Good day, ladies and gentlemen, and welcome to the Fidelity Bank 2023 financial year earnings call. I will now hand the conference over to the Group Managing Director and Chief Executive Officer, Nneka Onyeali-Ikpe. Please go ahead.
Good day. My name is Nneka Onyeali-Ikpe. I am the MD/CEO of Fidelity Bank Plc. I am pleased to welcome you to our full year earnings call. With me on this call today are the following executives, principal officers, Fidelity Bank. Kevin Ugwuoke, Executive Director, Chief Risk Officer. Kenneth Opara, Executive Director in charge of Lagos & South West business. Pamela Shodipo, the Executive Director in charge of our business in the South. Stanley Amuchie, our Executive Director, Chief Operations and Information Officer. Obaro Odeghe, Executive Director, Corporate Banking. Victor Abajega, Financial Controller. Akintoye Babalola, our Treasurer. Adetunji Mustafa, the Divisional Head in charge of Strategy, Innovation and Business Transformation. Tamu Bioha, Head of Investor Relations. We have uploaded the IR presentation on our website. I will speak mainly the facts behind the figures.
On the macro front, the domestic economy faces the same headwinds that have plagued it over the years. High inflation, low capital importation, foreign exchange scarcity, and a depleted external reserve. However, in the last fiscal year, the federal government introduced several policy changes, including removing fuel subsidies and free-floating the national currency. The inflation rate was 29% in December 2023, and the monetary policy rate was 18.75. This year, our strategic objectives are to optimize our balance sheet by expanding our earning base, improve the NIM, increase non-interest revenue, reduce the cost to serve, and keep cost-to-income ratio within acceptable limits. I will now speak specifically to each of these measures. We will improve our NIM by achieving optimal risk asset pricing and reducing the cost of funding.
Total deposit increased by 56% from NGN 2.6 trillion in December to NGN 4 trillion in the reporting period. A breakdown of the deposit numbers showed that we increased demand deposits by NGN 1.5 trillion, savings by NGN 280 billion, and reduced tenured funds by NGN 300 billion. Low cost funds now account for 97% of our total deposits, up from 84% in the 2022 financial year. As a result, our cost of funds reduced to 4.4% from 6% in December 2022. We also optimized the pricing of our earning assets, which led to an increase in yield from 12% in December 2022 to 13.5%. Overall, our NIM improved by almost 200 basis points.
Our net interest margin closed at 8% in the review period, compared to 6% in December 2022. We improved non-interest revenue by driving fee-based income and increasing the volume of customer transactions. We grew non-interest revenue by increasing activities around our electronic banking platforms. We also provided advisory and wealth management services to our customers. Our net fee income increased by 300%, billion in December 2022 to NGN 109 billion in the review period. A breakdown of the fee income on page 18 of the investor presentation shows the double-digit growth in almost all our commission lines. We kept cost-to-income ratio within acceptable limits. Year-on-year, our OpEx increased by NGN 7.4 billion from NGN 120 billion in December 2022 to NGN 195 billion in the reporting period.
The major drivers of the increase in OpEx were staff costs, regulatory charges, and technology spend. The rise in the staff cost was due to increased wages, salaries across all cadres. Regulatory costs were NDIC. Technology also to improve customer experience on our electronic platforms. Overall. Our CAR reduced to 50% from 67% in December 2022 as the increase in income outpaced the rise in cost. We optimized our balance sheet by increasing the rate of earning assets. Our total assets increased by NGN 22.2 trillion in the review period. Net loans and advances increased by 46% to NGN 3.1 trillion. 44% of our loan book has 12 months or less maturity. Naira devaluation was responsible for 83% of the absolute growth in our loan book.
Finally, I want to assure all our esteemed stakeholders that despite the challenging operating environment, we will sustain our performance trajectory. We will innovate and disrupt using technology as an enabler. We will continue to support our customers to ensure their businesses grow, thrive and prosper. We will also sustain our culture of increasing shareholders' value by paying dividends on our interim and full year audited numbers. Thank you for your support. I will now take questions. Thank you.
Thank you very much, ma'am. Ladies and gentlemen, if you would like to ask a question, please press star and then one on your touch-tone phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. If you wish to withdraw the question, please press star and then two to remove yourself from the list. Again, if you wish to ask a question, please press star and then one now. Our first question is from Oluwaseun Aramide of FBNQuest. Please go ahead.
