Good day, ladies and gentlemen, and welcome to the Guaranty Trust Holdings Company PLC full year 2023 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 like to hand the conference over to Segun Agbaje. Please go ahead, sir.
Thank you very much. Good afternoon, everybody. Thank you for signing on. On the call with me today, I have Miriam Olusanya, who's the Managing Director of the bank, and Banji, who I think most people know, who is the CFO of the group. We're going to be going into questions and answers since we already have the investor presentations on the website. I just wanted to make one quick correction. In terms of our forward guidance that went out, our net interest margin and NIM is actually 11%, not 8%. I think the 8% was last year, which was 7.88%, so I apologize for that. The forward guidance for the NIM will be 11%. So at this point, I'm ready to take the first questions. Thank you very much.
Thank you, sir. Ladies and gentlemen, 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 your line is 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. Our first question comes from Uyome Bonny of SBG Securities.
Good day, and hello, Segun. Good day, everyone. Thank you for the opportunity to ask questions, and congratulations on the result. I have a couple of questions. I think maybe a good place to start is on the recapitalization announcement by the Central Bank. I guess there's been a lot of questions around exclusion of retained earnings. So wanted to see if you could help us maybe understand that rationale, if you have a view or if yeah, so the rationale around exclusion of retained earnings. And secondly, I have a question, so some questions around market share. I want to get a sense of your view of what optimum market share should be ideally for, I guess, for GTB.
Where you see as an ideal market share point of view, so from either a loans, total loans and total assets point of view, and I guess maybe for the pension fund as well, where you see it, what you see as ideal market share. And on the back end side, I guess there's concerns around your shrinking market share. So if we just compare you to other banks, as well as the larger banks, you seem to be shrinking from a loans and asset point of view, even though earnings still remain strong. I guess the exact question of under- trying to understand at what point market share starts being important again, where you see that. And maybe lastly, particularly just around how the central bank seems to be moving back to normalizing policies in general.
I want to get a sense on AMCON and where, if you think the central bank will push for an end of AMCON, particularly since AMCON is gone past the share life and the burden it's having on banks from an AMCON debt point of view. So I'll pause, pause there on the questions.
Thank you so much.
Thank you.
Let me start from the last one, which is CBN's policies. I mean, I think all of this, we'll see that what the current central bank is doing is really just doing business according to normal market macros, which is what we've all always asked for. So from that perspective, I do think that we're on the right track and all the policies are on the right track. With regards to AMCON, I think AMCON is in a winding down mode, but obviously you can't wind it down in one day. I'm sure there are many legacies they will have to clean up. So I'm sure in the next probably three to five years, there'll be no more AMCON. I think what you'll see going forward is the winding down of AMCON, but it can't happen in one day. Now, I'm gonna take the market share question.
First of all, I don't think we see ourselves as shrinking in terms of market share, because what we are doing is not comparing ourselves to the balance sheets of other banks. We're comparing ourselves to the business we do. And that when you look at the balance sheets of a lot of banks today, what is really useful on the balance sheet of a bank is, from our perspective, are things like your deposits, your fixed security, your loans. And then when we take even our LDR at 60%, it means that we are not even lending to the max. We also have not seen any transaction that we have been unable to do because of our balance sheet. If we had seen that, if you look at all our peers, there are two quick things you do.
One, we're a low-cost producer, which is why our cost of funds is 1.4. But if suddenly we felt the balance sheet was too small, we would do one thing. We would take time deposits, which you see on the books of competitors at about NGN 3 trillion. We have nothing.... We would do other borrowing, and that would help us bridge over. So we never look at market share in terms of balance and size. We always think, what portion of the business do we want to do? Ideally, from Guaranty Trust perspective, we'd like to be at about 8%-10% market share of the indices we think are important. With the PFA business as well, we obviously, it's a new business for us, so we would like to obviously be a little more relevant, be a little more dominant.
We will do it probably two ways. We have. If you look at the capital, we have almost unused capital, NGN 14 billion, which means we are in a position to do acquisitions as well as continue to grow organically. So from the bank's perspective, we're very comfortable with the size. We have enough scale. There are no transactions that we have seen that we have been unable to do, and when that day comes, we will feel this urgency that people think we should feel. But for right now, we're fine, and we think the profitability is strong enough, all the ratios are strong enough, capital adequacy and everything else. But I'm always ready to be engaged on this. I always believe banking is not a playing field.
It's not a business of size, it's a business of scale, and the bank has enough scale to do whatever business it wants to do today within its own risk appetite. In terms of recapitalization, I think that recapitalization had to happen. In the face of the devaluation, the capital of banks had become inadequate for growth. When you look at it, most people, one of the goes, went from about $230 million to about $180-$200. So the banks were just not big enough after devaluation, to do the businesses. You talked about return earnings, but I think you will always have different views on this. Most of the retained earnings of banks might not be liquid. Maybe that's why it's being excluded. Maybe what the CBN wants is liquid capital that can be used to grow the businesses.
