Zenith Bank Plc (ZENITHBANK) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to the Zenith Bank Full Year 2021 Conference Call. [Operator Instructions] Just to remind you this conference call is being recorded. Today, I am pleased to present Mr. Ebenezer Onyeagwu, the group CEO. Sir, please go ahead with your meeting.

Good afternoon, ladies and gentlemen. My name is Ebenezer Onyeagwu, the Group CEO and Managing Director of Zenith Bank plc. It's our pleasure to be connected with you this afternoon to provide insights with respect to our detailed financial results for 2021. Before we go, and I would like to introduce members of our team here. I have Dennis Olisa, an Executive Director. I have Tope Fasoranti, -- he's our Executive Director, Henry Oroh, Executive Director; Felix Egbon [indiscernible] and the Chief Risk Officer of the bank. We have Mukhtar Adam, the CFO of the bank, and I have a [indiscernible] the Investor Relations manager of the bank. So it's our pleasure to have you on this call. Before we go on, it's important for me to provide a bit of context with respect to the environment in which we are prepared in 2021. In terms of macro, we can see that the GDP improved relative to 2020, where we recorded an average of 3.4% against the contraction of the previous year of 1.92%. The implication of this for business is that we can see a gradual recovery from the COVID pandemic on the business activities. And this is coming likely on the back of the [indiscernible] program and also the continuation of the virus stimulus packages being implemented at the monetary and fiscal levels. Inflation for current -- for 2021 was also elevated when compared to 2020. Inflation -- average inflation for 2021 stood at [ 16.98% ]. This also has implication for incremental operating costs and also an erosion of the disposable income of the household and the average consumer in the markets. Exchange rates remain moderately the same moving from an average of -- and the rates moving from an upgrade of NGN 400 to the $1, about [ 4.10% ]. The fact remains that Foreign Exchange challenges still [indiscernible] the economy. However, we'll notice a bit of moderation. And in terms of turnover in the foreign exchange markets, the levels of turnover remains [indiscernible] the same one compared with 2021. Interest rates also has been very, very depressed. And this has also resulted in what we have a very depressed [indiscernible] in government instrument. And because of this, we've seen yield on instruments and as well as loan prices equally remaining very, very neutral. So we have to contend with the situation on this scenario. And that's meant that in terms of interest income, one is not expected to have that reasonably elevated improvement. But however in terms of the industry as -- we'll see in the Central Bank commands with the framework for the open banking system. This was launched in February 17, 2021, and Zenith has moved us seriously with this commencement of the framework to launch our Open Banking at the point of readiness where we are currently exchanging API and having connectivity with essentially the fintech companies. CBN in the course of the year also launched the digital currency. That's the eNaira and is the something to be proud about that. We are the first country in Africa to launch eNaira. And as of the month of October, there are about several hundred thousand downloads. The downloads are continuing, and we expect that in the coming period we'll begin to see [indiscernible] in terms of transaction flow on this platform. It's also expected at the launch of this eNaira, we also signal the commencement of the use of the distributed ledger as we continue to operate our digital banking environment in digital ledger in terms of the blockchain technology that provides more discipline and controlled perspective with respect to ecosystem behavior. CBN also, in the course of the year, discontinued the allocation of foreign exchange to BDC. And BDC, that role has not been shifted to banks. And banks have been able to bring in a lot of sanity and also control to [indiscernible] and arbitrage opportunities that persisted at the commencement of the scheme. Now we can say that effectively with respect to the request for BCA and PC in the market, what you see remains like what one can reasonably call the effective demand of [indiscernible] because of the inherent controls that have been built into the process, which emits abuse. Then throughout the year, CBN policy rates remain the same. And what we were using is that because the policy will remain in CBN has continued its similar package and continue the intervention, the forbearance given for interest rates on intervention loan, which remains at 5%. So all said, Zenith was able to achieve a double-digit growth in our gross earnings. And this is coming against the guidance of 5% that was communicated and advised to the market. We achieved a 10% year-on-year growth. PBT also recorded impressive growth where we moved from NGN 255 billion to NGN 281 billion. This is also an improvement when compared to the guidance, it's a 10% year-on-year improvement against a guidance of 5.5%. This performance is coming lively on the back of the very remarkable and impressive growth we are recording on our digital and retail banking segment. Apart from that, across all business segments, we recorded growth as we've been able to win mandates, and we can also observe and see that our market share is steadily on the increase. However, on the cost side, we are [indiscernible] with regulatory costs. In terms of our overheads, [indiscernible] regulatory costs account for 20 -- [ 20% ] NGN 55 billion. This [indiscernible], which will continue to carry on since regulatory induced costs. The other aspect of our cost line is ICT costs. That also is special because of the massive revamp of automation we are impressive in our system in the entire process and development. So we've developed a number of products to discover new business investment and also created new revenue pools. All these account for the improvement that you see. I'll invite our CFO, Mukhtar Adam,to provide a deeper insight which as to the figures and the achievement for the year. Then we can go into your questions and answer. Thank you, ladies and gentlemen.