Thank you very much for the opportunity to ask questions. Congratulations on your results. I have a couple of questions. Please indulge me. The first one would be around the new directive by the Central Bank regarding new minimum capital. I mean, when we compare the new minimum capital with, you know, what you have currently, by my calculation, seems you have a shortfall of about NGN 370 billion. I just want to know what are your plans to, you know, to meet up with the capital requirements within the timeframe. What specifically are you looking at options that the Central Bank has given? The second one is also similar in terms of CBN directive. I just want to know your compliance level with the Net Open Position directive.
Are you at 0% of shareholders' funds at the moment? Third question is away from that. I would like to know how much bank has in swaps with the CBN currently. Other questions will be around your asset quality. Looking at the distribution across sectors, I, you know, would observe some deterioration in your exposure to the communication sector. I think NPL is going from around 4% to over 20% in that sector. I have guesses in my mind as to why that is, I just want, you know, specifics from you because the direction is quite significant and what you expect for those exposures going forward. Still with NPLs, how much of the NPLs that you have currently was inherited from the GT acquisition?
I'll appreciate some numbers to that. I'd also want to know, you expect cost of risks to drop in 2024. I just want to know how you're thinking about the operating environment in terms of riskiness and given where interest rates are currently. How do you, how do you perceive the rates environment in 2024, and do you expect to see some, you know, impairments right back in the year given the level of impairments that were booked in 2023? My question will be around your loan growth and deposits growth. I'll appreciate if you could give me numbers, constant currency numbers.
What your loan growth and deposit growth was in terms of constant currency in 2023, and also I'd like to know if your 2024 guidance is also on a constant currency basis? Thank you.
Thank you very much. Those questions on the minimum capital was expected. Yes. Thank you. I mean, Fidelity is expected to cover a gap of NGN 750 billion like you said. If you recall, in August 2023, we held an AGM where we obtained approval of our shareholders to issue 13.2 billion new shares through a public offer and rights issue. This process is ongoing, and we hope to be in the market before June 2024 to raise between NGN 120 billion and NGN 150 billion in fresh capital. Obviously, the estimated offer proceeds will not close the gap, but will reduce it to about NGN 270 billion. We have three-step approach.
Once we're done with the public offer, which as well we've gone very far with, we will close the remaining gap through a combination of private and special placement and public offer, second public offer and right issue. We are going to obtain the approval at the AGM anytime soon, and then that will be the plan. Thank you. On the second question that you asked about our compliance and the Net Open Position, I will let my treasurer take that question, but I know we're fully compliant.
Okay. Thank you. My name is Akintoye Babalola. On the compliance with the Net Open Position, we are fully compliant. Of course, the Central Bank gave about 24 hours for compliance. That we have actually done. Again, too, before that directive, we're just at 5.8 long as at year end of 2023. When this rule came or directive came, it was quite easier for us to sell those positions and then comply fully with the directive. They were sold to eligible transactions in our book. Thank you.
Okay. I think I made an error in the initial question about the gap. The figure that I gave was an error. It's NGN 370 billion. That's our gap. Thank you. I'll go on to the next question that you asked. I think it was around the communications sector, the iteration of the loans in the communications sector. One of the questions you asked. I'll... I'm aware that that came from some of our mobile operators, but I'll let the head of the Corporate Banking take that question.
Okay, thank you very much. My name is Obaro Odeghe. Once again, I'm the Deputy Director of Corporate Bank. Quite clearly, two major obligors contributed to the significant amount that you identified. One is the marginal mobile network operator, and the second, the value-added service operator. Both witnessed challenges in the last one year due to the devaluation and the operating environment. What we're doing at the moment is to work with them, looking at the cash flow, and restructure the facility to tally with their cash current cash generating capacity. If this is successful, we see a migration from the current Stage 3 to Stage 2. Thank you.
Thank you very much. There was another question on the swap. How much swap we have with Central Bank currently? I'm aware that it's $350 million. I don't know if the treasurer has something else to add to that.
Yeah. Go ahead. Yeah.
Okay. There was another question on NPL inherited from Union Bank U.K. acquisition. There was no NPL on that attached to that acquisition. I'll have Stanley speak to it, but I'm aware that there was no NPL on that acquisition.
Okay. Good afternoon. The, the acquisition, their loans, I think they, all the loans were performing. It's zero NPL. After that, I will find. Thank you.
