Good day, ladies and gentlemen, and welcome to the Guaranty Trust Holding Company Plc's Full Year 2022 Investors and Analyst Conference Call. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal for an operator by pressing star and then zero. Please note that this call is being recorded. I'd now like to turn the conference over to Mr. Segun Agbaje. Please go ahead, sir.
Good afternoon, everybody. Thank you very much for signing in. On the call with me today to help, maybe shed more light on things you have Miriam, who's the MD of Guaranty Trust Bank. You have Banji, who's the Group CFO. You have Kelvin, who runs the Funds Management business. You have Eddie, who runs Habari, and Tom, who runs the PFA. I will basically anchor and answer what I can. Where I can't, I will ask one of these people to help me. We have had the presentation online for about 2.5 days now, we won't be making a presentation. We'll be going straight into questions and answers. Thank you again for signing in and calling in. Yeah, let's start with the first question.
Thank you very much, sir. Ladies and gentlemen, if you would like to ask a question, please press star and then one on your touchtone phone or on the keypad on your screen. If you decide to withdraw your question, please press star and then two to remove yourself from the list. Again, if you would like to ask a question, please press star and then one. The first question comes from Ronak Gadhia from EFG Hermes. Please proceed with your question, Ronak.
Good afternoon, Segun and team. Thanks for taking the time and my questions today. My questions are really twofold. I guess we're entering in a period of uncertain times with the new regime coming in. Maybe could you just talk us through about some of your base case assumptions on some key economic indicators, like inflation, exchange rate, interest rates, you know, what you expect from that and what potential impact that could have on the business. The second question is on the Non-banking segment, particularly Squad, the payments business. Could you just share some. What some key KPIs about, you know, how many merchants do you have on that platform?
How many banks are you clearing for? You know, what we should generally expect from this business over the next 3-5 years? Thank you.
Okay. Thank you very much, Ronak. What I will try and do, I'll try and expand a bit on each question so that hopefully I'll take some of the things other people are thinking about. Like you said, in terms of what we see, we definitely have a new government coming in. What do we see? Let me start with foreign exchange. What you basically hear, if you listen to all the candidates who campaigned as well as this president, is everybody talks about convergence. We'll all have to figure out what convergence means. Does it mean 650? Does it mean 700? Does it mean 750? One thing I'm clear about is that convergence means we will have a devaluation.
Wherever that, whatever that is and wherever it ends up is, are what we plan for and what we're stress-testing our balance sheets and our capital for is a devaluation. In terms of interest rates, as you started to see, 1-year bills were like 14.7, yields of about 17, so we think you're going to start to see a move upwards in interest rates going towards inflation, which is about 21%. I think once you start to do this, there will be a tampering of inflation. We don't see a runaway inflation. I think once you see a devaluation and you look at interest rates. We have looked at these things in terms of a couple of things, our loan book, our capital ability, and we feel pretty comfortable.
If you have a long position, means you will add something to your profit and to your retained earnings. We will, however, also look at certain impairments that might run through the balance sheet, and there might be an opportunity to take it. For us, normalizing of macros, which is what we like to call it, we see as positive for the bank. In terms of the subsidiaries, I will start and end up with Squad, which I think, or Habari, which, you know, people are a bit curious about. First of all, as you can see, all the non-banking subsidiaries are P&L positive. You have our funds management business that did a profit of about NGN 275 million, went from about NGN 27 billion under management to NGN 108 billion at the end and growing.
I don't want to spend too much time on people asking me more questions. Maybe later I'll shed some more light. In terms of the PFA, it's growing as well. We are not that bullish on what you call AES. We're at about NGN 59 billion end of the year and growing. AES for us is really wholesale, and we'd like RFAs, which we believe are more sustainable on account of retail. If we hit somewhere around NGN 100 billion in AUM this year, we're happy. In PFA, sorry, in funds management, if we kinda get to about NGN 250 billion, I think we've done our work for this year. In terms of Habari, as you've seen, we did tell everybody we were going to be very transparent with Habari and that we were going to publish the figures. Habari did NGN 926 million.
I know there's a lot of are very concerned because we don't see their own figures. The profitability of Habari is actually a very easy thing to understand if you understand the business model. The business model for Habari was never to burn equity to gain market share. The business model for Habari was always to put something together where the company could pay for itself, and that's what you've seen in the first six months of the year. The money has come from really three, four different things. One is what we call value-added services, which is basically airtime and SMS. In terms of airtime, Habari is doing about NGN 12 billion a month, and in terms of SMS transactions, about NGN 540 million. Also, the capital of Habari is intact, so we have investment income.
