Good afternoon. I'm Dirk Brouwer, CEO of ASA International. I have three colleagues with me here. Karin Kersten, Executive Director, ASA International. I have Tanvir Rahman, who's the CFO, and Misha Assink, who is Head of Investor Relations.
I just want to give a quick update about the business for 2022. We have a brief results presentation, which I would like to take you through together with my colleagues. I would like to go to the next slide. Just to give you some quick highlights with regards to fiscal year 2022 profit, we have seen substantial improvement in net profits for the year as well as pre-tax profits.
s increased to 2.3 million, which, excluding India, was actually quite a large number. The Indian business was actually quite challenged. We have been shrinking debt. Branches have been at 2,028. As mentioned, pre-tax profit is about 80%, and net profits have been growing by about 181%. In that respect, we feel quite comfortable that the business is really recovering. Our OLPs, about $315.2 million, saw PAR 30 increasing or basically stabilizing at 5.9%, which was, excluding India, actually 3.3%
ECL expenses for $0.6 and unrestricted cash stays very stable. It's gone down a little bit, but we really repaid some of our loans in some countries, but it's very stable for the size of the business at $55 million. You can see on the next slide, some performance in terms of of our different regions, South Asia, West Africa, Southeast Asia, as well as East Africa. What you can see very distinctly is that we've seen quite a substantial shift towards East Africa, which has been growing its business very well in most markets there.
What's on the other hand, where we've seen quite a lot of shrinkage, actually, we've seen in South Asia, the OLP numbers has come down quite a lot, particularly because of India. The business in Pakistan, you can see that has come down from about $96.9 to $35.7.
Pakistan has actually been quite stable despite the fact that we've seen a substantial currency depreciation in Pakistan over the last year. Sri Lanka, a very small business, has had a lot of difficulty. As you probably know, the country has essentially gone bankrupt, but the business there is still ticking over, and we have some hope that over a period of time, the business will start to improve as well.
On the right-hand slide, you see the West African business. As mentioned, we've seen good, generally good growth there. It's obviously still a little lower than it was before, but nevertheless, it's, you know, and that has to do a lot with Ghana, because Ghana, we've seen substantial currency depreciation last year, and that will still feed itself a bit during this year as, according to our estimates.
Southeast Asia, very stable, as you can see. Philippines has been growing its business by over 10%. Myanmar has been shrinking. Myanmar is actually quite a complex situation right now because we cannot really put money in, neither can we take money out. We run the business as it currently is with the funds we have.
It's a very challenging situation with the current situation with the military, you know, fighting to an extent to its local population, as well as the former leadership of the country being incarcerated. It's challenging, but we're still, you know, we still run the business, and we hope that we can continue to do so for quite some time.
On the East Africa side, you can see the strong growth we've seen there, 39% as a whole. Tanzania has been growing by almost 51%. Kenya also has been growing. Uganda by 35%. Rwanda, as you can see, all of those countries have been growing the businesses quite well. They're really diversified the whole group's portfolio, I would say.
Next slide is the overview of the key performance indicators. I won't go through this. You know, you've probably seen quite a lot of that. The fiscal year 2022, number of clients been a little flat, particularly because of the shrinkage of the business in India.
On the other hand, we've seen many other of our local institutions doing quite well, and particularly we have shown you yesterday of just yesterday, today, the performance, the growth of our business in East Africa. Number of branches, as you can see, has come down a little bit, but still been growing quite substantially vis-à-vis 2020.
The average Gross OLP per client in US dollars has come down quite a bit. That has to do a lot with the depreciation of the currency in Ghana as well as the depreciation of the currency in Pakistan. Those two countries has really brought down the OLP per client.
We just have to see how that's gonna further develop going forward. The PAR 30 has come down quite substantially from 13.1% in 2020 down to 5.9%. We're quite pleased that the portfolio quality across the board is truly improving. We see cost-to-income as well. Clearly 98% was not particularly a viable cost-to-income ratio.
