terms of retail, for anybody who's our customer, you will see that we change GTWorld as well which was ahead of it, which is all to make your retail experience better. So we're not going to stop doing technology. I think not just as Guaranty Trust. I think as an industry, we will all have to be a bit more careful and look at technology costs a bit more closely in light of the devaluation and the fact that most of them are technology-related. Opportunities, I mean, I think that honestly, there's so many opportunities in the system looking at the macros. Of course, you'll have to be careful. By no means is the banking or financial system in Nigeria today mature. Your banking penetration is still very low. Your asset management penetration is almost a nonexistent. In terms of the pension business, you're only at NGN 21 trillion, so there is still so much runway that when we sit as GTCO today, we always see a lot of green. Really, we see a long runway for opportunities. Risk will always be there and that's why we're in the job of doing this managing risk. The risk can't have started this year. You needed to started to manage your risk over the last 3, 4 years as the macro started to change. And that I have always said to people with all sense of humility, if you see anybody that was ballooning their loan book very aggressively over the last 3 years, I would please ask that you look at their Stage 2 loans today, and you would see how well or not well they managed risk. So there's credit risk, if an economy changes, your customers have a bit of an issue. You will have to deal with it, but we're in business of managing risk, so we think we can do that fairly well. We think we can manage the risk in the economy. And at this point, we'll rather focus on the opportunities, which is the banking system that's not mature, a pension fund business that's not mature, a payment business is still has a long runway. We look at our businesses outside of Nigeria that contributed about NGN 150 billion in profit. When countries where population is growing, population is young, GDP to deposit, GDP to loans are still very low. So all our businesses give us a lot of optimism about the future, whether it's the countries we've chosen to do business or whether locally. So yes, we'll manage the risk, but we see a lot of opportunity in all the businesses we've chosen to play in.

Sodiq, does that conclude your questions? Yes, it does. Can I ask a follow-up question?

Sure.

Okay. So you talked about the pension business and the industry is still pretty young and I know that there is a plan for GTCO to acquire a pension fund administrator. What's the development like on that front? And maybe just finally, regarding the investment securities, there was that significant growth year-to-date from the investment securities. My thinking of it is that probably the sellout -- the winding down the CRR, whether it contributed to -- seeing that there were special bills from full year 2023 went to zero, when you compare it to half-year 2024. So I wanted to ask what the outlook is like for the rest of the year and going into 2025?

Let me first start with the fact that if you look at investment securities went up 57%, as liquidity improved, we behaved rationally. Some of that liquidity was reduction in CRR and special bills, which we were at about 59%. A lot of it is also that there was deposit growth. Deposits grew by of 40%. So if you look at the asset side of our balance sheet, we basically deployed it into 2 places, very productively, loan growth 25% growth, fixed income securities 57% growth, about NGN 3.8 trillion. So yes. And yield was about 15.9%. I still think we can maintain a 15.9% yield because we were struggling in terms of yield from some lower-priced bills. Even if I look at what is happening in terms of interest rates, even if they keep coming down, I still think the yields we will see will be above 15.9%. So I'm a bit -- I'm still watching in terms of interest rates, are they keep coming down. We've just had a fuel price increase. I think that will bring in some inflation might affect how quickly interest rates come down. But in terms of fixed income, I think we should still be able to do 15.9%. I don't know if you know, but we do own a PFA. It's AUM is over NGN 90 billion. It's all grown up organically. It's really aerospace, which is retail, not AES, which is wholesale. We might look to buy a smaller PFA to give us some scale, but the business is growing well. It's very profitable and what we'll be looking at is to grow it and achieve scale reasonably without of a pain if we choose to do an acquisition. I hope that answers your 2 questions.

The next question comes from [ Sahil Kumar of Moon Capital Management. ]

This is SahiI from Moon Capital. I have a follow-up question from the previous caller about the net interest margin environment. Obviously, as you mentioned, the yield would stay at least the same or increase as we progress. What sort of a margin improvement we would expect in the second half? And the second question related to this is, on the cost of funding side, given the banks are making good spreads, do you expect there could be a more deposit competition in the market and it would impact the cost of funding side. So how do you see those 2 factors and the margin improvement in the second half?