We're also then making money from online, offline acquiring, which is growing. The first quarter is actually much better than what you saw at the end of the year. We are ramping. In terms of online, offline and switching, we're approaching NGN 500 billion a month. The aim is by half year to make sure that the online, offline acquiring switching business covers the expenses of Habari completely. Everything we get from investment income and from investment income and value-added services will go straight to the bottom line. We are very optimistic we will achieve this by half year. Yeah, that really is the Habari story. If you would like a bit more, want me to share a bit more color, I'm very happy to.
No. Thanks. Thanks for that. Just one quick question also to add. Can you give us an update on where the securitization process is? It seems early in the year there was some momentum towards that securitization process. I think that died down since the election, so maybe you could just update us where the process is and what that could mean for your numbers. Thank you.
Okay. Well, honestly, we haven't heard anything about securitization, but again, that's a potential upside because if we're asked to sterilize our CRR and we've asked sterilized CRR and put them into ways and Means type bonds, then it can only be better for us. The CRR ends 0. Special bills earn NGN 0.4. If that does happen, that's just another upside for the second half of the year. There hasn't been any real talk or traction that I would say is meaningful enough for me to comment on.
Okay. What would your excess CRR be? Let's assume, you know, the minimum cash reserve requirement is 30%. What's your excess CRR about that level?
Okay, we're NGN 1 trillion. NGN 1 trillion is about 36%, so our excess CRR must be somewhere around to about NGN 40, NGN 4. I mean, about NGN 40 or NGN 400, I think, 'cause we're at 36% CRR, so we would be doing about 4% on a NGN 1 trillion. Would be excess for us. Over 32%. Even though we have noticed that not every bank is within that 32%.
Okay.
Ronak-
I don't-
Do you have any further questions?
No, that was it from my side. Thank you.
Thank you very much, sir. Thank you. The next question comes from Timothy Wambu from Absa. Please proceed with your question, Timothy.
Thank you. Thank you, Segun and team. Thank you for taking time to answer. My first question is with regards to Ghana. Just to understand from the presentation the impairment on the Eurobond. Is this only one Eurobond, the one that missed a payment in January or February? Can you just clarify on that? Maybe just shed some light on the private sector lending performance in Ghana. Are there any concerns with regards to asset quality? The second question is on your NIM outlook. It appears modest from my perspective, given that it's lower than your F-four twenty-two guidance. Maybe speak a bit further into that, why you're only guiding at 7%, lower than the 8% you had originally guided for F-four twenty-two.
Lastly, in response to the potential removal of the subsidy, we've seen the FG look to propose an increase in the civil servant salary way up to 40%. I just want to get your sense on whether the private sector will be looking at something similar. You know, just to pick your brain on that. I don't know that you've given it much thought. I would just like to get your view on that. Thank you.
Okay. Thank you very much. Simple answer on Ghana impairment is we took an impairment of 30% on all the Eurobonds, irrespective of which one. For the one we held in Rwanda, we took 45%. Asset quality, we don't have a lot of issues in Ghana in terms of asset. About 3% NPL. We were very conservative. If you look at our loan to deposit ratio, it's about 28%. We really don't expect a lot will happen to us in terms of asset quality. The problem we've had in Ghana, and that's why we put the slide and we're very transparent about it, is, you know, rather unfortunate. We were reckless in Ghana, but all that was based off on sovereign debt. NIM guidance, you might be right. We might have been a bit conservative.
It's from the fact that we were flat 2021, 2022 at about 6.6%. If we do see some yields pick up, it's not impossible we'll get the NIMs to 8%. Again, it will depend how much CRR is being taken off us and how much Special Bills. If you look today, 56% of our LCY deposits is based in Special Bills and CRR. That really mutes what you make in terms of your NIM. If there's less of that and there's an interest rate pickup, I think the NIMs at about 8% are not an impossible target. Look, in terms of really what's gonna happen in terms of subsidy removal, your guess is as good as mine. First, I think subsidy removal is a very delicate issue, and we'll have to see how it'll be handled.
If you remove subsidies, then if the subsidy is removed, then I think generally we're all going to have some wage inflation, because especially for those who are lower down your station and those who might not consider professional staff, you will actually have to increase their salaries and you might see a bit of wage inflation in the second half of the year as the subsidy removal. I don't know if I answered your questions correctly?