It's come down now to levels which we think are much more reasonable. At the same time, we would still hope to see further, the cost-to-income ratio to go down even further. The ROA has gone down from almost zero or a little less than zero in 2020, has come down already to 3.4%. The ROE is effectively increased to 18.5% from a negative number in 2020. The trend lines itself, in our opinion, are actually showing a good delivery of good improvement of performance. I now hand it over to Tanvir.
Thank you, Dirk. We finalized our income statement and balance sheet for fiscal year 2022, as consented by EY UK. Again, PBT of EUR 46.3 million. Net profit of EUR 17.9 million. We experienced unusual tax expenses for the year due to a reversal of deferred tax assets in India and Myanmar. You know, that was in accordance with IFRS.
Profitability in good trajectory towards pre-COVID levels. Strong balance sheet despite enormous headwinds of currency devaluation. In spite of strong profitability, our book took an approximately EUR 34 million hit for currency devaluation in 2022. Going to the next slide. We see a slight improvement in margin and yield, mainly because of subsidiaries with higher yields increased their disbursement throughout the year in 2022.
We will see India and Sri Lanka's interest rate cap removal, that'll have a, have an effect, and that will help in 2023. Cost of funding, broadly stable, although there might be an increase in 2023 due to the benchmark rates going up. Next slide. Risk-averse, strong, unchanged funding profile.
Our mix is a combination of equity, microfinance loan funds, from people like Symbiotics, local deposits, loans from development banks and foundations like OPIC, BIO, and OeEB, and then we have the commercial loans. $157 million in fresh debt that was raised. We remain well capitalized with $56 million of cash and cash equivalent in the balance sheet.
Strong pipeline of EUR 194 million fresh loans, of which 63% with agreed term sheets. We did have a breach with covenants amounting to EUR 82.5 million. We did manage to get waivers for EUR 81.5 million. Year-on-year, lenders have been extremely supportive of our business. With that, I pass it on to Karin.
Thank you, Tanvir. Let's go to the March 2023 business update. We're now beyond our annual figures of 2022, and we would like to give you a snapshot into the loan portfolio and the quality of the portfolio. First of all, we would like to remark, if you look at the Gross OLP per the March figures, that's the third column on the sheet, you can see that the order in sizing of the countries has shifted.
Whereas India was a very, very large country up to now, you can see that in order of magnitude, Pakistan has the biggest portfolio in dollars, $64 million Gross OLP. The second country is Tanzania, and you could see that in Dirk's part of the presentation that Tanzania had the largest growth in 2022.
The third-largest country is the Philippines in March. The fourth is India. That is the total portfolio. A remark here is that our BC, so business correspondence portfolio, is growing there. This is in line with our shrinking strategy. The fifth-largest country in terms of Gross OLP is Ghana. If you look to the quality of the portfolio, at the end-year, PAR 30 was 5.9%, as presented in the annual figures.
You can see it improving in the course of this year with a PAR of below 5%, 4.5% at the end of March 2022. That's an important marker to have it below 5%. If you look into that column and you map that to the largest countries, you see that most of our large operating countries are very healthy.
In the top 5 I mentioned, the PAR in India has attention. You see it 15.9% recently, but it has come down. The key reason is write-offs and long overdue loans have been written off in India, Myanmar, and Nigeria. That's partly an explanation for the improvement in the PAR. If you look to the PAR 30 less PAR 180. In words, it is loans that are overdue longer than 1 month, but shorter than half a year. You see that Nigeria and India have larger numbers, although India is smaller than the PAR 30. You could say that's a good signal that part is lower.
On the Nigeria part, there is a special situation, not only with the elections having taken place in Nigeria, but also, the PAR is higher because there were severe cash shortages in Nigeria, because of new bank notes given out, and that was affecting the repayment ability of our clients.
If you look to our collection efficiency, you can see that in most of our operating countries, we are or at 100% or between 95% and 100% with 2 outliers, which just have been touched upon, which are India and Nigeria. For the countries at 95%, you can see that over time they are gradually improving from the range, like in Sri Lanka, 91% every time period to 95% now.
Sierra Leone also slightly is improving there. If we go to the regulatory update for our most important market. In Pakistan, the State Bank of Pakistan has received a microfinance banking license from them, and we're now expecting to receive the formal certificate of commencement.
