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Edited Transcript of ACCESS.LA earnings conference call or presentation 30-Aug-19 10:59am GMT

Q2 2019 Access Bank Plc Earnings Call

Sep 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Access Bank Plc earnings conference call or presentation Friday, August 30, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory Ovie Jobome

Access Bank Plc - Executive Director of Risk Management Division & Executive Director

* Herbert Onyewumbu Wigwe

Access Bank Plc - Group MD, CEO & Executive Director

* Oluseyi Kolawole Kumapayi

Access Bank Plc - CFO & GM

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Conference Call Participants

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* David Adu

Meristem Securities Limited, Research Division - Research Analyst

* Jerry Nnebue

CardinalStone Partners Limited, Research Division - Analyst

* Ola Warikoru

SBG Securities (Proprietary) Limited, Research Division - Research Analyst

* Olawale Olusi

United Capital Plc, Research Division - Analyst

* Wale Okunrinboye;Sigma Pensions Limited;Investment Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Welcome to Access Bank Plc's Half Year 2019 Results Presentation. (Operator Instructions) Please note that this call is being recorded. I would now like to turn the conference over to Herbert Wigwe. Please go ahead, sir.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [2]

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Thank you. Good afternoon, ladies and gentlemen. You're all welcome to Access Bank's Half Year 2019 Earnings Call.

On the call with me today are Mr. Roosevelt Ogbonna, who is dialing in from outside. Mr. Greg Jobome, who is our Executive Director of Credit Risk Management; Mr. Ade Bajomo, Executive Director, IT and Operations; Mr. Victor Etuokwu, who is our Executive Director, Personal Banking; Mr. Chizoma Okoli, Executive Director, Business Banking; and Mr. Seyi Kumapayi, our Chief Financial Officer.

Our presentation to you is very detailed and highlights all aspects of our business. I'll briefly go over some of the key performance highlights, after which we'll allow enough time for questions and answers with you.

In terms of our group performance highlights. As you are aware, this is the first audited combined financials post our merger. Therefore, a lot of our numbers or the numbers that I'll be speaking to will reflect the combination.

On gross earnings, it witnessed a growth of 28% to NGN 324.4 billion in the period compared to NGN 253 billion in the corresponding period of 2018. And this consisted of 84% interest income and 16% noninterest income. It also reflects what was just about a 3% increase in gross earnings when you do it quarter-on-quarter basis, if you compare the second quarter to the first quarter of 2019. So interest income was up by 46% year-on-year and 32% quarter-on-quarter with the major contributors being, one, 138% increase in income from investment securities to about NGN 107 billion. Half year this -- in 2018, it was NGN 45.3 billion. And there was a 14% increase quarter-on-quarter, i.e., the second quarter of this year compared to the first quarter of this year. So second quarter was NGN 57 billion, and the first quarter was NGN 50.8 billion.

We also saw a 50% increase in interest on loans and advances to customers to NGN 160.2 billion, while that of the corresponding period in 2018 was NGN 139.4 billion. And that was a 74% increase from the previous quarter, owing to the increase in the bank's loan portfolio coming from the combination. Interest expense showed NGN 117.8 billion at the end of the half year, and this was an increase of 16% year-on-year, if we compare ourselves to the corresponding period of last year. And this was largely as a result of the increase in structure and term of deposits that basically came in, in the course of the period.

Net interest income grew by 82% year-on-year and 73% quarter-on-quarter to NGN 15.1 billion (sic) [NGN 155.1 billion] in the half year ended June 2019 compared to the corresponding period in 2018. Again, you will see it's coming -- a lot of these things is coming from the merger and the increased balance sheet and all of that.

In terms of operating income, we saw it's close to about NGN 202.3 billion, which was basically a 34% increase from the corresponding period in the previous year. The key drivers were, as a starting point, a decrease in the net impairment charge to $4.9 billion. And the question would be how could you see a decrease in net impairment charge given the combination, and the result is simple. There was a proper increase in the impairment charge. But obviously, there were a few write-backs to the tune of about NGN 4.8 billion coming from some of the things we saw in the course of the quarter and as well as the other assets. So basically, that's helped to taper down or reduce the net impairment charge.

