Good afternoon, ladies and gentlemen, and welcome to the Guaranty Trust Holding Company Plc's half year 2024 investor analyst conference call. All attendees will be in listen only mode. There will be an opportunity to ask questions when prompted. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this event is being recorded. I'd now hand the conference over to Segun Agbaje. Please go ahead, sir.
Okay. Good afternoon, everybody. Thank you very much. Sorry, this call seems a bit rushed. We have the presentation online. We've decided to do this today because Monday might be a public holiday. We're not sure yet, but we thought today would be a good day. Either way, the presentation was put up yesterday, so we're going to go straight through, straight to Q&A, and questions and answers, basically, and so I'm ready for the first question. Thank you very much.
Thank you, sir. Ladies and gentlemen, if you'd like to ask a question, please press star and then one on your telephone keypad or the keypad on your screen. A confirmation tone will indicate that you are in the question queue. You may press star two to exit the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The first question comes from Kato Mukuru of EFG Hermes . Please go ahead.
Hello, can you hear me?
Yes, I can.
Hi. Hi, Segun. Thank you and a great set of results. I'm very fine, thank you, and I really appreciate the chance to have this Q&A. I guess I went through the presentation, which was very detailed, and as I got to the end, the last page, I realized that your guidance for FY 2024 has not changed. I wanted to understand why and if there is any sort of new guidance that you could give us, because clearly, your half year results are so impressive that they're ahead of your full year guidance on the PBT. I guess that's my first question. Should I ask one or two, and then I'll drop off and then come back later?
Yeah, sure. Sure, no problem. I've taken the first one.
Okay. The second question I have is with regards to the NGN 266.6 billion you have due to the CBN, which I understand is a swap contract. And then I just wanted to understand why is it due to the CBN if it's a swap? And what could you just give us a little more detail about that particular exposure? And then the third one, I promise I've got many more, but I'll come back later. The third one I wanted to ask you is with regards to the financial statements. I see that you've actually given us a forecast for the naira going forward in 2025, 2026, 2027. You have a base case forecast.
Should we be using those forecasts to try and estimate how the unrealized gains could move going forward? And then on that subject, is there any way we could understand how much of the unrealized gains were on this, particularly on the forwards, will get unwound at the end of the forward period? Because there's no gain at the end, as we've discussed a lot with Banji. How much of that would unwind so that if... I'm just trying to figure out how to forecast this going forward, so I can get a kind of a real recurring profit outlook figure. Thank you.
Okay. Thank you very much, Kato. Let me start with the last one and then work my way up. In terms of naira forecast, I mean, to be honest, maybe I'd be George Soros if I could do this correctly. So I think you've got financial control people and auditors who come up with the forecast. So I think I would advise that most people come up with theirs. What I would say for this year, which I'm hoping the country can achieve, based upon what I've seen, is thousand five hundred plus five, minus five. And that's kind of how much I'm willing to go for this year, and we'll see what happens next year. Based off on that, you can see how much might unwind or not unwind of the unrealized fair value gains.
But I’m not brave enough or smart enough to say what will happen next year, and I’d rather just take this one and go on. The swap with the central bank, like you two- that you talked about, is about $563 million. It’s no different from all the other swaps. Basically, we have their bills, they have our cash. The swaps will unwind on maturity. As you see, they’ve unwound about $173 million of ours. We are pretty comfortable where we are. Our swaps are priced at about 1,300, so basically, that’s the derivative on the books. So I don’t know how, again, they’ve reported it as swap to or swap from, but it’s the normal traditional swap, where they have our dollars, and we have their treasury bills.
In terms of guidance, Kato, the reason why we don't change it, truly, we've never changed our guidance in the middle of the year. Where we were behind, we didn't try to bring it down, and so we might have internal guidances that are different, but publicly, we'd never change our guidance. We've never done. One thing I'd like to say, and sometimes if I expand, it's because I'm anticipating another question. The way we look at this is that it's only half time, really. These are half year results. We're gonna have to remain focused and put our foot down and make sure we end very strong. So while we agree we're ahead, it's only a half time result, and we would rather not change it, and we've never done in the past, even when we were behind.
So I hope that kind of addresses the three questions.
Thank you very much.
Our next question comes from Nabila Mohammed of Chapel Hill Denham. Please go ahead.
Good afternoon, everyone. Please, can you confirm you can hear me?
Yes, I can.
Okay. Congratulations on your results. I have a couple of questions. Some have somewhat been answered based on the first speaker's questions. But just speaking to the groundbreaking PBT that you recorded in half year, I just want to get more color on those unrealized fair value gains from financial instruments and forex transactions, and also just bearing in mind how sustainable the profit levels currently are going forward. That's my first question. Then my second question is on your capital raise. I just want to understand what stage that process is at, and how soon would we see that be reflected in the company's books? My third question is with regards to the lower impairments that we noticed in H1. I just want to understand how that was able to be achieved given the current macroeconomic headwinds.
Lastly, just speaking to your loan growth and your guidance, I just want to know if that guidance is core loan growth, or is also factoring in the possibility of currency movement, given that we've seen that on a year-to-date basis. That will be all from me, and I'll come back in the queue if I have more. Thank you.
Okay, let me start with the last question again. Loan growth, no, we're never building whether devaluation or not devaluation, so what we advised was 30% of the year, we're at 25%. If you remove devaluation, we're at about 6%. So again, just like I said to Kato, we're just going to continue to chase that. Lower impairments, forgive me, I'm gonna spend a bit of time here, and hopefully I might address other people's questions. Part of the reason we can do what we're doing is that if you look at our loan growth over the last couple of years, it's been very measured. And, we haven't grown our loan book like most people. So one thing I hope as analysts, you started looking at, is what the Stage 2 impairments of banks are.