Yes, you did. Thank you very much.
Thank you.
Thank you. The next question comes from Oluwaseun Arambada from FBNQuest. Please proceed with your question.
Hello. Thank you for hosting this call. The first will be around your loan growth policy. I remember in previous calls, you had talked about, you know, much of your loan growth coming from your Nigerian business and then, you know, maybe not so much of a compelling reason for an aggressive loan growth in other markets because of the higher yields you're able to, you know, get from fixed income securities in those markets. With the Ghana situation, how are you rethinking your loan growth policy? Are we going to see, you know, stronger growth numbers than what we saw at least for last year, going forward?
Also in that same line, when you say higher yields in other operating markets, can we know which markets exactly, you know, we're now looking at if that is still the story for this year? Something else in line around asset quality. I would appreciate an update on your ITO exposure. I also recall, you know, I think that was at the H1 call you talked about, you know, WAMCO undergoing a restructuring. I would like an update on that. All right. Secondly, on your non-interest income line, I saw about NGN 800 million, an income of about NGN 800 million in under asset management income, and that was non-existent in the previous year. Could you just shed some light as to, you know, that income?
For your payments business, last conversation was that Habari was about 0.3%-0.4% of group and that you had a target of 1%. Would appreciate like a progress report on that end. That would be it from me. Thank you.
Okay. Let me start from the last one, Seun, since I didn't have a chance to write it down quickly. As you can see, as at the end of 2022, the subs, the non-banker subsidies were about 0.8% of group. What I said about Habari is odd. We're about 0.3%. We're hoping that at about 2023 the non-banker subsidies will give us 2%. If you look at the figures, like I said, first quarter we're pretty optimistic that we're on track. Now let me Our funds management which you've spoken about, those are just our fees for our assets under management. As you can see, we've gone from NGN 27 billion to NGN 108 billion. You know I'm not the expert.
Depending on whether you have a mutual fund or you have own funds which you're managing a proprietary way, that's the income we've earned from it. As we showed in our presentation, that's on NGN 108 billion assets under management. In terms of loan growth, Nigeria is still where the loan growth is gonna come from. Obviously, we're always very careful if we're about loan growth in Nigeria because we still believe there are challenges in the environment. The loan growth is what dictates what we do in terms of deposits. You see that we didn't meet our guidances for both is because one pulls the other. There's no point us going 25% deposit growth if all we're gonna do is park it in CRR or Special Bills.
We grew the deposits 4%, we grew the loan book 5% based in Nigeria because that was what we saw in Nigeria and we were being a little careful. In terms of Ghana, we're not gonna change. Obviously any country that has defaulted in terms of sovereigns means you have a harsh operating environment. If you go out and book loans aggressively, you're just gonna pick up NPLs. What we're doing in Ghana is we're not going long. Even when we go investment securities, we're going Treasury bills. They also have like 14-day placements, which is what we're playing. We're not going to because of yields coming down going to a loan book because you can tell the environment what you have is inflation at about 40 something %. I'm not sure that's where you go and grow a loan book.
everywhere we're operating we're seeing higher yields. Even countries like Kenya, which historically in terms of fixed income securities were low yield countries are up. As inflation is up, we can basically take advantage of the yields in those countries. The only thing we have to do better in those countries is drive our low cost deposits so that we have enough scale to go into that. Nothing's changed. We're not gonna be aggressive outside Nigeria on the loan book. Even in Nigeria, we're gonna be very cautious. The restructured loans, IT and WAMCO, they're still there. We're battling them. These are our own restructured and forbearance loans, which are about NGN 280 billion, which is about 16% of our loan book. There has been progress.
When you're dealing with so many banks and one customer, we all have little things we want to see in the restructure. I wish I could tell you that we are finished. The good thing about all this is that I think the central bank is watching very carefully, what you're doing with this forbearance loans in terms of how much dividends they approve for you, so that even if we all don't get out of all these forbearance loans, we would have built up the capital and equity to deal with them. I hope I've answered all your questions.
Yes, you did. Thank you so much. Just a follow-on to, you know, to that. Hello, can you hear me?
Yeah, yeah, sure. I can.
Okay. Yeah. Just a follow-on. In my thinking, right, you said the focus would be on treasury bills play more probably in Ghana, you know, and then you're probably looking at higher yields in markets like Kenya. To my mind, does that not mean that, you know, we can expect to see some form of, you know, margin compression in 2023 if you're still going to be conservative with your loan growth in Nigeria and, you know, you're opting for shorter-term instruments in Ghana? I mean, that's just my thinking. I mean, I want to know what you think.