We also saw a 34% increase in our other operating income to NGN 24.4 billion. And the primary reason for this increase was largely as a result of the recoveries that we're doing. So there was increased loan-loss recoveries to the tune of almost NGN 14 billion, NGN 13.9 billion to be precise. But of course, income from our asset management business and other investments from financial -- and income from other financial services. But the primary thing, as you can see, was driven by the significant recovery that we made in the course of the period.

The net trading income basically comprises of our net gain or loss on investment securities as well as the net foreign exchange income. It dropped from NGN 25.8 billion in 2018 to a loss of $14.8 billion in this half year, which basically show a reduction of about NGN 40 billion. If you break it down, what you see is that the derivatives gain of NGN 33 billion in the half year of 2018. In this corresponding period, what we saw was a loss of NGN 1.9 billion. And of course, there was also something that had to do with the fair value gain on equity investments, which was as significant as NGN 35.7 billion in the first half of 2018 compared to what was just NGN 5.8 billion in the corresponding period this year.

Let me take a little time to explain this derivative income. And what you see is that the gain or loss that was highlighted relates primarily to the timing difference between when the derivatives gain were recognized, applied the forward rate or spot rate for the majority of the instrument. And of course, this leads to some adjustments in the profitability of the instrument through the elapse of time.

On the fair gain value, in 2018, with the introduction of IFRS 9, which allows us to elect -- to fair value the equity investments through profit or loss or OCI, the bank elected to fair value our own equity through our P&L. And this generated a one-off gain of NGN 25.8 billion, which is nonrecurring in 2019.

Total operating expenses increased by 25% to NGN 123.3 billion from NGN 98.2 billion in the corresponding period of last year and showed a 24% quarter-on-quarter increase. And the simple reason is clear, it's coming from the full impact of the expanded franchise, branches and staff, et cetera. But we anticipate that this trend -- this will trend downwards in the second half of the year as we begin this -- as we begin to see the major synergies kick in.

Loans and advances to customers stood at NGN 2.6 trillion at the half year of 2019, up by 32% from NGN 1.9 trillion in December 2018. Really, this comes from -- largely from the merger. And of course, if you took Access Bank on a stand-alone, the growth in the period was not significant at all.

The group's asset quality improved during the period following the short-term deterioration in March as a result of the assets acquired. However, our prudent provisioning and risk management practices showed that the NPL ratio trended down towards as low as 6.4% with significant improvements from 10% as of March 2019. This was achieved through a combination of write-offs, recoveries, reclassification and loan restructuring. Basically, we've had to pursue this loan book with a lot of vigor. There's been significant recoveries that were restructured which are showing improvements and all of that, and there's also been significant write-offs of some of the loans that have been fully provided.

Our expected credit loss charge on loans stood at NGN 9.7 billion in the half year, which is really 42% higher than the corresponding period in the previous year. This was on the account of the bank's risk assets coming from the combination. However, the cost of risk also showed a slight increase to 0.7% in the half year compared to 0.6% in the corresponding period of last year.

Customer deposits closed at NGN 4.18 trillion, which is a 63% increase from the year ended 2018. End of -- 31st of December 2018, the balance sheet figures of the deposits showed -- closed at NGN 2.56 trillion. And if you look at it from March 2019, all right, there has been a 7% growth, all right? And at that time, it stood at something like NGN 3.92 trillion. So we continue to see consistent increases as far as customer deposits are concerned. And the growth was primarily driven by 104% increase in our current account and savings deposits, reflecting the enhanced retail value proposition on the back of a very strong and innovative digital platform.

With respect to capital and how have this laid out, our capital adequacy stood at 21.5%, which is a 70 basis points increase from the half year in terms of the corresponding period last year. While our liquidity ratio was well in excess of the regulatory minimum at 50.3%.

Let's speak about our retail strategy. During the reported period, we've made some strategic decisions in order to push our retail strategy in line with the next phase of our transformation. We invested in analytics so as to be able to discern our customers' increasingly sophisticated needs and therefore structured products and services towards meeting or achieving optimal satisfaction. Our reliance on analytics has also led us to conduct a proper segmentation of the retail business, thereby positioning ourselves to capture the huge opportunities in this market.

Accordingly, I'm happy to share some of the achievements recorded in the retail segment during the half year, as shown in Slides 25 to 28, which obviously you've all gone through. Our retail contribution to our total income stood at 42%, i.e., NGN 64 billion, compared to 18% in the corresponding period last year, which [just came at] NGN 46 billion, with fees of about NGN 12.1 billion compared to NGN 6.3 billion in the corresponding period last year. So technically, a lot of indices will show there's been significant transmission income just coming from the pay and receive business. And one of the things you will find out is that since after the merger, the combined retail business has again more than doubled in terms of the levels of transactions that are happening and transactions income that is being generated.