Because that's beginning to tell you, it's not Stage 3, but the, what the loan book is looking like. Our Stage 2 is about 439, of which we've already provided and created capital buffers for over half of that, even before this point. And so even though the macros are not looking that good, we've anticipated these macros over the years, and so there's no need for us to do anything aggressive, because for impairments which are for our Stage 2, which are not completely impaired, we've already covered over 50% of it, so we really don't feel a need to do more than that. So you don't start taking impairments today. When you think of impairments, please compare them to what people have on Stage 2, because Stage 3, you would have taken care of already.
In terms of capital raise, as you know, where are we? We're waiting to submit and do capital verification. Everybody's subject to a capital verification exercise by, I think, three regulatory bodies, NDIC, CBN, and I believe SEC. And so we will wait and see the outcome of the capital verification. So that's kind of where we are. In terms of fair value gains, you have to play game to what I said to Kato and do your own numbers. The fair value gains, really, is from our FCY balance sheet, and so it will always depend on what your projection of the exchange rate is. I've already told you what mine is. I said I'm kind of plus 5, minus 5, 1.5. And if that's what it is, and we closed half year 1,505, then you're kind of where you are.
Of course, if you see another massive devaluation, which I'm praying we won't, then you might see an increase, and if we don't, then this is what it is that you have at half year. I believe those are your questions.
Yes, please. I'll come back on queue if I have more. Thank you.
Thank you.
The next question comes from Josh Arowolo of Stanbic Pensions. Please go ahead.
All right. Thank you very much, and congratulations on the results. Fantastic. My question is on dividend, and I'll start with a bit of a prologue, if you don't mind. So last year, fantastic H1 results as well, half year of 2023, and then we saw that increase in dividend, sizable in half-interim dividend, I beg your pardon. Full year, fantastic result as well, but, dividend was a bit underwhelming. Again, this year, fantastic half year, and then fantastic dividend. Can we take it as a tea leaf to, sort of a significant increase in dividend for full year 2024? That's my first question.
Okay. I think first question. Yeah, okay.
Yes, sorry. Sorry. And then the second question is, Our line is breaking here. Can you hear me?
Yeah, I can hear you. You're fine.
Okay, thank you. It's back now, so just wanted to then understand your thinking regarding the CBN's forbearance to the banking sector, and sort of when you expect that to elapse, or if there's been any communication at all from the regulators regarding this, and yes, if you could just share as well how much, sort of, impairments you would have to book, if, for example, we hypothesized that the forbearance elapses immediately. Thank you.
Okay, let me start with the second one. My belief is that forbearance will fall away this year. There's some banks or people who are saying maybe it won't, but we're living our lives that forbearance will go away this year. Our major forbearance is Aiteo. I've got to be honest with you, Aiteo is a syndication. It has not gone the way we like. We're a bit, at least I personally, am a bit tired of making excuses about Aiteo, so what I'll tell you what we've done. We have basically put ourselves in a position to write off Aiteo this year, and it will not affect our P&L. I had said to you that Aiteo is on stage two, and we have over 50% in capital buffers for stage two loans.
So we will probably write off Aiteo this year and then go very, very aggressively on a recovery drive, because we just don't like how it's playing out. The syndication is moving too slowly for us. So the simple answer to your question is, the only thing that will happen in terms of forbearance is the Aiteo loan, which is the only one we have. We'll write it off this year. You won't see any PNL impact because we've already created the capital buffers. In terms of dividend, I think I kind of apologized that the beginning of this year-on-year end results is financial year-end. We would have liked to pay more, but then we ran into all the revaluation gain problems and a 25% restriction, because we had about 15-16% of forbearance loans.
I've just kind of told you that we will not have any at the end of this year, rather than that, we'll provide 100%. So I think you can count on a healthy end-of-year dividend, knock on wood, for as long as we can keep this momentum going. Yes, it will be a healthy end-of-year dividend. I don't know if I answered both your questions.
Yes, you did. Thank you.
Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one to place yourself in the question queue. Our next question comes from Randolph Oosthuizen of Old Mutual Investment Group. Please go ahead.
Hi, good afternoon. So just to clarify my understanding, the dividend that you declared for last year, that wasn't only a function of the CBN saying that you're not allowed to utilize foreign exchange gains. It was also a function of the CBN, what is that? You know-
Forbearance.
No, yeah, they've got those parameters for calculating how much dividends you're allowed to pay, so it was a function of that framework as well. So in terms of that framework, you were sort of higher than, you know, some of the thresholds, which limited how much dividends you could pay. Is that correct?
Yes. Like I said to you, they have different thresholds. If you're above, if you're, like, 15%-20%, I might not be exact, but I know if you're above 15%, then you had to withhold 25% of what you could pay out as dividends. And like I said, this year, forbearance loans will fall away. We will make sure we have none on our books, so we will not have that 25% restriction. So yes, apart from the revaluation, we fell into the restriction as a result of the percentage of forbearance loans that you had on your balance sheet. Yes.
Okay. I usually assume that you wouldn't have any restrictions in on that one, but obviously it I guess happens to the best of us.
Yeah. We had one forbearance loan, and you must remember, it's a percentage of your loan book. So maybe if we had a loan book of NGN 7 trillion, it wouldn't matter, but if you're sitting at about NGN 3 trillion, then it's a percentage of it, so we fell into the 15%.
Mm.
Like I said, we've also been. We've always been very open for what the loan that has given us a headache is, which is Aiteo. And I said to the earlier caller, we do have enough capital buffers and provisions to write it off this year, which we will do, and then we will be able to pursue very aggressive recovery. So that 15% was the size of the loan book, not necessarily the quality of the loan.
So, so just so I understand, when you say capital buffer, you mean you've provided enough so that you can?
Yeah.
Write it off?
We can take a 100% provision on it this year.
Oh, okay. All right. Okay, excellent. Thanks a lot.
Thank you very much.
Our next question comes from Konstantin Rozantsev of J.P. Morgan. Please go ahead.
Yes, sorry, I was on mute. Thank you very much for the presentation and congratulations on the results. I had three questions that I wanted to ask. Apologies if you've already commented on this earlier on the call, but the first one, I wanted to ask for more color on the windfall tax that has been proposed with respect to the banks. So, I understand that there are still some uncertainties with respect to how this tax is gonna be calculated and applied to the banks. What, what's your sense as of today? Where are we in this process, and what's the likely outcome? How do you see this tax being, you know, calculated and applied to the banks ultimately?
The second question, on the fair value gains, so thank you for the comments earlier on the call. My sense, correct me if I'm... But my sense has been that banks have already closed their open long dollar positions. So I'm still struggling to understand where this affects gains or fair value gains are coming from. You mentioned that this relates to some exchange rates, projections or movements. How are these gains possible if the banks are net zero on the FX side? And the third question, it doesn't relate specifically to GTB. It's more of a question on the central bank's approach in dealing with weak and failing banks, and it's more on the credit side, to be clear. So if...
The question, hypothetically, if the central bank intervenes with a weak bank, how likely do you see a possibility that it goes on with bailing in its senior unsecured debt? Is such a scenario realistic or is it completely excluded? Thank you.
Okay, good. The third one, you would really have to ask the regulator, but I've never seen a situation where in a banking wind down, unsecured debt is taken care of. So I would assume, following normal banking practices, that unsecured debt over and above what the insurance is, which is what the FDIC insurance would be for depositors. I don't believe that unsecured debt in a regulatory situation is ever dealt with. So I'd say in a banking wind down or liquidation, unsecured debt goes to zero. In terms of the fair value gain you spoke about, our NOP position is zero, you are right. Which is why you don't see trading gains, but there are fair value gains on your foreign currency balance sheet.
And if you look at the foreign currency balance sheet of Guaranty Trust, it has foreign equity, and so the fair value gains are on unrealized fair value gains on financial instruments on your FCY balance sheet. So this has nothing to do with your NOP, which is why you don't see it as trading gains. In terms of the windfall tax, we really, I don't think anything has been administered yet, but our understanding as Guaranty Trust Bank is the trade windfall tax will be charged on realized foreign exchange trading gains, and we will have to wait for more color on how that is applied. I think most banks will probably have engaged their auditors or their tax people at this point, to try to get an idea for what type of figure that is looking like for them. So I hope I've answered your three questions.
Yes, thank you very much. Just a quick clarification on the fair value gains. So you mentioned these relate to the revaluation of equities, right? Affecting nominated equity.
Yes. Your entire, your entire FCY balance sheet, because at the end of the day, if it's revaluation, we actually took revaluation losses of NGN 22 billion.
Okay. Okay. Thank you.
Thank you.
The next question comes from Sadiq Saffari of SBG Securities. Please go ahead.
All right, thank you very much, and congrats on the impressive results. So my first question would be, considering, you know, the critical fiscal and monetary reforms, just as it was mentioned in, you know, in the presentation, what are possible opportunities and risks that you see in the banking sector in general? And, as it pertains to GTCO, how, how are you seeing the opportunities and risk for you and for the banking sector? And, second question is surrounding technology and technology costs. I know you highlighted that, you know, some of these costs, majorly the higher cost was due to weaker currency and inflationary pressure.
I just wanted to get a sense of how that is shaping the issues surrounding technology, one, and also considering, you, discussion around real-time retail businesses, what is the bank doing regarding, you know, technology issues, be it digital apps and, and all of that in general? Yeah, that's it. I will pause for now. Thank you.
Okay. Let me start again with the second question. Technology costs, as you know, most of the technology costs are in foreign exchange, unfortunately. So even if they stay the same in FX, by the time we translate into Naira, they're on the way up. You'd see them higher. But the good thing about us is, I think we went a bit ahead of some of the devaluation, and we have basically paid for our core banking software, which we're going to change. There might be some other hardware costs that will come through. In terms of retail, for anybody who's our customer, you will see that we changed GT World as well, which was ahead of it, which was all to make your retail experience better. So we're not gonna stop doing technology.
I think not just as Guaranty Trust, I think as an industry, we will all have to be a bit more careful and look at technology costs a bit more closely in light of the devaluation and the fact that most of them are technology related. Opportunities, I mean, I think that honestly, there's so many opportunities in the system looking at the macros. Of course, you'll have to be careful. By no means is the banking or financial system in Nigeria today mature. Your banking penetration is still very low. Your asset management penetration is almost nonexistent. In terms of the pension business, you're only at twenty-one trillion, so there is still so much runway that when we sit as GTCO today, we only see a lot of green. Really, we see a long runway for opportunities.
Risk, risk will always be there, and that's what we're in the job of doing, is managing risk. The risk can't have started this year. You needed to have started to manage your risk over the last three, four years as the macro started to change. And then, I have always said to people, with all sense of humility, if you see anybody that was ballooning their loan book very aggressively over the last three years, I would please ask that you look at their stage two loans today, and you would see how well or not well they've managed risk. So there's credit risk. If an economy changes, your customers have a bit of an issue, you will have to deal with it. But we're in the business of managing risk, so we think we can do that fairly well.
We think we can manage the risk in the economy, and at this point, we're rather focused on the opportunities, which is a banking system that's not mature, a pension fund business that's not mature, a payment business that still has a long runway. We look at our businesses outside of Nigeria, they've contributed about NGN 150 billion in profit. When countries where population is growing, population is young, GDP to deposit, GDP to loans is still very low. So all our businesses give us a lot of optimism about the future, whether it's the countries we've chosen to do business or whether locally. So yeah, we'll manage the risk, but we see a lot of opportunity in all the businesses we've chosen to play in.
Srik, does that conclude your questions?
Yeah, sorry, does that answer you?
Yes, it does. I don't know, can I ask a follow-up question?
Sure.
Okay. All right, thank you very much. So you talked about the pension business and the industry, too, you know, still pretty young. And I know that there's a plan for GTCO to acquire a pension fund administrator. What's the development like on that front? And maybe just finally to round up, regarding the investment securities, there was that significant growth year to date from investment securities. My thinking of it is that probably, you know, the CRR, the closing one or the wind down of the CRR limits contributed to it, seeing that even special deals from full year 2023, you know, went to zero when you compare it to after 2024.
So I wanted to ask what the outlook is like for the rest of the year and going into 2025.
Okay. Let me first start with the fact that if you look at it, investment securities went up 57%. As liquidity improved, we behaved rationally. Some of that liquidity was reduction in CRR and special bills, which we were at about 59%. A lot of it is also that there was deposit growth. Deposits grew by 40%. So if you look at the asset side of our balance sheet, we basically deployed it into two places, very productively. Loan book, 25% growth, fixed income securities, 57% growth, about NGN 3.8 trillion. So yes, and yield was about 15.9%. I still think we can maintain a 15.9% yield, because we are, we were struggling in terms of yield from some lower price bills.
Even if I look at what is happening in terms of interest rates, even if they keep coming down, I still think the yields we will see will be above 15.9%. So I'm a bit... I'm still watching in terms of interest rates. Are they gonna keep coming down? We've just had a fuel price increase. I think that will bring in some inflation, might affect how quickly interest rates come down, but in terms of fixed income, I think we should still be able to do 15.9%. I don't know if you know, but we do own a PFA. It's AUM is over NGN 90 billion. It's all grown organically. It's really RSAs, which is retail, not AES, which is wholesale.
We might look to buy a smaller, PFA to give us some scale, but the business is growing well, it's very profitable, and what we'll be looking at is to grow it and achieve scale reasonably without the pain, if we choose to do an acquisition. So I hope that answered your two questions.
Thank you very much.
The next question comes from Sahil Kumar of Moon Capital Management. Please go ahead.
Hi, this is Sahil from Moon Capital.
Yeah.
I have a follow-up question from the previous caller about the net interest margin environment. Obviously, as you mentioned, the yield would stay at least the same or increase as we progress. What sort of a margin improvement we would expect in the second half? And, the second question related to this is, on the cost of funding side, given the banks are making good spreads, do you expect there could be a more deposit competition in the market, and, it would impact, the cost of funding side? So how do you see those two factors and the margin improvement in the second half?
Okay, thank you very much. As you can imagine, we're already three months into the second half, so we have a pretty fair idea. Customer funds is about 1.5%. We don't expect it to go up dramatically anymore, especially because of how we do our business. We don't go after wholesale deposits. We're not aggressive in deposit growth for the sake of it. I would say that we are still gonna push. If you look at our beginning of year guidance, our NIM guidance was 11%. We're up at about 10.5. So for the second half of the year, we'll try to push to get to the NIM of 11%, which we promised at the beginning of the year. I hope that answered the two questions. So cost of funds, we don't think there'll be deterioration from 1.5%.
If we can hold the yields on fixed income at about 15.9, maybe we can do better on the loan yields, which were at about 14.5, and hopefully that will take us to the NIM of 11.
That's clear. Thank you so much. Another question is on the operating expenses. I mean, obviously, given the inflation we have in the market, how do you see your cost-to-income ratio or operating expenses growth in the second half? I mean, obviously, first half has some of the regulatory expenses, which will not be in the second half. So if you can give some color, that'd be helpful.
Okay, thank you. I think that will come down for sure, because even AMCON, you paid it all in the first half of the year. You know, that's one of the dangerous things about a cost-to-income ratio. We're at about 16.1%, but that's 'cause the revenues are so strong. We have grown expenses by 16%. High inflation environment, we cannot afford to keep that kind of growth, so I think you'll see slower growth in expenses second half of the year, especially since the regulatory costs will not keep going. Hopefully, we've already priced in some of the devaluation and inflation into the OpEx in the first half of the year by hopefully buying some things forward, paid for some things forward, prepaid for some things.
It definitely won't be as high in the second half of the year.
That's perfectly fine, yeah. Thank you so much.
Thank you.
The next question comes from Ronak Gadhia of Dunross. Please go ahead.
Thanks for taking my questions. Mine, I guess, sorry to frustrate you, but just to go back to your dividend policy. So you made it clear, that, you know, the provisions on forbearance loans will no longer be a restriction this year. Could you also clarify if there's still a restriction on FX, on paying profits on FX-derived profits? And so that we're just-
Yeah.
So just over there, I'm just trying to figure out what the, you know, what the distributable profit pool will be. And beyond that... Could you also clarify what your payout policy is, on, on the distributable profit pool? In the past, it was pretty clear you would pay 50% of your profits as, as dividends, but does that still remain the case? And then the second question is on your capital position. I noticed that, you know, despite the significant profits you generated, retained earnings did not grow by as much. So could you just clarify why that was? Thank you.
Okay. First of all, like I said to you, we have created some capital buffers against on that last number we, so we put in retained earnings, what we felt we should, but we created some capital buffers against anything that might come in the future. That's the one. Our dividend payout ratio is still 50%. As far as I know, what is restricted is not trading gains. What is restricted is revaluation gains, of which we actually have a revaluation loss. I don't want to predict or tell, guess what year-end dividends will be or disclose those, but I think if we take what our distributable profit will be at the end of the year, like I said to someone earlier on, this is still half time, and so I don't want to give you year-end dividends based off on half year results.
But one thing I do know is that looking at where we are and what will be payable and removal of forbearance loans and the fact that we're not carrying revaluation gains, our core income has done very well. And if you look at those financials, it should be obvious to you. Interest income is up 173%. Non-fund income is up another 73%. If you take all that, you'll kind of arrive at the distributable profit, and you'll see that there's more than enough money on the PNL to pay a healthy dividend without worrying about the restrictions of FX gains.
That's very clear. Sorry, just to go back on this issue of revaluation gain versus loss. Just, and I apologize if I'm not understanding something simple here, but as you mentioned to an earlier caller, you've got significant sort of your FX assets significantly exceed your FX liabilities, and that was the driver for the gain that we saw in the first half. But, like you mentioned, what's actually being reported is an FX loss. So what am I missing here? Why are you reporting an FX loss when you're, you know, when you have a significant sort of
Because when you're talking about your trading, what you're allowed today is a short position, and we had a short position in terms of our trading book, which you allow 10% NOP at the end of the year, and so that short position gave us a slight trading loss.
Okay. But the rest of the gain is coming from that, your FX assets being exceeding your-
Yes.
- liabilities.
Yes. So what you should-
But there's no restriction on dividend on that?
No. So what you should see that is causing the problems in terms of the revaluation loss, was the short position, the short trading position at the end of half year, which you're allowed, your NOP allows you 10%.
Okay. Understood. Thank you.
Thanks.
The next question comes from Brad Virbitsky of Equinox Partners. Please go ahead.
Hi, thank you. A couple of questions for me. The first is, I was wondering if you can give color about what you're seeing from your corporate customers and whether there's appetite for new loans. Has the environment settled in enough such that there's lots of corporates thinking about CapEx for growth projects, or it's still sort of a wait and see environment? Then I was also wondering if you can give an update on the AMCON charge, and that's it for me. Thanks.
Okay, thank you. On the second one, AMCON charge, what I've been told is that AMCON is going to be wound down in three years. I don't have that written down or any authority, so I would assume that AMCON is in wind down process, and then maybe in three years will no longer exist, but we'll have to see. In terms of corporate loans, obviously, the reforms in the environment are taking shape. People are looking. We've had a couple of acquisitions. Those acquisitions, you've had a couple of divestments, but what people should remember, when you see a Diageo divestment, it means that someone else bought it, and that person will need some CapEx, and so are we seeing CapEx requests? Yes. Huge amounts? Maybe not. Slowly.
But if you look at our loan book, obviously we're living and dying with the corporates, because 89% of the loan book is corporate. So there is enough corporate demand. CapEx, I think, will come a little more slowly, because CapEx are basically long-term decisions. You've only been in, like, one year of reforms, so I think you'll continue to see that. But in terms of the distribution of our loan book, the demand and the disbursement is still corporate. In fact, if anything, it's gone up from what it has ever been, and I think this is the highest it's ever been at 89%.
The next question comes from Adeyinka Adelowo of Renaissance Capital Africa. Please go ahead.
Good afternoon.
Yeah. Sorry, you're gonna have to speak up a bit louder. You're a bit quiet.
Okay. Good afternoon. Confirm if you can hear me.
Yes. Good afternoon.
Okay. Congratulations on your results.
Thank you.
So my first question is, you mentioned about your loan book growth, following your forward guidance of about 30%. And so I'm taking that 30% as organic loan book growth, because currently, your loan book growth year to date is around 35%, and majority of that growth is from the FCY aspect of your loan book. So should we still be expecting that 30% organic loan book growth this year, before the end of this year? And also, given that even your LDR is now as declined from about 35% to 33%, from last full year, 2023, to where we are currently at H1, 2024. So that's my first question.
Second question is, in your other income for the financial statement, you recorded some forward effects, some forward gains, some gains on forward transactions. So I want you to just what are the underlying for the forward transactions? So, if you can provide more clarity to that, it will help. Also, then for my third question, please can you throw more light into the deletion of your balance sheets? I remember you mentioned, you talked about it in your, in fact, the facts behind the figures, and you mentioned something about your cost of risk reducing. So I see the cost of risk reducing as it is, like, the result of the derisking.
So what can we use to measure that derisking of the balance sheet? Any metrics you could to tell and give more light into it? Thank you.
Okay. I think the derisking of the balance sheet is very easy to see. All you have to do is look at the coverage ratio, and if you look at our coverage ratio, it's 222%. I have also said earlier on in the call, that if you take our Stage 2 loans at about NGN 439 billion, you will see impairments of over fifty. You, sorry, you'd see that we've put away impairments of over NGN 200 billion, which means your Stage 2 loans, which are the ones which are giving you early warning signals, we've provided for over 50% of them. And when you look at that. Apart from the fact that we then provided 100% for Stage 3, it means that we, we de-risked our balance sheet from a loan perspective greatly.
In terms of other income forwards, it's very simple. The only forwards we do is with the central bank, and so those were just the gains on the forwards as they matured. Loan growth, I know you keep using the word organic, so forgive me if I try to understand what it is. I assume you're saying loan growth without devaluation. I think, again, I'd mentioned earlier on that if you take away the devaluation impact, we're at 6%. We will grow the loan book. I don't know whether it'll be 30% without devaluation, but we will also make sure that we're not growing the loan book just because of a guidance. But one thing I want you to bear in mind is that we had 30%, but we've more than made that up in growing the fixed income book.
The fixed income book is growing 57%. And even if you look at the yields on the fixed income book versus the yields on the loan book, the yields on the fixed income book is about 15, is about 15.9. On the loan book, it's about 14.5. So without growing the loan book to 30%, we've gotten the interest income and the NIM we need. So basically, we've played the game that the macros have thrown up and behaved rationally. So I wouldn't be too concerned about the 30% growth, because we've more than covered that in the fixed income growth of 57%.
Okay, thank you. Sorry, my last question, and also I saw that, for the first time, your FCY loans exceeded your LCY loans. Given the current exchange rate regime where we are currently and the risks of foreign exchange risks, how are you managing that risk since majority of the loans now are in foreign currency? Thank you.
Well, first of all, there was no growth. It was just the devaluation that made them higher. And as we've always said, our FCY loans have FCY cash flows. The one, which we always tell people again, is material. We're gonna deal with it, and we've put away the money. So it's not that we're growing the FCY over LCY. The devaluation is making the FCY loan book grow faster. But if anything, if we take away the devaluation impact, the LCY loan book has actually grown faster than the FCY loan book.
Okay. Thank you.
Our next question comes from Emele Onu of Bloomberg. Please go ahead.
Yeah, thank you, sir, and congratulations for the results. But I want to ask, why are you guiding for a year-end PBT of NGN 806 billion, when you already posted NGN 1 trillion in the first half?
Sir, like I had mentioned earlier on, these guidances were given at the beginning of the year. We have never, ever changed our guidance half year, and to be fair, there were years where, at half year, we were behind the guidance. We also did not come and reduce the guidance, so we generally do not change our guidances once we've given it at the beginning of the year. We might change our internal guidances, but we never change our external guidances, so it's just tradition, so these guidances were given in January, February. You know, we've been lucky. It's only half time. We've done well. We're gonna stay focused, we're gonna push, but we're not gonna change the guidance because of that, because we've never, ever done that, even when we were behind. I hope that answers the question.
Thank you. The next question comes from Mubarak of Zrosk Investment Management.
Yeah, good afternoon. Mr. Segun, hope you can hear me?
Yes, I can hear you.
Yeah, so, first off, congratulations on your results. What a fantastic result, actually. So I want to ask about the AMCON Levy. I don't know if you speak to that. So I want to get your view as to like what do you think about AMCON Levy going forward? So do you think it is going to unwind? Because looking at how it has increased over time and how the balance sheet build of banks has increased over time. So I want to get your view as to like... Do you see AMCON levy unwinding soon? Just your thoughts around that.
Okay. Look, obviously, my hope, and I hope it's not just a wish. AMCON was never set up to exist forever. So I'm hoping that, like I said, in about three years, we should be at a point where maybe AMCON levies disappear. But I'm not in a position, and that's a regulatory call, but I would be shocked if the banking industry keeps an AMCON levy in perpetuity, and that there will have to be a day where we draw a line in the sand, and it will be over.
Okay, um-
Go ahead.
Yeah.
Yes. Thank you.
Yeah, yeah, yeah. Just to add to that, I want to just get your sense around credit risks going forward, because when I look at your retail banking, I mean, the loans to individuals, I saw that you kind of doubled the Stage 3 loans in June, in half year. So, just to get a sense of like, how are you managing the loans to individuals, and how should I think about the cost of risk in that segment going forward?
... Again, you have to look at it, but I'm never that bothered about retail NPLs because they're small amounts, and you can always manage them, and hopefully the interest you charge will make up for the provisions. The place I think we worry is the big corporate loans, because one big corporate loan, a disaster. Retail loans, we're fine. We're managing the NPL on the retail loans, so we're not very concerned, and we think it's okay. I had said earlier on that if you want to look at the risk on the loan book of banks, truly you need to start to pay a bit more attention to stage two.
There's too much. People tend to focus on stage three, which has already gone bad, and if you want to see what's happening with risk, you need to pay a bit more attention to stage two and see how people are dealing with them. When we look at our stage two, we look at our stage three, we look at our retail loans, we think we're managing our risk well, and we think we should, we should be able to navigate it fairly comfortably.
Yeah. Okay, thanks.
Thank you.
The next question comes from Bernard Surendran of AllianceBernstein. Please go ahead.
Hey, thank you for taking my question. My question was on your, on your FX funding side, right? Any plans to issue dollar bonds or approaching to the Eurodollar market bond market in the near future?
No. I think we can. I think we feel if you look at our cash and cash equivalents, you will see that we have enough, at least for today, spare dollar liquidity to do the business we're doing. But I would never say no and say we rule it out. But today, no plans. If the macros get better, the demand increases, then maybe. But today, if we look at the position of our books, vis-à-vis requests, and the cash we're holding, no, we probably wouldn't do a bond any time soon.
Got it. Thank you very much.
Thank you.
The next question comes from Roman Fuzaylov of Helios Seven Rivers . Please go ahead.
Hi, Segun. Thank you for taking my-
Hi, how are you?
Good, good. Congrats again on the results. Really fantastic numbers.
Thank you.
I just wanted to follow up on Ronak's question about capital, and the gap, as he mentioned, is pretty significant between the increase in capital that you're reporting in your capital position versus the amount of retained earnings that would have been generated from the profits in the first half. So you mentioned there were some additional reserves that were set aside, that was explaining the gap. I was wondering if you could just provide some more detail around that. Is that where the reserves to offset the Aiteo loan are coming from, for instance? And are there other areas that are being plugged effectively or
No, we're not-
Reserves being set aside for?
Okay. I'm gonna hand you over to the CFO, since it's become a recurring question, and he will go into the detail of it. So Banji, I'm gonna hand that question over to you.
