Good day, ladies and gentlemen, and welcome to the Fidelity Bank twenty twenty three Financial Year Earnings Call. All participants will be in listen only mode and there will be an opportunity to ask questions later during the call. Also note that this event is being recorded. I will now hand the conference over to the Group Managing Director and Chief Executive Officer, Nneka
Onyali
Igbe. 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, Kelvin Obuoke, executive director, chief risk officer.
Ken Opara, executive director in charge of Lagos and Southwest business. Pamela Shodipo, the executive director in charge of our business in the South Tanle Amuche, our executive director, chief operations and information officer Abolores Cheulebo, executive director, corporate banking business Victor Abajegan, financial controller Akintoy Babalola, our treasurer Adetunji Mustafa, the Divisional Head in Charge of Strategy, Innovation and Business Transformation Tamo Byoha, Head of Investor Relations. We have uploaded the IR presentation on our website, so I will speak mainly to 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 capacity, and a depleted external reserve. However, in the last fiscal year, the federal government introduced several policy changes, including removing wealth 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 noninterest revenue, reduce the cost to serve and keep costs 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 $2,600,000,000,000 in December to $4,400,000,000,000 in the reporting period.
A breakdown of the deposit numbers showed that we increased deposits demand deposits by TRY 1,500,000,000,000.0, savings by TRY $280,000,000,000 and reduced tenant funds by 300,000,000,000. Low cost funds now account for 97% of our total deposits, up from 84% in the 02/2002 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% in the 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 noninterest revenue by driving fee based income and increasing the volume of customer transactions. We grew noninterest revenue by increasing activities around our electronic banking platforms. We also provided advisory and wealth management services to our customer. Our net fee income increased by 300 percent 2,000,000,000 in December 2022 to hundred $9,000,000,000 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 $4,000,000,000 from 120,000,000,000 December 20 20 2 to PHP 195,000,000,000 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 all cadets. Regulatory costs were NDIC technology also incurred 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 cost the rising cost. We optimized our balance sheet by increasing the rate of earning assets. Our total assets increased by NT2.2 trillion dollars in the review period. Net loans and advances increased by 46% to NT3.1 trillion dollars 40 4 percent of our loan book has twelve 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 extreme stakeholders that despite the challenging operating environment, we will sustain our performance trajectory. Consequently, 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 shareholder 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. Our first question is from Oluwaseen Arahambara of FBN Quest. Congratulations
on your results. So I have a couple of questions. Please indulge me. The first one would be around the new directive by 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, since you have a shortfall of about $370,000,000,000.
I just want to know what are your plans to, you know, to meet up with the capital requirements within the time frame. What specifically are you looking at options that the central bank has given? The 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 zero percent or sure that's on at the moment?
And then third question is, away from that, I would like to know how much bank has in swaps with the with the CBN currently. Other questions will be around your asset quality. Keen, looking at the distribution across sectors, like, I, you know, would observe some deterioration in in your exposure to the communication sector. I think NPLs went from around 4% to over 20% in that sector. I I have guesses in my mind as to why that is, but I I just want, you know, specifics from you because duration is quite significant.
And what do you expect for those exposures going forward? Still with NPLs, how much of the NPLs that you have currently was inherited from the acquisition? I'll appreciate some numbers to that. Then I also want to know your expect cost of risk to drop in 2024. I just want to know how you're thinking about the the operating environment in terms of riskiness and given where interest rates are currently.
How do you how do you perceive the risk environment in 2024? And do you expect to see some, you know, impairments write backs in the year given the level of impairments that were booked in 2023? And then lastly, my question will be around your loan growth and deposits growth. I appreciate if you could give me numbers constant currency numbers, what's your loan growth and deposit growth was in terms of constant currency in 2023. And, also, I'd like to know if your 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. So you would I mean, Fidelity is expected to cover a gap of $750,000,000,000, like you said.