Oh, great.
Okay. The last question, I hope I got all of it, was on the cost of risk. Now, do you expect it to drop in 2024, given the interest rate environment and the headwinds? I know that we're very bullish in our provisioning in year 2023, but I would have the Chief Risk Officer speak to it. I'm aware that the cost of risk, with the modeling for 2024 is 2%, down from 2.6% in the previous period. I'll have the CRO speak to it. Thank you. Kevin.
Okay. Thank you. Thank you very much. Yeah. Indeed, we have modeled for a cost of risk guidance of 2% for 2024, and that's taking into account all of the issues you've raised about the macro environment and the riskiness of the environment as well. That's basically where we stand. We'll keep to that guidance of a cost of risk of 2% for 2024. Thank you.
Thank you. Your loan growth, constant currency in 2023, and this is your 2024 guidance on a constant currency basis.
The organic loan growth for 2023 was 8%. When you take off... This, you can make a reference to slide 24 of this presentation. We try to break it down there. The devaluation impact is also shown there. It was 38% there, but the rest of the 34%, 32% is the devaluation impact. The actual growth in our loan, our loan in 2023 was 8%. Like I said, you'd see that in our slide 24 of the investor presentation. This year, 2024, we modeled to grow at about 10%, to grow our loans at about 10%.
I'm sure that if you watch the body language of the regulator, aggressive loan growth is not what we interpret. Everything points to the fact that we have to have a moderated loan growth for year 2024. I'll have the CRO speak to it a little bit more. Thank you.
Yes, thank you very much. Indeed, the projection for 2024 is a moderate loan growth at 10%. Correctly, if you look at the entire macro environment, it's not the most conducive for loan growth. We are guided by that, and we are looking at in constant currency basis, a 10% growth in the loan book. Thank you.
Thank you. Thank you very much.
Thank you. Ladies and gentlemen, again, if you wish to ask a question, please press star and then one. The next question is from Ngozi Odum of CardinalStone. Please go ahead.
Good afternoon, everyone, and thank you for the opportunity to ask questions. I have a couple of questions, if you don't mind. The first is just on your recapitalization. I know you people hold an international license. Is the plan to still retain that international license? I know that, you know, your international footprint, compared to others is quite minimal. Is the intention to still hold your international license? I think you've spoken to your intention for raising capital. For the timeline for the private capital, are you intending to complete it this year? Will you be completing that this year? What do you expect the important drivers of earnings in 2024 will be? Thank you.
For our international license. We intend to keep our international license, which means that we will achieve a NGN 500 billion capital. International license, it stays. The second question was what are the timelines, if I understand what you said, timelines for achieving the NGN 500 billion. We are working with a timeline of achieving it before First of all, the regulator has given two years, which is March 2026. We expect to finish to start the recapitalization this year, like I said. We'll do. Like I said, we have a three-step approach. We have the PO that's going to kick off any minute for at least very sooner than later.
Once we're done with that, we'll do a private placement and rights issue. That will be the second. We will now have a third PO. What that means is that we will now, after the private placement, determine what, how much more, the gap that we have. At that point, all the options will be open. We would do a second PO or an acquisition if need be. It just depends on what the gap is at that time. Definitely we are doing a NGN 500 billion target. Thank you. I think I'll have my EDC, OI speak to it.
Okay. Thank you very much. I think it's very important for us to emphasize that we've been in the market, or we are almost ahead of the market when it comes to this capital raising. We started off last year when we got approval of our shareholder. Strategically, we have noticed that we needed this capital raise for our business, not because of the regulatory requirement, first of all. We're, what I would say, ahead of the market, as MD mentioned. We expect to be ahead to be able to do the initial public offering and right issue and move very fast to see how to close up this gap as quickly as possible. We're very poised. As MD said also, we are very determined to keep our license the way it is, which is our international license.
We've had it for a long time. The fact that we don't have a lot of footprints outside is not a determinant because we believe that that's, that license is within our strategy and our growth plan, and we want to keep it and make sure that we get the capital required if that's going forward. Thank you.
In terms of the timelines that you asked, we expect that we'll be able to achieve this first quarter of 2026. Thank you.