I appreciate it.
Okay, thank you, CEO. Let me quickly answer your question. The difference you are seeing stems from the fact that CBN insists that under capital adequacy computation, that you must use equity position last approved by them. So what you're seeing there in terms of retained earnings relates to FY 2023 numbers, and that's why you see that marked difference. So you'll see the real capital position when we publish FY 2024, which means when we do capital adequacy computations, the equity you see on that CAR is the last approved equity position by CBN. So that's why you are seeing that marked difference. So, what we made in twenty twenty- half year 2024 is not yet reflected on that current computation. That's why then you have that marked difference.
So the H1
Thank you. Thank you, Banji.
The H1 profits are not yet being brought into the capital calculations? Is that right?
Yes, because the central bank, even though they approve your half-year results, they don't allow you to reflect it in your capital, and then the capital, they allow you to reflect it at the end of the year, which is why I keep saying to people, "We're at half time." So you will see a significant increase in the retained earnings position at the end of 2024 when we do year-end results.
Okay. Understood. Is this a new practice? My impression was that in years past, as soon as-
No, not last. Last year was the same, and a good place you'll always see it is when we are calculating our one obligor. For lending, our one obligor is always year-end and not interim. So no, it definitely was there last year as well.
Okay. Okay. Understood. Thank you.
The next question comes from Kato Mukuru of EFG . Please go ahead.
I wanted to go back to AMCON, because I appreciate what you said earlier, that you expect it to end in the next three years. But from what I understand, and it's very hard to verify because there are no reported, published accounts, the AMCON notes due to the CBN, they were due last year or this year? And I understand that the amount that was due was up to NGN 7 trillion, and there might be an actual negative equity position of four to three trillion at AMCON. Is there any risk that any of this, you know, huge negative equity sat at AMCON, any of that is passed on to the banks? Is that something that worries you from time to time? That's my first question.
The second question is, I wanna talk about HabariPay. We haven't discussed that today, and I was looking at the presentation, which I thought was really good. And it talks about HabariPay delivering over NGN 2 billion in PBT in half year. For a business that you invested NGN 3 billion in, two billion at the half year seems amazing. Where, where is that really coming from? Because I saw in the presentation it said, "Value-added services." And there was also switching. So I'm trying to understand, on the switching side, what's your current market share, let's say, compared to Interswitch? And then on value-added services, what exactly are those? The last question, I promise, you were tired of me, is on page 47.
I ask everybody to go to page 47 of your presentation. You have unbelievably put the investment in each of your different subsidiaries, and obviously we also see the return on profit, which I think is amazing. When I look at the numbers that you have invested in Sierra Leone, Ghana, Gambia, Liberia, the returns are amazing. They are doubles of whatever you invested. Then I come to East Africa, and Tanzania and Kenya have been relatively very disappointing. Why do you think that is? What do you think you're missing in East Africa to make it? Like, I mean, Liberia, to give you an example, you've only invested less than 2 billion NGN, and this half year, Liberia gave you 12 billion NGN. I mean, that's amazing. But in Kenya, it's just not working yet.
I just wanna understand what you think was the missing in the... And where do you with all this capital you're generating and all the capital you're raising, where are you really gonna put it? You talk about the pension manager acquisition, but if you look at, you know, if you look at how much you've invested versus return on the pension business, it's very low compared to Habari. So why not put more in Habari? But anyway, just like to hear your thoughts about what you think-
Okay.
about capital allocation.
Okay, Kato, I'm going to try. I'm gonna try. I'm gonna start from the bottom. You're right. First of all, let me start by saying that we are so... We are very happy with stocks outside Nigeria generally. I think when we started this journey on this call, I used to have to defend it furiously. Well, today, they're giving us about NGN 150 billion in profit in six months. But as you rightly said, our underperforming region is East Africa. Let me try to tell you truthfully what I believe. I think, first of all, we did an acquisition. We're not very good at it, and we possibly overpaid, which is why we say, you have to be very careful how much you pay for things. I think when we went in there, we only had a semblance of a bank. We really didn't have a bank.
Software was extinct, processes were not correct, and so we have, over the years, had to build a bank, the processes from the ground up. If you take Kenya, for example, if you take the profit and you look at how much we have provided over the last few years, you will see that a cleanup has happened. We are still very bullish on East Africa, and we believe that we are getting to the end where we can pivot, just like we did with Ivory Coast. One of the reasons why we're not very successful in East Africa today is we don't, in my opinion, have a branch network that has allowed us to play retail. The West African countries you're talking about, we have pretty extensive branch networks. I think Ghana, we have over 38.
In some key markets, we're gonna have to, in East Africa, put in a branch network. We are not happy with East Africa. East Africa is making us almost the same as London, which is mono branch. We're gonna work on it, and I believe we can turn it around in the next three years. And that as we put together a branch network, we put the right technology in place, we will be able to play retail, and we should be able to have the returns. Yes, today is not our best, it's not what we're totally proud of, but we think we can turn it around, and we think we now know what the problem is. Habari, the reason. We'll put some of the capital there, obviously, in terms of doing a branch network.
Honestly, today, Habari has enough profit, enough capital, and the reason is twofold: We put some capital in it, we haven't even finished spending, and it's been profitable for two years. So even the profit is still slipping the franchise, so we do not need the capital. It's very well capitalized, and that's why, Kato, they're so well capitalized, that if you look at their profit, they even have interest income now. They're actually making money off the excess cash they have. The two businesses, we basically in Habari are making money from three places, just like you said, value-added services, switching, and merchants acquiring. Value-added services is basically where we do airtime sales, we do JAMB sales. We started with Guaranty Trust, now we're doing it for other financial institutions, so that's a nice growing line for us, and that's our most profitable line.