If you recall, in August 2023, we held an AGM where we obtained approval of our shareholders to issue 13,200,000,000.0 new shares through a public offer and rights issue. We were ahead of them in the pack in bags. So this process is ongoing, and we hope to beat the market before before June 2024 to rate between $120,000,000,000 and $150,000,000,000 in fresh capital. Obviously, the estimated offer proceeds will not close the gap, but we'll reduce it to about $270,000,000,000. So we have three step approach.
Once we're done with the 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. So we are going to obtain the approval at the AGM anytime soon, and then that would that would be the plan. Thank you. Then on the second question that you asked about our compliance on the net open position, I will let my treasurer take that question because I know we're fully compliant.
Okay. Thank you. My name is Akhil Choi Babarala. So on the compliance with the medical position, we fully compliant. Of course, the Central Bank gave back twenty four hours for for for compliance.
That we have actually done. I again, too, before that direct team, we're just at 5.8 long as at year end of '20 '20 '3. So when this rule came or directive came, it was quite easier for us to sell those positions and then comply fully with the directive. So they were sold to eligible transactions in our vote. Thank you.
Okay. I think I made an error in the initial question about the gap. The the figure that I gave was was an error. It's 370,000,000,000. That's our gap.
Thank you. So I'll go on to the next question that you asked. I think it was around the communication sector, the deterioration of the loans in the communication sector. One of the questions you asked. So I'll I am 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 Abelore Shulebo once again. I'm the VP 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. So what we're doing at the moment is to work with them, looking at the cash flow, and we structured the facility to tally with the cash current cash generating capacity. And if this is successful, we see a migration from the current stage three to stage two. 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 $350,000,000, but I don't know if the treasurer has something else to add. And there was another question on NPL inherited from Union Bank London Bank acquisition.
There was no NPL on that attached to that acquisition. But I'll have Stanley speak to it, but I'm aware that there was no NPL on that acquisition.
Okay. Good afternoon. So the the acquisition, the loans, I think the all the loans were performing. So there's more than zero NPL after the. Thank you.
No. Great.
Okay. The last question, I hope I got all of it, was on the cost of risk. Do you expect it to drop in 2024 given the the interest rate environment and then the the headwinds. I I know that we're very bullish in our provisioning in year 2023, but I would have the chief risk officer speak to it. And I'm aware that the cost of risk with with the modeling for 2024 is 2%, down from 2.6% in the period.
But I'll have the CRO speak to it. Thank you. Kelvin?
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 then that's taking into account all of the issues you've raised about the macro environment and the riskiness of the environment as well.
So 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 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 the devaluation impact also shown there from that 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%.
And then like I said, you'd see that in our Slide 24 of the investor presentation. But this year, 2024, we modeled to grow at about 10%, to grow our loans at about 10%. And I'm sure that if you watch the body language of the regulator, the aggressive loan growth is not is not what we interpret. So everything points to the fact that we have to we have to have a more weighted loan growth for year 2024. But I'll have the CRO speak to it a little bit more.
Thank you.
Yes. And it 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 it's not the most conducive for loan growth. So we are guided by that, and we are looking at in cost in constant currency basis, a 10% growth in the loan book.
Thank you.
Thank you. Thank you very much.
Thank you. The next question is from Ngozi Ordon of Cardinal Stone. Please go ahead.
Good afternoon, everyone, and thank you for the opportunity to ask questions. So I have a couple of questions, if you don't mind. And 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. So is the intention to still hold your international license? I think you've spoken to your intention for raising capital. Then for the timeline for for the private capital, are you intending to complete it this year? Will you be completing that this year?
And then and then what do you expect the important drivers of earnings in 2024 will be? Thank you.
For international license, we intend for international license, which means that we are expected we will achieve with 500,000,000,000 capital. So international license, it it stays. And the question was the second question was, what are the timelines, if I understand what you said? Timelines for achieving the 500,000,000,000. We are working with a timeline of achieving it before the the the first of all, the regulator had given two years, which is March 2026.
And and we expect to cap to finish to to start the the recapitalization this year, like I said. And we'll we'll do like I said, we have a three three step approach. We have the PO that's going to kick up any minutes for any very sooner than later. Once we're done with that, we'll do a a place a private placement and write issue. That'll be the second.
Then we would now have a third PO. What that means is that we would now after this this place private placement, determine what how much more the gap that we have. So at that point, all the options will be open. We would then do a a a second PO or an acquisition if need be. So it just depends on what the gap is at that time.
But definitely, we are doing a 500,000,000,000 target. Thank you. And I think I'll 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 for our shareholder. So strategically, we have noticed that we needed this capital raise for our business, not because of the regulatory requirement, first of all.
So we're while I was ahead of the market, as Faheem did mention, 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. So we're very poised. As as as Andy said also, We are very, determined to keep our license the way it is. We signed international license. We've had it for a long time.
The fact that we don't have a lot of footprints outside is not determiner because we believe that that's that's that licenses within our strategy and our growth plan. I want to keep it and make sure that we'll get the capital required if that's forward. Thank you.
In in terms of the time lines that you asked, we expect that we'll be able to achieve this first quarter of twenty twenty six. Thank you. All
right. Thank you. I just have a couple more questions. And based on your capital adequacy ratio of 16.2%, I wanted to know how realistic it is with your guidance for a 25 to 40% dividend payout ratio for 2024. And then on asset quality, we saw that your oil and gas upstream exposures, it's doubled.
Is this safe to say that this was primarily due to currency movements? And how do you assess the risk in this space, you know, given that 60% of the exposures are classified as ditched? And then 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? And then also your power sector exposure, when do you expect a potential reclassification to stage one?
And based on your assessment, is it more likely to see a movement to stage one or a downgrade to stage three? And then also 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 noninterest earning this year? And what ex what sort of contribution are you expecting from noninterest income this year? And 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 will support us by my listeners. Okay. I am and if you remember, I spoke to the earnings strategy. What will be our important drivers of earnings in 2024 in my in my opening remarks.
Our strategy over the years is to drive improvement on our name. Like, we call it the name game. We will focus on ensuring that we'll keep our name high and continue to pick it up. We'll focus on growing noninterest revenue. I will also limit our CIR to acceptable levels and as well as 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. So it's something we've done before. We'll continue to do it. And then it's it's well the strategy that we have fitted very well. Thank you very much on that for that question.
Then the second question, I think, is on capital adequacy and how realistic is our guidance for 25% dividend payout ratio, if I remember. Our guide our PBT guidance for 2024 full year is $175,000,000,000. And then at the dividend payout of 25%, we'll have enough accretion to to reserve. But I would have to have my CRO speak to Dave. Thank you.
Calvin.
Thank you. Thank you very much. Dividend payout has already factored in sufficient room for where we expect our capital adequacy ratio to be. So we've simulated for all of that, and we're quite comfortable that even at the at where we are now, we can achieve the guidance we've given as far as dividend payout is, which is between 25% to 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.
There was another question on the there was another question on the power loans, an update on the power loans and the possible reclassification to stage one. What I know is that the power loans has improved significantly in terms of recovery on that side and in terms of the business getting a lot better. I'll have a couple of positive developments in our power books, and, like, on the books in our books. And then I would have the head of corporate banking speak to that and then about if possible at the time lines for the classification, because we definitely know that they're going to be classified before the end of the year due to positive developments in that sector. But I'll have head of power speak to it.
And his name is Hillary. Hillary Ducup.
Thank you. Thank you very much. The question was on when we expect to reclassify our firewalls and then also move them to stage one.
Okay.
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 for even though it's specifically targeted at a certain category of customers, which they call an a customers. Now what all of these has done in the in the last month, in the last nine to twelve months is that there's been a an increase in revenue across board for the for the distribution companies, about 35% increase in the last eighteen months.
And that, we we think, will continue to grow over time, especially with with the increase in in tariffs for Band A customers. Again, this has also done is that it's going to encourage the distribution efficient and improve our 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'll be sufficient funds that go through the power sector value chain. So these events are are impacting positively on the power sector, and the outlook continues to look good.
On on moving our loans from where they are now to stage one on on reclassification, These events that I I mentioned earlier have also encouraged more investors, encouraged more collaboration in the past. So we're beginning to see a lot of collaboration between the core investors and new investors. And these investments coming in from new investors also trickles down to the repayment of our loans. So we are we are having a lot of positive cash flows coming into those loans. And then we think that before the end of this year, those loans will definitely move from where they are now to stage one, and then we reclassified accordingly.
Thank you.
I think I think there was a question on appetite for credit from our customer.
Yes. So I was what's your assessment of your customer's credit appetite just given the interest rates environment seeing that it's elevated? So 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. Yes. It's more like the response very sector sector. Yes. In the oil 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 transaction cycles are actually very short in 10 in nature.
That's it for five days. But I'll have my easy corporate banking speak a little bit more to that. But I also know that we have seen a lot of traction on the infrastructure and construction sector because this we have seen increased level of government patronage. And, of course, it trickles down to the demands, and then that is also showing a lot of activity despite the increased and limited written environment. We're also seeing some value added services of the telecom sector that are able to take the rate because their billions are indexed in dollars.
So we are seeing a a a transactions around that. The transactions around the manufacturing are being
more
frequent, but, I mean, it is what it is. People still have to borrow, but maybe not at the at the volume that they normally have. So I'll have the borrower speak a little bit more about
gas sector and telecoms call that put under him. Thank you. Okay. Thank you so much, MD. I think MD has covered most of it here.
But what it is is that we're cherry picking our asset creation sectors now, and we've identified businesses that can have all these costs. So first, the oil and gas downstream area where the products are deregulated. So like you observed in the market, the filling station, you know, sell at different prices. That's that underscore the fact that they can they can pass on the cost of their business of their products to to the end users. We've also seen similar situation in the cost option industry where the government is very bullish on infrastructure growth.
Okay. So the players in that market work on a cost plus margin basis to cover their costs in that regard. So we're seeing some credit expansion opportunities in that space. We also have the communication space. Like the end is communication industry works on the price benchmark dollar.
So as the dollar rate changes because we are they're not import dependent, the price also change, and they pass this on to the NNOs who in turn bill all of us for our data use, our voice use, and ISQ since so these are the key sectors that you're on in on, and I'll keep on that. Thank you.
Yep. The the could you remind me of the questions?
Yeah. I just wanted to know in terms of your 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? And then do you see additional scope for FX being similar to what we saw last year?
Okay. Okay. If you look at our numbers for 2023, noninterest revenue contributed about 17% of our total income. If you look at the gross income, If you back out the contribution from evaluation income, yeah, I mean, it comes down to somewhere around 10%. So what we're looking at this time around, we know those evaluation income may not be this.
Of course, we're not expecting that level of the income in 2024. And therefore, we're pushing to increase our noninterest income, especially digital income, account account maintenance charges, all those, which are income we gain because of increased activity. So we're trying to make our platforms very, very conducive for our customers to do their business in the comfort of their homes. When improving all those platform touchpoint, we make sure that most of the customers, as we onboard them, they're able to do their business very convenient. So we expect that growth in that, like, I mean, to allow 15%, you know, from about 9% which we had in the previous period, and that will help us.
So 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. I believe that that will cover up for I mean, the area because a lot a lot you look around things like a revaluation income. We don't expect that as I mentioned earlier. So these are the areas we believe we used to measure or cover up for that that drop that we expect to happen in that space.
Our next question is from Steven Chima of Cardinal Stern. Please go ahead.
Good afternoon. I trust you can hear me. Yeah. So congrats on the performance, and thanks for the opportunity to ask questions. So my question really is, you know, so the bank has guided for loan growth of 10% to 15% this year.
And I'm wondering, you know, if the CBN's policy on the revision of, the LDR ratio down 50%, forty five %, could, you know, influence the bank's output for loan growth this year. Also, a disaggregation of the banks' earnings shows that its UK subsidiary recorded a loss in the year. And I would like to I really just appreciate if you can speak a little on how the bank's UK operations is faring and expectations for the year. Thank you.
Okay. Fine. The question on The UK acquisition of Unabrand London and the fact that they made a loss last year. Yes. At the point of the purchase, the the the bank was making losses, but since they take over by Fidelity Bank, we have seen a a significant improvement in their earning capacity.
And as a matter of fact, it has come back to profitability. So we expect that to add will add some value to our to to us for the for year end 2024. And then the next phase for us is to make sure that we put them on the path of sustainable growth and lock their profitability, like I said. And then, of course, underpinned by effective risk management practice and very strong corporate governance. On the on the on the medium term, we are targeting two to 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, very good and robust products in the license, allowable in the license. So we were very comfortable that it will definitely add to our bottom line. And, you know, because it's the it's the synergy, the seamless synergy for our Nigerian businesses.
The our business in trade, our our trade customers, and our our on trade and even our HNI. We have a lot of HNI that do mortgages and all of that. So we definitely know that there's a lot of value add and the synergy. And before now, we spent so much on them opening LCs through our London London branches of Nigerian banks. And if I aggregate all of that, I'll pass that through our Northern branch.
We can definitely we make a lot of profits. Last year, we spent about $50,000,000 through our Nigerian banks in London. So now that we have the subsidiary, all that comes to us. And, of course, we'll help the market for new relationships. So London is is a good one for us.
A very good acquisition for us, if you ask. Was on the guidance for for for the growth for this year and then how does that turn out with the 50% LTI? I'll have Kelvin take that question, the CRO. Thank you.
Thank you. Thank you very much, MB. With regards to the CBN's revision of the deposit ratio to 50%, we believe it's more of trying to reconcile the numbers. 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. So this is more to reconcile all of the different ratios and make them speak better to each other.
So in terms of the impact of that on loan growth, I will say no impact because we've already moderated for a very cautious loan growth for this year, which we've given a guidance of about 10% for this year. So that's just it. It will not affect what we are doing. It's just to 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 DeBryan of three thirty seven Frontier. Please go ahead.
Hi. Good afternoon. Can you you can hear me, right? Yes. Sorry about that previously.
Not a problem. No problem, sir. We can hear you.
Thank you. I appreciate the time and the insights. Can you just please help me understand a few things in terms of your bank, but also relative your bank relative to the other banks in Nigeria. If you look at just the capital ratios as at the December, the liquidity ratios, your bank seems pretty healthy. Everything seems to be pretty solid and there's no obvious need for additional capital raising.
And this is similar to a lot of the other banks in Nigeria. Yet 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 sheet. 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? And second my second question is your capital gap is depending on what currency you use is around $350,000,000 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? And how confident are you that you can raise this kind of money in the timeframe given? Thanks.
Okay. Thank you very much for those questions. One thing is definite. The government made it very clear that they want to build a $1,000,000,000,000 economy and that they need the banks to support it. So they definitely want the bank to bring in fresh capital, and that would assist with the funding for the real sector.
Okay. So as as difficult as it looks, we'll 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. And then they also want the banks to be very strong and very big to assist with the infrastructural development that the country that their desperately needs. But what we're seeing are situations where funding for big transactions are beyond the single obligor of a lot of banks.
So if there are consolidations and mergers, there will be bigger banks and stronger banks and all of that. So it's it's it's it is what it is. I think that they're looking at the bigger picture. It's a difficult time, which is why they gave two years to for the plan to contribution. So if they they could break that time 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. So it's it's it's expected that there'll be we we were expecting it. Maybe not as much, but we definitely were expecting that as to risk capital.
I would have my CTO IO, that's chief risk officer in charge of the process to speak to this. Okay.