Additionally, the deposit mix in the period has improved from NGN 766 billion in December 2018 to NGN 1.9 trillion, with local deposits accounting for 55% of the total. This improvement, again, continues to show the strength derived from the synergies of the merger as well as the intensified efforts to acquire local deposits.

As far as financial inclusion is concerned, it's also an inner impact of our retail strategy, and it involves focusing on banking the unbanked. As such, we increased our agency banking network to about 15,000 across the 36 states and the Federal Capital in Abuja. We have also strengthened our partnerships with the telcos to take the power of banking to remotely unbanked areas. Altogether, this has helped us to deliver value propositions such as [commercial paper], Access CLOSA and Beta to about 1.3 million customers and facilitated transactions worth over -- of about NGN 100 billion in just 3 months compared to about NGN 29 billion in the first quarter. So we've seen that aspect of our business almost [colorful] as well.

We've also grown our digital loan business as far as our financial inclusion and written amount, traditional retail strategy by expanding on our digital lending capabilities to include more products such as salary advancement, smart ticket, personal loans and device financing in addition to what we called -- we called our PayDay Loans. And all of this is done on our quick box application, which basically houses all of these products.

Today, we are disbursing on the average NGN 200 million to 4,600 different customers through the click of a button. And we've set for ourselves a target of about NGN 400 million daily to at least 20,000 customers, and we're on the course to achieving this. This basically generates very low NPLs, and it's properly priced because a lot of it goes to customers who have the accelerated accounts with us. And the value capture potential of this product is significant, and it's going to lead to significant diversification in terms of our loan portfolio.

Talking about our channels business. We've seen a significant growth in the first half, and this has ended up with about 58% and 26% in transaction volume and value, respectively. And a breakdown of the channel's performance with the key driver are as follows: First of all, we've seen a 100% growth on our debit and credit card transactions from about 330 million. And this is -- I'm talking of just transaction count now. In 20 -- in the first half of 2019, it resulted basically in about NGN 2.9 trillion worth of transaction, NGN 2.9 trillion worth of transactions. And when you compare to the corresponding period in the previous year, it basically eclipses it.

Our USSD applications, which is basically payment on feature phones, has grown by over 130% in the same period. We've basically grown our transaction count to about 115,000 (sic) [115 million] and values from what was something like NGN 163 million (sic) [NGN 163 billion] in the previous year -- period to about NGN 422 million (sic) [NGN 422 billion]. So there's a lot happening as far as retail is concerned in terms of our payment capabilities, in terms of the amount of transactions, et cetera, in terms of our PayDay Loans, which are [quoted full]. And today, I think we booked a total of something close to NGN 18 billion in this half year from what was NGN 11 billion in the half year of last year, which is very significant growth in terms of the amount of loans that have been booked, both in volume and number.

I think for the first half of this year in terms of unique number of loans we've given out so far, it comes close to 1 million loans, which basically was almost the total amount that was done last year. ATM, POS, mobile and Internet channels had seen significant growth as well over the reporting period.

We're on the run rate of acquiring customers about 0.5 million customers on a monthly basis. And today, our customer count is about 31 million, which means that we basically signed on over 1.6 million customers since the merger happened. The effectiveness of our retail strategy is undoubtedly as a result of our focus on customer first. Already, we are reaping the benefits of this strategy. And with disciplined and effective execution, we believe that we will become the clear leader as far as retail is concerned in this market.

Going forward, this segment will continue to improve its digital capabilities through big data and analytics, which will impact our time to market and cost to serve these customers. And we will leverage on our value propositions and keep expanding our reach to bring banking to the doorsteps of many.

Before closing, I would like to update you on our guidance for 2019 in terms of financial targets. At the beginning of the year, we have basically said that our return on equity target was about 20%. Today, it's about -- we have achieved about 23%. We think we're going to maintain that kind of return on average equity.

On cost of -- on asset quality, cost of risk, the guidance we gave at the beginning of the year was 1.5%. It was going to be less than 1.5%. Even though we've done a lot better than that, right now, we think that at the end of the year, it should not exceed 1.2%. And the simple reason is that we're still being extremely careful with respect to what we provide as guidance because of our newly inherited loan book, which we are still nurturing.