So that could be... You could sit on both sides. You could make a case for it, but like I said, maybe a lot of the retained earnings you are referring to won't be liquid. They might be tied up in fixed assets and all types of things, whilst any fresh capital that you bring in will be ready for growth. I think those are the three questions you had asked me.
Yes, yes, they are. Have your local number. I can take it to most people. Thank you.
The next question comes from Timothy Wambu of Absa Bank, Kenya. Please go ahead.
Thank you very much. Thanks, Segun and Banji, and the rest of the team. Thank you for taking time to answer our questions. Segun, just, first question is on thoughts on your asset mix going forward, as you believe it to be, your LDR is quite low at 33%. I think I asked this question almost every call. Is the loan-to-deposit ratio still being limited by the minimum of 65%, and how do you foresee your asset mix changing in the course of 2024, and let's say, over the near term? My second question is on your recapitalization, and are you in a position to share how you intend to go about it?
And then my third question is the impact of the FCY regularization that was carried out end of January. With regards to compliance and are you now compliant, and what sort of impact did you have, or are you looking forward to in 2024? And then just lastly, on this latest directive that speaks of, you know, if you've got collateralized FCY deposits for your lender loans, I just want to get a sense of how significant of an impact this could have on GTB's numbers. Thank you.
Okay, let me start from the last one, which is FCY collateral. As of today, it's not the way we used to do business. So as of today, quick sweep in our system is completely immaterial. I think we only found about $400 million to date. So completely immaterial to us. We never really did business that way. NOP compliance, which is the next thing you referred to, we're completely compliant. We sold, I think, about $150 million to come within the 0 NOP. So we are completely compliant. But what people must remember is that without NOP, we've got some extra equity anyway, which is not in your NOP calculation. LDR. Well, before this normalization at 45%, our CRR plus special bills was 57%, so it would be almost mathematically impossible for us to meet the LDR of 65%.
However, we are looking to grow the loan book. If you look at our forward guidance, we're looking at about 30% growth. The asset mix definitely means that there will be some more loans. Hopefully, you will also see some more fixed income securities, which is only rational under the current situation. So we will grow the loan, we'll grow fixed income, and we'll keep the bonds down. So that's kind of what our asset mix will look like. We'll take on about 30% growth in loans. The rest you will see pretty much in fixed income. Oh, recapitalization plan. I think if you look, I don't think it's any longer a secret because the AGM notice is out. The whole idea is to set up a program for about $750 million.
In the first instance, we'll raise about up to a maximum of NGN 500 billion. That NGN 500 billion will be by way of an offer for sale, which means we're going to do a domestic transaction, where it has all the reporting requirements and clarity of documentation of a Reg S 144A. So in the first instance, what we're going to go for is look for almost like a maximum of NGN 500 billion. AGM notice is out, so I could share that with you.
Great. Thanks for giving a look at that AGM notice. Maybe just a quick follow-up on the question on the NOP position. Maybe just clarify the banks can no longer be long. That's the first thing I want you to clarify, long USD, that is. And the second question, part of the question is, if you were to look at your NOP position on balance sheet, off balance sheet, it was in excess of $1 billion, I believe. And I think you've only mentioned that you sold only enough to comply. Did I get you correctly?
No, before that, we had sold about $300 million, which we used, even without the NNP, to convert some dollar loans into naira, as we started to see devaluation. We did it mainly to a customer called Airtel. So by the time we closed the year, the rule came to about 900-something million, and we sold 100-something. Our loan position is about $800 million equity anyway, so which doesn't go into your NNP calculation.
Okay. Equity, you mean on balance sheet?
Yes. Equity on balance sheet, yes.
All right, great. Thanks.
Thank you.
The next question comes from Oluwaseun Arambada of FBNQuest. Please go ahead.
Thank you so much for the opportunity to ask questions and, congratulations on your results. So my questions will be around asset quality. You've already said you plan to grow your loan book by around 30% in 2024. And of course, I think that's on a constant currency basis, right? So I just want to understand how you are thinking about the riskiness of your operating environment, how that is going to reflect on your NPL ratio and cost of risk. I see that there's a significant drop in the cost of risk guidance for 2024. So I really want to understand how you're thinking about the riskiness of the operating environment, especially in this high interest rates environment. That's one.
Then on the other hand, I would appreciate if we can some update on your Aiteo and WEMPCO exposures. I think last you talked about it, you said Aiteo was, you know, concluding a restructuring process. I just want to know if that restructuring is concluded and what's the update with, with WEMPCO? I think that will be all for now.
Okay, thank you very much. Let me start with your last question. WEMPCO, we're fully provided for. If you look at our financial statements, so forgive me if I elaborate a bit, people that have other questions. We wrote off NGN 129 billion in 2023 against profit, and WEMPCO was NGN 89 billion of that. So WEMPCO is completely written off. All we're doing is recoveries from now. Aiteo, we believe the restructure is almost done. Aiteo money started coming in. If you talk to any of the other banks, you've probably heard about Nembe Creek, which is a new crude that's being lifted, that's being lifted off the Aiteo field. And so money has started coming in, where the debt is being repaid slowly.