All right. Thank you. I just have a couple more questions. Based on your capital adequacy ratio of 16.2%, I wanted to know how realistic it is with your guidance for a 25%-40% dividend payout ratio for 2024. On asset quality, we saw that your oil and gas upstream exposures, it doubled. Is it safe to say that this was primarily due to currency movements? How do you assess the risk in this space, you know, given that 60% of the exposures are classified as Stage two? Also, have you considered the average movement in oil prices, and how are those factored in in your worst-case scenario for the loan assets?
In your power sector exposure, when do you expect a potential reclassification to Stage 1? Based on your assessment, is it more likely to see a movement to Stage 1 or a downgrade to Stage 3? For 2024, I just wanted to know what do you expect the key drivers for earnings will be this year? I mean, given the normalization, or the relative normalization in FX markets, how do you expect this would underscore your non-interest earning this year? What sort of contribution are you expecting from non-interest income this year? Lastly, how would you assess, you know, the appetite for credits from customers, you know, just given the elevated rate environment? Thank you.
Thank you very much. I will take questions one by one, and they'll be supported by my lieutenant. Okay. If you remember, I spoke to the earnings strategy, what will be our important drivers of earnings in 2024 in my opening remarks. Our strategy over the years is to drive improvement on our NIM. Like, we call it the NIM game. We will focus on ensuring that we keep our NIM high and continue to take it up. We'll focus on growing non-interest revenue, we'll also limit our CIR to acceptable levels and as well as, like, optimize our balance sheet. This is what we have done in the last two to three years. That has thrown out a CAGR of 64% year on year. It's been something we've done before. We'll continue to do it.
It's a strategy that we have executed very well. Thank you very much on that, for that question. The second question I think is on capital adequacy and how realistic is our guidance for 2025, 25% dividend payout ratio, if I remember. Our PBT guidance for 2024 full year is NGN 175 billion. At a dividend payout of 25%, we'll have enough accretion to reserve. I would have to have my CRO speak to this. Thank you. Kevin?
Okay. Thank you. Thank you very much. Our dividend payout has already factored in sufficient room for where we expect our capital adequacy ratio to be. We've simulated for all of that, and we're quite comfortable that even at where we are now, we can achieve the guidance we've given as far as our dividend payout is, which is between 25%-40%. That is within our policy, and we've simulated for that, and we're quite comfortable with that. Thank you. Thank you very much.
Sorry, I think there was another question on the power loans, an update on the power loans and the possible reclassification to Stage 1. What I know is that the power loans have improved significantly in terms of recovery on that side and in terms of the business getting a lot better. We have a couple of positive developments in our power books, like, on the books, in our books. I would have the Head of Corporate Banking speak to that, and about possible the timelines for the reclassification, because we definitely know that they're going to reclassify before the end of the year due to positive developments in that sector. I will have head of power speak to it. His name is.
Hillary.
Hillary Dukor.
Thank you. Thank you very much. The question was on when do we expect to reclassify our power loans and then also, move them to Stage 1. As I was saying, there are two major government initiatives which is encouraging all of us in the power sector. The very first one is the Electricity Act, which was signed into law in June 2023. That act intends to open up the power space a bit more for more people to come in and invest in the power space. The second one is a recent increase in tariffs across board, even though it's specifically targeted at a certain category of customers, which we call Band A customers.
What all of this has done in the last months, in the last nine to 12 months, is that there's been an increase in revenue across board for the distribution companies. 35% increase in the last 18 months, we think will continue to grow over time, especially with the increase in tariffs for Band A customers. What this has also done is that it's going to encourage distribution efficiency and improve power supply across the country. That's one. The second one is that it's going to improve liquidity in the power sector, you know, such that there will be sufficient funds that go through the power sector value chain. These events are impacting positively on the power sector, the outlook continues to look good.
On moving our loans from w here they are now to Stage 1 on reclassification. These events that I'd mentioned earlier have also encouraged more investors, encouraged more collaboration in the power sector. We're beginning to see a lot of collaboration between the core investors and new investors. These investments coming in from new investors also trickles down to the repayment of our loans. We are having a lot of positive cash flows coming into those loans. We think that before the end of this year, those loans will definitely move from where they are now to Stage 1, and they'll be reclassified accordingly. Thank you.
Thank you. I think there was a question on appetite for credit from our customers.
What's your assessment of your customers' credit appetite, just given the interest rates environment, saying that it is elevated? Are you seeing more in terms of your loan volume, are you seeing still a healthy demand for credit or is it seeming moderated?