The dividend has been approved, but we are now waiting for the approval of the remittance of the dividend. If we go to India, and this is the regulation since 2022, since last year, the new regulation, which is quite favorable as the interest rate cap and the margin cap have been removed, which allows us to raise the client rate.
We haven't seen the real benefit of that because our disbursements was very low. Once the profitability is turning back, then we will have some cash to give also, so to disburse some new loans and take profit from the removal of these 2 caps. If we go to Sri Lanka, the same applies.
Also a removal of the interest rate cap. In Myanmar, there was a limitation of servicing foreign loans, so repaying foreign loans because there were severe controls on the foreign reserves. In August of last year, a new circular was being issued that some transactions were permitted. Good news in Ghana.
There, we had applied for our digital financial services, so we applicated for that, and approval was being given. We now have the approval from the Bank of Ghana to go ahead on our digital financial services strategy. In Nigeria, there we are awaiting some approval of dividends, so that takes a bit of time there.
There is some delay. The dividend of 2021 is approved by now. The next step after approval also is transferring or getting $ in order to pay out that dividend. On Kenya, last year, a new act took effect, the Digital Credit Providers Act, which basically prohibited MFIs to take collateral.
We are a credit taker, so we had to, for the time being, refund the cash collateral. In the meantime, we have submitted a pro forma application to the central bank for the digital credit provider, our large track is to acquire a license for deposit taking because Kenya is high on our list for the digital strategy.
For Tanzania applies the same, so it's not on this sheet, but we also are in the preparation phase of applying for a deposit-taking license. The strategy, and this is not a renewed sheet, but a repetition of what we set as our strategy from 2021 to 2025.
You do see six boxes shaded on the sheet. Those all have to do with our digital strategy going forward. You do see that half of the boxes relate to the digital strategy. That's important to implement. Basically, the strategy comprises of growth. We want to grow the loans, the loan volumes, the number of clients. That's the organic growth.
Then we would like to add a digital channel on top of the proven branch model. It's not a replacement, but it's an on top of because we want to keep our proven credit methodology and our close vicinity with our lending close to our clients. Then the third part of the strategy is to broaden products and services.
Up to now, we are active in loans and deposits as cash collateral or in some markets where we have the license in deposits from the clients. We would like to extend it to online loans, to payments, deposits more broadly, and also to provide financial value-added services as the Supplier Market Place. By offering that, we aim to get new clients on board.
What are the benefits of this digital strategy? Partly it's defensive because we do know that other parties are also looking into digital offerings, and we want to offer this to our clients as well. The other part is offensive because we want to keep happy clients, retain them, and deliver better service, more services and products and an enhanced channel.
It also will allow, if we digitalize, we can also digitize our internal processes and we'll have less manual work, and we can use that time for loan officers to serve more clients or to put time in collecting overdues. We will have a different risk profile, our loan officers are able to spend more time with clients if that's launched, and the client centricity goes up by that.
As for the operational fraud risk will go down because the cash part of the money is small when you go digital. On the other side of the coin, the IT security risk will go up. We aim to improve then the management and credit decisions because we'll have more data.
We also will have other sources of income on top of our client interest payment income, because once we go into the payment area, we might get income stream from payment aggregators and also income from suppliers if the Supplier Market Place app is being launched. We will get funding benefits by means of higher client savings.
Like, money collected from our clients will pay lower interest on than when gathered from the institutional market, and we'll have a more diversified income and benefits portfolio. Where are we in the progress on digitalization? At the moment, we are implementing the core banking system Temenos in Pakistan. That's on schedule and expected to be implemented at the end of the year.
Right after that, we will finish the implementation in Ghana. Secondly, the digital financial services app will be implemented in Ghana once the core banking system software is implemented there. Thirdly, the Supplier Market Place app is being developed. It's ready, and it's now being tested in Ghana.
Or better to say, the first clients have installed the app on their phone, and the first few orders have been placed. On the right-hand side, you do see a little snapshot of a mobile phone. We are really positive on the implementation of this, but also the benefits it will hold for the future.