Then we're going to go into formal restructure, which I'm hoping will be done in the next four weeks. So WEMPCO, off the books. Anything WEMPCO now is going to be a recovery, which we are going to do. We are going to recover money. We don't just write loans off and don't go after our money, but after we write off your loans, we go after our recovery more aggressively. Then Aiteo, like I said, money started coming in, so we hope that that will be done. You talked about asset quality. We have derisked. Because of the strong profitability of last year, Guaranty Trust Bank took a decision to derisk its balance sheet by writing off about NGN 129 billion in loans.
We are coming into 2024 with a very derisked balance sheet, which is why you see the cost of risk down to about 0.8%. We do believe that there will still be high-end business that you can do, that can give you the 30% growth without bringing on too much risk. I think the reason why we're bold enough to go for a 30% growth is because we've derisked the balance sheet of the profitability of last year. That's why you've got a cost of risk of 0.8% down from 4.6%.
All right. Thank you. Any chance we'll be seeing a write back in 2024?
Yes, you will definitely see a write back in 2024. If you look at our 2023 financials, apart from the NGN 129 billion, which we wrote off. We have NGN 103 billion, which we put aside for possible credit impairment. We have NGN 93 billion, which we put aside for probably financial assets impairment. Looking at the environment, we believe that at the end of last year, the environment was a lot more volatile, a lot more uncertain. Coming into the first quarter, we think CBN has given us better clarity. We think we have better sight as to how the macros are playing out, and so, yes, we will write back some.
All right. Thank you so much.
Okay.
Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star then one on your telephone keypad or the keypad on your screen. A confirmation tone will indicate that your line is 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 to place yourself in the question queue. Our next question comes from Curtis Sasnett of Sustainable Capital. Please go ahead.
Thanks for making the time, and congrats on a good set of results. I'm just trying to think through, just on the non-interest rate side of things. Can you hear me? Hello?
Yeah, sorry, I was losing. You were breaking. Yes, on the non-funded income, yeah.
No problem. Yeah, so just on the non-funded income side, I just noticed there was a big, FX revaluation gain booked, and also a large trading gain. Just perhaps walk me through how that happened. I mean, in particular, with the FX revaluation gain, with there not being any, naira devaluation in the fourth quarter. I'm just trying to reconcile where that gain came from.
Well, in the fourth quarter, don't forget we had booked this. It's not really just fourth quarter. You've been devaluing from halfway last year. We closed last year, I think, something like 461, and we closed the year at 907. So the devaluation probably in the last quarter is what you see, and it might not necessarily be a quarter devaluation, but year devaluation, which got us the NGN 421 billion revaluation gain for the year. So you would have to take the entire devaluation from 461 to 907, and the trading gain is just from regular trading arbitrage.
Okay. I mean, that, if it's revaluation gain, I mean, the devaluations took place end of quarter two, if I remember correctly. So I mean, I would have thought that the whole thing would have been booked in Q2.
Well, I mean, what I've done is do the whole thing, but Banji, maybe you can answer the question if it was a quarter four booking or Q2.
Like GGO said, what we're referring to is on incremental basis. So what you see on annual basis, which you put up there, is when you look at FX 2022, vis-à-vis FX 2023. But if you are looking at quarter-on-quarter, in the third quarter, FAH closes 769 levels, and at fourth quarter it closes 907. But in preparing financial statement, which you have put out, you have to look at what you open with and what we close with, which is 421, vis-à-vis against 907.11, and that will give NGN 421 billion.
Thanks, Banji. So I guess, Curtis, what he's saying is we did have a devaluation in quarter four, which was from 760... Quarter three closed at 760-something, and then we closed the year at 907.
seven to nine-
So the 907... Yeah, so the 907 hadn't happened by half year.
Oh, okay. Okay, now I that makes a lot more-
Right.
A lot more sense than. Yeah.
Yeah.
Okay, great. So thanks again.
Thank you.
The next question comes from Iyani Osele of CardinalStone Partners. Please go ahead.
Good day, everyone, thank you for this. Thank you for the presentation. I'm taking questions. So I have a couple of questions. My questions are basically around... My questions are, so the target for cost of risk is currently at, it's about 0.8%, while looking at the results of 2023, it was actually about 4.5%. I know that it was that high in 2023 because of the decision to basically increase provisioning on the stage two loans. So looking forward at 2024 now, how does the bank intend to achieve this target of 0.8, given that it also wants to grow its loans by about 30%?
My next question is on, so for the banking, the ex-Nigeria non-banking, the ex-Nigeria banking, the contribution to profit before tax was about, for 2023, was about 21.5%, but the target for the next year, that's 2024, is about 22%. I believe this is a bit, it, it's quite conservative, so could you shed more light on that? And, the expectation is that earnings from the non-banking subsidiary in the hold co, will strengthen our contributes about 2%-3% to the growth performance in 2024, how exactly is that going to be achieved, as the current contribution is below 1%? And lastly, so how is the bank looking to better manage its credit risk in the current economic climate, given how the economy is now and its possible impact on borrowers? So thank you.