Thank you very much. As you can imagine, we're already 3 months into the second half, so we have a pretty fair idea. Cost of funds is about 1.5%. We don't expect it to grow dramatically anymore, especially because of how we do our business. We don't go after wholesale deposits. We're not aggressive in deposit growth for the sake of it. I would say that we are still going to push. If you look at our beginning of the year guidance, our NIM guidance was 11%. We're up at about 10.5%. So for the second half of the year, we'll try to push to get to the NIM of 11%, which we promised at the beginning of the year. I hope that answered the 2 questions. So cost of funds, we don't think there will be deterioration from 1.5%. If we can hold the yields on fixed income at about 15.9%, maybe we can do better on the loan yields, which were at about 14.5%. And hopefully, that will take us to the NIM of the 11%.

That's clear. And another question is on the operating expenses. I mean, obviously, given the inflation we have in the market, how do you see your cost-to-income ratio or operating expenses growth in the second half. I mean, obviously, first half as some of the regulatory expenses, which will not be in the second half, so if you can give some color, that will be helpful.

Thank you. I think we're going to -- I think that will come down for sure because even AMCON, you've paid it all in the first half of the year. That's one of the dangerous things about a cost-to-income ratio, well about 16.1%, but that's because the revenues are so strong. We have grown expenses by [ 60%, ] highly inflation environment. We cannot afford to keep that kind of growth, so I think you'll see slowing growth in expenses in the second half of the year. Especially since the regulatory costs will not keep going and, hopefully, we've already priced in some of the devaluation and inflation into the OpEx in first half of the year. Hopefully, buy some things forward, paid for some things forward, prepaid for some things, so it definitely won't be as high in the second half of the year.

The next question comes from Ronak Gadhia of [ Dunross. ]

I guess -- sorry to frustrate you, but just to go back to your dividend policy. So you made it clear that the provisions on forbearance loans will no longer be a restriction this year. Could you also clarify if there's still a restriction on FX -- on paying profits on FX-derived profits? And so there, I'm just trying to figure out what the distributable profit pool will be? And beyond that, once -- could you also clarify what your payout policy is on the distributable profit pool? In the past, it was pretty clear you would pay 50% of your profits as dividends, but does that still remain the case? And then the second question is on your capital position. I noticed that despite the significant profits you generated, retained earnings did not grow by as much. So could you just clarify why that was?

First of all, like I said to you, we have created some capital buffers against on that last for Aiteo. We couldn't retain is what we felt we should. But we've created some capital buffers against anything that might come in the future. That's the one. Our dividend payout ratio is still 50%. As far as I know, what is restricted is not trading gains. What is restricted is revaluation gains, of which we actually have a revaluation loss. I don't want to predict or help guess what year-end dividends will be or disclose those. But I think if we take what our distributable profit will be at the end of the year, like I said to someone earlier on, this is still half time and so I don't want to give you year-end dividends based upon half year results. But one thing I do know is that looking at where we are and what will be payable and removal of forbearance loans and the fact that we're not carrying revaluation gains, our core income has done very well and if you look at those financials, it should be obvious to you. Interest income is up 173%. Non-funded income is up another 73%. If you take all that, you will kind of arrive at the distributable profit and you'll see that there's more than enough money on the P&L to pay a healthy dividend without worrying about the restrictions of FX gains.

That's very clear. Sorry, just to go back on this issue of revaluation gain versus loss. I apologize if I'm not understanding something simple here. But as you mentioned to an earlier caller, the -- you've got significant sort of -- your FX assets significantly exceed your FX liabilities, and that was a driver for the gain that we saw in the first half. But like you mentioned, what's actually being reported is an FX loss. So what am I missing here? Why are you reporting an FX loss when you have a significant sort of...