No, absolutely not at all. Remember when Ronak spoke, if you look at Nigeria, the yields on your fixed income is going up. Your one year should have a yield of 17%. We're all going to have to move our loan book pricing. Our loan book yields for last year was 18.8%. We're definitely gonna better that this year. The fixed income portfolio was 5%. We're definitely gonna better that this year. No, you're not gonna see margin compression in Nigeria, which is easily going to be about 65% of this year's profit. In Ghana, might we see some margin compression? Possibly, we'll try and make it up in terms of the size of the balance sheet and the size of transactions. The other countries, no.
In fact, it's going to be the opposite because your fixed income portfolios are gonna give you better yields. I actually think you will see better NIMs in 2023 than we saw in 2022.
All right. Thank you so much.
Thank you. The next question comes from Muyiwa Oni from SBG Securities. Please proceed with your question, Muyiwa.
Good day, everyone. Thank you for the presentation. Just to confirm with my hearing.
Sorry, Muyiwa. Your voice is... The thing's fluctuating, so it's going in and out.
Oh, okay. Is it better now?
Unfortunately, we still can't hear you clearly, Muyiwa. If I may just ask if you could please just disconnect and reconnect and then just check your connectivity, and then we will come back to your question, if that's okay. In the meantime, we will move on to another question. The next question comes from Damilola Olupona from Chapel Hill. Please proceed with your question, Damilola. Damilola, you may proceed with your question. If your line is muted, please unmute your line so that you, we can hear your question. Unfortunately, we cannot hear anything from that line. We are going to move on to the next question. The next question comes from Abdulrauf Aremu Bello from WSTC Financial Services. Please proceed with your question.
All right. Thank you. Good afternoon to the management. My question is a follow up to the response you gave on loan book growth. You mentioned that you're very careful about growing loan book in Nigeria because of underlying challenges. I got that. However, when I look at the data of your peers in the banking industry and the big guys, you see significant loan book growth among those guys. I just want to ask that, given that you're faced with a similar environment, how would you describe the difference between your approach and perhaps their approach to loan book growth? I just want to get a sense of how others are able to do it and you're seeing something different.
I think you're the analyst, so you're the best person to answer that question. I think it depends on strategy. It depends on your interpretation of macros. It depends on what you see. One thing I will tell you is that the easiest thing to grow in banking is the loan book, because everybody's ready to take your loans. You are the analyst, and you have to determine whether we have clear skies or whether you see some bumpy skies ahead. It's just everybody's interpretation of how they see the macros.
Okay. Thank you. Just one more question. This one has to do with the quality of your Internet banking services.
Very recently, quite very frequently, we get to see a lot of complaints, a lot of dissatisfaction around your internet banking service. I'm able to say this because GT is my primary bank, and I sometimes know what I go through with your services. I just wanna ask you, like, what is the reason for these frequent downtimes? Is there a capacity problem or what could be the reasons for this problem?
Okay, before I give you the reasons, let me apologize to everybody. It's something that we're taking very seriously, then I'll give you the reasons, but I apologize sincerely, and please bear with us. It's a couple of things. I think that our core banking application is not big enough or strong enough for how we've become. The architecture we've had to build around it, in my own opinion, is not sufficient to carry us. What we are going to be here, I think today we might be finalizing the contract for a new core banking application. We will start the implementation of a new core banking application. Under that new core banking application, we will design an architecture that is more agile and allows us to respond quicker where we have problems.
In IT there will always be problems, but you have an architecture that's flexible, which hopefully is what we've built around Habari. I apologize. It is a combination of both the architecture, the infrastructure, and the core banking application. We will resolve it this year. That we promise you. We will, even before we change over to the core banking application, make sure the service goes back to normal. Please accept my apologies again.
Thank you.
Thank you very much. Ladies and gentlemen, just another reminder, if you'd like to ask a question, please press star and then one. If you'd like to ask a question, please press star and then one. The next question comes from Curtis Schacht from Sustainable Capital. Please proceed with your question, Curtis.
Hi there. Thank you so much for making the time. I've just got two questions. My, my first question is just around your operating cost. Perhaps you can just give me some color around how you're thinking about your employee headcount and your average cost per employee. Just looking at it seems based on my numbers that the average salary cost has lagged inflation. My second question, just on the USD deposits. It seems there's been quite a steep build up in those deposits. I'm just wondering where that build up has come from and, you know, how sustainable those deposits are. Thank you.