We think our NPL ratio, which is currently at about 6.3%, may be maintained but will remain well within the guidance which we have given at the end of the year of 10%. So we will fall within the guidance. Now our traditional NPL ratios have been at 2.5%. We think we're going to continue to pursue -- to ensure that, that was achieved over this year and next year. But the whole idea is to be -- to become very, very careful given the nature of the loan book that we've inherited and which we are nurturing.

On efficiency, our cost to income ratio will certainly be below 60%. Our net interest margin, we have given a target of 6%. Today, we're at 7.8%. We think we should -- we will be able to moderate it at about those levels. And our cost of funds, which is currently at 4.8% compared to what we have given as guidance as less than 5%, we think that given this overall size of the balance sheet, we should be able to bring that average cost of funds down to about 4.5% by the end of the year.

In terms of our prudential ratios, certainly, our capital adequacy will remain north of 20%, our loan-to-deposit ratio at 60%, and we will maintain liquidity ratios greater than 50%. On the synergies, we'll continue to ramp up the delivery of our major synergies. As at half year, we have generated cost synergies of NGN 32 billion. We believe that as we move into the second half of the year, we should be able to build on that number to ensure that we continue to remain very profitable in spite of the fact that we just concluded a merger.

So ladies and gentlemen, I want to thank you all for listening. This concludes our presentation. And I will now leave the lines open for questions, and we will provide the necessary answers. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question we have is from Jerry Nnebue from CardinalStone.

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [2]

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So I have a number of questions regarding the results. First and foremost, on your NPLs. So you said the improvement you saw in NPLs led you to some restructuring, write-offs, recovery and reclassification. Is it possible to give us a breakdown of how much were restructured during the period and how much was written off (inaudible)?

Secondly, I would also like to know, after the integration, so how much was stage 2 loans? So I'd like to compare that to what we have now to see what movements were made during the period.

My third question is on your operational expenses. So I assume there's a number of -- what we are seeing in there relates to one-off execution costs. Is it possible to give us an estimate of what that is and how much of that we're likely to see -- we'll see in your second half of the year? And by extension again, are we going to see some of those recur next year?

For the fourth question, so on your agency bank, so you said there's been some improvements, over 16,000 agents. What was it before now? Maybe as of FY 2018, what was it before now? And at this level, is it safe to say that you're in a comfortable position to play, especially when the peers have come on board?

Okay. Last question I have is -- yes. Last question I have is on your digital loan book. So I see that's about less than 1% of your total loan book. So what is your target level for this particular loan book? So what was it exactly? Because I know it's less than 1%. So what target are you trying to achieve? And second, if you can give an estimate of what the NPL is on this particular loan, that would be helpful. Those are my questions.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [3]

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Okay. Thank you. I'll let Greg Jobome, our Chief Risk Officer, speak to the NPLs, the level of restructurings, the recoveries, the reclassification. He would also address the issue of how much these 2 loans existed before and now. And then we'll address the other questions.

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Gregory Ovie Jobome, Access Bank Plc - Executive Director of Risk Management Division & Executive Director [4]

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Thank you, Herbert. To go straight to the restructured book, if you want to compare to full year 2018, that's Access Bank standalone prior to the merger, we had NGN 436 billion in Stage 2 loans, right? Now in that stage, that's why you typically see -- that's why you typically see some of the restructured facilities. So that's the goal. Obviously, it has now moved. So Stage 2 loans on a much bigger book is currently at NGN 632 billion. That's after combining with Diamond Bank. So that's a move from NGN 436 billion December 2018 to NGN 632 billion June 2019. So that's the movement following the combination with Diamond Bank. So that's for our Stage 2 movement.

Now with respect to the restructured...

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [5]

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What was it before Q1?

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Gregory Ovie Jobome, Access Bank Plc - Executive Director of Risk Management Division & Executive Director [6]

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As of Q1, 498 -- 498 or 499, if you want. Okay?

Now for the restructured component of that, the bank had about -- prior to the combination, about 8% or thereabout, restructured loans as a share of the loan book was about 8%. Currently, it's at about 11%. Obviously, that reflects the restructurings that we've done after the merger with Diamond Bank. So I hope that gives you a flavor. So previously, it was about 8% of the book was restructured. Currently, it's at about 11% of the book restructured.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [7]

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So integration costs, Seyi, do you want to speak to integration costs?

