Zenith Bank Plc (ZENITHBANK) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Zenith Bank Plc H1 2023 Financial Results. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Ebenezer Onyeagwu, CEO. Please go ahead.

Good afternoon, ladies and gentlemen. It's my pleasure to welcome everyone to the analyst call where we'll be speaking to the key highlights of our performance for half year 2023. Joining me on this call are my colleagues, Dr. Temitope Fasoranti, Executive Director; Henry Oroh, Executive Director; Adobi Nwapa, Executive Director; Akindele Ogunranti, Executive Director; Mukhtar Adam, the Group CFO; Joshua Uwedinisu, AGM in our Risk Group; Kayode Akinbinu, AGM and Head of Strategy and Planning; Nsikan Umoren, of our Financial Control Group; Eugene Ewubor, is also the Financial Control Group; Michael Adesanoye, also our Financial Control Group; and lastly, Folashade Keleko, of the Investor Relations group. Ladies and gentlemen, we are happy to present our performance, which is coming on the back of a very, very challenging macro, both at the global and at the national level. The past 6 months has been characterized by lot of [ E calls ], challenges in the entire macro system books. We have continued to remain your resilient, creative entities, and hence we've been able to deliver a very [ challenging ] performance. However, it's also important to mention that in terms of geography, our own markets, a few important highlights have taken place since the inauguration of President, Bola Tinubu, who saw the immediate unification of the exchange rates and the evolution of the subsidy regime. And these have produced very remarkable impact in the market and markets [ we after very severely ]. And we've also seen that upon this implementation of this immediate reform, the stock market rally [ tremendously magnificent ] in the last 6 years. However, it's also important to note that inflation remains very high, and the last account [ it printed at over 24% ]. The currency issue still remains a very megachallenge, in remainder supply challenge. And hopefully, [ we said that ] reform being inaugurated and the roadshow been embarked by the Presidential begin to bring in positive result to update this. So I'll leave the Group CFO to throw more light, with respect to the specific of the performance as we bring up preference, we'll be able to provide the answers that gives more clarity to the performance for the half year. Thank you.

Thank you very much, MD, CEO, and good afternoon, ladies and gentlemen. In the half year 2023, our performance shows some gross earnings have increased by 139%, that is NGN 967 billion. The net interest income was NGN 261 billion. Our noninterest income was NGN 515 billion, which gave us a profit before tax of NGN 350 billion. That is about 170% year-on-year growth. Profit after tax was NGN 291 billion. So we have seen significant improvements in the performance. On the balance sheet side, our customers' deposits are grown by 30%, that close at NGN 11.6 trillion. The loan book has also seen 30% growth at NGN 5.4 trillion, with a total asset base of NGN 16 trillion, and our total shareholder fund of NGN 1.8 trillion. These are very significant growth in both our income statement and balance sheet. The growth in income statement came largely from interest income that grew because of the increasing interest rate within the environment. Although we also have increase in the interest expense, but we still have a net interest margin that was positive. We also have seen significant growth in noninterest income, largely from the trading book of growth, and we have revaluation gain that also have shown some growth. When we put all these things together, on the back of growing inflation, we have seen that their costs have increased. Staff costs has increased because of the challenges that we have seen cost-wise, growing inflation and other parameters. [ We are seeing ] general operating costs also growing, but they were all in line within the limit of inflation. The total OpEx growth is 23%. Inflation is about 24%. So yes, we are retaining some value just by the cost pressure. So we ended up with earnings per share NGN 9.2 compared to NGN 3.55 last year. There have been some level of pressure on NIMs, because the NIMs, the interest income, the repricing of the interest expense side [ moved faster on the ] interest income. However, quarter-on-quarter, the NIMs has improved. Cost of funds has also moved up because of the growing costs in the money market environment and the general increase in earnings per share. We have seen cost of risk moving up from 1.4% to 8.8%, largely because of the increase in the impairment levels. Impairment charge increased from NGN 25 billion to NGN 207 billion. That is coming largely because of significant additional impairment that we have taken to take care of the growth in the loan book that resulted from the devaluation of the Naira, or the [ convergence ] of the Naira. So the exchange rate has moved. The loan book has grown. We have made a revaluation gain of about NGN 350 billion, and we are taking significant impairment charge to take care of the [indiscernible] book. That is the reason why cost of risk has increased to 8.8%. This is just one-off and it is not going to continue. You will also realize the NPL has not increased, NPL ratio is 3.9% because the additional implement charge did not arise from asset policy retaliation. Cost income ratio has moderated downwards significantly, and we plan to keep it down below 50% into the end of the year. So other prudential ratios, we are within limit, we are above the regulatory limit for most of the prudential issues. Going forward, we expect that we will continue the growth into the end of the year in subsequent periods. I want to hand it here, so we can take questions. Thank you very much.