Thank you very much, MD, CEO, for the introduction. Good afternoon, ladies and gentlemen. My name is Mukhtar Adam. As we have shared with the market, our performance for financial year and 2021, we recorded very impressive growth in terms of our gross earnings, 10% increase by NGN 69 billion year-on-year and the growth in gross earnings is coming from a 2% growth in interest income and then 23% growth in noninterest income. So noninterest income grew by NGN 57 billion within the financial year. Interest income just 2% as you can see that our loan book grew by 20%. The yield environment has been depressed so rates are reasonably low. And then we also know that there forbearance, our given on intervention loans has been [indiscernible]. Interest on treasury bills and other government instruments are still very low. -- that by that, we have been able to grow interest income by [ 5%. ] Noninterest income was very, very strong. Our trading book did very, very well. Our treasury products did very, very well. And then our fees on electronic products was very, very strong that enabled us to grow noninterest income. The combination of this helps to grow their gross revenue by 10%. On the cost side, we have seen interest expense grow by 12% on the back of 21% growth in our [indiscernible] deposits. Our customer deposits increased by 21% from NGN 5.3 trillion to NGN 6.4 trillion. However, our interest expense reduced by 12%. NGN [ 14 ] billion drop in interest expense. So that also demonstrates our ability to grow our service accounts, our retail deposits related accounts and other [indiscernible] of funding to be able to manage the low yield environment within that interest in the environment. So if you go down you would also see that our operating costs grew by 13%, but this has to be considered from the perspective of average of 15% inflation within the period. Then also a lot of our costs that are especially our IT-related costs are denominated and you see exchange rates have moved by about 5% to 6% within the period. Then regulatory cost, which is a function of our balance sheet, our total assets, also drove our operating expense. With [indiscernible] regulatory costs, our operating expense would have grown by 11%, which is reasonably consistent with the growth in our gross earnings. Then that helped us to sustain an EPS of NGN 7.78, a 6% growth. Then one key factor that you have to look at is our impairment charge. Our impairment charge increased, but you have to also look at it from the fact that our loan book also grew within the period. So overall, from the P&L perspective, the performance in my opinion is very, very strong. All income lines, or most income lines have grown. Significant cost lines have dropped, and then the bottom line has increased by 10% within the period. The balance sheet areas have also grown, 20% growth in the loan book, 21% growth in deposits. Shareholders' fund has also grown signifying that the Zenith Bank is still very, very strong, ready to take all other opportunities that are coming within 2022 financial year. So I would want to pause here to give participants opportunity to ask questions.

[Operator Instructions] The first question is from Tunde [indiscernible] of SBG Securities.

I just asked you clarifying question. And the first part is on your income line. I also understand what was driving the 16.5% year-on-year growth in your interest on loan to cost for us. I would like to know the average risk on your loan book? And should we be expecting any repricing going forward? The next question is on what was responsible for this significant drop in your interest on placement with banks and discount [indiscernible]? I would like to get some insight on that. And also on your trading revenue, particularly on the gains or loss on trading, we saw a gain of NGN 42.4 billion coming from NGN [ 50 ] billion in previous year just for -- maybe you could share more clarity on what is driving the gain and also to find we expect the momentum going forward into 2022? The next question is on your tax expense. I noticed the 41.6% jump year-on-year. And I want to know what was responsible for that. And also given the new capital tax gain, following the expiry of that exemption on government security, my understanding is that FGN bonds are tax exempt. So I would like to know what's the split between your FGN and non-FGN securities? And also, if you could also shed more light on how this new capital gain is going to affect your investment guidelines. My next set of question is on your asset quality. I do know you've mentioned about the loan loss provision increasing [ 61.6% ], but I noticed a significant jump on a quarter on quarter. Maybe you could shed more light on what is really driving the quarter-on-quarter increase because it was up by 2x? And the next question is just to have a sense of what you think about the CBN [indiscernible] policy and also extension of [ 5% ] [indiscernible]. So I want to -- I would like to know like what you think about that? And also what percentage of your total loan book intervention on. The final question is on big Basel III remark, which I know is currently in progress. I would just like to add a sense of how you think this is going to impact your capital structure and dividend payment after it is fully implemented.

Thank you very much, I may invite the CFO to take the questions on the income line, the interest of plasma with bank trading gains, tax expense and implication of the new tax regime. Felix Egbon, we will also take on the question on the [indiscernible] framework as well as the asset quality year-on-year -- I mean, quarter-on-quarter movement. CFO, over to you.

Thank you very much. I mean you're talking about the interest income on loans, okay? So you realize that our interest income on loans and advise this, if you go to Page 142, notes of our account, increase from 250 to 292 interest income on loans and advances. And you can also see there that the major drop in interest income line was interest income on treasury bills that dropped from NGN 63.7 to [ 40.4 ] billion. There are placements advanced and discount houses. You want to know one of the major reasons for the drop. These are transaction base. So we have 1 major transaction, 2 transactions, 3 transactions, 4 transactions that have been created within the period. And we have [indiscernible] to that instrument by investing or doing another transaction such as [indiscernible] other things that is not reporting on this line. So you see a drop in this line. However, if you go to our trading book, you also see growth. So at any point in time, we try to move our investments depending on the market conditions and how it will work us. So I needed to understand that you are talking about the pricing of the loan book. The market is very, very dynamic. So the [indiscernible] and the market environment is [indiscernible] or is right for us to reprice, yes, we are going to reprice. We are playing in the market and the market is so competitive. So yes, repricing, we will do it whenever the opportunity comes, and there were also [indiscernible] with all other investment options available. We are talking about trading gains, the drivers for our trading gains. So if you look at Page 143, Note 11 of our financial statements, you will see that we had a gain on treasury bills of [ 127 ] from [ 123 ] last year. Gain on other trading book, we had a gain of NGN [ 42 ] billion compared to a loss of NGN 80 billion. And then gain on bonds and loss of NGN 3 billion compared to a loss of NGN 14 billion. So if you look at the trading book, how it was, it responds to that trading dynamics and volatility, exchange rate movements, not just the current, the expected direction of the exchange rate, volatility in global exchange rate, crude oil prices, inflation and a lot of things. And because the trading book is always an evaluation -- a valuation, when you do your valuation, one instrument would bring gain, another instrument would bring loss depending on how you projected the direction of various parameters where you are taking those positions. But for us, we have always tried and successfully managed the loss and gains within the trading book, and we are always having growth in that line of income. So when we are taking this kind of position, you try to diversify and try to cover up different directions of the risk. So that's how you need to understand. The tax expense you're talking about, yes, there is increase in our tax expense. And you're also talking about the exemption on treasury bills and government bonds that have allowed. That is supposed to the effective 2022. The increase in our tax expense is because of some new provisions in the Finance Act that have changed the way we account for exempt income, and the way we allocate costs associated with getting those exempt income. You know that now the tax rule is not [indiscernible]. Any time the -- the finance acts passed or amended it changes the tax quantitation. As for the government's bonds, the exemptions have been as expired, yes, 2022 is going to expire. We have [indiscernible] the impact. We expect that from 2022, going -- our effective tax rate is growth around 15%, 16%, 17% in and it would go in that direction, also depending on how the Finance Act for next year will be drawn off. [indiscernible] what we normally get is tax exemption from our interest income, treasure bills and government bonds, not necessarily capital impact in our books. I guess that's...