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Oluseyi Kolawole Kumapayi, Access Bank Plc - CFO & GM [8]

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All right. In terms of integration costs, what you see in the current financial is about NGN 6 billion. We project that before the end of the year, we'll see another 5 -- NGN 5 billion, NGN 6 billion. So the integration cost for the year will be around NGN 10 billion to NGN 12 billion. So what you see in the financial is about NGN 6 billion.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [9]

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Okay. Now on agency banking, at the time at which we did the merger, we had just about 10,000 agents, about 10,000 or 11,000 agents -- 10,000 agents, actually. What we've done is to add 5,000 more agents to get it to 15,000 agents. Obviously, you know how this works and what the SLAs involved. So what we've decided to do is to keep growing gradually like that, and of course, monitor performance and all of that.

Now will that provide significant backing for competition with PSV? The answer is yes, we will always be ready to compete. But let me also put it this way. On the creation of a level-playing field, what you would find is that some of us have the capacity to basically compete with the PSVs. Well, this is not how the agency banking framework is going to end. We will continue to expand our agents across the country. And you will see that in the next quarter and going into next year. So that the level of financial inclusion and the number of sign on of customers at Access Bank will become -- will basically grow from what we have it today, at something like 450,000 or 500,000 a month to perhaps maybe 650,000 on a monthly basis as we progress. But that is likely to basically keep us -- make us stronger, increase the level of transaction income running through our own ecosystem and therefore the amount of income and money that we can have to basically support ourselves when the PSV licenses do come.

Now on the digital loan book, I'll let Greg speak to the digital loan book as well.

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Gregory Ovie Jobome, Access Bank Plc - Executive Director of Risk Management Division & Executive Director [10]

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Okay. So for the digital loan book, which is largely dominated by PayDay Loans at the minute, the NPL ratios there have typically be well below 3%. Now the reason for this is, as Herbert alluded to earlier on, is they are based on customers that are already -- who have their salaries with us. Therefore, typically, the loans do not go bad in a traditional sense. In some cases, you might find the occasional delayed salary payment. And for that period, you may then see, you're not inching up in the NPL ratio. Well, for you to have an NPL ratio when you get the salaries, as you well know, it's going to be very low for a long time to come. So that's the kind of ratios you've seen. The NPL went into 0. Most every employer has fully paid up with all their salaries. But when there are delays in payment, and typically, in some cases, it can take about 3, 4 months for those salaries to come through. Eventually, they come through and then the NPL ratio again trends to 0.

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Operator [11]

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The next question we have is from Wale Okunrinboye from Sigma Pensions.

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Wale Okunrinboye;Sigma Pensions Limited;Investment Analyst, [12]

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Wale Okunrinboye.

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Gregory Ovie Jobome, Access Bank Plc - Executive Director of Risk Management Division & Executive Director [13]

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You need to speak up, we can't hear you...

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Wale Okunrinboye;Sigma Pensions Limited;Investment Analyst, [14]

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Okay. Hello, can you hear me?

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [15]

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Yes.

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Wale Okunrinboye;Sigma Pensions Limited;Investment Analyst, [16]

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Okay. I just have a few questions. First is on your -- on the audit side of the auditor's report, there's something about the purchase price allocation not being concluded. Okay. Perhaps, provide color on what that is about. It goes to your attention to the fact that you haven't concluded the purchase price allocation for the acquisition. And I don't know what else. Can you maybe provide some explanation as to what that is?

And secondly is on your recoveries, can you provide some color as to what's driving that number because it's very strong, I would say, maybe some on what exactly you did and maybe what did those loans were and how are you able to sort of recover them because they're quite strong. And I don't think I've seen something similar across the industry.

Third is on your trading losses. What exactly drove the trading losses?

And then fourthly is on your efficiency initiatives, particularly on the cost side. In Q2, the cost income ratio is at 69%. I don't know that number seems it's pretty much on the high side. It's even more likely where we are going to see on a quarterly base or -- as was the run rate for OpEx on a quarterly basis. I think the Q2 number came in at NGN 68 billion, NGN 69 billion, what do you expect to see on a quarterly basis going forward? I think that's all.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [17]

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Okay. I'd like Seyi to basically address most of these questions and...