Because when you're talking about your trading what you're allowed today is a short position and we had a short position in terms of our trading book, which allowed 10% NOP at the end of the year. And so that short position gave us a slight trading loss.

But the rest of the gain is coming from that your FX assets exceeding your liabilities.

Yes, yes. So what...

But there is no restriction on dividend on that?

No. So what you should see that is causing the problems in terms of the revaluation loss was the short position, the short trading position at the end of half year, which you allow, your NOP allows you 10%.

The next question comes from Brad Virbitsky of Equinox Partners.

A couple of questions for me. The first is, I was wondering if you can give color about what you're seeing from your corporate customers and whether there's appetite for new loans? Has the environment settled enough such that there's lots of corporates thinking about CapEx for growth projects or it's still sort of a wait-and-see environment. Then I was also wondering if you can give an update on the AMCON charge. And that's it for me.

On the second one, AMCON charge what I've been told is that AMCON is going to be wound down in 3 years. I don't have that written or any authority, so I would assume that AMCON is in wind down crisis and then maybe in 3 years will no long exist, but we'll have to see. In terms of corporate loans, obviously, the reforms in the environment are taking shape. People are looking. We've had a couple of acquisitions. Those acquisitions, you've had a couple of divestments, but what people should remember, when you see a Diageo divestment, it means that someone else bought it and that person will need some CapEx. And so are we seeing CapEx request? Yes. Huge amounts? Maybe not, slowly. But if you look at our loan book, obviously, we're living and dying with the corporates because 89% of the loan book is corporate. So there is enough corporate demand. CapEx, I think, will come a little more slowly because CapEx are basically long-term decisions. You've only been in like 1 year of reforms, so I think you'll continue to see that. In terms of the distribution of our loan book, the demand and the disbursement is still corporate. In fact, if anything, it's gone up from what it has ever been, and I think this is the highest it's ever been at 89%.

The next question comes from [ Adeyinka Adelova ] of Renaissance Capital Africa.

Congratulations on your results. So my first question is you mentioned about your loan book growth and giving your forward guidance of about 30%. And so I'm taking that 30% as organic loan book growth because currently, your loan book growth just at 35% and majority of that growth is from the FCY aspect of your loan book. So should we still be expecting that 30% organic loan book growth this year, before the end of this year? And also given that your LDR is now declined from about 35% to 33% from last -- for full year 2023, so where we are currently as in for 2024? So that was my first question. Second question is, in your other income for the financial statement, you recorded some forward FX -- some forward gains, some gains on forward transaction. So I want to just -- what are the underlying for the forward transaction? So if you can provide more clarity to that, it will help. Also therefore, my third question, please can you throw more light into the direction of your balance sheet. I remember you mentioned you talked about it in your [indiscernible] the figure. And you mentioned something about your cost of risk reducing, so I would like to have more light into it in the sense that I see the cost of risk reducing. I see this is like -- [indiscernible].

Well, I think, the derisking of the balance sheet is very easy to see. All you have to do is look at the coverage ratio and if you look at our coverage ratio, it's 222%. I had also said earlier on in the call that if you take our Stage 2 loans at about 439, you will see impairments of over 50. So you'd see and that we put away impairments of over NGN 200 billion, which means your Stage 2 loans, which are the ones which are giving you early warning signals, we've provided for over 50% of them. And when you look at that, apart from the fact that we then provided a 100% for Stage 3, it means that we derisked our balance sheet from a loan perspective greatly. In terms of other income forward, it's very simple. The only forwards we do is with the Central Bank and so those were just gains on the forwards as they matured. Loan growth, I know you keep using the word organic, so forgive me if I try to understand what it is, I assume you're saying loan growth without devaluation. I think, again, I mentioned earlier on that if you take away the devaluation impact, we're at 6%. We will grow the loan book. I don't know whether it will be 30% without devaluation, but we will also make sure that we're not growing the loan book just because of the guidance. But one thing I want you to bear in mind is that we had 30%, but we've more than made that up in growing the fixed income book. The fixed income book is growing 57%. And even if you look at the yields on the fixed income book versus the yields on the loan book, the yields on the fixed income book is about 15.9%. On the loan book, it's about 14.5%. So without growing the loan book to 30%, we've gotten the interest income at the NIM we need. So basically, we played the game that the macros have thrown up and behaved rationally. So I wouldn't be too concerned about the 30% growth because we more than covered that in the fixed income growth of 57%.