That's all.
Okay. I think your last question is very closely related to your first, which is, how is cost of risk going to go to 0.8%? Just like you said, I think you had answered very articulately that we basically put aside about NGN 103 billion, and so we upped our cost of risk. So even just by writing that back, your cost of risk comes down to 0.8%. There is another thing we are all assuming. First, because we've cleaned up our loan book, we're not carrying any legacy NPLs into 2024. Therefore, the only way cost of risk can go up is if we're reckless in 2024, and we book loans that are bad.
We do think even under these macros, there will be good loans in 2024 that will give us 30% and will not go bad, and that many of the loans people should worry about that might go bad in 2024 are the ones that were booked pre-2024 and not in 2024. So I think we're comfortable with a customer risk of 0.8 and a loan growth of 30%, even under these macros, because I think everybody's more discerning as to what the environment will throw up. The companies are probably better prepared. They probably won't be taking account of devaluation losses they took in 2023. They will have to continue doing business, and for as long as they're in business, we're also in business. I think we can find the 30%.
You said, could subsidiary contribution at 23% is conservative? Possible. But at the end of the day, we are going to push our subsidiaries. We're gonna make sure they attain their full potential. But we're also going to hope that Nigeria is going to continue to do so well. And the reason we have this 77% for Nigeria is there's something that people should notice in our financial statements. There is still a tailwind on the book of the Nigerian bank, and it's the pricing of the derivatives. We have not priced our derivatives like most of our competitors. Our derivatives are still priced very, very conservatively, and as the macros settle, we will reprice those derivatives, which will give Nigeria a tailwind. So we might not be as conservative at 23% as you think, because we still think there's a tailwind in Nigeria.
But if we are, then the results will be better for the subs, but we'll continue pushing them. Non-banking subsidiary is 0.9, which is really 1%. We could round it up. So what we're looking for from the non-banking subsidiaries is another 1% or another 2%. These banking subsidiaries have basically run 1.5 years, and they are doing very well, and they're growing exponentially. If you look at the growth rate of the profits of the non-banking subsidiaries, you start to see figures like 685% growth, 385% growth. At that kind of growth rate, consistently sustained, they will get to 3% of growth.
What makes us comfortable giving them 2%-3% is their historical growth rate, because if they're growing at 600%, 300%, then they'll get us to the 2%-3%. Okay?
All right. Thank you. So, just an additional question. So looking at the loan growth from 2022 to 2023, I know that grew organically and also due to the devaluation of the naira during the year. So if we're looking at the growth in the loan book, basically just on the side of the organic growth, that is basically backing out the foreign exchange impact, what is the growth going to look like?
It is actually in the investor presentation, it's 2.4%. In 2023, we decided we were not going to book loans aggressively because we were very, very uncomfortable with the macros. There was just too much volatility, and in our opinion, we made the right decision. We think 2024 is a bit more settled than 2023.
All right. Thank you. Thank you for your response.
Thank you.
The next question comes from Kato Mukuru of EFG Hermes. Please go ahead.
Hello. Hello, Segun. Can you hear me and team?
Yeah. Hi, Kato. How are you?
Hi. How are you? Great set of results. I mean, it's incredible what you were able to achieve given the tough environment. I wanted to start my question by asking about the guidance. I see you have NGN 806 billion of guidance in 2024. Is this before the NGN 500 billion of capital that you expect to raise? And if it is before, that means, isn't it clear that the risk to this guidance is clearly to the upside, with an additional NGN 500 billion of capital? And also, the return on equity that you have given in terms of guidance of 40%, is that also pre the NGN 500 billion? That would be my first question. So I have one after that. Thank you.
Okay. No, it is actually post. But also we're not even sure yet. So it's first, we built in whatever additional capital will come into the business, but we've tried to be conservative based upon when the capital might come in and how much of the year we will have to work it, and that's why it's 8.06. Obviously, it comes early in the year, then we have a bit more time to work it. If it comes late in the year, then we don't have quite as much time to work it. So it's built into the 8.06, and the 40-odd% ROE you see is also after that. So we're pretty comfortable that if we bring in $500 capital into this bank, we will give you the 8.06, which will give you the ROE of the 40%.
The numbers you'll see have built in a capital raise, yes.
Oh, okay.
And for us, we're comfortable that if at this capital raise, we can still have an ROE of about 40%, then that's a good downside. And that every other thing is an upside, both from an ROE perspective and a PBT perspective.
But will the capital ratio-
Yeah.
Sorry, sorry.
Go on.
Now, I was just saying, wouldn't the capital ratio be much higher? Sorry.
Yes, it could be actually. You're right. The capital ratio-
Yeah
... should be much higher, I mean, because we should have deployed it by year end. So yes, it will be, but we built into the profitability ratios and the other ratios.
Okay. And if I could ask another question, I mean, you and I have the benefit of being through this before in terms of massive capital raising, systemic-wide, and, you know, we have seen a lot of people die with a lot of capital over the years. If we look forward, what do you think is going to define the winner in this next round of capital increases that everybody is doing? What should we see as the winning formula for a bank in Nigeria or the Pan-African Bank as well? If I look forward over the next 10 years, what do you think is gonna be a key determining factor?
I think that the first thing is, if you've been through this thing before, the worst thing you can do is to rush and deploy it into risk assets. If you do, you will lose plenty of money, because in trying to work the capital to give you a return too early, you're gonna waste it and pick up NPL. So you must be able to hold your nerve and deploy the capital in a very methodic way and not rush the capital into loans. I really think that is the major thing. The second thing is, you really must have cleaned up your loan book. If not, you are going to use all the profitability of this capital to clean up the NPLs you haven't.
So if you ask me who's gonna win, it's gonna be someone whose loan book is well derisked already, where when their NPLs start coming, they're not going to be using the profits of the new capital to defray those NPLs, and they're mature and patient enough to work the capital productively and not pick up bad loans. I think once you start to see that, and also maybe deploy some of the capital into their businesses that have 50% ROE, that have potential within and outside Nigeria, and then you start to see people who truly understand the power of that capital, the patience in deploying it and the kind of returns it can give you.
Thank you very much. Much appreciated.
Thank you. Ladies and gentlemen, please note, 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 your line is 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 next question comes from Josh Oroyo of Stanbic Pensions. Please go ahead.
Hi, good afternoon. Can you just confirm if you can hear me?
Yes, I can.
All right, thank you. Congratulations on your results. Pretty, pretty strong set of financials. I have two questions. First one is on dividend, and it's essentially, considering the strong growth in core earnings, it would just be great to get a better understanding of management's decision to cut the final dividend, which led to marginal growth in dividend. And was the decision at all impacted by the new capital requirements? So that's the first question. And then the second question is a follow-on question to Timothy's, which is on the NOP or the bank's loan position. So if I hear you correct, it's about $800 million still, equities.
So does that mean that for moving forward modeling, should we still expect to see revaluation again, every time, or if, as they got a bit more down, down that... If there's more depreciation to the naira? Thank you.
Well, I'm happy you put the Q to bed. For us to see any revaluation gains again, you would... Well, sorry, maybe I'd be speaking at year-end, you'd have to be over 987, first quarter, you'd have to over 1,300. But the answer is yes. If you go above 1,300 again, after the first quarter, there will be revaluation gains, yes. The dividend, we had to restrict the dividend. I think the central bank has a rule now, so we did our own calculations, where if you have a forbearance loan, you are encouraged. There's no point to go in and get a pushback about how much of your profit they would like you to retain. We have one major forbearance loan, which is Aiteo, which is about NGN 300 billion.
It therefore restricted the ability of our calculation of how much dividend we could pay. But like I said to you, or I said earlier on in this call, Aiteo money has started coming in. If by the time we get to half year, Aiteo has been properly restructured, then we can take away the forbearance status of it and be a bit more bullish in our dividend payout. So the simple answer is, we're a bit more conservative in our dividend payout because we have the Aiteo forbearance on our books still.
All right. Thank you very much.
Thank you.
The next question comes from Karim Sawabini of Moon Capital Management. Please go ahead.
Hi, guys. Congrats on the results. two questions for me. one is, what is the FX assumption you're making, when you provide the guidance? And then the second is on NIM. You've got it to 8%. Just wondering, so if you look at where spreads are today, and on the Naira side, well, and if you take in NGN 500 billion, what is the - what are you assuming will be your spreads for the year on the Naira side?
Okay. Sorry, Karim. You weren't on at the beginning. That was actually an error, and I apologized at the beginning. Our NIM is actually 11, and what was picked up in the forward guidance was basically last year, which is 7.88, and it was rounded up to eight. So the NIM is actually, the NIM guidance is actually 11%. In terms of FX, what we've tried to model into our year-end figures was the 907.
Okay. So we obviously spot that there's upside to that number. Just there. Okay.
Yeah, which is what I was explaining. I think it was to Curtis as well, or no, it was to Catherine, that in that NGN 806 billion, we have modeled when the capital will come in-
Right.
- and put it late in the year. If it comes in early in the year, as you know, we're in a high interest rate environment. Even without doing anything crazy, we believe we can make a good return on it, or we try to model it coming in a bit later in the year. So there is, in that 806, my belief, an upside, yes.
Just last question on my side is on the capital raise, assuming that, you know, you won't be able to deploy that rapidly, the assumption is it's going to be invested into short-term duration securities. What is the yield you're assuming on the Naira security book for the year?
20%.
Okay, great.
We assume that capital can do 20% from when we get it, to when we deploy it into risk assets in the short term.
Perfect. Thank you very much.
Thank you.
The next question comes from Curtis Sasnett of Sustainable Capital. Please go ahead.
Segun, just with regards to the situation in Ghana, am I correct in saying that you know, the securities down there, that's all kind of now been fully provided for and kind of going forward, that situation's all kind of you know, all the dust has settled? And then also just two kind of, again, accounting-related questions on the Q4 numbers. If you could also just walk me through the loss in the forward, and also just why the effective tax rate was so low.
I think we lost you.
No, no problem. Where did you lose me?
Okay. Yeah, can we do the... Okay, I got the Ghana question, but can you please start the second question again?
Sure, no problem. Yeah, so just the accounting-related question on the Q4 numbers. Could you just perhaps walk me through the—I saw there was a loss related to the forwards, and then also just why the effective tax rate for the quarter was so low.
Okay, I'm going to let the CFO take the second question. I'm gonna take the first. In terms of Ghana provisions, you know, Ghana's restructured everything but the Eurobonds, so we have, there's no problem with that. The real problem is still around the Eurobonds, because they haven't fully done that, and we're at different stages of provision in different jurisdictions. What I would say, we're about 50% provided, with the different jurisdictions providing different things. So Ghana obligations, all done, apart from Eurobonds. Total Eurobonds exposure of the group is $97 million. We've probably got about $45 million-$50 million provision. So if Ghana were to go completely pear-shaped, it would be about $47 million hit. But I've got to make it very, very clear that we have no intentions of agreeing to a haircut on the Ghanaian Eurobond.
We believe that if a sovereign takes debt, it just takes debt. So we will not concede for haircut on these Nigerian sovereign default. But in the worst case, we are making our provisions. I'll let Banji answer question two on the quarter four loss on the forward and the effective tax rate.
Thank you, Gisli. For the effective tax rate, it came low because like we explained earlier, exchange rate as at third quarter was 769, and as at close of business, FY 2023, exchange rate closed 907.11. So the devaluation gain impact sums to, like NGN 140 billion, and that's not taxable. So that's what impact the effective tax rate. And the loss on forward has to do with mature swaps, which CBN did not roll over in January. So we couldn't do the valuation through what the GTCO had approved, which coming, the rollover, we'll do the valuation, we are going to have the gain. So when mature swaps mature, what it does is that you reverse the previous derivative gain, and that one will be the loss, which we took as at FY 2023.
Also, a follow-up explanation to that loss on the swaps is, you will notice that the liquidity ratio was 31%, and that was because the swap hadn't been booked. Right after the swap was booked, that liquidity ratio went back up to about 38%.
Okay, excellent. Great. Thanks, James.
Thank you.
Our next question comes from Johan de Bruin of 337 Frontier Capital. Please go ahead.
Hi, Segun and Banji. Thanks for the call. Appreciate the time and the insights. My question is, and forgive me here, just trying to understand this capital raise. Is this purely as a result of the CBN regulations? Do you, as a business, need this capital? And can you just talk me through the mechanics of the raise? How much of it is equity versus bonds or any other form of capital? And then lastly, if it is in equity, and part of that is, I assume, an issue or a specific equity raise, do you have shareholders that are willing to underwrite and to back this?
Just thinking of this in context of all the other banks, and some of which are in much dire, more dire capital positions than you, and requiring a lot of capital to be recapitalized. So can you just talk me through the mechanics of this, the need for this, and just how you see this playing out over the next year?
Okay. First of all, I do believe that the banks need capital. At year-end, the devaluation of the currency was over 100%. It therefore meant, and it still means, that your ability to do business from a one-off legal perspective has diminished. At one point, you could do a transaction size on your own if you were Guaranty Trust, about $380 million. After the devaluation, this went as low as, I think, $180, $160. I think we're back up at about $200. So if you're planning for the next five years, unless you're in a no-growth scenario, whether the CBN asked you to raise capital or not, you must raise capital so that your deal sizes will not shrink, because you have had a devaluation.
So in dollar terms, your one-off legal has gone down, your ability to do transactions, and that, you know, you need to pivot for growth, and you need to prepare for growth over the next five years. There is no way that in this type of devaluation environment, you could have kept the same capital and grown over the next five years. You wouldn't have grown. You would have just shrunk in terms of the business you can do. The second thing about the capital raise, you said you wanted our own modalities. First, we've done a program for $750 million, but we're going to try and get approved a program of $750 million, which means it could be equity or bonds, but we're not starting with bonds, we're starting with straight equity.
We're gonna try to raise about NGN 500 billion, up to NGN 500 billion. Do I believe the money exists? Absolutely! I think you must remember that we do have a domestic market. We have PFAs, we have retail individuals. Guaranty Trust has about 15 million active customers, has about 20-odd retail customers. You have institutional customers. So domestically, there is money. I also would like to believe that Nigeria and the macros have improved, and that the currency is stabilized, and that most people who wanted to take their money out of the country from a liquidity perspective, have been able to.
That when we look at the valuations of Nigerian banks today, there will be investors who might think this is a good time to invest for the growth that will probably happen to the banks who play this right over the next five years. I can't speak for everybody, but from the perspective of Guaranty Trust, I do believe there's more than enough money to give us the capital we need.
... Johan, does that conclude your questions? Thank you. The next question comes from Kina Tebe.
Yeah.
Apologies.
Sorry, please go on. No, please go on.
Thank you. The next question comes from Kina Tebe of Mazi Asset Management. Please go ahead.
Yeah, hi. Thank you for the pleasure. Yeah, I just wanted to follow up on, I mean, I have similar questions to Johan. So basically, just to confirm that the NGN 750 or NGN 500 will be a right issue, basically, to local investors?
No, we're not doing a right issue. We're doing an offer for sale. We're doing an offer for sale. It will be a domestic transaction, but all the reporting and disclosure requirements will meet Reg S and 144A disclosures. That is the type of transaction. So for any foreign investor who wants to invest, the documentation will be documents that you're used to, and can go through compliance from a Reg S or a 144A perspective.
Okay. No, thank you.
Thank you.
The next question comes from Timothy Wambu of Absa Bank Kenya.
Thanks. Just a couple of follow-up questions. Just two, actually. The first one is a follow-up on the question asked by inaudible. So this net impairment on financial assets has been significant of late. I look through your comprehensive financial numbers, and I see that it's largely due to impairment done on contingencies. I need permission to just give us a view on outlook, and what are the drivers for this? Because I can see the inaudible portion is not as significant as contingencies. And then the second question is on,
Sorry?
Can you hear me?
Yeah, sorry, I lost you for a minute. Yeah, you said you could see the inaudible portion, yes.
Yeah. That doesn't seem to be as significant as the impairment on contingencies. So can you just give us an outlook or a view and the drivers going forward as to how we should look at these net impairments on other financial markets? It is a significant portion, especially recently. And then for the second question, I've been tracking your capital ratios, and I was a bit perturbed when I noticed that your Tier 1 ratio had declined, but I see it's because you used your half-year retained earnings. Is there any particular reason why you did not use your full-year retained earnings? Thank you.
Ladies and gentlemen, apologies. Please remain online. Our main speaker will be rejoining shortly. Thank you. Ladies and gentlemen, apologies for the delay. Please remain online. The main speaker will be rejoining us shortly. Thank you. Ladies and gentlemen, apologies once again. Please remain online. The main speaker will be rejoining us shortly. Thank you. Ladies and gentlemen, apologies for the delay. The main speaker will be rejoining us shortly. Please hold. Thank you. Ladies and gentlemen, apologies for the delay. Please remain online, and the main speaker will join us shortly. Thank you.
Hello. Sorry-
Ladies and gentlemen.
Yeah. Sorry,
Please go ahead, sir.
... I was having technology problems. Can I go back to the last speaker? I remember the question was about the impairment on financial assets. Is that correct?
Yes, if you can hear me, I can proceed.
Yes, sorry. I, I really apologize. I think you had asked me the question on financial assets, which I was ready to respond. Yes, you're right. Which is why I said to an earlier speaker, that you will see a write back. Because now that we know what the Ghana situation is, we've done our worst case analysis, we've got about $40-something million. So yes, we, we will write back, which I've said to an earlier speaker, that when we take impairments, when the macros become clearer, so you'll see a write back of some of those impairments. Yes.
Thanks again. I was actually referring to the fact that the impairment on the contingent might exceed the Ghana exposure. So I was trying to get an idea, what's the driver here, and is it also bound to improve or correct with improving macro? Is that the way we should look at the impairment?
Absolutely.
-contigents?
Yes, please.
Yeah.
You should look at the impairments that way, because we were just looking at, like I said, I think the macros at 12/31 were a bit more clear and a bit more volatile than they are today. So you will see a reduction in that. Yes.
All right. My other question was, when I looked at your core capital ratio, I noticed that it had declined, and there was a bit of a headwind, given that you had seen very strong growth in earnings. I think in a proper breakdown, I can see that you used your half year retained earnings. Is there any particular reason that is the case? If you had used your full year retained earnings, what would have been the core capital ratio? And then just lastly, just to follow up, so if you have this question, it's really on that NPL exposure. We've had other banks say that you cannot be long, completely, you cannot be long. Almost telling us that the era of FX revaluation gains is behind us.
Can you just, clarify that kindly? Thank you.
Look, sir, I really can't talk for other banks. You asked me a question which you have to ask them. You will have to ask the banks if they have, if they have any dollar equity. I think with your dollar equity, you can move on. The second thing is, the reason why we used half year results, is that's what the central bank asked us to use for the capital calculation. And I believe that if we had used the year-end numbers, the capital adequacy ratio would have been about 28%.
Great. Thank you.
Thank you.
The next question comes from Isaac Busari of WSTC Financial Services. Please go ahead.
Good afternoon. Please, can you hear me?
Yes, I can.
Okay. So looking at your forward guidance, you mentioned that your profit before tax for 2024 is around NGN 860 billion. Yes, I know you mentioned the fact that with the new, if you are to raise capital, with the coming NGN 500 billion, that should probably put up your profitability to around NGN 800 billion. But when you look at your 2023 profitability, which is probably before tax, one of the major driver is your FX gain. And if I have to strip off the FX gain from PBT... will not get up to $300 billion. So does that mean that you also factor that in the 2024 guidance, or what is really driver of the 2024 guidance in your PBT?
First of all, I think all the drivers of PBT will be in 2024. If you look at what our interest income was, which is our core business, it grew by 69%. If you look at our commissions and fees, it's growing by about 80%, so the core business itself is growing. Do we have some FX revaluation gains in there? Not really. What we have in there, as I mentioned earlier on, are derivative gains, which our derivatives are still priced way, way below even 906. So I, I think we're very comfortable, and I think you should give us some credit about our guidances. We're not known for giving guidances, which we don't meet. You can see what we gave you in 2022 as a guidance, and where we arrived.
We are very comfortable about the drivers of the profit for 2024. They'll be partly core business. We believe we will get some of it from the proper pricing, or new pricing of the stability of our derivative book. uncertain , which we will work in 2024, and then all those factors make us quite comfortable and confident about 806 for 2024.
All right. Thank you very much.
Thank you.
Our next question comes from Kato Mukuru of EFG. Please go ahead.
Just one more question. When the CBN was discussing the capital increase with the banks, what did the... What was the CBN's comment with regards to shareholders? You know, I understand that the system needs capital on the whole, but this kind of seems pretty tough on shareholders who have to take huge dilutions. Was there any discussion of at least... And also, you know, you are also limited on being able to provide a big dividend. So was there any discussion on returning capital with shareholders in another way, such as a buyback, for example? Just, I think, just keen to understand what they were thinking in terms of how shareholders will respond to all these capital raises.
Well, honestly, Kato, again, you're trying to make me operate above my pay grade. I can't really speak for the regulators. But I do believe that the regulator was thinking more in terms of financial stability, financial system stability, and that on the back of the type of devaluation we had, they felt that a recapitalization was needed for financial system stability. I also believe that for investors and shareholders, truthfully, who are thinking long term, that coming up with the capital will make a lot of sense over the next three to five years. I remember the last capital raise we did as a bank was in 2007, and it was after that, that the financial crisis happened. And that capital allowed us to ride the financial crisis, both from the NPLs we picked up and from a growth perspective.
So I am a firm believer that shareholders should give the capital now, and that the banks will well capitalize. Back to your question, who do the right things are really going to be much, much stronger in the next three to five years. Then if you're taking a long-term perspective on your investment as a shareholder, it is probably the right thing to do to raise capital now.
Okay. Thank you.
Thank you.
Our final question comes from Ngozi Chukwuneke of Anchoria. Please go ahead.
Thank you very much. I wanted to ask concerning your derivative. You made mention that you priced your derivatives more conservatively against your peers. So given the appreciation of the currency we are seeing now, what's your outlook on derivative gains into this year? And then on your possibility of potential write-back, I want to know, is this on two fronts? Is this on the loan front and also on financial assets? Are you seeing a possible write-back both on impairment charges on loans and also for other financial assets? And then for your NIM guidance, I wanted to get clarity. Did you make mention that your NIM guidance for this year is 11% as against to what we're seeing on the presentation slide of 8%? Thank you.
Yes, and I apologized right at the beginning that I think what was picked up was last year's NIM, which was 7.88%. So our NIM guidance is 11%. We will write back both the own and financial asset impairments this year, because like I said, we think things are stable. I really cannot speak for whether other banks will have reversals on their derivatives, but we're pretty comfortable that if your derivatives are still priced at about 461, that you still have a pretty long runway for derivative gains, irrespective of the appreciation and where we believe the currency will settle. And I mentioned earlier on, when Karim of Moon asked me what we were looking at in our 2024 figures, and I said nine and seven.
So we do believe there are still derivative gains on our books, but I can't speak for others, because I don't know how they price their books.
Thank you. And then lastly, on the capital recapitalization, are you positive that you're going to be getting the NGN 500 billion that will be concluded this year? I know the CBN has given a timeline of two years, so are you positive that you'll be getting that this year? I know it's priced into your guidance for this year.
Well, if we price it in, we must be reasonably positive about raising it, so I would say yes.
Okay. Thank you.
Thank you.
Thank you. That was the final question. Can I hand over for closing remarks?
Well, thank you very much. Again, I thank everybody who's kind of been with us. Hopefully, we've given some clarity as to what we did in 2023. We always have to be a bit careful what we say about 2024, but I think, you know, I'd just like to say we're pretty optimistic and upbeat, as you can see by our guidance. Thank you very much. Have a good evening. God bless you all.
Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.