If you look in terms of from-to, on the left-hand side of this sheet, you can see what we have today, and on the right-hand side, where we would like to move to. In terms of technology, we want to shift away from our in-house developed loan system to the package core banking system. It's a replacement in the end, once it's implemented in all markets.
We want to add the digital financial services app and the Supplier Marketplace System. In terms of channel, you see the branch in the today's channel, but that will be kept in the future channel, added by the two apps, as just explained. On the services side, we do offer loans and deposits today, and we would like to extend that with other products and services.
A whole suite, including accounts, deposits, savings, payments, Supplier Market Place. On the internal processes, today, the processes are manual, complex. Sometimes there are duplications in the steps, and we wish to go to digital simplified world with a straight-through processing. I'd like to hand back to Dirk.
Thank you, Karin. I just want to confirm this has actually has been already announced in our RNS in February, 24th of February to be exact. This is about CEO succession, which will become effective as of 15th of June, 2023. I've been running the business essentially since 2004, but in fact, I've also been working on the development of ASA International already since 2005, which means that I've been running this for about more than 18 years.
And I think it's a good time in many ways for me to step aside and let a new person run the business going forward with a lot of new energy and a lot of new ideas. We selected Karin Kersten to succeed me. Karin has been with us already for a year and a half. We specifically actually recruited her with the idea that she would ultimately be succeeding me.
We're very confident that she will do an excellent job in running the company going forward. The board has approved this specific succession plan. I will stay on as CEO until the AGM, which takes place on the 15th of June of this year, after which Karin will become the current Executive Director of Corporate Development, or she will as current Executive Director, she will be appointed as the CEO of the company.
Just to give you a little bit of background, Karin joined ASA International for ABN AMRO Bank, where she worked since October 2021, and became an Executive Director in April 2022. In the board's view, including my own view, she's very well qualified to lead the company going forward. At the same AGM, I will step into a new role. I will not disappear completely.
I will stay as and be appointed as Deputy Chairman of the Board of ASA International and a special advisor to the new CEO and the executive committee and the broader management team in order to smoothen the path of transition and support a new leadership going forward.
I would, I expect to spend still quite a bit of time, but how long that will be will the board ultimately has to decide. Finally, just to summary and outlook, I will just go through that. The company's operational financial performance continued to improve with OLP growth and high portfolio quality in most markets leading to a profit before tax increasing to EUR 46.3 million. If you compare that to, you can compare that to EUR 25.7 million in fiscal year 2021. That shows that we've seen strong portfolio growth as well as stack of profits in some and many of our major markets.
The improvement was led by strong operational financial performance, as mentioned, in Pakistan, the Philippines, Ghana, and Tanzania, which MFIs delivered strong OLP growth and increased profitability in constant currency terms. In US dollar terms, the contribution was somewhat tempered by the significant currency depreciation in some in these markets.
In these markets specifically, we've seen substantial currency depreciation in Ghana, and as well as Pakistan. There has been a negative benefit from in terms of profitability. On the other hand, many of the other institutions or of our subsidiaries have done remarkably well, which led to this high level of profitability.
The company significantly reduced our ECL, our expected credit losses, which were charged into the income statement, which have come down all the way from $37.5 million to $0.6 million. It's been a very strong performance, and that essentially means that many parts of our businesses are starting to motor along quite well again.
The reserves for expected credit loss of the OLP in the balance sheet, including the off-book BC portfolio interest receivable, reduced from $27.5 million to $16.9 million. That obviously correlates to the profitability on a pre-tax level.
Outlook for 2023, whilst inflation and the related foreign exchange movements affecting the group's operating subsidiary financial performance in US dollar terms, the company expects the operating environment for its clients to continue to improve in most markets. We feel quite confident that the business environment is truly improved and that we will be able to continue to grow in 2023.
Most of the operating subsidiaries returning to growth and increased profitability and subject to improved performance in India and reduced currency devaluation, the company is confident of continued progress during 2023. I think, you know, one of the things we point out here that depends a little bit on the development in India and also the currency devaluation going forward.
Now we believe that the India situation has truly improved, and it's also, we over the last year, we really re-downsized the business substantially, which also means that the exposure to India is substantially reduced. The currency devaluation continues in some or potentially continues in some major markets.
We do not necessarily believe that the devaluation of particularly the Ghanaian cedi as well as the Pakistani rupee have bottomed out, but we still have, we really have to see how that's further gonna develop over during the course of this year. Collection efficiency increased or remained stable during Q1 2023 in all countries except Nigeria, which was, affected by the elections, and the demonetization of the currency in Nigeria.
That's has some real impact, we expect that that will, during the course of the year, that the situation will not only normalize but also improve to the levels where it was before. Finally, with regard to dividends, this is an important point. We decided after careful consideration, to not declare a dividend in 2023 for the 2022 results. We are not planning to basically declare a dividend this year. Most likely that would have taken place actually by June this year.
We would like to resume our dividend policy back to pre-COVID levels in 2023 of 24 for the year 2024 with the result in 2023 assuming improved operational and financial performance and normal dividends flows from the subsidiaries. We're relatively confident that those operational and financial performance, as well as the normal dividends flows from the past, will continue to stay in place. I would like to close this meeting unless there's any specific questions.
Yes, Dirk. We received a couple of questions. Thank you very much for those. We'll go through those one by one. The first one is one about our business process. A very essential one is on how the loan application works within ASA International.
Yeah, that's fine. Yeah. How to become a client? Well, first of all, we have a very targeted client group in the 13 markets in which we operate, and we do have a very close vicinity model. If you would like to apply for a loan, then you go to a nearby branch in one of our 13 operating countries, the intake process will start.
We, If you look to our client base, then 96.2% of our clients is female entrepreneur, and it's important that you have an business and income-generating activities. We don't ask any collateral, but the business needs to be income generating, the loan application goes really local in the branch. That's how our loan application works.
Thank you, Karin. The next question is on the OLP development, specifically for India and Sri Lanka in the rest of this year, but also for the whole group and maybe a division there, how you look at it in constant currency and in US dollar terms.
Yeah, I can make a couple comments. I mean, obviously doing it in U.S. dollar terms, we've seen basically flat OLP, $45 million-$44 million from December 2022 to March 2023, which is somewhat stable at this point in time. We can envisage that it might shrink a little more with some transfer of some of the portfolio to the BC portfolio, potentially. In terms of, if you look at what's the next, the other country was?
Specifically for India and Sri Lanka.
Okay, Sri Lanka. Yeah, Sri Lanka, I would say it's, it stays fairly flat. I mean, situation has stabilized, but it's, we are still waiting to see when the IMF, the IMF support for the country will come in place. I mean, the country has actually been able to secure quite a bit of funding from India as well as the fact, by also from, also from, let me think, from Bangladesh. Those two countries have supported it, and if the IMF will actually come in place, we expect the situation in Sri Lanka to gradually improve.
That will not mean that our business will, you know, suddenly increase in size very rapidly, but we hope to gradually rebuild it, based on the, on the current, number of clients we have, as well as the size of the loan portfolio. Yeah, that was it.
On India?
Yeah, on India. What is important in India, so you see throughout our publications that we had a deliberate shrinking strategy there, and you could see that on the slide with Dirk presented with the pattern over the past year. You can see that India shrunk in constant currency because the column on the sheet shown is the constant currency change of the loan portfolio.
You see that India shrunk by 59%. What we aim to do is to be less dependent on India in terms of concentration risk and then you do see that we will rely on these business correspondence partners. We today have 2 partners, and we aim to further extend that this year so that the concentration risk is not large.
Of course, our next aim also, if we generate a little profit in India, that if we disburse new loans, then the interest rate and the margin cap are being released, so we can see what the profitability of India is.
Okay. Thank you, Karin. What's your view on the NIM development? Your outlook statement already mentioned that funding costs should go up by 100 basis points, but can the margin still grow in this environment?
Yeah, I'll take that. NIM, yeah, it is, you know, projected to grow, because, you know, we are focusing more disbursements in countries like Ghana and Nigeria and Tanzania, rather than India.
What is basically impact of the funding costs which do go up?
Yeah.
How does that relate to basically compared to the yield and therefore the NIM?
Yeah. We do expect cost of funding to go up in 2023 as most of the, you know, benchmark rates have gone up. That should be balanced with our increase in NIM.
Okay. Thank you, Tanvir. I guess this is another question for you on the tax rate. If we can give some guidance for the expected tax rate for 2023, and is there any risk we could see another DTA write down in 2023?
I wouldn't say so because, you know, we have reversed majority of our DTA this year. That's why that number is huge. And for it to come back into our balance sheet, we do have to look at the IFRS guidelines and project a comfortable profitability in India, Myanmar, and Sri Lanka.
Yeah. Thanks, Tanvir. There was another question on the DTA, and that basically in the notes of the financial statement, 11.4, you can see that part of the DTA release relates to the ECL reserve. which is the timing difference. Is there a relation there with the still expected payment from the Assam government? Because writing down and still expecting payments to cover that overdue loans from clients.
Yes. That, that payment expectation is still there, and it will have an impact on the, on the ECL number because the recovery always reduces the ECL. You know, again, ECL, the provisioning is part of the deferred tax component with the, you know, past losses. Yeah, that will play an integral role into that number.
Yeah. I think, the summary is that we are extra…
Yeah.
and cautious
Correct.
there in recognizing both DTAs and also that receivable.
Right.
Yeah. A final question, on the DTA is, why not recognizing the DTA while these businesses are still ongoing?
Well, I mean, why we are not recognizing?
yes.
Well, we derecognized because.
Derecognized.
Yeah. You know, we are, you know, being, you know, less. We're being precautious.
Exactly.
about the whole thing.
This is, basically following the IFRS guidelines.
Yeah. As per IFRS guideline.
for recognizing these, DTAs.
There shouldn't be any major surprises in the coming year, and that's important.
Yeah. There is a question on the FX hedging policy. Can you remind us on that policy and how the funding mixes between local and foreign currency loans?
Yeah. It is our policy to, you know, hedge all of our loans. We might have missed or, you know, couldn't get the hedging for, you know, 2% to 3% of our total loan portfolio. The second part?
The second part is. It's the mix between local foreign currency loans and the FX hedging policy.
The mix is around. You know, it keeps changing. I would say, you know, 60/40.
Okay. There's a question about Nigeria.
You mean 60% local.
Yeah.
Okay.
We try to get as much local loans as possible so that, you know, that hedging extra cost is not there.
The local loans are in local currencies, and we have expenses in local currency and income in local currency, and so then it matched. With international loans, if they are in $, then they need to be hedged. The equity locally we is not hedged for the dividend payments.
Yeah. Not yet.
Right.
But we are-
Yeah.
We are looking into it.
Exactly.
Okay. I think that's a good explanation. On the old banknotes, in Nigeria, now they are still being accepted. Why hasn't the situation improved already? Which shows in the business update of March.
Initially the timeframe in which the old banknotes could be handed into new banknotes was extremely short. That led to some turmoil. Now that period has been extended, in that sense, the heat is out of that market and there's more time to have a orderly conversion from the old banknotes to the new banknotes.
I would say it's probably still. We could expect to see still some difficulty for some of our clients to potentially repay all their loans because of the long delays they've had in being able to run their businesses. That potentially has some impact still. We would expect that that will gradually, during the course of the year, improve. Particularly keeping in mind that the first quarter of the year, in Nigeria is normally quite a quiet quarter.
Okay. There is a question about the pre-COVID dividend policy. Can you remind me what that policy was? What can we expect on dividend if the 23 earnings will all go well?
Yeah, we're just checking.
The pay, the dividend pay policy has been 30% of profits.
Okay.
That is still our policy.
Yeah. That hasn't changed.
No.
Yep. Thank you. Yeah, basically there was a follow-up question on the tax rate for 2023. I think there is a request to get more specific guidance on the tax rate, which we normally don't give, but maybe you can give some color. Will it be even higher than it is now, or will it be lower? Tanwir, can you give some comment on that?
Yeah. I would expect it to be lower, within, you know, 30%-40%.
Okay. Thank you. That concludes all the questions we had. Thank you for posting all your questions, and thank you for listening to this audio webcast.
Thank you.
Thank you.
Thank you.