Sorry, my last question. And also I saw that for the first time on your FCY loans exceeded your LCY loans, given the current exchange rate [indiscernible] and the risk for next 10 weeks, how are you managing that risk since majority of the loans are [ line X ] and foreign currency?

Well, first of all, there was no growth. It was just a devaluation that made them higher. And as we've always said, our FCY loans have FCY cash flows, the one which we always tell people again is Aiteo, we're going to deal with it, and we've put away the money. So it's not that we're growing the FCY, but LCY is at devaluation is making the FCY loan book grow faster. But if anything, if we take away the devaluation of impact, the LCY loan book has actually grown faster than the FCY loan book.

Our next question comes from Emele Onu of Bloomberg.

Congratulations for the results. But I want to ask why are you guiding for a year and PBT of NGN 806 billion, when you already posted a NGN 1 trillion in the first half.

Like I had mentioned earlier on, these guidances we're giving at the beginning of the year. We have never ever changed our guidance half year. And to be fair, there were years where at half year, we were behind the guidance. We also did not come and reduced the guidance. So we generally do not change our guidances once we've given it at the beginning of the year. We might change our internal guidances, but we never change our external guidance, so it's just traditional. So these guidances were given in January, February. We've been lucky. It's only half time. We've done well. We're going to stay focused. We're going to push, but we're not going to change the guidance because of that because we've never ever done that, even where we were behind. I hope that answers the question.

The next question comes from Mubarak of Zrosk Investment Management.

First off, congratulations on your results. What a fantastic result actually. So I want to ask about the AMCON levy. I don't know if you speak to that. So I want to get you view as to like what do you think about AMCON levy going forward? So do you think it's going to unwind? Because looking at how it has increased over time and how the balance sheet of banks has increased over time, so I want to get your view as to like do you see AMCON levy unwinding soon. Just your thoughts on that.

Look, obviously, my hope and I hope it's not just the wish. AMCON was never set up to exist forever, so I'm hoping that -- like I said, in about 3 years, we should be at a point where maybe AMCON levy disappear. But I'm not in a position and that's a regulatory call, but I would be shocked if the banking industry keeps an AMCON levy perpetuity and that there will have to be a day where we draw a line in the sand and it will be over. So I hope that answers your question.

Yes, just to add to that. I want to just get you a sense around credit risk going forward because when I look at your within banking, I mean, the loans to individuals, I saw that you kind of doubled the Stage 3 loans in June, in half year. So just to get a sense of like how are you managing the loans to individuals? And how should I think about the cost of risk in that segment going forward?

Well, again, you have to look at it, but I never that bothered about retail NPLs because they're small amounts and you can always manage them. And hopefully, the interest you charge will make up for the provisions. The place, I think, we worry is the big corporate loans because one big corporate loan a disaster retail loans were fine. We're managing the NPL loan, retail loans, so we're not very concerned and we think it's okay. I had said earlier on that if you want to look at the risk on the loan book of banks, truly you need to stop to pay a bit more attention to Stage 2. There's too much -- people tend to focus on Stage 3, which has already gone bad. And if you want to see what's happening with risk, you need to pay a bit more attention to Stage 2 and see how people are dealing with them. When we look at our Stage 2, we look at our Stage 3, we look at our retail loans. We think we're managing our risk well. We should be able to navigate it fairly comfortable.

The next question comes from Vinod Surendran of AllianceBernstein.

My question was on your FX funding side, right? Any plans to issue dollar bonds or approaching to the euro-dollar bond market in the near future?