Okay, yeah. It's, it's more like the response varies sector to sector. Players in the oil and gas sector are better able to handle the rate changes since they, of course, are able to pass on their cost to their customers, and their transactional cycles are actually very short in turn in nature, 30-45 days. I'll have my EC, Corporate Banking, speak a little bit more to that. I also know that we have seen a lot of traction on the infrastructure and construction sector because this, we're seeing increased level of government patronage and of course it trickles down to the demands and that is also showing a lot of activity despite the increased elevated rate environment.
We are also seeing some value-added services of the telecom sector that are able to take the rate because their billings are indexed in U.S. dollars. We are seeing transactions around that debt. The transactions around the manufacturing are a bit moderated. I mean, it is what it is. People still have to borrow, but maybe not at the volume that they would normally have. I'll have Obaro Odeghe speak a little bit more about this on the oil and gas sector and telecoms because they're both under him. Thank you.
Okay. Thank you so much, MD. I think MD has covered most of it, yeah. What it is that we're cherry-picking our asset creation sectors now, and we've identified businesses that can absorb these costs. First is the oil and gas downstream area, where the products are deregulated. Like you observe in the market, the filling station, you know, sells at different prices. That's, that underscore the fact that they can, you know, pass on the costs of their business, of their product to the end users. We've also seen a similar situation in the construction industry where the government is very bullish on infrastructure growth. Okay. The players in that market work on a cost plus margin basis so they can cover their costs in that regard.
We're seeing some credit expansion opportunities in that space. Lastly, we also have the communication space. Like the MD said, the communication industry works on the price benchmark to the dollar. As the dollar rate changes, because we are a lot import dependent, their pricing also change, and they pass this on to the MNOs, who in turn bill all of us for our data use, our Myvoice use and ISQ services. These are the key sectors that we're counting on and then keep expanding. Thank you.
Yeah. Could you remind me of the questions?
Yeah. I just wanted to know in terms of your PBT guidance and your gross earnings, I just wanted to know how are you seeing your contribution or what sort of contribution are you expecting from non-interest revenue? Do you see additional scope for FX gain similar to what we saw last year?
If you look at our numbers for 2023, non-interest revenue contributed about 17% of our total income. If you look at the gross income, if you back out the contribution from revaluation income, it comes down to somewhere around 9%, 10%. What we're looking at this time around, we know those revaluation income may not be the. Of course, we're not expecting that level of revaluation income in 2024, and therefore we're pushing to increase our non-interest income, especially digital income, account maintenance charges, all those, which are income we gain because of increased activity. We're trying to make our platforms very conducive for our customers to do their business in the comfort of their homes. We're improving all those platform touch point.
We make sure that most of the customers, as we onboard them, they're able to do their business very convenient. We expect that growth in that light. I mean, to around 15%, you know, from about 9%, which we had in the previous period, and that will help us. Things like digital banking income, trade income, that's actual trade because of what we are seeing in the FX market today, account maintenance charge, you know, and all those other banking service related income, those are the areas we are pushing. Believe that that will cover up for
I mean, the area because a lot. You look around, things like revaluation report, we don't expect, as I mentioned earlier. These are the areas we believe we use to measure or cover up for that drop that we expect to happen in that space.
Our next question is from Stephen Chima of CardinalStone. Please go ahead.
Good afternoon. I trust you can hear me. Yeah. Congrats on the performance, and thanks for the opportunity to ask questions. My question really is, you know, the bank has guided for loan growth of 10%-15% this year, and I'm wondering, you know, if the CBN's policy on the revision of the LDR ratio down to 50% from 65% could, you know, influence the bank's output for loan growth this year. Also, a disaggregation of the bank's earnings shows that its U.K. subsidiary recorded a loss in the year and we just appreciate if you can speak a little on how the bank's U.K. operations is faring and expectations for the year. Thank you.
Okay. Fine. The question on the U.K. acquisition of Union Bank UK, and the fact that it made a loss last year. Yes. At the point of the purchase, the bank was making losses, but since the takeover by Fidelity Bank, we have seen a significant improvement in their earning capacity. As a matter of fact, it has come back to profitability. We expect that we'll add some value to us for year-end 2024. The next phase for us is to make sure that we put them on the path of a sustainable growth and long-term profitability, like I said. Of course, underpinned by effective risk management practices and very strong corporate governance.