Felix, Can you take on [indiscernible].

Thank you for your questions. The 2 clearest left that we need to respond to has to do with the -- about the 3 capital structure. I will tell you that given where we are in terms of the kind of capital we have holding most of which is common equity Tier 1 which consumes almost 96% of our capital structure. So [indiscernible] you are located this on Basel III, we have a significant 1 that [indiscernible] capital, common equity capital and Tier 1 requirements. [indiscernible] what we have always done as a strategy [indiscernible], [indiscernible] always have sufficient buffer to be able to do returning any shock in the environment. If you take that back to what we retain, and our dividend payout, we've consistently rechanged about 55%, 52% of our earnings, with the dividend payout coming in at about 52%, too. But this year, [indiscernible] better because when we forecasted, we are resting almost 58% of our earnings going back to natural capital. We does give a sufficient buffer to give both at people to with the what has required for Basel III and any capital structure that may be [indiscernible]. So with respect to the implementation of our capital structure, we will say that we are very fine with it. You had also talked last year about the asset growth on quarter growth. In most we noticed before performance in the last course of the year, as 2021. And it's something we took advantage of. Also, consistently, our performance in the last [indiscernible]. [indiscernible] growth in that last quarter. So is [indiscernible] and opportunities that were present within that quarter.

Thank you. Okay. Thank you very much. I think the other question to be addressed is the CBN 100 for 100. It's one of the funding initiative of Central Bank that is targeted at supporting, providing long-term single-digit interest rate support for companies in the private sector, 100 companies in the private sector every 100 days. The scheme commenced 1st of November, and on that first time, I think CBN [indiscernible] about NGN 2.3 billion to most of them likely SMEs and medium-sized companies. The aim of this project from CBN perspective is to boost economic production and productivity and also supports especially industries and companies that have potential to generate foreign exchange earnings into the market to improve our foreign exchange supply. So we expect that the next round of fund bids should be happening pretty soon.

the next question comes from...

[indiscernible]. Let me say that the forbearance, once it's more like a [indiscernible] what we have is the continuation of the 5% dispensation. There's nothing we can do about it because it applies to everyone. But it's expected that should that forbearance come to an end, there will be an uplift in terms of the interest income accrual to bank, which respect existing facilities that have already been proved.

The next question comes from Ronak Gadhia of EFG Armies.

Thank you, Ebenezer and team for taking the time today. My first couple of questions, I guess, just a follow-up. On the Basel III transition. I'm not sure if you gave a number, but I just would like to know what the capital adequacy ratio for the bank would be under Basel III basis, if you could disclose that. The second question I have is on the outlook for margins. Can you just give a bit of an overview on what you expect will happen in the interest rate market and how -- and what impact that you have on your margins this year? And then the third question I have is on your asset quality and cost of risk. And just before you go to that, you mentioned intervention loans. Could you just give us an idea of what exposure you have to the -- sort of the intervention loans for which the interest rates still remain at around 5%? And following on from that, if I look at your cost of risk, there was a pretty big uptick in the fourth quarter. So maybe if you could just help us understand why that was?

Right. Thank you very much, Ronak. With respect to Basel III, like Felix earlier mentioned, we have strong buffers in terms of liquidity, in terms of capital. This has been our tradition typically. So as a result, we are able to -- if we -- a simulation we've done, we don't see any pressure on both capital and liquidity. What we've also said is that, this year, in terms of accretion to shareholders compared to what we've always done this year out of our earnings, we are retaining 52%. Last year, we retain 52%. So it's [indiscernible]. As we continue to move on, we expect that we'll continue to be profitable and we continue to maintain -- achieve strong numbers. Therefore, we have an opportunity to continue to enhance our capital base. That's one. Two, outlook for the market. I wish there was a crystal ball for me to look into toleration to have one. We can see that the [indiscernible] in different aspects, in different parts in the markets. And we can't tell where the homes will come from. But one thing we know certainly that should they be strong they need to walk out of [indiscernible]. So what we do is typically watching and reading [indiscernible]. And what that thing we do is that we continue to view scenarios, view scenarios, we ask a lot of what if questions. So asking the what if question gives that opportunity to prepare a model certain situation that we not occur. So should we have a scenario that now fit into what we have modeled, it begins to be a [indiscernible]. All said, I think in terms of looking at the market, one can say that with respect to COVID, I think it seems like we are getting to a place where the vaccine program and rollout is working effectively. And it also seems to me like we have -- the whole -- the global community seem to be getting to -- we are getting to that [indiscernible] session. So we can see that there is a bit of realization in terms of people congregating in terms of travel and every [indiscernible]. These are better to create positive settlement for business. However, we are not forgetting the current geopolitical tension that is taking place in Eastern Europe. That has also elevated market risk. We may not be directly impacted, but nobody knows how long this tension will love. And whether [indiscernible]. We saw how it impacted the equities, the global equities and fixed income market. So what we do is we keep upskilling our adversity portion to deal with any eventuality as it come. Outlook for interest rates, I think we don't see any difference between what it has been and what it will be so far. We say this on the back of the fact that CBN [indiscernible] given to alliable now for loans on intervention, which means for as long as that bucket is concerned, interest rate for this year remains 5%. We've also seen that the government securities, averagely now 1-year government security is -- the yield is about 9%. So I know not [indiscernible], that's for [indiscernible]. Therefore, we expect in -- our expectation is that interest rates will remain mutual and depressed. So it means that we have to now be more [indiscernible] with respect to how we manage our liquidity. And I can tell you, when it comes to treasury management, I think we have the best in class set of people. Our team, I say is without standing the model is the best in the market, which is what translated into a 7% improvement with respect to our interest expense. If you look at the numbers, you see that, yes, interest income increased by a marginal 2%, but net interest income improved by 9% because we were able to achieve savings on interest expense from NGN 121 billion to NGN [ 106 ] billion. So the same set of people are available in the system. That is going to be challenging. It's going to be tough, but we think we'll be able to navigate it. Then asset quality, I will just get -- with respect to the proportion of our intervention loan to total loan book, Dennis will answer that.

Good afternoon, ladies and gentlemen. Welcome again to this investors conference. The interventional loan in the books of the bank is about 17% of our total loan books. But having said that, the GMD in his opening remarks mentioned that it was a patriotic duty on the part of the bank to be able to contribute so to speak, to development in the real sector. So we continue to monitor situation in that particular field. But I can assure you that the returns on our total loan books are still very good. Thank you.

The next question is from Jose drum of CardinalStone Partners.

So I have a few questions, so I led you to time [indiscernible]. First off, I would like to know what drove the [indiscernible] charges in loans. When we look at cost of rigs on a quarter-on-quarter basis, we saw a 6.9 percentage points increase in Q4. If you could just let us know what drove that spike? Also, when we look at the return on assets and return on equity, is it possible to give us insight on the bank's strategy to improve these ratios? And also, based on the CBN's directive for the risk to NGN 200 billion FX repatriation scheme, in the eventuality that FX is a [indiscernible] FX use in the bank. Has the bank examined possible implications on how does they intend to form these FX needs? Also, I'd like to know, based on the latest Finance Act, was the bank's effective REITs going forward? Also the outlook for your regulatory [indiscernible]. When do you think these pressures are likely to ease off? And then based on your solid performance in this year, given the [indiscernible] in the macroeconomic space, what do you think would be the bank's performance for full year 2022? I think there will be a strong performance this year, what will be the key catalyst? And then lastly, speaking on your loan book, what percentage of your loans are still enjoying the CBN forbearance?

It looks like -- this is all. I'm sure by the time we answer your questions, we'll have addressed all the questions, but we will take them. And as we take them, I will invite my colleagues to join in taking some of your questions. Let me start with the risk to NGN 200 billion projects for 3 years. I think to start with, we need to recognize that, as a nation, we have to stop living in [indiscernible]. We have over relied upon crude proceeds to sustain our exports requirements. And if you go back to history, you recall that Nigeria, at some point, was the world's medium producer of palm oil, groundnuts, coco, cotton, Timber, all of them. The ground of producers is still our ground and [indiscernible]. So what CBN is just saying is, look, enough of this, let's go back to business. Let's go back to this natural endowment not just exporting things in this raw form because each export you do in this raw form without value addition, you are creating a sustaining employment in another economy. So I think it's a lot more economic agenda, which all will support. Recall, I also said that we view build scenarios. Zenith way back in -- about 7 years ago, we started having the annual, we call it advocacy and awareness for exports. When we started, we were not [indiscernible] that CBN is going to come to NGN 200 billion. So CBN coming to NGN 200 billion is like we are already ahead of the market. So -- should we get up on CBN decide not to sell -- I mean, they implement, not sell it, we think between now and end of the year, it provides a reasonable length of time for us to fully cultivate and harness the export potential of this country so that we can generate alternative source [indiscernible] in the market. Zenith is well prepared. We are already ahead. We have a good number of the exporters you have currently in the country. And we have already started conversation in terms of value addition and making sure that they're all eligible and qualified for the rebate that will come with this team. Some of that will require funding support, of course, will be there to support there. So we don't see any huge challenge or rather, we see it as a good problem for us to acknowledge and work towards achieving. Outlook for regulatory costs. Well, that again is more like you can't do anything about it. It's a strong cost. And it's dependent upon your size, but we are determined not to be discouraged by it. We would not see it because of the fact that we have regulatory costs, we will not grow the business. We will grow the business. The most important thing is that we must ensure that from the balance sheet we carry, we are able to extract reasonable value that would guarantee of very strong and reasonable performance. Performance outlook for 2022. Simply, we will continue to do what [indiscernible]. We have -- if you look at the fees and commissions we saw about 23% year-on-year growth. That is not about to stop. We commenced retail and digital banking journey about 2, 3 years ago. And I can tell you, since we started, when you look at -- in terms of the retail book, number of accounts we had in the last 3, 4 years, when we started 4 years ago, number of retail accounts we had was a little above 4 million accounts. But right now, we have over [ 16 ] million accounts. Today, we have -- we are the biggest acquirer in terms of POL. So we will continue to intensify and elevate our digital acquisition to guarantee strong earnings with respect to fees and commissions. Then product development is also a bit of that we are doing. That is also giving us insights to new niches that we never thought of. That is not even known to the market. So we'll continue to bring -- to build very strong tools in this area to ensure that we sustain superior performance. I will invite Mukhtar to take the question on the [indiscernible]. And also, I think there's a question on the return on assets and return on equity. I think basically in terms of our plan and strategy to sustain it is about delivering stronger numbers, which we are determined to do. So Mukhtar?

Thank you very much. Regarding your questions, so let me start with the person on impairment charge and the fact [indiscernible] in the last quarter. So if you also look at our gross loans, you would realize that our gross loan has also grown significantly in Q4. So their growth in their payment charge moves in the same direction and almost -- yes, the same direction with the growth in the total loan book. So as the loan book is growing, you would realize that the impairment charge is also moving in that same direction. But does that mean a deceleration in your loan book? No. If you look at our impairment charge, a significant part of the impairment charge is coming from our Stage 1 and Stage 2 loans. So that is also very important for you to appreciate. 77 -- for you to appreciate where the impairment charge is coming from. So Stage 2 loans is having bulk of the impairment followed by Stage 1. Stage 3 loans is also having impairment, but not as significant as the others. So that shows that we don't have -- necessarily have deterioration. But the risk environment, we all know is not very settled yet. It still remains somehow elevated. And if you know the culture of Zenith Bank, we are conservative generally. We want to take on as much impairment as we can at the earliest opportunity to account for what -- how we understand the risk environment. So that is how what has happened on the impairment area. Return on asset and return on equity we realized that our PAC has grown year-on-year. PAC has grown by 6%. However, if you look at our equity, our total equity has grown by 15%. Our total asset has grown by 11%. So you expect that, yes, it will bring return on assets down. Why do we want to do that? Because we are retaining a lot of our profit to show up our capital because we believe that the global operating environment is still volatile. So we need to have enough buffer to be able to withstand the volatility in the global operating environment. How do we want to improve it? By improving our bottom line. As I explained earlier, the top line have grown, bottom line has grown and this has been consistent within the financial year. And we are going to continue in that trajectory. If tax rate finance act, I explained earlier, with the removal of tax exemption from treasury bills and government bonds, we know doubt our effective tax rate is going to go up to 15% to 20%. Currently, the effective tax rate is around 12%. The finance act -- the impact of the current finance act is what you have seen in our tax numbers. Once the finance act is going to be for next year, we don't know, but we think that is not going to be significantly different, and we have modeled different scenarios. And our expected tax rate is going to remain within the boundary of 15% to 20%. I think I've answered all your questions.

Next question?

[Operator Instructions] The next question is from Damilola Olupona of Chapel Hill Denham.

All right. Good afternoon, everyone. Thank you very much for having me, and thank you for hosting this conference call to there are a few questions for the team. And first of all, I would just want to get your view on the recent development in the banking sector. Just recently, we saw [indiscernible] announced that we [indiscernible] structure, [indiscernible] also announced that there will be setting subsidiary, and Access Bank has announced an [indiscernible] structure. I mean in terms of your outlook, maybe your strategic outlook going forward is pursuing and also structure your [indiscernible]? That's my first question. Then secondly, as well, just recently, we had the likes of [indiscernible] raise some funds at NGN 3 billion valuation. Can you just comment on that on probably your assessment on that, and how you think this might affect banking valuations going forward? I just want to know how much of your loan book growth was FCY-driven? And I see that you have a loan book forecast of 10% for 2022, how much of that will be FX driven in 2022? I also observe that, I mean, in the breakdown of your property segment, your African operations reported lower profits in 2021. Can you just comment on drivers of the lower profit? And sorry, lastly, I will just want you to -- I know you have touched on it before, but just -- I mean, -- to the extent that we might see elevated interest rate from the developed markets, how much of that do you -- I mean, do you think will affect the interest rate environment over here? And how is the bank better positioned to -- I mean, to tackle [indiscernible] environment in the event that materializes?

Okay. Thank you very much, Damilola. I'll take on your question on the view of banking sector, some players going for [indiscernible], some acquiring fintech. I'll put it this way that we view our perspective differently. We are weighing the options. We don't do things for the cosmetic of doing it. And we'll continue to implement our retail and digital agenda. And where we find it compelling to change the model, of course, we advise the market to change it. But I can assure you that Zenith is not inquired. And we remain very pragmatic with the will with few things, the way we review the markets and the sand opportunities. That's all. [indiscernible] with mission at NGN 3 billion. I think we need to understand clearly that the valuation model for fintech is different from the valuation model for banks. For bank, you can look at my valuation from different angles. One, you can calculate a view of what my market cap is if I missed it. So if I missed that, so that gives you 1 valuation. You can take a look at historically my performance in terms of my financials. Before, of course, we start looking in terms of comparables. However, when you look at the fintech, their model is different. The valuation is based on estimated addressable market share. The valuation is on potential not on reality. So as a result, we are not putting apple for apple together. So that is what I need to say that. But we are happy for the [indiscernible] team because it's good publicity, it's good advertisement for the country to see that our younger brothers and sisters are coming up with innovation, and they're able to attract funding from the international market. We commend them. And in any way, we can support them to blossom and get better, we will do that. Loan book growth, FCY, is very insignificant. What you see as the loan book growth of 21%, the FCY content is 2.75. That is because we are conscious in terms of FCY [indiscernible] in the mind to that there is a regulation that for videos from doing FCY loan for an obligor who doesn't have corresponding FCY cash flow so what you see majorly in our FCY loan book relates to legacy transactions that have always been there. And the bulk of it is in the oil and gas sector. And in a world the rally in the price of crude once they address the week vacation infrastructure and the weather associated risk in the production environment, we expect that, that segment should do better. Interest rate outlook with respect to what is happening, the inflation that is up globally. I think for us, we remain -- we need to understand that it's an emerging business. It's a emerging gain. So if, for any reason, in terms of my FCY taking, if there is any increase, it's not something I can bear. And if it's going to impact my margin, of course, I need to do a repricing. And Matthew, we don't just -- it's not a [indiscernible] to process. It's a combination of funding mix. There are some funding you look at what the impact [ increase ] in the portfolio. If it's not significant, we are prepared to also be provided is not constantly a spike for us in terms of margins. So that's the way to look at it, that is not typically every call that will be passing on to our customers, except it becomes reasonably high. Profit margin from African operations, I think what you have the drop date is from Ghana. There was a bit of drop in Ghana and that is coming from mark-to-market adjustment for the derivative group.

The next question is from Samuel Oshinuga of CardinalStone Partners.

This is Samuel Oshinuga for CardinalStone Partner. Just a few questions. Firstly, back recorded the trial evaluation gain on Q4 results, which we believe have paced the quarterly rate of NGN [ 5 ] billion [indiscernible] reports, which orotic be NGN 10 billion. Could you provide some clarity on it on this [indiscernible] number? Secondly, I would like to know what possible drivers were for optics in account maintenance fees and also fees on your e-production, electronic products, and that led to the movement in your -- that commission income? Also, could you just with side on what drove that and [indiscernible]? Thirdly, on your -- on [indiscernible] contracts, could you give us explicit numbers for your computer common CET1 ratio, [indiscernible] capital adequacy ratio?

All right. Thank you very much, Samuel. Revaluation gain, you'll notice in Q4 is just a reflection of the [indiscernible] movement. So you noticed on the last working day of the year, there was movement in exchange rates where we closed -- I think it was [ 45 ] or average of [ 44. ] So that's explainable however, and the cost of the year after the 9 months, like we recorded, there was a bit of moderation in terms of exchange rate movement. Drivers in account maintenance, and our digital income and fees is simply growth in market share. That's all. In terms of the ratio for CTI, Felix Egbon, you want to address that?

Yes. I also let you know that in terms of CET1 requirements plus year 1. It comes by 11.25% required, but the bank as at now, as I last competition, it's about 19.03%, with this sufficient buffer is going to hold any shock within the environment. So our capital is mainly common equity and give us sufficient room to be able to deal retaining environmental shocks.

[Operator Instructions] Our next question is from Toyosi Oni of Renaissance Capital.

So I just have a couple of industry-wide questions first before I go on to more specific questions for Zenith Bank. So firstly, I just wanted to get a sense of what oil price at well over $100 means for Zenith in particularly related to asset quality and the portion of your income that is linked to FX? What does this mean for swaps given the possibility of stronger reserves for the country? My second question is on Basel III. The pilot period is almost over. I just wanted to get a sense of what the regulator's posture is for the possibility of full transition? So for the specific questions, my first -- I just wanted to comment that from Q1 to Q2, the third quarter, we saw flattish growth both year-on-year and quarter-on-quarter. And then in Q4, there is big 54% jump. And I just wanted to dig into it a little bit. And I guess I'll just start with the trading income side of things. You said that this was driven by the position of your trading book giving changes and volatility. I just wanted to ask if you could give some more specific details or more granularity around this just so we understand. Because I mean, we didn't see any material operational difference in 4Q. So in the case that we're missing something I was -- I would -- I appreciate if management could highlight some of these opportunities that you took advantage of to us? My second question is in the reports, the table that shows the submission of the balance sheet according to currencies, I think that's Page 109. If we compute the total manually, on your dollar portion, it seems that there is a short position of [ NGN 105 billion ], which is about $248 million if we convert it to using the exchange rates at the end of the year. I was just trying to reconcile this better to the NGN 26 billion revaluation gain that Zenith booked as at the end of the year? My next question is on asset quality. So based on your presentation, restructured oil and gas loans represent 15% of gross grown. I just wanted to ask what kind of loans are this? And which IFRS book does this sit in? And also, I guess, what does higher oil price mean for these kind of loans? And just sticking to asset quality, we saw a significant chunk of Stage 3 mostly Stage 2. And I just wanted more clarity around the reclassifications that we saw in the book during the year? And I guess layering on, on that is 2% normalized in cost of risk for Zenith in a high loan growth environment. My last question is on agency banking, and I just wanted to gauge what the competitive dynamics are here. In the last quarter of last year, MTN and Airtel received AIP for their PSB licenses, which means essentially we're going to be seeing a lot more agents coming into the market, especially in the [indiscernible] that the banks have not necessarily penetrated. I just wanted to ask, given the fact that it's ramped up its agent significantly during the year, how are you positioning for this new competition? And in the long run, what would you like -- what is your strategy with regards to agency banking?

Thank you very much. This is a plethora of questions, but we'll take them one after the other. I think I'll start with PSV, putting this with the [indiscernible]. It's not just about PSV, what we need to recognize is that in the financial system, the traditional competitive landscape has changed. We have seen fintech coming. We are seeing the PLB book, the faster [indiscernible]. We approach it from the principles of 2 seats, collaborates, compete. It depends on what you bring before. So we are not -- in a way, [indiscernible] brings out the best in us. So we like the fact that. We have new entrants, which means we are not going to stay in a cocoon thinking that we built an empire, no. So it provides inspiration for us to drive product development, which equally takes me to your question on what happened in the Q3, Q4, what happened? You need to understand the Zenith. If you look at historically outperformance, there is a pattern of performance in Zenith. Q4 is our strongest quarter. ever. Q4 is the strongest quarter. I haven't seen any exception since my 21, going to 22 years of working in Zenith. There's reason behind it. The 4, there is a power base conviction behind it that nobody can stop it, not even me, the CEO. There's a pot of energy that everybody wants to [indiscernible]. So that will continue to happen. You talked about oil price at above $100, what it means for all? I would say, not just for us. Let's look at it beyond anything. If you look at it beyond then, it is bitter sweet, bitter in the sense that the sweet part of it is, yes, my -- the exposure I have, the obligate I have not generate incremental revenue with respect to where the oil price is. And again, what we've been doing over the years is encouraging every one of them because part of the biggest intendment they have or that most of them have to do on short and where the [indiscernible] infrastructure. Practically, every one of them is moving to alternative evacuation, which will be launched wholly in the course of this year, which now guarantees that there will be at least 80% of evacuation of whatever is produced [indiscernible]. So with IFI is at $80, of course, I mean that's above $100 per barrel against $60 per barrel, you can translate it, it means incremental revenue. But however, we are not rejoicing about it because for the country as a whole, we have subsidy payment is going to push ourselves the payment. [indiscernible] to push of subsidies payment, so we worry about that an implication for government spending, implication for government spending. Of course, that's the fiscal issue. It's not within our control. But these are the timeout if asking it's [indiscernible] were to because while we've also seen the price moving up. We have also gone back to the Obligos who have [indiscernible]. So if you have read a downside protection of $65 per barrel, on price was $80, we now, tactically, being mindful of the cost of premium, getting them to move up and provide a higher protection for the downside at $75, $80. So if we have that, it means that reasonably for the rest of the year, we'll be able to guarantee some level of revenue that could accelerate repayment of the dollar beyond what has been already programmed for repayment this year. You've talked about the short position -- dollar short position, no, that's not true. I'll get Mukhtar to refer you to the relevant pages of the financial to explain that. Basel III, we've taken it Felix to go through it again. And with respect to what to -- I mean, how the market is seen is maybe the implication for the economy. So Felix, you want to take that, then I think I've addressed PAT license, asset quality, restructured loan, maybe, Henry, you can just throw some light on that.

Okay. Thank you very much. I will asset [indiscernible] provided response. Just to say that the regulators will come back to us on what the values they are seeing. I guess they are still looking at what the banks are printing out. We submitted about 3 positions to date. We are putting up the February numbers. It's likely to end in April, which make this responsible for the review. What I would say is that we have said earlier that all the parameters, liquidity and funding, capital and leverage and all the parameters required [indiscernible], we are strong. We intend our new official offer. And [indiscernible] that for a retention of 50% this year of our retained earnings [indiscernible] very robust for the to support our core forecast in 2022. We really do not have issues with what regulators will come with.

Mukhtar?

Okay. And thank you very much sir. Question on the FX balance sheet on Page 108. So after checking the tables and calculating the total, we should have also been kind enough to look at the notes that we provide the means that says that we have transactions, swap transactions that we have dollar offsetting amounts that are deliverable to us on maturity. Those dollars are currently represented by eNaira assets that we are holding. So we have future eNaira liability that we are going to sort it future eNaira assets. You value both your assets and the liability that you are going to have. And when you do all those valuations, [indiscernible] the nominal amount of derivative does not sit on your balance sheet. So when you do all those valuations, you are going to have a proper loan position. And you also have to know it cannot be that it's a mistake that consistently, we have a long dollar position and any time days revaluation. Any time days, exchange rate movements, we end of with revaluation gain. So if you look at this, you could also look at the [indiscernible] that talks more about our notional amount of our derivative transaction on Page 149. So if you look at Page 149, you will see that the notional amount of all our derivative instruments is about $3.2 billion. So when you read that with what you are seeing in the FX balance sheet, and what you are seeing is the fair value of our derivative budget and liabilities, you will have a profound understanding of how our loan position, or how our revaluation being worked. You can check Page 149. Then you are also talking about our trading income, the nitty gritty of trading income. Unfortunately, this [indiscernible] loan cannot [indiscernible] the nitty gritty because I've mentioned earlier, trading income is based on valuation. And why you are going to value -- I think the [indiscernible] to the basics of valuating [indiscernible]. We are going to value instruments, there are so many factors, the exchange rates, the interest rates, current, the forecasted exchange rates, the forecasted and interest rates, the interest rate what you forecasted at the time you were doing the transaction compared to what you are forecasting now at the reporting date. So that is what goes into valuation. And when you do that, we are consistently -- sometimes you see airlines becoming loss, another time, you see it becoming gains which is typical of trading book. I hope that is clear.

Okay. Thank you, Mukhtar. Henry?

Yes. Thank you so very much. The 15% cumulative restructuring loan belonging to oil and gas, this also essentially for [indiscernible] producing assets with considerable reserves. So these are assets that have high reserves and are doing very, very well. Now that -- those -- the structuring was on the back of COVID issues and issues of the industry-wide line losses. But with most of these oil companies investing in alternative evacuation routes, that is about 2 meter down deep underground, where petrol line losses issues will be resolved. And as noted, with oil prices [indiscernible], we expect that this other company would do much, much better and COVID issues behind us, So 2022 and beyond, we expect these companies to perform, perform and improve in their performance. And in terms of buckets, most of the oil and gas loan still remain in bucket 1 and bucket 2, because they are really doing well. Most of them have their interest paid up to date, so they stay in bucket 1 and bucket 2. But we expect a positive outlook for the industry for this mix going forward.

Okay. Next question?

The next question is from Damilola Olupona of Chapel Hill Denham.

All right. Thank you very much, in me again. I just want to ask for that question. One, I would like to find out what are the key sectors driving your loan book expansion in 2021? And -- I mean, 2022? And if you can also shed some light on the key sectors where you increase your exposure in 2021? So my questions have been answered from previous question, but I also want to find out, can you comment on the status of the special bills issued by the CBN? And -- I mean, what's the outlook going forward? [indiscernible] much understand that they be rolled by a couple of times, but can you just comment and just shed light on the rate you are currently owning them? And I mean what's the outlook for that particular investment security would be?

Okay. Thank you very much, Damilola. The first question is on the drivers of the loan growth and the expectation for drivers of the loan book in the current year. I think we say, generally, you look at it and see that with the GDP growing by over 3%, far above the projection -- World Bank projection for Nigeria, it gives an indication that the economy is recovering steadily from the COVID pandemic. And what you see is that it costs across different sectors. We are seeing manufacturing companies also enhancing and expanding capacity. We've seen FMCGs are not [indiscernible] in terms of the sales volume. I would say it costs across different sectors. The only sector you probably will not see is oil and gas, which remains very muted for us is for obvious reason because of the fundamental challenges that need to be addressed, especially with respect to evacuation infrastructure. And once the evacuation infrastructure is dealt with, again, there is also another positive coming from the signing of the petroleum industry ads, which has also provided more clarity and remove doubt with respect to how the industry is going to operate going forward. So we expect that growth to come across all sectors. That's what we see. [indiscernible], first, that they come into -- initially once we [indiscernible], they were all in 1 tenor bucket, but is now being changed. Where tenor bucket ranges between 90 and 180 days, and it still remains at 0.5%. So as -- we can give our outlook as what happened because it's essentially a CBN play. So whatever the regulators want to do -- but there's also opportunity for us to trade, and we capitalize on that to carry out some trading opportunities and enhance our yield on the instruments. Next question.

[Operator Instructions] Our next question is from Tunde Ogunleye of SBG Securities.

I'm so sorry, some of the questions at the discussion have been answered because I have some network issues. So the question is particularly related to your e-banking. So I wanted to know your thoughts about the [indiscernible] and the adoption of eNaira? How is it going to affect the e-banking revenue and not for your deposit structure. The next question is on your agency banking. So probably if you could shed more light on your [indiscernible] agent? And also just to confirm what percentage of this agent is owned by the -- agent fully owned by the bank? So it will probably be like for its public is like a percentage is owned by the bank or public of the partnership with telcos. And the final question is on the take rate. Just to understand like what are the decrease on your agency banking transactions? I think that would be up for me.

Okay. Thank you, Tunde. We seem to have lost the last question, but let's start from the e-banking agency banking, where are the agents are owned by also I invite Tope to answer the questions.