No. I think, we can -- I think we feel -- if you look at our cash and cash equivalents, you will see that we have enough, at least for today, spend dollar liquidity to do the business we're doing. But I would never say, no, and say we rule it out. But today, no plans. If the macros get better, the demand increases, then maybe. But today, if we look at the position of our books vis-a-vis requests and the cash we're holding, no, we probably wouldn't do a bond anytime soon.

The next question comes from Roman Fuzaylov of Helios Seven Rivers.

Congrats again on the results, really fantastic numbers. I just wanted to follow up on Ronak's question about capital. The gap, as you mentioned, is pretty significant between the increase in capital that you're reporting in your capital position versus the amount of retained earnings that would have been generated from the profits in the first half. So you mentioned there were some additional reserves that were set aside. That was explaining the gap. I was wondering if you could just provide some more detail on that. Is that where the reserves to offset the Aiteo loan are coming from, for instance? And are there other areas that are being plugged effectively or that are sort of set aside for?

I'm going to hand you over to the CFO, since this has become a recurring question, and he will go into the detail of it. So Banji, I'm going to hand that question over to you.

Thank you, Olusegun. Let me quickly answer your question. The difference you are seeing stem from the fact that CBN insists that on capital adequacy computation that you must use equity position last approved by them. So what you're seeing there in terms of retained earnings relates to FY 2023 numbers, and that's why you see that marked difference. So you see the real capital position where we published FY 2024, which means when we do capital adequacy computations, the equity you see on that cap is the last approved equity position by CBN. So that's why you're seeing that marked difference. So what we made in half year 2024 is not yet reflected on that current computation and that's why you have that marked difference.

So the H1 profits are not yet being brought into the capital calculations. Is that right?

Yes, we can't. The central bank, even though they approve half year results, they don't allow you to reflect it in your capital and then the capital, they allow you to reflect it at the end of the year, which is why I keep saying to people, we are at half time. So you will see a significant increase in the retained earnings position at the end of 2024, when we do year-end results.

Okay. Understood. Is this a new practice? My impression was that in years past as soon as...

No, not last. No, last year was the same and the place you will see it as well, last year was the same and a good place you always see it is when we are calculating our one obligor. For lending, our one obligor is always year-end and not into. So no, it definitely was there last year as well.

The next question comes from Kato Mukuru of EFG.

I wanted to go back to AMCON because I appreciate what you said earlier that you expect it to end the next 3 years. But from what I understand and it's very hard to verify because there are no reported published accounts. The AMCON notes due to the CBN, they were due last year or this year? And I understand that the amount that was due was up to NGN 7 trillion, and there might be an actual negative equity position of NGN 4 trillion to NGN 3 trillion at AMCON. Is there any risk that any of this huge negative equities at AMCON, any of that is passed on to the banks? Is that something that worries you from time to time. That's my first question. The second question is, I was -- I want to talk about HabariPay. We haven't discussed that today and I was looking at the presentation, which I thought was really good. It talks about HabariPay delivering over NGN 2 billion in PBT in the half year. For a business that you invested NGN 3 billion in, NGN 2 billion at the half year seems amazing. Where is that really coming from? Because I saw in the presentation, it said value-added services and there was also switching. So I'm trying to understand, on the switching side, what's your current market share, let's say, compared to an inter switch. And then the value-added services, what exactly are those? The last question, I promise. You're really tired of me is, on Page 47, I ask everybody to go to Page 47 of your presentation. You have unbelievably put the investment in each of your different subsidiaries. And obviously, we also see the return on profit, which I think is amazing. And when I look at the numbers that you have invested in Sierra Leone, Ghana, Gambia, Liberia, the returns are amazing. They're double to whatever you invested. But then I come to East Africa, Tanzania and Kenya have been relatively very disappointing. Why do you think that is? What do you think you're missing in East Africa to make it like -- I mean, Liberia to give you an example, you've only invested less than NGN 2 billion, and this half year, Liberia gave you NGN 12 billion. I mean, that's amazing. So but in Kenya, it's just not working yet. I just want to understand what you think was the missing and where do you -- with all this capital you're generating and all the capital you're raising, where are you really going to put it? You talk about the pension manager acquisition. But if you look at how much you've invested versus return on the pension business, it's very low compared to Habari. So why not put more in Habari. But anyway, I just like to hear your thoughts about what do you think about capital allocation.

Kato, I'm going to try. I am going to try. Let me start from the bottom. You're right. First of all, let me start by saying that we are so -- we are very happy with subs outside Nigeria, generally. I think when we started this journey on this call, I used to have to defend it furiously. Well, today, they've given us about NGN 150 billion in profit in 6 months. But as you rightly said, our underperforming region is East Africa. Let me try to tell you truthfully, what I believe. I think, first of all, we did an acquisition. We're not very good at it, and we possibly overpaid, which is why we say you have to be very careful how much you pay for things. I think when we went in there, we only had a semblance of a bank. We really didn't have a bank. Software was extinct. Processes were not correct. And so we have, over the years, had to build a bank, the processes from the ground up. If you take Kenya, for example. If you take the profit and you look at how much we have provided over the last few years, you will see that a cleanup has happened. We are still very bullish on East Africa, and we believe that we are getting to the end where we can pivot just like we did with Ivory Coast. One of the reason why we're not very successful in East Africa today is we don't, in my opinion, have a branch network. That has allowed us to play retail. The West African countries you're talking about, we have pretty extensive branch networks. I think Ghana, we have over 38. So in some key markets, we're going to have to we're going to have to, in East Africa, put in a branch network. We are not happy with East Africa. East Africa is making us almost the same as London, which is mono branch, so we're going to work on it. And I believe we can turn it around in the next 3 years. And that as we put together a branch network, we put the right technology in place, we will be able to play retail, and we should be able to have the return. So yet, today, it's not our best. It's not what we're totally proud of, but we think we can turn it around, and we think we now know what the problem is. Habari, the reason -- so we'll put some of the capital there, obviously, in terms of doing a branch network. Honestly, today, Habari has enough profit, enough capital. And the reason is twofold. We put some capital in it, we haven't even finished spending, and it's been profitable for 2 years. So even the profit is still sitting in the franchise. So we do not need the capital. It's very well capitalized. And that's why, Kato, they're so well capitalized that if you look at their profit, they even have interest income now. They're actually making money off the excess cash they have. The 2 businesses, we basically in Habari making money from 3 places, just like you said: value-added services, switching, and merchant acquiring. Value-added services is basically where we do airtime sales, we do gen sales. We started with Guaranty Trust, now we're doing it for other financial institutions. So that's a nice growing line for us, and that's our most profitable line. The next line, as you can see, which is picking up is Switching. We started to switch for about 3, 4, 5 financial institutions. I can't -- I wish I could tell you what our market share is today, but I will try to figure out what that is in relation to NIBs. But we're holding our own and that business is growing. And obviously, with every financial institution, we're able to sign up that will grow. So patiently, it's growing. We think we have enough capital. We will start to spend the capital making sure that the technology remains top notch and first class, but they really don't need any capital. They have, like I said, start of capital and they have all the profit because we've not paid any dividends out of there. So it's there. For AMCON, honestly, I'm hoping we're not -- the banks are not going to take anything more. We have a new central bank. We have a different central bank. I think it will become clearer all the figures we're guessing when we see the first set of audited financials, and we'll be in a better position to assess this because I really don't know the figures, and I'm really unable to comment, but I don't believe they'll give the banks any more liabilities on AMCON.

[Operator Instructions] Our next question comes from Lanre Buluro of Chapel Hill Denham.