Okay. Thank you very much. Let me start. We'll go to cost. The USD deposits come from two places. One, your retail deposits, your individual deposits. I think you'll begin to see what I call rational behavior. If people believe there's going to be a devaluation or whatever, you start to see move savings out of local currency. The second place it's coming from is obviously we have oil producers, marginal field producers. With the high oil price, even producing the same quantity of oil, they're earning more, so inflows coming into those accounts create a larger USD deposit base. Really those are the two places the deposit growth is coming from. Operating costs, just as I said earlier on this call, we think that you will be facing some wage inflation.
You will also see that our personnel costs will go up. We are kind of outsourcing a system in terms of IT and IT salaries. There's a lot of attrition around IT personnel, we're gonna have to come up with a system where you will see an increase in compensation. The short answer is, while you're right that it's lower now, it will not stay there. We have to deal with a lot of the attrition issues that we're seeing.
Great. Thank you.
Thank you.
Thank you. The next question comes from Josh Arowolo from Stanbic Pensions. Please proceed with your question, Josh. Josh, you may proceed with your question. If your line is muted, please unmute your phone so that you can pose your question.
Yeah, sure. Can you hear me now?
Yes, we can.
Yes. Yes, we can.
Thank you very much for taking my question. Just wanted to speak a bit regarding the loan growth. I know other participants have said it's cautious, but when I look at it relative to the previous years, it is quite constructive. It needs to be positive. The guidance 15%. My question really is, if I'm correct about the positivity on a macro front, what drives this optimism? Then two, what sectors will drive this loan growth? Then any other details really, regarding why management is forecasting or guiding 15% loan growth would be appreciated. Thank you.
Okay, thanks a lot, Josh. Couple of things. The optimism comes from the fact that I believe that we will have to move in terms of macros. I think we'll have to have some sort of convergence or a devaluation, which will help kickstart the economy. I also think that as interest rates are normalizing closer to inflation, where your one-year treasury is 17% against 21%, that there is opportunity to grow the loan book. That things will generally be better in the second half of the year, and that we will take more of a chance than we have in the past. What sectors do I see? I mean, fast-moving consumables still remains a big sector for us and a high growth area. We're not going to be aggressive in the oil and gas space. I think we've got our feel of that.
We'll do some manufacturing. We continue to like the retail sector. The retail sector also, if you look at what we're doing with SMEs, we used to be at about 0, we're now 3%. I think those are the places we expect our loan growth to come. A couple of years ago, agriculture we were 0. We're now 8%, so we'll do some agri. It will kind of be from those sectors. My optimism comes from the fact that if we adjust some of our major macro indices to what I think we need them to be, then there will be a general tailwind that the economy will see in the second half of the year. I don't know if that answered the question.
Yes, it does. Thank you. Just one more question, if you don't mind.
No, uh-uh.
Talk about the fine and the UK subsidiary, right? Just wanted to find out how is management... Is management, actually, has that been paid? Is that gonna the income statement, let's say Q1, is that gonna be spread across for the year? Just want to see how that was treated. Thank you.
It's been paid. It was paid in 2020. Unfortunate incident. Again, we apologized for it. It was something that happened in 2016, which we thought had gone away. COVID years, everybody went to sleep, popped its head, reared its head at the end of 2022. Because we started the negotiation in 2022, the more we paid early in 2023, it's already on the books. I don't want to preempt the first quarter results for U.K., but you will see that we are out of the woods. It was paid last year. You will not see it in the P&L this year. The U.K. is doing very well. As you can imagine, they're now operating in an environment of 4.5% interest rates, mortgage rates about 6%, 7%. The U.K. is doing very well.
All right. Thank you. I appreciate it.
Thank you. The next question comes from Kato Arnold Mukuru from EFG Hermes. Please proceed with your question, Kato.
Hello, can you hear me?
Yes, sir, we can hear you.
Hi, Segun and team. Thank you so much.
Hi. How are you doing, Kato?
Very good. Very good, sir. Very good, sir. I have a real request because Ronak and I have been doing a lot of work comparing trading income gains across the, you know, the largest banks. We've been so frustrated by the inconsistencies in disclosure. As you know, you can imagine, you've reported, you know, just over $2 billion in gains on treasury bills. Yet you have a competitor that's telling us that they made $214 billion on treasuries. The difference in the balance sheet is not that big. I can't understand why there cannot be some type of industry standardization of how these treasury gains on treasury bills are booked.
I wondered to what extent we could ask you to kind of push either the CBK or with auditors to standardize this because some of these numbers just seem so bloated and make it almost impossible to understand even how they make their money. That's my first kind of comment. My second thing is on the loan growth, by the way, I think the banks that are growing very aggressively in this market are crazy because asset quality must be extremely poor. I couldn't agree with you more. Well said, sir. Thank you.
Thank you very much, Kato. At least it's good to not dance naked in the marketplace alone. I do honestly be cautioned. In terms of trading income, honestly, we've tried. I really think one of the ways we can all do it is that as investors, we should all write to the Accounting Standards Board and tell them to call off... It really rests with the auditors. There should be a uniform way of reporting trading gains, derivative gains. I really think maybe if knowledgeable investors like yourself write to the FRC, Financial Reporting Council or FI, I forget what they're called, we should complain. We see a standard way where all of us report, we should come forward. It makes it very difficult to compare the results of banks. I could not agree with you more.
Maybe that would be a good place to start, would be my suggestion.
Thank you, sir. Ronak and I will certainly do that because it's.
Yeah.
-scandalous.
I think we should write them. I think we should write them a strong letter. We should identify the areas where we would like some uniformity, then we should call the auditors. By the time we audit half year, we should all be held to those standards.
Sure. Thank you, sir.
Thank you. The next question comes from Lanre Buluro from Chapel Hill Denham. Please proceed with your question, Lanre.
Thank you. Thanks, Segun and team. Quite commendable on your admission that your technology platform wasn't adequate to sustain or to provide the service, given the growth, which a lot of your peers also do admit to that. I didn't get the ITO answer. If you just provide an update on that. Similarly, there was some news last year, early this year around Eroton and NNPC, and we're quite aware you're exposed to Eroton. It'd be nice to have an update if there's been any impact on your books regards that. There was, I guess to come back to the accounting standard that raised, Q4 NGN 52 billion in revaluation gains. Trying to understand what exchange rate you used at the end of the year.
You know, and, and we're aware you're also long on dollars. As a, you know, you know, big number for Q4, and you kind of like, you know, if you go on a run rate for the year in terms of what you've been booking for valuation gains, you have had a quite difficult full year result from a profitability standpoint. It'd be nice to understand what exchange rate you used, and, how do you see that, you know, in 2023. GT has been a bellwether stock, you know, it struggled, you know, 2020, 20, over NGN 20 billion in PAT. We haven't seen that since. Similarly ROE about 20%, you know, in the past. I think this past year you booked around 18% in ROE. How do we see this going forward?
You know, get, you know, GT back to being a favorite stock for investors. That'll be all for me for now. Thanks.
Okay. Thank you, Lanre. If I was an investor, but of course I'm biased, GT remains probably one of the strongest stocks in this market by the decisions we've made. You mentioned the 2020 results without mentioning the most important thing that happened to those results, which is that we took NGN 35.6 billion loss in Ghana as a result of sovereign default. If you added that back to the performance, the performance for 2022 was actually NGN 253 billion, which is 13% up. We believe we have done the right thing and that we have taken the Ghanaian losses in 2022. Our disclosure is always as transparent as anybody's. If you look at the investor presentation, we dedicated an entire slide to what our exposure to Ghana was, which was NGN 167 billion.
We showed you the impairment on each of those instruments, Eurobond, local Ghanaian CDs, local USD and Treasuries. We took a haircut of all of them, resulted in NGN 35.6 billion loss. For us it was actually a very good year and we were our normal conservative self and nobody expected Ghanaian sovereignty to go bad. We've taken it and you'll see first quarter results. I still think this is the best stock you can hold. In terms of revaluation gains, again we're very transparent and if you had looked at your investor presentation, you would have seen that the revaluation gains were converted at 461 on a long position of about $1.3 billion. There you will get it. If you have a complete...
If you have further devaluation, you will be able to calculate between 461 and whatever the rate is on that day on a long position of about $1.3 billion. It will give you what the gain is. We might always choose to take some of it as impairment because we run a very conservative stance. On ITIL, nothing has really changed, which I explained to the other speaker. We're also trying to restructure. Hopefully we're getting to the end of it. You're trying to carry a lot of banks along and lots of other customers who have no views on what a restructure should look like. Hopefully we're almost at the end. We don't have an Eroton issue. The issue around Eroton is change of operator. Change of operator doesn't affect anything. I think the operator has changed. The operator will be competent enough.
The most important thing to us is that oil comes out of the ground, oil comes into the accounts to service the debt. We don't really share it. Those three questions.
Great. Thanks. Just one last thing on loan growth. Have you baked in the forecast? Is the devaluation baked into that 15% growth?
Actually, because if we do have a bit of a devaluation and then we get a tailwind from that, we expect we'll do better than 15%. 15% even, we are hoping will be LCY growth.
Okay, great. Thanks.
Thank you.
Thank you. The next question comes from Karim Sawabini from Moon Capital Management. Please proceed with your question, Karim.
Thanks for taking my call. Totally agree with comments about the trading gains. I wanted to ask, what has been the focus of discussion with the incoming administration, as it regards the financial sector, and what's been the level of openness and transparency between the private sector, yourselves and the incoming government? The other question I had is on the currency. Do you see it more of as a gradual devaluation or as a step function? What are you assuming or what's the embedded assumption in your guidance? Thank you.
Okay. Thanks, Karim. Obviously, I don't think there's a lot of. You have to allow this administration to finish their own tenure before maybe there'll be engagements. If I were to be honest with you, we haven't really built much of a devaluation into the guidance we've given for 2023, because we really don't know. The place we do build a devaluation when we do is when we stress test our balance sheet. We've done three scenarios. We stress test a NGN 600 naira rate. We've done a NGN 650, and we've done a NGN 750. We've tried to see what it will do to our profitability, what it will do to our capital, and make sure that we have enough capital.
I think in our worst case scenario, our capital adequacy goes down to about 18%. In terms of profitability guidances and the guidances we've advised, we really haven't put a devaluation in, but we've done a stress test internally of what a devaluation will do to our capital using those three rates.
Great. Thank you.
Thank you. The next question comes from Emele Onu from Bloomberg. Please proceed with your question.
Yeah. I just want a bit more color on what you said about leading operations in Ghana. What was loan growth in that country last year, and what will it likely be in 2023?
Our loan growth was very low. It was probably around 5%. I think we'll still keep it there. Sorry. My whole opinion is that if you're running over 40% inflation, it's gonna be very difficult for businesses to make money and pay back loans. I think we'll remain conservative in terms of loan growth in Ghana. I would hope that as investors, if you're investors, you would understand why. Because apart from the high inflation, you're talking about a country that has defaulted on its sovereigns and has not even yet given complete clarity as to how it's gonna handle all the default scenarios. It's definitely not a country to be very bullish on in terms of loan growth at this time, in my own opinion.
Thank you.
Thank you. The next question is a follow-up question from Ronak Ghana, Ronak Gadhia, my apologies, from EFG Hermes. Please proceed with your question, sir.
Definitely not Ronak Ghana. Sorry. Just a quick follow up. You said on the extreme scenario, your capital adequacy ratio drops to 18%.
Yeah.
Is that before you consolidate, your profits or after consolidation?
It's before. Sorry, go on. Yeah.
Okay. Just quickly on the second one. Sorry, you may have mentioned this before, but just to clarify, what's the net long USD position for the Nigeria subsidiary after taking into consideration the derivatives book that the bank holds?
Okay. If I take the positions, NGN 1.3 billion is the net long position. Sorry. In terms of what we've done, in terms of stress testing, it is before consolidation where we did something that we think is even very conservative. We basically took impairments for all our forbearance loans against the profit before arriving at that capital.
Right. Right.
We assumed we would impair all the loans we have forbearances on out of the profit from the long position before calculating the capital adequacy.
Right. Okay. I guess once you accrue the profit, then that capital position then improves.
Yes, absolutely. Also, if the impairments don't happen, then again, the capital improves significantly.
Understood. Just also one other follow-up. On the cost income ratio guidance of 50%, does that include the cost of the new core banking application?
Yes, it does. It does.
Okay.
We'll amortize that as we head away. All that hits us this year would not be that. It's in there already.
Understood. Thank you.
Thank you, Ronak. The next question comes from Colin Smith from All- Africa Partners. Please proceed with your question, Colin.
Good afternoon, Segun Agbaje and the team. Two questions, please. Firstly, on the Ghanaian bonds, with the restructuring obviously still ongoing, are you able to say whether any further impairments were taken in Q1? Do you consider the 30% impairments on the Eurobonds to be conservative or not? Secondly, on the GDRs in London, I understand that the GDRs account for around 5% of the total shares at the moment, versus around 13.5% when they were floated. Obviously, shares can only be moved one way from the GDRs back to Lagos rather than the other way. Could you explain why the fungibility is limited to just one route?
Whether GT and the relevant authorities would consider allowing movement both ways, at least, back to the original 13.5 outstanding? Thank you.
Thank you very much. Well, on the Ghanaian bonds, we hope that we've seen the worst. Like I said earlier on in the call, even the Ghanaian government has not yet re-engaged on everything other than the local bonds. We're taking what we think is conservative. We've done 30% on the Eurobonds. We think asking for everything else, even asking for the 30%, we think will be a bit ridiculous, but we haven't. The comfort you will have or you should have is that for the first quarter, we're not accruing the interest on all these bonds. Essentially, we've kind of warehoused the interest and if there are further haircuts, we can always use that to buffer some of the haircuts.
We would be very shocked if they ask for further haircuts than this on sovereign debt, really. I think we've been conservative. In terms of the GDR convertibles, we can always engage the government. I think it was done this way because of the exchange controls and the dollar impact of going the other way. Maybe if we get to the second half of the year, there's more dollar liquidity, then we can go back and revisit the fungibility issue. From a perspective of the 5%, though, I'm sure you will see if you own them that the dividends are paid on time, everything's paid on time, so the only thing is the fungibility. If we get to the second half of the year and the macros are looking different and liquidity looks better, it's something we can revisit. Thank you.
Thank you very much. Ladies and gentlemen, just another reminder, if you'd like to ask a question, please press star and then one. The next question comes from Sodiq Safiriyu from Meristem Securities. Please proceed with your question, Sadiq.
All right. Good afternoon. Thank you very much. Just one question, if I can.
Yes, yes, I can hear you clearly.
All right. Thank you very much, for taking my question. Just very quickly, I wanted to ask what your outlook is for your funding cost. I can see that the funding cost actually increased in 2022. I would like to know what you think about the funding cost in 2023. Also, I would like to know, what you expect to drive the PBT for 2023. Following, you know, the, two consecutive decline in PBT in 2021 and 2022, expecting a 30% increase in PBT, you know, it's quite optimistic. I would love to understand the way you think about it. Yeah, that's it.
Okay, Sadiq. I'm going to repeat what I told Larry again. To determine what our growth is for 2023 on a PBT basis, I think it's been correct to think it's a 30% increase. If you put back the 36.5 impairment we did for 2022, the PBT was actually NGN 253. The actual growth would be NGN 253-NGN 280, which we're pretty confident we will meet. As we publish first quarter in about a week, you will decide whether you think we'll meet it or not. I will say no more than that. Please do not look at it as a 30% growth. You're really not growing from NGN 240-NGN 280. You're growing from about NGN 253-NGN 280 because we don't expect...
We expect that we've taken all the Ghana impairments we're going to take. In terms of funding costs, we're at about 1.24%. We think we can hold 1.24% for the year. We really don't mark increase in MPR going forward. So I think about 1.24% in terms of cost to funds is a good rate to use for 2023. I don't know if I've made myself quite clear on this 30% increase, because I think it's very important that people understand that the NGN 36.5 billion that we took in Ghana was straight to the P&L. If you put it back, it was actually a 13% increase on 2021.
Sadiq, do you have any further questions?
No, I do not. Thank you very much.
Thank you. The next question is a follow-up question from Curtis Schacht from Sustainable Capital. Please proceed with your question, sir.
Hi there. Just a question on your, return on equity guidance for 2023. Just given that you haven't baked in any revaluation gains, I'm just curious to hear, you know, what the drivers are, that's causing the increase from 2022 to 2023. I mean, having in the back of my mind, you would earn an ROE of about 22%, excluding the Ghana impairments. Just curious, what are the key drivers for the 2% increase to 25%?
On the ROE you're saying? Well, we also have left a bit of a tailwind for devaluation, which we didn't put in the other figures. We figure that no matter how small of a devaluation we have, that tailwind will get us there. We've kept some of the other parameters quite conservative and left out the devaluation gains from them on the long position.
If I understand correctly, that's mainly the revaluation gain getting to 25?
Yeah.
Okay, great. Thank you.
Thank you.
Thank you very much. At this time, Segun, if I could please hand over to you for closing remarks due to time. Thank you very much, sir.
Well, thank you very much everybody who signed in. hope we answered your questions sufficiently. yeah, thank you. That's about it.
Thank you very much, sir. Ladies and gentlemen, that does conclude today's conference. Thank you very much for joining us. You may now disconnect your lines.