[Operator Instructions] The first question we have is from Kato Mukuru of EFG Hermes.

Thank you to the entire team for organizing this call. And also thank you for the detailed presentation, you have sent us financial analysis. Particularly on that, I saw your currency risk analysis. And I saw the amount in U.S. dollars that's due from other banks at the first half '23 was [indiscernible]. What I wanted to know, does that number include the swaps? So is it on balance sheet effectively is the question.

Okay. CFO, you want to take that?

Okay. So the amounts due from other banks that you have seen, represents the cash that we have, our cash and bank balances with correspondent banks and other banks that we do business with. The swap that we have with counterparties, we have moved the typical money to the counterparties. So the amount you are seeing on different banks does not included a swap. So when it is time, when their swap matures, that amount of data will come in as an inflow. And then we also have borrowings that was largely used to fund the swap. We've used that to settle the borrowings. So what you are seeing as a [ cash, where have you seen that swap ].

And it's not necessarily -- if I may continue with that. It's not the cash really, it's the due from other banks. So what is this -- this is your loans to other banks, right?

No, not loans to other banks. So we have lines we talk about -- we also keep deposit with other banks. Remember, if [ you go to the easy side ] of our balance sheet, we have borrowings. When we take money from an international bank, it goes into our bank account, [ yes ], before we utilize it. When people deposit our customers, they also have deposit results are the machinery deposit is in foreign currency. So it also fits in our bank accounts. So those give from other banks are the corresponding asset for some of our dollar liabilities.

Understood. And if I could ask a follow-on question, if that's okay.

Yes, go ahead.

Yes. So we're hearing that the CBN with regards to the forward that you would like to clear in the next couple of weeks is currently having discussions with yourselves and all the banks, the Bankers Association on how to do this. And one of the options I've heard and correct me if I'm wrong, please, is that they could fill the forward actually with Naira at the spot rate as opposed to returning dollars because I understand we're talking about $9 billion of forwards, which maybe the CBN does not have currently. So that might be one solution. Is that something you've had discussions with the CBN regarding? And if so, what is the potential impact on your financials? If that was the case? Would you have to take some loss -- would you have to take losses on the gains that you've already booked on some of the forwards?

Kato, conversations are ongoing. CBN has now come out categorically to advise bands on what option. So whatever you have is less [ speculation ].

The next question we have is from Nabila Mohammed of Chapel Hill Denham.

So I just have a couple of questions. The first is around your core loan growth. I see that there is roughly 30.5% growth in your gross units. I just want to know which part of it is devoid of the FX devaluation element? That's my first question. Then the second is with regards to your net interest margin, we recognized that it was about 1.2 percentage point decrease in our net interest margin. I just want to know what the outlook is for H2, given the current interest rate environment and the impact we have on yield on financial assets. Those are my questions.