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Oluseyi Kolawole Kumapayi, Access Bank Plc - CFO & GM [18]

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All right.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [19]

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We expect your support. So...

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Oluseyi Kolawole Kumapayi, Access Bank Plc - CFO & GM [20]

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In line with IFRS 3. The purchase price -- what we're saying is that the amount that you've paid for an acquisition, all right, you need to allocate it to different segments. So if I look at it, is it the brand, is it the customers who have acquired. And because it's an elaborate process, it allows you 1 year from the date of the merger to complete this, and that's why it's (inaudible), it is not completed because that process is still ongoing. So that's -- now with respect to trading loss, I think Herbert spoke to trading losses. So there are 3 things that you see there -- 2 things actually, so that's what relates to derivatives. If we look at the derivatives in last year, it was NGN 33 billion and came down to about a loss of NGN 1 billion. And then we have the fair value equity gain, which was about NGN 25 billion. Last time, it came down to about NGN 5 billion. Now with respect to the derivative now, clearly, Herbert have said, the timing difference between when the income is recognized using the market-determined rate versus the market with a maturity creates adjustment profitability when that instrument is in my chores. And that's why you have that loss on derivative.

With respect to the fair value gain, if you recall, at the beginning of 2018 when IFRS 9 was implemented, you're allowed to elect whether to fair value your equity investment to OCI or that (inaudible) come all profit and loss, we chose to -- due to P&L, and we saw a one-off gain of about NGN 25 billion. And that's why -- which is a one-off. I'm not seeing that. So those are the 2 key elements of the trading loss that you saw in the financials.

On recoveries, the amount of recoveries we've made so far amount to about NGN 14 billion there on a run rate of about NGN 4 billion recoveries on a monthly basis, and it just comes from the fact that we are pursuing all of these debtors with everything that we have. And I think if there's one thing that we are known for the market is the fact that we will recover our loans in spite of the backlash that may come from it and when we pursue it, social media issues, people are busy, et cetera. But I think protection of depositors' funds remains paramount to us, and we'll do whatever we need to do within the ambit of the law, all right, to make sure that we recover our money. So it's yielding fruits. So far, we've recovered about NGN 14 billion. We do hope that we'll be able to keep this kind of trajectory right through to the end of the year. At which time, the full benefits of the retail business coming from the combination would have been able to kick in properly to basically replace -- to replace that source of income.

On efficiency ratios, we're speaking about the OpEx of about NGN 68 billion. We believe that, that number will recall over the next quarter and the final quarter, and that's over the next half year, if you like. So those are the type of numbers that we will continue to see right through to the end of the year.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [21]

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Let me also add to whatever Seyi said. Now what you see is that the -- this is the first time we are seeing the combined explains of the met bank. So we have increased number of branches and increased staff. What you find is that it's only been 3 months. And therefore, in terms of the optimization of staff, of branches with notable status, so when that happens, the top line will increase, and therefore, the cost and ratio will not really come down to the levels that we projected in the financials.

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Operator [22]

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The next question we have is from David Adu from Meristem Securities.

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David Adu, Meristem Securities Limited, Research Division - Research Analyst [23]

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I guess I have 1 or 2 questions. So I know you just presented about the trillion book about our timing differences on derivatives and then in the valuation of the equity instrument. So I want to ask what is your guidance towards this line. Because I can also see from your financials that there's a fixed income trading loss -- or fixed income securities loss of about NGN 2 billion, NGN 2 billion. So what is your guidance for this line going forward? And also in terms of foreign exchange trading as well, so -- and we have foreign exchange-driven loss of, I think, about NGN 13 billion as well. So you did speak about this one to ask them what are the factors driving this? And what is the guidance? What's the guidance? Or how do we see this performing to the end of the year?

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [24]

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Okay, very simple. We've modeled it based on our short position on all of that. And the figure, the guidance on a quarter-on-quarter basis between now and the end of the year is NGN 15 billion per quarter loss. So that's basically what would happen. And I'll explain to you further. We've been -- several times on the calls, we've been asked about this income line. And we've chosen as an institution that we will moderate the income we make from these derivatives. And so I try to temper all of this down and unwinding, basically because it is an issue. So what you would see is NGN 15 billion a quarter, for the third quarter and for the final quarter of the year. It's not going to exceed that. Thank you.

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David Adu, