Good day, ladies and gentlemen, welcome to the Fidelity Bank 2022 FY earnings call. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal for an operator by pressing star and then zero. Please note that this call is being recorded. I'd now like to turn the conference over to Nneka Onyeali-Ikpe. Please go ahead, ma'am.
Good day, everyone. My name is Nneka Onyeali-Ikpe, MD CEO of Fidelity Bank Plc. It is my pleasure to welcome all of you to Fidelity 2022 financial earnings call. On the call with me today are the following executives and principal officers of our bank. Kevin, the Executive Director, Chief Risk Officer of the bank. Ken, Executive Director in charge of Lagos and Southwest business. Stanley, Executive Director, Chief Operations and Information Officer. Pamela, the Executive Director in charge of the South business. Victor, Chief Financial Officer. Abolore, Head of our Corporate Banking business. Atinsoye, our Treasurer. Adetunji, the Divisional Head in charge of Strategy, Innovation, and Business Transformation. Sam, who heads our Investor Relations desk. The IR presentation was uploaded on our website yesterday. I will be speaking mainly to the facts behind the figures.
On the macro front, our operating environment in 2022 witnessed some challenges, including high inflation rates, capital flight, and volatile foreign exchange, which impacted negatively on the overhead cost of most businesses. In response to these challenges, the monetary policy rate was reviewed upwards four times, the highest in a single year since 2011. Not withstanding, the economy was relatively robust as the real GDP grew by 3.1%. During the year, we received notable awards and accolades, including the best SME bank in Nigeria by Global Banking & Finance Awards, the best private bank in Nigeria by Financial Times, The Bankers' Magazine Award. As well as the Platinum Service Ambassador Award from the Development Bank of Nigeria. We also repaid $400 billion of our Eurobond that matured in October 2022.
I will now speak to our 2022 financial year-end numbers. We achieved a 34.4% growth in our gross earnings from NGN 251 billion in 2021 to NGN 337 billion. This was driven largely by interest and similar income, which increased by 45% to NGN 296 billion. Our net interest margin increased from 4.7% to 6.3%. This was achieved by optimizing yields on earning assets while ensuring that our average funding costs remained relatively low. To keep our funding costs low, deposit mobilization was focused on stable and low funds, low cost funds. Total deposits increased by 27% from NGN 2 trillion in December 2022 to NGN 2.6 trillion in the reporting period.
A breakdown of the deposit numbers shows that we increased current account deposits by NGN 528 billion and savings deposits by NGN 122 billion. While turnout funds were reduced by NGN 94 billion. In relative terms, our low cost deposits increased by 43%, while our turnout funds decreased by 18%, as our low cost deposit now accounts for 84% of our total deposits, up from 75% in 2021 full-year. Overall, our average funding cost increased marginally from 4.2% in 2021 to 4.6% in 2022. This is in spite of the increase in the MPR from 11.5% to 16.5%.
Given the high yield environment, we were able to boost our margins by improving our yield on earning assets, which increased from 11%-12.2%, while our earnings base grew by 19%. Total assets increased by 22% from NGN 3.3 trillion-NGN 4 trillion, with 67% or NGN 2.6 trillion invested in earning assets. Similarly, our total foreign currency assets increased by 9% to $2.8 billion. Our total loan book grew by NGN 458 billion. However, the intervention funds and Naira devaluation accounted for 21% and 30%, respectively. We have continued to leverage on our excess CRR to take advantage of the various intervention windows created by the Central Bank of Nigeria to fund our risk asset growth and support the real sector.
These intervention funds allow qualified customers under the scheme to access loans at concessionary rates. Non-performing loans was constant at 2.9%, while cost of risk dropped from 0.5% to 0.3% in the review period. Our regulatory ratios remained well above minimum thresholds, with liquidity ratio at 40% compared to the minimum requirement of 30%, of capital adequacy at 18% compared to the minimum requirement of 50. Our CAR remained at 18.1% compared to the minimum requirement of 16%. Overall, 2022 was a good year for us, and we achieved a profit before tax of NGN 53.7 billion. The board of Fidelity is proposing a final dividend of 40 kobo per share, which puts the total dividend for the year at 50 kobo per share.
I want to assure our esteemed stakeholders that we will sustain this performance in 2023, and we have put in place necessary measures to ensure that we meet our guidance for the year. We thank you for your support. We 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 then one on your touchtone phone or on the keypad on your screen. If you decide to withdraw the question, please press star then two to remove yourself from the list. Again, if you would like to ask a question, please press star then one. We will pause to see if we have questions. The first question comes from Oluwaseun Arambada from FBNQuest Merchant Bank. Please proceed with your question.
All right. Thank you very much. Good afternoon. Thank you for hosting this call. Please confirm you can hear me.
Yes, we can.
Okay, great. Okay. A couple of questions. The first one would be around the growth numbers we saw on your non-interest income line, coming from the growth in to my mind. I think that the cash crunch contributed to the spike in digital transactions in Q4. I just want to get a sense of what kind of growth numbers you'll be expecting to, you know, see going forward in a normalized environment where we don't have that kind of shock. The second one would be on your asset quality. Looking across, you know, the breakdown of NPLs across sectors, I could see that there was a jump in NPL ratios for individuals and then looking at construction sector and communications.
I just want to know, is this due to any single or bigger risk? I would appreciate if you could shed more light on, you know, NPLs in these sectors and what you expect going forward. The third one will be on how you are thinking of the macroeconomic environment in 2023. What is your assessment of the environment, how has that informed your guidance for loan growth and expectations for loan loss provisions? On your loan book, in which sectors are you looking to increase exposure in 2023, and in which sectors do you expect to witness? The last question, probably, would be around your the completed private placement. It is expected that the private placements will further boost your capital base.
I just want to know how you intend to deploy this capital, given the economic environment. That is, will you be cautious on loan growth or you are looking to deploy capital more into risk securities? That'll be all from me. Thank you.
Very much for your question. First one being the increase in our deposits in quarter four. Yes, it's a combination of both. Yes, there was a combination of monies coming in for deposits for the around the Naira redesign. Also we had a massive low cost deposit initiative and drive, which we drove aggressively. This you will see from the growth in our low cost deposits, and that translates to the increase in our deposits. Basically it's, it was a two pronged approach. On the issue of the increase in transactions on the digital platform, yes, we've witnessed a 40% growth in our adoptions because of the Naira redesign and because Nigerians didn't really have an option but to adopt the digital solutions.
With cash now available, we expect there'll be a little slowdown, however, all the new adopters we expect to continue to utilize the channels because most people have gotten used to it. We've also provided incentives for the customers to sustain the momentum. There's a lot of push to ensure that our platforms are working very well and that our customers have a seamless and experience, a very good experience on our platforms. What we expect is that there'll still be growth, probably a little moderated, but there's a lot of effort on the low-cost deposits drive, as well as the digital adoptions. Thank you. On the issue of the NPL jump, these cases are one-off, but I'll have my CRO address them specifically.
Thank you very much, Nneka. Thank you. On the NPLs that you saw in the individuals, construction and communication sector, as the MD has said, these are single obligor issues and are each of them just one obligor that, you know, defaulted and went into stage 3. Of the three obligors, we expect that one of them will definitely be able to recover and get it back to stage 2 and then stage 1. There's light at the end of the tunnel for that one. For the other two, we're going full blast on recovery. We've taken all of it into our numbers, and we don't expect that to be an issue going forward. The rest of those portfolios are good, and we expect NPLs to remain sound in those sectors going forward.
Thank you.
Okay. On the question of for the rest of the year, yes, the elections, 2023 is an election year, and it's normally a year of two halves. The elections have come and gone. What we are seeing is normalcy returning and business activities have gradually picked up. We believe that after a successful handover in May and relevant appointments, that the economy will be ushered into a growth phase. The outlook for Nigerian economy is very positive. We expect that the election manifest speaks to the fact that there will be market-oriented government.
This will be a market-oriented government that are disposed to removal of the fuel subsidy, which will save the economy over NGN 3.5 trillion, and the savings will be invested in the key areas of the economy, which will create new jobs and support business growth. We've also seen that there's a stability on the production side. There's increase in production of the crude oil in the country. We've inched up to 1.4 million barrels a day, and it's on the upward trajectory. We've also seen that the government has intensified efforts to contain the oil theft, as well as the fact that the security situation in the country is being also given serious attention.
All of these, we believe, will improve the outlook for 2023. Yes. The private placement, we have completed that successfully and, you asked us what we intend to deploy for. Of course, due to the surge that we've seen during the Redesign and the pressure on our platforms, we are going to deploy that, the funds to our technology, as well as our technology spend to improve our IT infrastructure in light of the cashless policy, and the balance will go to our working capital to deploy, to be deployed based on the value that is driven by, that we need to spend. I'll have my ED CIO speak to it, Stanley.
All right. Thank you very much. On that, I think what we've done, we raised, I think it was.
NGN 13.9 billion.
NGN 13.9 billion. What we're trying to do, part of it is to spend on IT, because we reasoned that during this cashless policy and the implementation, as we need to improve our touch points so that our customers can do their businesses in the most efficient and seamless manner. We are spending a lot on that. The balance will be put into working capital, of course, which would be based on value actually. Whatever presents the best value for us, that's where we'll be putting it. That's how we intend to do that investment. Thank you.
Thank you.
Thank you very much. Ladies and gentlemen, just another reminder. If you'd like to ask a question, please press star then 1. If you'd like to ask a question, please press star and then 1. The next question comes from Adebayo Adebanjo from CardinalStone. Please proceed with your question.
Thank you very much. Please confirm that you can hear me.
We can.
Yes.
All right. Thank you very much for this audience. Just a couple questions. First question is, please could you speak to your upstream oil and gas and power exposure, given the significant stage 2
Classifications, you know, what risks are likely from those assets? Also, I see weakness in funding costs, you know, despite the notable decline in our expensive deposits and the repayments of Eurobond exposure. What should we expect for funding costs this year? Also, want to know, there was a significant growth in asset creation supported by accelerated funding. Do you expect a similar play this year as well? I think my final question would be, what sorts of conversations are ongoing with the CBN regarding the supply of redesigned currency? What is the risk of a resurgence of that kind of disruption which we saw in the first quarter of this year, if, you know, poor supply persists till the end of the year? That would be it. That's all from me.
Thank you.
Yes, you're right about the covering oil and gas upstream and power exposures. As the MD said, ITO is the principal one that we have in the oil and gas upstream sector. As you probably well know, we are in this transaction with eight other parties, including local banks, international banks and Shell. At this time there has been significant progress in finalizing the restructuring of the facility after intensive negotiations between the lenders and the borrower. In addition to that, the customer is finalizing the evacuation of their crude through alternative routes to basically monetize their crude oil production. These are very significant developments and it points us to the fact that this loan will certainly move back to stage 1. At this point, all lenders are treating the loan the same way across all the banks.
That's why it's up stage 2 in all the banks. On the power sector loans, we have three obligors responsible for the stage 2 loans we have in that sector. What we have done is to take restructuring action in a timely manner to ensure that the loans do not deteriorate. We've been able to further reinforce the cash flows, especially with our recent implementation of Service-Based Tariff and gradual commencement of a contract-based market. There's also a new management team which has a mandate to improve collections and stabilize the business operations of the companies before the assets are put up for sale. These have resulted in some positive impacts. Revenues have improved. Cash flow has increased by between 30% and 40% post-restructuring of these DisCos.
The club of lenders are also working with the regulators, including CBN, NEC and BPE, to continue to optimize the operations of the companies and bring more value to the assets before they are sold to capable investors. In terms of the impact on our books, we have already made an average of 15% and we consider this level of provisions sufficient at this time. Given the positive traction we've seen from the measures we've taken so far, we believe that the assets are in a better position, and we believe that we should be able to move them gradually back to stage 1 in short order. Thank you.
The second question is why the weakness in our funding costs? Was that the question that I asked?
No.
Please tell.
What you see in terms of future in 2023.
2023. Okay, fine. Okay. Between the months of January and April, the monetary policy rates have been reviewed twice, from 16% to 18% in two consecutive MPCs. These are the direct funding impact on direct impact on the funding cost, especially saving deposit rates, which is benchmarked at 30% of MPR. Because these increases are targeted at stemming the rise in headline inflation and foreign exchange pressure on the naira, we believe the inflationary pressure will still prevail and which I think will still prevail, as well as the issues around the Ukraine and Russia conflict and the impact on us. These factors still prevail. We believe that the average cost, funding costs and yields by extension will continue to tick up.
We have strategically positioned our funding base to ensure that we optimize our margins.
Sorry, I think there was also a question on risk asset growth, where we see it in 2023 in terms of sectors. Am I correct, Adebayo?
Yes, that's correct.
Okay. What we see is that there are opportunities, significant opportunities in key sectors of the economy. The one that we see very clearly now is on the infrastructure renewal. With the removal of railway and power from the federal government exclusive list, we see a major growth area, major growth opportunity. We also see opportunities in manufacturing. The telecoms. Telecoms on the back of the cash-lite policy and the pandemic has continued. The pandemic impact has continued. Of course, we have the same opportunities on pharmaceutical and medical supplies, as well as food processing and e-commerce. These are areas that we intend to focus and our growth for the year 2023. However, our growth, we already guided for 10% to 15% of our loan book. Thank you.
Another question on CBN. With the redesign of Naira by the CBN. What are the conversations between, well, banks and CBN on this?
The Central Bank conversation on the redesign. Okay, fine. We have seen a lot of improvement in the cash supply as it has normalized. The queues have disappeared, and we have been able to onboard many customers, new customers on our various alternative platforms. We do not expect to witness any disruption for the rest of the year because we've been guided for end of the year for the by the Supreme Court. What is happening now is that we are ensuring that we're all ready for the cut over at the end of the year, and then the Central Bank has continued to supply enough money that we need till then. We do not see any reason for any disruption.
Sorry, Adebayo, did we answer all your questions or do you have an additional question?
Yeah. I mean, the question was really about if, you know, the deadline for the old currency, you know, is reached and, you know, we still don't see significant supply of the new notes. Do you see, you know, a similar disruption that happened in the first quarter again, maybe early next year happen in the event that, you know, the currency, the new currency supply does not improve before the deadline?
No. We think that the mint has sufficient time to print as what the country needs and the experience of January through March as the lessons learned. We don't expect to see this disruption again. We have enough time for them to print as much as they need to supply. Thank you. There's a lot of currency in circulation right now. We checked even as at today, all our touch points, all our service points have enough money to distribute the payouts.
Adebayo, are those all your questions?
Yeah. I mean, just to finalize, you know. Just give us, so what are your near-term strategic imperatives, you know, to guide investors, you know, what should we be thinking about, you know, as far as the bank is concerned, you know, over the course of three years relative to your peers? What's the, Is there any groundbreaking, you know, strategic initiatives that the bank is taking, you know, which is kind of different from what everybody else is doing?
Well, the bank is trying to make sure that we have footprints outside Nigeria. As you probably know, we already signed the, a binding agreement for the acquisition of Union Bank London. This will take off in a couple of a few months, and that's a major breakthrough for us. We also, we're also in the final stage of the approval with the Prudential Regulation Authority in UK. On the medium to the long run, we plan to expand to key markets in Africa to broaden our focus and diversify our earnings. There are several other non-banking initiatives that we have, and we'll discuss as they come up. Thank you.
Thank you very much. That'll be all for me.
Thank you, sir. Ladies and gentlemen, just a final reminder. If you'd like to ask a question, please press star and then one. If you'd like to ask a question, please press star and then one. The next question comes from Ayodeji Dawodu from BancTrust & Co. Please proceed with your question, Ayodeji.
Hi, good afternoon. Thank you very much for the call. Just a few questions from my side, if you don't mind. Congrats on the full-year and first quarter results. I just first for wanting to follow up on the ITO discussion and the restructuring. In terms of the restructuring, pardon me, could you provide a little bit more detail? Was it a case of you restructured the loan with longer payback period or lower oil price? Just to get a better understanding on what exactly the restructuring was centered around. On your balance sheet, could I get a rough idea as to whether the bank is net long or short foreign currency and by how much?
If so, also in relation to that, pardon me, did you enter into any foreign currency swaps with the Central Bank as well? That would be very helpful. Lastly, I mean, looking into 2023, I mean, do you see any significant risks to the bank or the banking sector going forward? That'll be all for me. Thank you.
The ITO, on the ITO restructuring, I'll have my CRO speak more to that. The restructuring is ongoing, and like in Worldno, we have eight other banks in this syndication. Can you speak to the details?
Okay. Thank you, Ayodeji.
On Aiteo, basically what the structure is about is extending the repayments period, given the fact that there hasn't been much in terms of repayment based on previous terms. That's it. The original benchmark price for the original loan was already very low, we don't really anticipate another change in that benchmark price. In the restructure terms, it's basically to extend it to convert the crude oil assets into actual cash flows, see that coming in, and then extend the period of time for repayment. As the MD said, it's in final stages, and so the complete details of that restructure will only be known finally after it's after all parties have finally put their pen to paper as far as the restructure is concerned. Thank you.
The second question, if I remember, was on our net open position. Yes, we are long on our USD net open position of about $100 million. This brings us closer to the regulatory limit and we'll intend to keep it at that.
Swaps.
Yes, we have swaps. Yes, you asked if we had swaps. Yes, we have swaps of $460 million with the Central Bank. Counterparties. Please, can you take the last question?
Yeah, sure. Thanks for the answers so far. My last question was really on the outlook. I mean, you've spoken quite well on what we can expect over the near and medium term, in terms of growth. I wanted to see what do you see as a potential risk to the bank and maybe the Nigerian banking sector over the near term? I mean, there's a lot of talk of a potential change in Central Bank governor and key regulator. Just maybe just to talk to us a little bit about the risks to the outlook.
Thank you, Ayodeji. On the risk outlook, I think I'll start from the macro, I'll say that barring any unforeseen developments similar to either COVID or the Russia-Ukraine war, we expect that the economy will maintain a growth path. Recently the GDP projection for Nigeria was increased from 3.0% to 3.2%, which tells you that there's a sense that things are getting better and will continue to get better. The risks apart from that are generic. You have the usual suspects. I don't know if I should go into details. You already know them, nothing new. You have FX, you have rising interest rates, you have technology issues, cyber-related issues, those kind of things. They are there. Those are generic.
Coming to your specific comment about the possible change in CBN, we don't have any inkling on that. We can't really comment on that. That's what I would say. As you know, generally the Central Bank is focused on financial stability, and that's going to be a continuous focus all the time, I believe. Thank you.
Okay. Thank you very much.
Thank you. That does conclude our question and answer session. I would now like to hand over to Nneka Onyeali-Ikpe for closing remarks. Thank you very much, ma'am.
For attending this call. Just to reassure you that over the years we have built a resilient and sustainable balance sheet. I can confidently assure you that regardless of the headwinds in the domestic economy of Nigeria, we will continue to deliver, and we will deliver on the guidance we have promised at the beginning of the year. We will meet all set targets. Thank you very much.
Thank you very much, ma'am. Ladies and gentlemen, that does conclude today's conference. Thank you very much for joining us. You may now disconnect your lines.