First is to say that we guided our loan growth to be 10%. And what you see of achieve the strategy. And if we net off the impact of the translation effect of the exchange rate, we will end up with 10% loan growth. So I think as we answer the first question. So out of the 30%, 20%, what is given rise to [ 20% ] is the impact of the translation effect of the Naira. Net interest margin this year, we already spoke to that. That's usually what we see is that, when we face this situation where there is rising interest rates. So it's always -- in terms of the cost, why the implication for the cost is likely reflect the transmission effect of the upward review of customers lending with [indiscernible]. In some cases, you have [ organized way ], you need to give 2 weeks’ notice -- probably 2 weeks’ notice, you also have to have a lot of engagement. But when you have NPL move automatically your interest rate, especially on savings, move immediately. So that explains why you have that bit of gap.

The next question we have is from Olumide Sole of Vetiva Capital Limited.

So my first question is like for your outlook, what would -- what an expectation as it's profit after tax or profit before tax? And also for your revenue line items like what do you think will be the major driver for that outlook that you likely [ prefer ]. So that is just... those are my questions.

Typically, if you look at the performance of [indiscernible], second half is always we have a good momentum. And that is also explained by the first half, we are contending with some heavy [indiscernible] and the NDIC charges where you have to assume into your P&L immediately. Then second half, you don't have that coming again. So that improves the run risk. We have said that, we issued what will be the key driver of our business. Of course, we remain a very creative, dynamic and relationship focus of [indiscernible]. So we continue to offer premium services on to our products and services [ from marginal ]. Our delivery makes us unique and certain in the market that will continue to be a key driver. And we also monitor changes we see in the market as events on forging and evolving new opportunities have been from also will be the first to cut -- I mean, capture such opportunities, and we've been able to demonstrate it, because if you look at the key projects we have now that are like the new projects, game-changing projects in the country, [ any demand ] the primary band for this project. I don't need to mention the names. So -- and of course, in all our major relationship will remain a strong #1, where we are not a strong #1. We are very pleased #3. That is not going to change. We also deploy our treasury player. We are quite profound when it comes to treasury management. So we will know we stand in the CRR regime that is [indiscernible]. So the treasury team with their skills and talent, we think we should be able to have a decent play on the treasury side. And our subsidiaries to also is coming on strong. The need to play coming stronger and stronger. Ghana has recovered from the currency -- I mean, sorry, no currency the debt restructuring program, and Ghana performance is coming in much stronger than what it was last year. So our retail banking, yes, we are revamping. We've had a lot of performance enhancement in it, and we expect that our own rate will pick up even much faster now withstanding the challenges so far in Q1, especially Q1 as a result of the [indiscernible] the system. So I think we are confident that the performance will be stronger really I think we can't give you assurance on that. We don't expect that the revaluation gain again. We don't expect further devaluation. So the re-bargain is one-off. So if you net of the re-bargain and [indiscernible] against our performance for half year, we would do better than what we've done [indiscernible].

I still have one more question. For the nation Ghana, and for Ghana [indiscernible]. I want to move this bank position of software from the very possible defaults or Ghana Eurobond, because just like about some months of policing the Ghana Eurobond. So [indiscernible] in a position to step up for many so there are any ultimate charge for Ghana Eurobond.

Well, we are nothing has been discussed or firm up with Ghana Eurobond. We are aware that coupon cement is lagging behind and conversations are on, but we don't have any push on Ghana Eurobond.

The next question we have is from Ronak Gadhia of EFG Hermes.

My first one, I guess, is a bit more hypothetical. But generally, what we have seen in Nigeria is that the policy environment seems to be "normalizing." In this environment, if we were to hypothetically assume that the CBN winds down the swap positions. Could you just help us understand what are the implications of that? I'm just trying to understand what are the accounting treatment that we would see come through on your balance sheet and P&L, assuming your swap portfolio, which you've highlighted is about [ $1.6 billion is on down ]. The second question is on your fee income. On a year-on-year basis, we saw a pretty significant decline of around 32%. This is despite the strong growth. And when you look at the breakdown, it was being driven by a pretty strong decline in [ e-banking ]. So if you could just help us understand why the e-banking income reduced significantly despite the growth in volumes. And the third one, I guess, related to the second topic is e-banking receivables and payables. Once again, we've seen a pretty significant increase during the 6-month period, both in receivables and payables. Can you just help us understand what was driving that? And how should we be looking at it from a risk perspective given the uncertainties in the economy.

I think your first question is a B2 resumption, because if [ CBN settles forward ] we have no application for my goods. So unless you are assuming something that we don't know about. So even for the swap, CBN decided to redeem, it is -- of course, we don't see any precision because the resources will be deployed as well. So we'll be [indiscernible] and how to deploy those resources. But for the forwards, if CBN settled this, of course, it has no immediate impact. And like I said, conversations are ongoing. We know that they are working as sensibly to see that the stocks are properly covered. So I'll leave my colleague Mukhtar to take on fees and commission.

Yes. On the fee income, my group MD earlier said, we saw the market volume by the narrow design. We saw [indiscernible] banks had some bit of mileage. But nevertheless, we saw growth across the parameter accounts, if you look at the customer numbers, group card here. So what has driven our retail journey in the last 3 years in technology. So basically, we continue to be very creative and innovative. And we have no doubt that if we still focus on these parameters, we will surely see our fee income both in respect of the electronic fees and commissions. There's a lot of innovation we've adopted in the last few months and already we're seeing the killing of the income in the last 1 or 2 months. So by the end of the year, you surely see that this has reversed.

[Operator Instructions] The next question we have is from Randolph Oosthuizen of Old Mutual Investment Group.

So yes, I just have 2 questions. The first question is just if you could just refresh me on the CBN overdraft, they were going to secure it, size it, and sell it as bonds. And I've kind of lost track of that. So I just want to know if you've got an update on that. And then the second one is on the currency swaps with the [indiscernible].

Okay. Since there's no audio from that line anymore. So if you can just address the first question.

Okay. [ We took another person ]. So hopefully, we go with that.

The next question is from Joshua Arowolo of Stanbic Pensions.

Just wanted to get a reaction to CBN secular regarding the payment of the set we said the valuation gains released as payments for dividend. And there has been mixed reactions from analysts across board. So I thought it would be great to get a sense of if indeed [indiscernible] management thinking regarding dividend payment for full year 2023. So that's the first question. And then second question is just to understand as to get a view from the group regarding the interest environment? And how do you see that evolving for the rest of the year? And if you can just tie as well into the [ newest guidance ] for the year that will be great.

We transfer to the CDN secular payment of dividend on revaluation gains. I will say that it does not impact others because clearly, what the CDN secular is attempting to address has already been addressed by us. Essentially, we did the following items, which are revaluation [ one ], we look at the level of impairment is increased, that's because we have to assume that that's equal to this one, because, I mean, he's really prudent to do that. We have also in that with [indiscernible] reasonable balance for [indiscernible] then it was after that, we now took what was left into P&L. And if you look at the dividend income we are paying pretty much come to for half year is not significant. And you also look at our dividend history. Dividend history you see that, we usually pay dividend within a certain level. Even if we enhance the limit of dividends to be paid subsequently, there's no where we are going to be [ into our ] revaluation gain. The word we see it is because it's not realized, yes, it doesn't make sense to spend opposite. So we shifted the [ boosters result as well ].

The next question we have is from Oluwaseun Arambada of FBNQuest.

So my first question is related to the [ CBN Direct ] as well. I just want to get a clear sense of how the FX gains will be treated going forward. Are we -- how is it going to reflect on your books? Would you be treating it as [indiscernible] self-maturity instrument, and as such passing it through OCI. I mean I just want to get a sense of how you're thinking about that. And then secondly would be your guidance for the rest of 2023. I can say that yesterday, you done. I think loan growth about [ 25% ] already. Organically, how much U.S. takes in terms of loan growth, our appreciation could keep longer guidance, organic loan growth guidance, the impact of FX. And then also guidance, including the impact of FX, so we can get the clear sense of what we take. So if we can do this for loan growth and as well deposits that will be open.

Let me repeat that. The revaluation gain sits in 2 buckets. You have the one that comes below the line [indiscernible] speak to the revaluation gain on your investments in especially subsidiaries and other foreign currency investments. But for the other one, in terms of our loan dollar position, that's where it comes into the P&L and we subject them to 3 treatments. One, we make heavy impairment out of them, depending on the tantum to build up the contracyclical [indiscernible] vis-a-vis 2 -- I mean, we are critical in the water for them. The last item in the [indiscernible] is what goes to P&L. So it's about using it to enhance our results and also improving the level of our provisioning for -- I mean, the level of provisioning. So I think that before guidance, we continue to look at it. And if you look at what we've guided, we said loan growth, [ 7% ], that is actually organic backout the impact of revaluation. So that has been the case at the beginning of the year, and then we are not moving away from that. We think that's achievable.

The next question we have is from [indiscernible] of Bloomberg.

I want to find out, could you give us an update on the holding company status. I read from the ending statement where you said that you'll be adding new verticals and also entire-new frontiers. I want to assume that what actually talking about is establishing new non-banker subsidiaries. And also bring into new foreign countries. Could you be specific to tell us which nonbanking subsidiaries we are looking at? And also which further markets.

Very interesting. What you read is what it is, but unfortunately, [indiscernible] me to the strategic. So I just take it that work is in progress with respect to transition to Holdco. And we are not relenting. And everyone that you'll see in our segments, we will see them too. Yes, we will do new [indiscernible] a big yes. We're thinking of going into our geography, that's also a big yes. So at the right time, we'll make the right the appropriate announcement to the market.

The next question we have is from Timothy Wambu of Absa.

And my first question is on your PBT guidance that you've given us, [ NGN 510 billion ]. I just want to understand, do you see more growth in your FCY revaluations, derivative income to push that figure. And the second thing just maybe the [indiscernible] why we are seeing a [indiscernible]. And then the second question is, could you comment on the status of the loan-to-fund ratio directive. Is [ the CBN still for that in a bit ].

[indiscernible] will take the first question. Then Henry will take the LDR question.

Okay. You wanted to know FCY revaluation and derivative income. I think -- those assets that are driven by markets and on FCY revaluation income is a function of long-dollar position that we are holding, which will not change significantly between the year-end. But once we make more evaluation gains to come through [indiscernible] will be if the exchange rate moved significantly. And from our estimation, we don't think we are going to have that significant job that we have seen in H1 coming through in H2. So we think that income would stabilize as it is now. Then the derivative income, again, we have our derivative instruments. What brings about the derivative income is a mixed bag of a lot of things; the interest rate environment, the exchange rate and the position that we are taking. We think that significant volatility has happened already in H1. We don't expect significant volatilities again in H2. So we think those income levels would stabilize. We will just have some incremental around these income levels, which is what we have factored in our guidance.

With respect to the LDR requirement, [indiscernible] areas in order to comply, especially in the last few months where the [ uniform ] compliance has become extremely increased. We are not there yet, the requirement is [ 55% ], but we are very close. The opportunity in the market are not coming as fast as that level that we have to -- that we're required to meet. But we are guided to [ 5% ] by the end of year. So the bank is poised and [ determinated see ] that we comply to that requirement by end of the year as we have guidance.

Yes, let me add that. Yes, we are determined to meet the LDR, but we are not desperate. So we will not be desperate to book loan just because we want to give the idea. So we will continue to [indiscernible] always been our slogan, who rather have performing low reading books and have our liquidity quarantine than make their provision for [ bad debt ].

The next question we have is from Ngozi Odum of CardinalStone. The next question is from Isaac Osaro of WSTC Financial Services.

Okay. Looking at the past record for the past 7 years, the PF ratio has an average of [ 44% ]. So I was expecting [ something hard ] on that this year, considering we saw a different payout ratio [indiscernible]. So do you think you see something higher than that or we see close to [ 50% ] in your dividend payout this year?

If you look at what we are saying on interim, you'll see that is an enhancement. We'll continue to [ reverse that with also this number ]. So we will be guided by the CBN secular, with respect to payment of dividends. So we are not going to be pay dividend [indiscernible] the units of what we be paid will be determined by the actual organic profit we have in the books. So it was, as much as possible to each shareholders happy.

The next question we have is from Nick Padgett of Frontaura Capital LLC.

So my question is on the normalization of the exchange rate. And when I contrast what's happened this time was back in 2017, in 2017, while there are some starts and stops and maybe some initial missteps after about 3 months, the market had normalized and was a properly functioning 2-way market. This time, despite the initial enthusiasm, we're at about the 3-month mark and at least for equity and foreign equity investors, it's not a 2-way functioning market. There's still money trapped from shortly after the pandemic began where you can't get that money out of the country. So we've got some money out, but we still have more remaining. I welcome any perspective you have on how the Central Bank might get from where we are today to an actual proper functioning 2-way market, specifically for foreign equity holders.

Very interesting question. What we see is the second stance of 2016-2017 you referred to and now are completely different. First was in 2016-2017, there was nothing like forward. [indiscernible], neither was anything like [ on dividend ] forward, but here rolling forward to current situation, we have forward. So the important thing to note is that CBN has stopped issuance of forward. So the idea is to clear what is left, and/or as soon as this has been done, I think it will take a process. Market will correct itself, and we already have [indiscernible] in the market. So I think I cannot really put a [ thank frame ] to it, but we are in the part of [ correction ]. So it may take some time, but certainly, the market will correct.

The next question we have is from Tesleemah Lateef of Cordros Capital.

My question will be, please, could help with the group's [ net SUI position ]. That will be very helpful. Also second question will be [indiscernible] of maintaining our CRR maintenance process of course the banking -- of course the bank, would like to move [indiscernible] being able to benefit from [ LDR fund ] and that needs the system of [indiscernible]. Once we mention that given the LDR and enforcement by the CBN, we are not desperate to do some loan growth and we cannot be asked macroeconomic environment. Just wanted to know what's the plan? Are we looking at the extra CRR, it can the profitability of the bank for reduction in the [indiscernible]. That's it for now.

On the net SUI position, the CFO will take that. The CRR maintenance issue, let me say that our CRR is dynamic. And going by the experience we've seen, it's not if once CBN takes CRR is quarantine forever, no. When we are pressed for cash on liquidity, we are right to CBN [indiscernible] on the release, they release that. Yes, we mean it, we are not desperate to actually where we are, but we are disciplined to be disciplined to achieve it. And we continue to look at the opportunities that our economy is big is huge. There are quite a lot of trends happening. So we follow the opportunity trend. And what [indiscernible] wherever there is a big opportunity for London, if there's going to be any season, that will be set to now, I think it's going to be [indiscernible]. So we are prepared. And the [ button ] again is that notwithstanding the LDR implementers on will still remain the most equip bank in the country. And that's a credit for that goes to the profound treasury management and [indiscernible] that we have. So basically it has always been tough. So we have no relenting in that area. So CFO, can you take on the one on the net SUI position?

The net SUI position, we have disclosed -- if you check our half year report, you check Page 109, we have the SUI position for various currencies, the SUI balance sheet, you have the Naira, the dollar, GBP, Euro and other currencies in that respect. But the dollar, which is a significant while we have a net SUI position that's more than [ $5 billion ]. And then we have also disclosed our swap position there that we have a swap of about [ 1.6 billion ]. That disclosure will give you more insights into our SUI position. The net is what gives right to our evaluation give.

The next question we have is from Olumide Sole of Vetiva Capital Limited.