On the medium term, we're targeting 2%-5% contribution to the group profit. On the long term, we expect to increase that to about 10%. There's a lot of capacity. The bank has a lot of capacity and has very good and robust products in the license, allowable in the license. We're very positive that it will definitely add to our bottom line. You know, because it's a synergy, it's a similar synergy for our Nigerian businesses. Our business in trade, our trade customers and our on trade and even our HNI. We have a lot of HNIs that do mortgages and all of that. We definitely know that there's going to be a lot of value add and the synergy.
Before now, we spent so much on opening LCs through our London branches of Nigerian banks. If we aggregate all of that and pass that through our London branch, we definitely make a lot of profits. Last year, we spent about $50 million through our Nigerian banks in London. Now that we have a subsidiary, all that comes to us. Of course, we'll help them market for new relationships. London is a good one for us, a very good acquisition for us, if you ask. Yeah. Johan was on the guidance for the growth for this year and how does that pan out with the 50% LDR. I'll have Kevin take that question, the CRO. Thank you.
Thank you. Thank you very much, MD. With regards to the CBN's revision of the loan-to-deposit ratio to 50%, we believe it's more of trying to reconcile the numbers. You know, if you look at a cash reserve ratio of 45% and liquidity ratio of 25%, an LDR that was at 65% was definitely not sustainable. This is more to reconcile all of the different ratios and make them speak better to each other. In terms of the impact of that on our loan growth, I will say no impact because we've already moderated for a very cautious loan growth for this year and which we've given a guidance of about 10% for this year. That's just it. It will not affect what we are doing.
We think, we believe it's just to normalize and reconcile all of the different ratios that they had put out there at the same time and make them speak better to each other. Thank you.
I hope we have addressed all your questions.
Yes. Thank you very much.
Thank you very much. The next question is from Johan de Bruijn of 337 Frontier. Please go ahead.
Hi. Good afternoon. You can hear me, right?
Yes.
Sorry about that previously.
Not a problem.
Uh-
Not a problem, sir. We can hear you.
Thank you. Appreciate the time and the insights. Can you just please help me understand a few things in terms of your bank, but also Your bank relative to the other banks in Nigeria. If you look at just the capital ratios as at the end of December last year, the liquidity ratios, your bank seems pretty healthy. Everything seems to be pretty solid, and there's no obvious need for additional capital raising. This is similar to a lot of the other banks in Nigeria. The CBN is forcing the banks to raise an extraordinary amount of money, capital, multiples of market caps, multiples of the current capital that's sitting on the balance sheets.
Can you just help me understand what is the central bank seeing that we don't see from the audited numbers of all the banks? They're obviously seeing something that is much more dire than what is evident if you just look at the audited year-end numbers. Second, my second question is, your capital gap is, I mean, depending on what currency you use, is around $350 million, again, more than your market cap. Where, who is going to fund these capital raisings? Your capital raise, but also all the other banks. Where does this money come from? How confident are you that you can raise this kind of money in the timeframe given? Thanks.
Thank you very much for those questions. One thing is definite. The government made it very clear that they want to build a one trillion dollar economy, and that they need the banks to support it. They definitely want the bank to bring in fresh capital, and that would assist with the funding for the real sector. As difficult as it looks, we probably understand where they're coming from. I know the impact of the devaluation is another thing that has weakened the capital base of a lot of banks. They also want the banks to be very strong and very big to assist with the infrastructural development that the country desperately needs. What we're seeing are situations where funding for big transactions are beyond the single obligor of a lot of banks.
If there are consolidations and mergers, there will be bigger banks and stronger banks and all of that. It is what it is. I think that they're looking at the bigger picture. It's a difficult climb, which is why they gave two years for the plan to come to fruition. It's a deliberate attempt for the government to raise the capacity of the banks to support the economy. Thank you. The devaluation is a major one. The devaluation was very steep. It's expected that there will be impact. We were expecting it, maybe not as much, but we definitely were expecting that we had to raise capital. I will have my Chief Risk Officer in charge of the process to speak to this.
You asked if how confident we are around raising this capital. I think we are very confident. We started off this journey earlier on, that's based on our own strategy, internal strategy. Last year, around August, we started by asking our own shareholders to give us approval to raise capital. That was ahead of the regulators' request for this because we've seen growth, you know, in our business, and we believe that getting additional capital will be very helpful for us to take on those businesses. We're at the point of coming to the market, and we'll probably be in the market as quickly as possible. We believe that we've met initial marketing plans, and we believe that we'll be able to raise the capital to the level that we want to do the first instance.