Okay. Good afternoon, everyone, and thank you again. I think on the eNaira, my group MD already spoke about that in his introductory remarks. On agency banking, let me say that we specifically developed that to take advantage of technology to push our retail business down to [indiscernible]. And I can say that we've done quite well. Agent we have now is about 76,000, and they're growing. And we continue to innovate with the beat to drive for the market share in that regard. Yes, it's getting very competitive. But like we said, we're innovative, and we're doing a lot with the agents when you look at cards. We're the only bank now issuing cards through the agent, and we're doing a lot more across the sectors. We're looking at local government across the country. So I'm sure that we are present everywhere. So 76,000 are going and then driving the adoption of customers using technology. Thank you.

Next question?

Then the last question is from Austin Organa of Will Newspaper.

My name is Austin Organa, and I work for the Will newspaper. I have 2 questions, so I'll have 3 questions. The first one would be wanting to know if you have any -- if your bank has any expansion plans within the continent or even globally? And the second question will be if you see any other areas in an economy where the bank will grant loans and facilities to customers? And third question will have to be on possible headwinds apart from COVID that has appears to have been tamed. Do you see any other headwinds against profitability for the bank this year?

Okay. Thank you very much, Austin. The first question on expansion plan. Let me put it this way. We have a growth agenda. And this growth agenda currently is being fired organically. That by no means does not mean that if we find any opportunity for an acquisition, we will not do so. But we still remain very, very disciplined with the way we look at such things that whatever acquisition we are going to do must add value to the process. It must not take value out of us. That's one. So not as I'll say we are open. In case you find any opportunities [indiscernible]. It has an economy where we can do lending. We need to appreciate and also commend the Central Bank for promoting the digital payment system. That is happening -- not just the digital payment system, the introduction of the biometric identification that has now helped us to tame and deal with the challenge of identity in the bank. So you know that if you have a bank account, for that account to be [indiscernible] with your BVN. And apart from the initiation of this BVN, you also have the global standard [indiscernible] instruction, with every lender from banks in the economy are now mandated to execute. What that global standard of the instruction seems to achieve is that, should you have a default ingrown in Zenith, Zenith can trigger a global standard of the instruction on all your bank accounts in the country. So that if you omit a loan and you are trying to run away, once I trigger it and it's driven by BBVNBM. Once i trigger it electronically the system will hunt you within the banking system. If you find that you have NGN 12 million in other bank, is simply electronically [indiscernible] NGN 10 million to me and these NGN 2 million to you. However, if and when we trigger the BVN or the [indiscernible], you don't have money, you are blacklisted. You're BVN in Blacklisted. You said you are not able to operate the bank account. So what this has done is that he has provided reinfuse for bank to now consider lending to the retail sector, who normally come from between NGN 5 billion to NGN [ 20 ] million unsecured. So we are riding on this to extend our footprint in terms of credit attention to different segments of the economy. We are also taking particular interest in supporting SMEs because SMEs are the bedrock of the economy. For us, we see the SME as a grooming ground where we have -- we are looking at it to identify SMEs with potential who will provide them with the necessary funding support and also advisory services free of cost, so that we can mentor them to become champions of tomorrow. Then the other area where we see opportunities will come for incremental lending is coming from the export drive that the CBN has also commenced with the introduction of the risk of NGN 200 billion in 3 years. So CBN has not made very compelling for practically everyone to begin to look at that space. And let me say that, that space is being it can accommodate as many interested in lending to that space. So as the economy continues to also pick up, we see that we can see -- in some cities, we can see the convergence in the demography where the rural locations are now almost infusing into the urban system. And that is also promoting a lot of spend and a lot of retail spend, a lot of consumption. So once we see -- along the value chain of the different sector, there will be opportunities to ascend loans. Possible headwinds. Detail is that what will constitute big volatility is hardly a unknown. Nobody -- there's no [indiscernible] that I can tell you we saw COVID coming, therefore, we prepare for it. Again, there's no [indiscernible] that can tell us we saw what you assume in Eastern Europe coming and [indiscernible]. What we do is about how preferred we are. And again, for Zenith, we have the culture of really, really building high adversity quotient. So that when we face adversity, we don't get discouraged. When we put adversity, we are in a position to navigate. And apart from facing adversity, it is different models that we build. If it doesn't fit into a particular scenario we built maybe it will fall in between. So it's quite easy for us to navigate. And all we also do is intelligently read the market. We intelligently read the market and where we don't find comfort in doing anything, we are prepared not to take any risk at all. So we will remain very calculated and making sure that we position the intrusion to continue to navigate that's what we've been trying to do. That's the culture of Zenith and we also sustain it.

Thank you very much, sir. Then we have no further questions in the queue, sir. And would you like to make some closing comments?

Okay. Thank you, ladies and gentlemen, for the opportunity for us to provide deeper insights with respect to the facts behind our figures. And we thank you both sincerely for the interest. You're sure that you continue to show in Zenith, and thank you for your very insightful questions. And I'd like to assure you that we need to the future we'll continue to elevate our digital banking campaign. And we also continue to be pragmatic and innovative as we move into other aspects of the economy looking for new opportunities. And we'll continue to create new niche opportunities, develop minimum viable products and see that. We grew new revenue pools and [indiscernible]. We have a very ubiquitous banking platform that provides us leverage for us to connect with customers at any segment of the economy. Even if you have the last mile in the retail economy, we have a platform to connect with you. We can connect with you in the mobile culture, the USSD, through the web, through the Internet. We can connect with you through physical presence. We can connect with you through our agency banking. So we continue to maintain that discipline, and we'll continue to be smart and agile as we review the opportunities arising in the economic environment. So thank you very much, and I wish to assure you that, all said, Zenith will to continue to deliver a very strong number. And given the kind of resources we have, the kind of talent we have here, the doggedness of the same deal resilience, the commitment and the innovative capabilities and also added to the very superior guidance and advice we got from the Board. It will amount to negligence for its need to fail. So I wish to assure the market now [indiscernible] and the [indiscernible] in the markets will keep us so on a high. Thank you very much.

Thank you very much, sir. Ladies and gentlemen, that then concludes today's conference call, and you may now disconnect.