Just curious -- I do apologize, I did join late. Just trying to understand time lines to completion of the public offer. And if you can share anything on how capital verification is going. Then Aiteo, I see you provided half of it and probably maybe by the end of the year, you said you might provide fully for it. Is there any kind of remediation? How do you intend to recover? I do recollect it's also a syndicate. So there are other banks who are also exposed to this. How do you -- how are you all thinking about collection and getting this money back? It's quite sizable considering the whole system being exposed to it. Then finally, just if you could just walk us through your NIMs. Fixed income securities, rates are quite elevated. We do know corporates borrowing in the mid-20s. And with your cost of funds where it is, we expect NIMs to be mid- to high teens and you're guiding for 11%. So if you could just walk us through that delta and why 11% and not mid- to high teens?

First of all, let me try. So I'm going to start from the NIMs. I think it's not exactly accurate to say all corporate loans are in the 20s because FCY loans are still around 10. So you're never going to see a loan yield in the 20s, especially if your loan book is 55% FCY and about 45% LCY. So what you will see is a yield on your loan book, which is where we are now, about 14.5%. The second thing is even on the fixed income side, you're going to have -- you're going to stagger the majority of your bill, so you're not going to be in only 1 year, you'll be in 1 year you'll be 180%, you'll be 90%, you'll be 30%. And so you'll probably achieve a yield about 15.9%, which is where we are. It therefore means that the total yield on your assets, including cash and cash equivalents and everything will be at about 12.7%. When you take our cost of funds of about 1.5%, you're looking at NIMs about 10.5%. So our guidance at the beginning of the year is 11%, and it's based upon this kind of explanation I've given you. So if we're able to push some of the LCY loans, hopefully, it will help the yield on the loan side, and we can move up from 14.5%. As some of the new builds we bought with high yields in the 20s, we'll be able to move that and it will dilute some of the impact of the lower. So that's why you're at about 11% because you can't take 20% naira loans and decide that's what the yield on your loan book is going to be because you have FCY loans above that 55%, which is 10%. Therefore, that's why the yield guidance is about 11%. Aiteo. Aiteo, honestly, I don't think when you're in a syndication, that should dictate your provisioning. I think your provisioning should be determined by the performance of what you seek, so we will take at 100% irrespective of whether it's a syndication, if we do not see significant progress towards the restructure. And then after that, we will go on our recovery. Again, you don't have to recover as a syndicate. So if I've taken provisions and there's no restructure and it's a bad, we will do our recovery. We will hope we can get to a restructure. But if we can't, then we don't want to keep making excuses on an investor call that it's being restructured. I think this is the year that we kind of move the line on Aiteo. Time lines. I would think you are more of the expert than me as the time lines on capital raise. Capital verification, people are just sending in their schedules, and then we'll wait for the 3 regulatory agencies to do their work and come back to us. So that's kind of the most I can say on time lines. I can't really dictate. I think capital verification schedules have been sent in. The work will start, and then we'll wait for the outcome of it. So I hope I've answered your 3 questions.

Our final question comes from Randolph Oosthuizen of Old Mutual Investment Group.

Yes. Just firstly, a comment is that we don't -- we wouldn't mind if you updated your guidance, either up or down. You don't have to be so stick to the original guidance. You should update with the incoming data points like they do at the Fed. So just that. And then just as a matter of interest, you've obviously stressed on the call and in the financials that the gains are unrealized. Now just out of curiosity, how long does it take for those gains to be realized? Or what is the duration of those gains? Or is there a way to think about that?

Well, I would say you allow us to kind of run the rest of the year. We'll have more clarity on that. For now we will look at it, but we'll give a bit more color and a bit more guidance as we get to end of the year. In terms of changing our guidance, honestly, I take the feedback and it's something we'll look at internally and maybe we'll start. Currently, I sit on another Board and they changed their guidance for the first time ever in their history and it changed them. So we will look and it truly did change them. So we will see if it's something, honestly, that we want to do. But sometimes we would like to say exactly what I said it's half time. Things are looking okay. We need to remain focused. Hope we can have another good 4, 5 months and then kind of finish this off. Thank you very much. And thank you, everybody, who came on the call. I think that was our last question for the day. Thank you, and I hope we answered your questions sufficiently as best as we could. Thank you.

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