First, let me ask a question [indiscernible] I just want to [indiscernible] dividend to allow at about [ 40% or 4% dividend per issue ] [indiscernible] first. And secondly, you mentioned the business start looking through all the [indiscernible] looking to expand over a market. So your strategy -- the strategy you are looking to [indiscernible]

[indiscernible] dividend from our organic process, which is in line with the meta CDN secular, [indiscernible] secular wasn't there. We have always maintained a tradition of being conservative when it comes to issues around unrealized gain. So I know that our market will be assessing that if we've made it to, they can begin to project the number what it would be for end of year. Are we looking forward to 44%. Well, my contract to that is that regulatory I have the guidance so fully. So we'll be guided by that guidance. Holdco, well, everything we say we do, we do. But we are not in a position to begin to discuss our strategy on the call. So just watch out and see when we begin to implement the market we know exactly take direction and the state of play. But Holdco, we are going ahead.

The next question we have is from Kato Mukuru of EFG Hermes.

Just a follow-up question. The [ NGN 356 billion ] in FX revaluation gains that you booked at the half year, could you split that out between how much was from forward versus swaps, so we could get a better sense of how that evolves over the second half of the year. The second thing is I noticed on your treasury bills, how the fair value to the P&L, the portfolio half from NGN 1.2 trillion to around just over NGN 600 billion. Yet, you were still able to book a net trading gain of NGN 22 billion. I just want trying to understand how that works given the fact that we're in a rising rate environment. I know your treasury spectacular. That seems -- because that's a big offload in your treasury book and yet you were still able to book a gain, which is pretty impressive. I just want to understand how?

Okay. Kato, I'll get Mukhtar to answer your questions.

Okay. Kato, the first question you're asking for the revaluation gain. You're asking for [indiscernible] I didn't get that bit of the question, please.

Yes. How much of it relates to -- how much relates to swaps. Just because we know if it's a swap, there's an [ unwind in the forwards ], we know there is one. So that way we could forecast the second off.

Okay. So you have our -- if you check our notes on the other income. So that has our trading gains there, right? Page [ 153, 110 ] you have the trading income there that shows the income from trading treasury deals on bonds and sold. The one that you have as revaluation gain, that is the loan position that sits on the balance sheet that we translate using the current rate. Within that long position for you to arrive at the evaluation, you know that what is funding the swap is coming from the liability that we have taken. The liability also gives rise to revaluation loss, because it's an ability to you. That evaluation loss is also moved to report to where the instrument is that bringing the revaluation give. So what you have in the derivative book, that is where the swap is sitting. The ability of is funding the swap. The revaluation loss that is associated with that swap is reporting as part of the revaluation gain in the [ note 10 ]. That is the hedging part of our accounting for the revaluation gain. So if you look at the notes that we have on our head of an accounting policy, I'm sure it could declare us. But if we need more detailed discussion, we can have that. I hope that is clear. So going forward, these loan [indiscernible] moved significantly only if we have significant movements in the exchange rates, which we have said we do not project significant movements. We are going to just have incremental movements, which is what we refer to as organic. If these massive movements are not happening, what would we have reported, and that's what we are going to see between now and the year-end.

The next question we have is from Ngozi Odum of CardinalStone.

I just wanted to talk about the fee and commission income. I don't know if this has been addressed. But I just want to know, what are the strategies? Or what are you seeing in terms of improving that? We saw a decline in fee and commission income. So I just wanted to know what drove that decline angles as volumes were up on the electronic fee transactions? What are you seeing in terms of turning this around.

Yes, Mukhtar will just take that.

I think you spoke to that earlier, in respect of our [ Naira design ] impacted on the system, and we saw a lot of [ banks borrowings ] okay? But of course, many banks are resolved now expanded the capacity. And we're going [ to stay for costs ] on our core objectives, using innovation and creativity to drive our acquisition to drive car adoption to drive channel growth, adjusted banking optimization. And so we expect to see that by year and you'll see that reverse out these numbers.

The next question we have is from Timothy Wambu of Absa.

Yes. Just a follow-up from my end. The first one is like to your view on the outlook for Treasury yields. Do you see more upside. I mean, certainly, we've seen that the earlier returns remain negative. We just want to get a sense of your view on that? Second question is on your new guidance, which is quite a jump. I know you mentioned that you feel that you expect to price some of your lending [indiscernible]. Maybe just touch on the reduction in your cost of funds, why do you expect a reduction in the cost of funds?

I'm not sure we got your first question. What is something that has to do with treasury, but I can take on the last one. Do you want to repeat the first question?

Yes, I can. Yes. I'm talking about your views on the movement in terms of yields. Once you deal, do you think that you will see an increase in yield across the [ curve that ] results in real returns. Is that additional to that a sense of your view. And you compare such a view in your main guidance.

Okay. I'll hand over to [ Mukhtar ].

Yes, if you look at our treasury [ base holding ] and last year, 2022, and first half year 2023, you see a [ 12.4% ] growth. It's also feeding from the fact that we have a very expansive channels for getting, getting liquidity. And of course, given our [ brand analytics ], also a good definition for [ customer jeopardize ]. That trajectory will continue. We continue to grow our treasury base holding. And as the CEO said, something is an area where our treasury is also very skilled, and we continue to track those that portfolio for profitability moving forward.

Okay. [ Forgot to that, say that ] we expect that there will be a lot of market reforms and correction. And setting this functional tendencies will begin to be eliminated from the market for us to see [ proper impacting ] of the market because there are so many things that you can put together inflation as well it is, which instrument where it is sound to be question. So given what we see that the government is doing, the new government is doing, we think the kind of reform that will be implemented will lead to some market adjustments and correction and thus we have correction whatever abnormalities we see in the treasury play. I think the other question is on -- is it on guidance? On the main. So I'll leave the CFO to take that.

Okay. You mentioned cost of funds. And yes, so we have guided at the beginning of the period, our cost of funds we're going close [ with 2.2% ]. Half year, we have done [ 2.6% ]. So you want to know how we intend to bring it down. So we have said that our interest expense has refreshed from staff. We are going to reorganize our portfolio to reprice some of them we organize and get more cheaper funding to further reduce our cost of funds. So that's a strategy that we have started pursuing after the half year. And we are beginning to see some results in that direction. The objective is to reduce interest expense to increase our net interest income [indiscernible] boost our organic income growth, which is consistent with what we do every year. If you look at most of the time, end of year, half second half of the year, our costs normally we try to bring it down. We do better than in the second half of the year than in the first half of the year. That's how we have kept the guidance at [ 2.2%. Now we are doing 2.6% ], but we hope to achieve that. You asked about NIMs. We are hoping to grow our NIMs. We're giving guidance. We are going to push it aggressively to 8%, because we are pricing the asset side of the interest. So we still need this guidance like that.

Ladies and gentlemen, that does conclude the Q&A session. I would like to hand back over to the MD, for any closing remarks.

Okay. Thank you, everyone, for your questions and the participation. What we can assure is that as we move towards the end of the year, we will be on relenting and making sure that we deliver a far more superior performance to maintain the improved run rate because if you look at the performance so far, net of revaluation then I think the run rate for this second half is already higher than what we recorded in the first half. And we'll continue to deploy our sense of creativity will continue to drive our digital and retail marketing initiatives far more aggressively. There have been a lot of performance enhancement built into the system. Our IT transformation program is one is being done on a model basis, with [indiscernible] the first model. And before the end of this month, [indiscernible] the second model. And hopefully, by Q1, we should be [indiscernible] to the third and final that should give us a brand-new IT architecture that is here for purpose to drive incremental business in the digital retail banking space. So corporate banking [indiscernible] continue to maintain markets and even get more. We will keep our eyes on the ball, watch the reforms that have been managed and be able to identify new opportunities who also continue to elevate our risk management principles because given the way the environment is, we see that the risk environment is highly elevated. So we are not unmindful of that. So we are not going to unduly as pools in the balance sheet of risks. We make sure that we take calculated risk. [ Notwithstanding ] the -- what we see the challenges, we continue to deploy our higher [ visit ] portion and remain very resilient. So we promised the market at end of the year, we will be able to deliver very, very impressive and outstanding results. So we thank you very much.

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