The next line, as you can see, which is picking up, is switching. We started to switch for about three, four, five financial institutions. I can't. I wish I could tell you what our market share is today, but I will try to figure out what that is in relation to NIBSS. But we're holding our own, and that business is growing, and obviously, with every financial institution we're able to sign up, that will grow. So patiently, it's growing. We think we have enough capital. We will start to spend the capital on making sure that the technology remains top-notch and first class, but they really don't need any capital. They have, like I said, starts with capital, and they have all the profit, 'cause we've not paid any dividends out of there, so it's that.
For AMCON, honestly, I'm hoping we're not. The banks are not gonna take anything more. We have a new central bank. We have a different central bank. I think it will become clearer, all the figures we're guessing, when we see the first set of audited financials, and we'll be in a better position to assess this. Because I really don't know the figures, and I'm really unable to comment, but I don't believe they'll give the banks any more liabilities on AMCON.
Thank you very much.
Ladies and gentlemen, just a reminder, if you'd like to ask a question, you will press star and then one to place yourself in the question queue. Our next question comes from Lanre Buluro of Chapel Hill Denham. Please go ahead.
Hi, good afternoon, Segun. Just curious, and I do apologize, I did join late. Just trying to understand timelines to completion of the public offer, and if you can share anything on how capital verification is going. Then Aiteo, I see you provided, you know, half of it and probably maybe by the end of the year, you say you might, you know, provide fully for it. Is there any kind of remediation? How do you intend to recover? I do recall it's also a syndicate, so there are other banks in the, you know, in the, also exposed to this. How are you all thinking about, you know, collection and getting this money back? It's quite sizable. You know, considering, you know, the whole system being exposed to it.
Then, finally, just if you could just walk us through your NIMs. Fixed income securities, you know, rates are quite elevated. We do know corporate's borrowing in the mid-twenties, and with your cost of funds where it is, you know, we're expecting NIMs to be mid to high teens, and you're guiding for 11%. So if you could just walk us through that delta, and why 11% and not mid to high teens. Thank you.
Okay, first of all, let me try. Okay, so I'm gonna start from the NIMs. I think it's not exactly accurate to say all corporate loans are in the twenties, because FCY loans are still around 10. So you're never going to see a loan yield in the twenties, especially if your loan book is 55% FCY and about 45% LCY. So what you will see is a yield on your loan book, which is where we are now, about 14.5. The second thing is, even on the fixed income side, you're going to stagger the majority of your bills. So you're not going to be in only one year.
You'll be in one year, you'll be in 180, you'll be in 90, you'll be in 30, and so you'll probably achieve a yield of about 15.9%, which is where we are. It therefore means that the total yield on your assets, including cash and cash equivalents and everything, will be at about 12.7%. When you take our cost of funds of about 1.5%, you're looking at NIMs of about 10.5%. So our guidance at the beginning of the year is 11%, and it's based off on this kind of explanation I've given you. So if we're able to push some of the LCY loans, hopefully it will help the yield on the loan side, and we can move up from 14.5%.
As some of the new builds we bought with high yields in the twenties, we'll be able to move that, and it'll dilute some of the impact of the lower. So that's why you're at about 11%, because you can't take 20% Naira loans and decide that's what the yield on your loan book is gonna be, because you have FCY loans above 55%, which are 10%. Therefore, that's why the yield guidance is about 11%. Aiteo. Aiteo, honestly, I don't think when you're in a syndication, that should dictate your provisioning. I think your provisioning should be determined by the performance on what you see. So we will take a 100% irrespective of whether it's a syndication, if we do not see significant progress towards the restructure. And then after that, we will go on our recovery.
Again, you don't have to recover as the syndicate. So if by taking provisions and there's no restructure and it's a bad loan, we will do our recovery. We will hope we can get to a restructure, but if we can't, then we don't want to keep making excuses on an investor call that is being restructured. I think this is the year that we kind of draw the line on Aiteo. Timelines. I would think you're more of the expert than me as to timelines on capital raise. Capital verification people are just sending in their schedules, and then we'll wait for the three regulatory agencies to do their work and come back to us. So that's kind of the most I can say on timelines. I can't really dictate.
I think capital verification schedules are being sent in, the work will start, and then we'll wait for the outcome of it, so I hope I've answered your three questions.
Yes, thanks.
Thank you. Our final question comes from Randolph Oosthuizen of Old Mutual Investment Group. Please go ahead.
Hi, yes. Just firstly, a comment is that, we wouldn't mind if you updated your guidance either up or down. You don't, you don't have to be so, you know, stick to the original guidance. You should, you should update with the incoming data points, like they do at, at the Fed. So just that. And then, just, as a matter of interest, so you've obviously stressed on the call and in the financials that the gains are unrealized. Now, just out of curiosity, how long does it take for those gains to be realized? Or what is the duration of those gains, or is there a way to think about that?
I would say you allow us to kind of run the rest of the year. We'll have more clarity on that. For now, we will look at it, but we'll give a bit more color and a bit more guidance as we get to end of the year. In terms of changing our guidance, honestly, I take the feedback, and it's something we'll look at internally, and maybe we'll start to... It's funny, I sit on another board, and they changed their guidance for the first time ever in their history, and it jinxed them. So we will look, and it truly did jinx them. So we will see if it's something honestly that we want to do, but sometimes we would like to say exactly what I said. It's halftime, things are looking okay.
We need to remain focused, hope we can have another good four, five months, and then kind of finish this off. But thank you very much. And thank you, everybody who came on the call. I think that was our last question for the day. Thank you, and I hope we answered your questions sufficiently as best as we could. Thank you.
Thank you very much, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.