You'd ask him how confident we are around raising this capital. I I think we are very confident. We started off this journey earlier on, and that's based on our own strategy, internal strategy. Last year around August, we started by asking our 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 is very helpful for us to take on those businesses.
So we're at a point of coming to the market, and we'll probably be in the market as quickly as possible. We believe that we've 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 course by the regulator, and that is regulatory capital, which the regulator has the the discretion, you know. You make mention on the fact that if you look at the numbers, it looks so good. But the regulator can define what is regulatory capital, which was what has happened here, where that has been defined by regulator to mean premium and paid up capital alone for this purpose.
So we're we're working with that. We intend to achieve that, and we're very confident of achieving that based on the indications we are getting from the markets and our own shareholders and even prospective shareholders. So we will start off this year I mean, the next few few weeks ahead, and then see where we'll get to with the first move. After that, we can do things like private placement, right issue, and consider any other available approach to making sure we reach that number. So we're very confident that we don't see anything preventing us from achieving that.
Thank you.
Thank you very much. The good thing is a little Thanks
for that. Just one follow-up question. So 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 account, so tell us very much.
As at q one twenty twenty four, our capital adequacy ratio is still sixteen point two Sixteen point two nine, and we are quite comfortable with that level compared with where we closed in at the last financial year.
Okay. So this major devaluation didn't actually affect your capital adequacy ratio at all?
So we what the the truth is this, you know, it didn't not that it didn't have an impact, of course, it will have. But there are risk mitigants, you know, that we have, which has helped us to be able to to have the the the car are still around 16.2. So aside the impact on one side, there's also risk mitigants. There are certain risky assets that have gone off the books, and then there are some some mitigants we have. In some instances, we require some of these customers to bring in more cash, which is mitigant to make us to help us to manage the impact of the car.
You know? So that that the combination of all those has helped us to maintain our cap at the level we have it for them. Thank you.
Okay. Thanks very much. Appreciate it.
Thank you very much. The next question is from Adamidon Shoho of ProShare. Please go ahead.
Okay. Congratulations on your results. Thank you very much for the opportunity to take the question. My question is as regards to additional capital that is supposed to be raised. So 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? So I would like to know about that. And my second question is as regards to banks retained earnings, is there a portion any portion of the banks retained earnings that was encumped by the CBN? And how does it affect the shareholders' value? Is there any portion of the banks within earnings that was encooked by the CBN that was
by the No
portion of our retained earnings was encumbered by the Central Bank. No. None of this. Yeah. So I remember you asked the question about the external capital that we're raising, if we have any preferred sector that we're looking at.
K.
Yes. Secondly, we'll build, like, institutional investors Plus, it's just more a little bit more orderly. And then, of course, the what we have to raise is a lot. So it's not we're not specific to any sector, but to our our preference would be institutional investors for simple reason that it's easier to to manage. And then the use of the funds you did ask as well would be for for us, it would be for the our strategy of international expansion will be a focus because we must use the funds to ensure that we return have the the returns to sustain our very high ROE.
But what you must know is that our brand is our story is very strong and compelling as a bank, and we do not think that and our our our shares are priced below what we think we should be. There's a low hanging fruit for investors. So we believe that our story is very compelling. The growth rate of almost 60 or 4% year on year CAGR is very compelling. The returns on ROE of 26% is very compelling.
So we we are very certain that we'll be a beautiful bride. Thank you.
Thank you. Thank you, Hong.
Thank you very much. The next question is a follow-up from Gauzy Odom of Cardinalstone.
Yes. Thank you very much for the opportunity to ask additional questions. So 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?
And then in terms of your strategy, I know that the recapitalization seems to be like a bomb. But 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 retain to hold your international licenses, what geographies are you considering? And at it is still on the book at least in a five year term. Are we still considering expansions into, other geographies, ex apart from your, operations in Nigeria and UK?
And then 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'll be very helpful.
Thank you.
Okay. Thank you very much for those questions, You both keep me awake at night, so let's start with the with the easiest one. Of course, the compliance with dynamic regulatory environment. Every day you wake up, there's a new change. So that's enough to eventually executive awake in the night because you want to make sure that you meet the deadlines that are given.
And, of course, a couple of times, those things are quite polyminous in terms of the or the information the regulator is asking for on a weekly basis. And then the macroeconomic challenges, that's impossible to to sleep very well if you know that the customers are going through so much, and you too, you're going through so much trying to meet their challenge trying to meet their demands. So it's a natural tendency for you to be worried about it. And then on the attrition of the highly skilled young professionals, that's a major issue for engineering executive because you don't nobody likes to lose their very skilled hands and who are very well trained. And then I personally personally have plus three three of my PAs, three of them back to back to to Canada.
So it's a problem, really. But it is what it is, and we really can't blame them because they're looking for a better place to be and better place to cut off their career when they're still young. So it's a major loss for a lot of interest a lot a lot of banks, my inclusive, but we have to manage it. So the other question was on impairments, and I'll have I'll have miss Stanley take that question.
Okay. Well, you you mentioned that impairments that we in twenty twenty twenty twenty three, you would have seen an elevated level of impairment. Now we're operating in an environment that was the high interest environment. There was devaluation within the same period. Actually, in a period of of that kind of all this playing out, it's only very prudent for the bank to increase its impairment because we thought that this could affect the business of our customers.
And therefore, we we decided based on on prudence to improve the level of impairment. So if you notice our guidance in this in this 2024, we've moderated that level of impairment. I mean, as shown by our cost of risk and the way we are we are coming. So we know that the the those things have not affected, but we don't expect that level of impairment we did in the prior period. So we've done that.
I believe that we'll continue to monitor all the loans and ensure that without any need, we'll make the right impairment, and that's what we're continuing to do. But the level we did in 2023 was to respond to the environment and the the devaluation that we saw, which could affect businesses or our customers.
Thank you.
Okay. That's alright. Thank you. There was another question around our strategy, John, and the regions we want to go to and then countries and all of that. So first of all, our strategy is opportunistic, and we would rather do brownfield than a greenfield.
But, you know, it depends on the country that you put and what's available. Okay? So we definitely want two two to five countries in the in the next two to five years. You know, the cap the cap the recapitalization has impacted the speed at which we want to do this. But, however, it's it's ongoing, and then we have identified a couple of countries that we want to do in Africa.
Let's do an Africa Expression first before we go to The UAE or or outside or so we want to do West Africa. We want to do Southern Africa. We want to do East Africa. So it depends on where we have an opportunity. We're still looking.
And then, yeah, it's very important because we have seen from the kind of impact that the the African branches have on our competition. So it's an opportunity that we want to explore, and we want to give it all the attention that you need as soon as we're we're we stabilize on the capitalization recapitalization exercise. However, we need to deploy those monies that are coming. We must deploy them and because we have to make a we have to continue to sustain an ROE of 26% and above. So if we don't deploy the funds very quickly and then profitably, we will struggle.
So we must continue to push and continue with our expansion plan. Thank you.
And then do you foresee potential write backs this year?
Our write backs in I mean, as I said, we will continue to monitor the situation. You know? If there are if things get very well very good, you know, we'll start seeing better macro in the in the so that that would be price to any possibility. Right? But for now, I think we want to remain as prudent that they will not rush into any form of right back.
We'll keep the numbers the way they are and monitor what's at what's how the macro is playing out. So we are not foreseeing we won't we're not putting that in our plan for immediate right back. So we'll watch the market and see how things play out before we start closing.
Alright. Thank you.
Thank you very much. Ladies and gentlemen, we have no further questions in the queue. And I would now like to hand the conference back to Nneko Nyali Ike for closing remarks.
Yes. I want to sincerely thank you for attending this call. Over the years, we have built a resilient and sustainable balance sheet by cooperating 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 concludes today's event, and you may now disconnect your lines.