When we do that and see the gap between what we have and what is required of us by the regulator, that is regulatory capital, which the regulator has the discretion. You know, you made mention of the fact that if you look at the numbers, it looks so good. The regulator can define what is regulatory capital, which was what has happened here, where that has been defined by our regulator to mean premium and paid up capital alone for this purpose. We're working with that. We intend to achieve that, and we're very confident of achieving that based on the indications we're getting from the markets and our own shareholders and even prospective shareholders.
We start off this year, the next few weeks ahead, and then see where we get to with the first move. After that, we can do things like private placement, rights issue, and consider any other available approach to making sure we reach that number. We're very confident, and we don't see anything preventing us from achieving that. Thank you.
Thank you very much.
Uh-
The good thing is.
Okay.
A lot, a little.
Thanks. Thanks for that. Just one, just one follow-up question. The year-end capital adequacy ratio was about 16%. There was a devaluation in this last quarter, the first quarter of this year. Where is your capital adequacy ratio today, post this, the latest devaluation?
The Chief Financial Officer
Thank you.
He just produced the accounts, so tell us when.
At Q1 2024, our capital adequacy ratio is still 16.29%, and we are quite comfortable with that level compared with where we closed in at the last financial year.
Okay, this major devaluation didn't actually affect your capital adequacy ratio at all?
The truth is this, you know, not that it didn't have impact, of course it will have. There are risk mitigants, you know, that we have, which has helped us to be able to have the CAR at still around 16.2. Aside the impact on one side, there are also risk mitigants. There are certain risky assets that have gone off the books, and then there are some mitigants we have. In some instances, we require some of these, our customers to bring in more cash, which is a mitigant to make us to help us to manage the impact of the CAR, you know. That's a combination of all those has helped us to maintain our CAR at the level to have it current. Thank you.
Okay, thanks very much. Appreciate it.
Thank you very much. The next question is from Ademidun Sojo of ProShare. Please go ahead.
Okay. Congratulations on your results. Thank you very much for the opportunity to ask a question. My question is as regards to the additional capital that is sought to be raised. Is there any guidance or any plan as to how the fund that's going to be raised is going to be allocated? Is there a sector of preference? I would like to know about that. My second question is as regards to banks' retained earnings, is there a portion, any portion of the banks' retained earnings that was encumbered by the CBN, and how does it affect the shareholders' value? Is there any portion of the banks' retained earnings that was encumbered by the CBN?
Encumbered?
-encumbered by the CBN. Yes.
No portion of our retained earnings was encumbered by the central bank. No. None of it. Yeah. I remember you asked a question about the additional capital that we're raising, if we have any preferred sector that we're looking at. Yes, certainly we'll be like institutional investors, because it's just more, a little bit more orderly. Of course, what we have to raise is a lot, so it's not, we're not specific to any sector. Our preference would be institutional investors for the simple reason that it's easier to manage.
The use of the funds you did ask as well would be for us, it would be further our strategy of international expansion will be a focus, because we must use the funds to ensure that we have the returns to sustain our very high ROE. What you must know is that our brand is, our story is very strong and compelling as a bank, we do not think that. Our shares are priced below what we think we should be. There's a lot of interest from investors. We believe that our story is very compelling. The growth rate of almost 60 or 12% year-on-year CAGR is very compelling. The returns on ROE of 26% is very compelling. We are very certain that, we'll be a beautiful bride. Thank you.
Thank you. Thank you, ma'am.
Thank you very much. The next question is a follow-up from Ngozi Odum of CardinalStone.
Yeah, thank you very much for an opportunity to ask additional questions. My last questions would be on your impairment. I know you've spoken about it, but I just wanted to have context. In terms of the impairments that were charged in full year 2023, I wanted to have an idea, as to what extent, did the currency movement affect provisioning for full year 2023. Then in terms of your strategy, I know that the recapitalization seems to be like a bomb. In terms of your medium to long-term strategy, I wanted to have, you know, if you can, your plans on expansion. Since you said you intend to hold your international licenses, what geographies are you considering?
At this still on the book, at least in a five-year term, are we still considering expansions into other geographies, apart from your operations in Nigeria and U.K.? Lastly on strategy, I just wanted to have an idea of how the bank is thinking. What seems to be the concern and you know, what keeps the bank up at night? I mean, in terms of looking at how to deliver value to customers and shareholders, are there regulatory concerns, operational concerns? If you can just provide, you know, color on this, that would be very helpful. Thank you.
Okay. Thank you very much for those questions, Ngozi. What keeps me awake at night? I will have to start with the easiest one. Of course, the compliance with dynamic regulatory environment. Every day you wake up, there's a new change. That cannot keep any Chief Executive awake in the night because you want to make sure that you meet the deadlines that are given. Of course, a couple of times those things are quite voluminous in terms of the information the regulator is asking for on a weekly basis.
The macroeconomic challenges, that's impossible to sleep very well if you know that your customers are going through so much and you too are going through so much trying to meet their challenge, trying to meet their demands. It's a natural tendency for you to be worried about it. On the attrition of the highly skilled young professionals, that's a major issue for any chief executive because nobody likes to lose their very skilled hands and who are very well trained. I personally, I've lost three of my PAs, three of them back-to-back to Canada. It's a problem, really.
It is what it is, and you really can't blame them because they're looking for a better place to be and better place to kick off their career when they're still young. It's a major loss for a lot of industry, a lot of banks, mine inclusive, but we have to manage it. The other question was on impairments, and I'll have Stanley take that question.
Okay. Well, you mentioned that impairments. In 2020, 2023, you would have seen an elevated level of impairment. We are operating in an environment that was the high interest environment. There was devaluation within the same period. Actually, in a period of that kind of all this playing out, it's only very prudent for the bank to increase its impairment because we felt that this could affect the businesses of our customers. Therefore, we decided based on prudence to improve the level of impairment we put. If you notice our guidance in this 2024, we moderated that level of impairment. I mean, as shown by our cost of risk and the way we are performing.
Those things have not affected. We don't expect that level of impairment we did in the prior period. We've done that. I believe that we'll continue to monitor all the loans and ensure that if there's any need, we'll make the right impairment, and that's what we'll continue to do. The level we did in 2023 was to respond to the environment and the devaluation that we saw, which could affect businesses of our customers. Thank you.
Okay.
Star, share right back.
Thank you. Because there was another question around our strategy, Johan?
The regions we want to go to and countries and all of that.
First of all, our strategy is opportunistic, and we would rather do a brownfield than a greenfield. You know, it depends on the country that you go to and what's available. Okay? We definitely want to do two to five countries in the next two to five years. You know, the recapitalization has impacted the speed at which we want to do this. However, it's ongoing, and we have identified a couple of countries that we want to do in Africa. Let's do an Africa expansion first before we go to the UAE or outside.
We want to do West Africa, we want to do Southern Africa, we want to do East Africa. It depends on where we have an opportunity. We're still looking. Yeah, it's very important because we have seen from the kind of impact that the African branches have on our competition. It's an opportunity that we want to explore, and we want to give it all the attention that it needs as soon as we stabilize on the recapitalization exercise. However, we need to deploy those monies that are coming. We must deploy them because we have to make, we have to continue to sustain an ROE of 26% and above. If we don't deploy the funds very quickly and profitably, we will struggle.
We must continue to push and continue with our expansion plan. Thank you.
Do you foresee potential write-backs this year?
I mean, as I said, we will continue to monitor the situation. You know, if things get very well, very good, you know, we start seeing better macro. That will give rise to any possibility of write back. For now, I think we want to remain as prudent, that we will not rush into any form of write back. We'll keep the numbers the way they are and monitor how the macro is playing out. We are not putting that in our plan for immediate write back. We'll watch the market and see how things play out before we start processing.
All right. Thank you.
Thank you very much. Ladies and gentlemen, we have no further questions in the queue. I would now like to hand the conference back to Nneka Onyeali-Ikpe for closing remarks.
I want to sincerely thank you for attending this call. Over the years, we have built a resilient and sustainable balance sheet by incorporating different economic cycles into our scenario planning. We can assure you that regardless of the headwinds in the domestic economy, we will deliver on the guidance we have promised. Moreover, we are Fidelity, and we keep our word. Thank you very much. Thank you for attending this call once again. Thank you.
Thank you very much, ma'am. Ladies and gentlemen, that then concludes today's event, and you may now disconnect your lines.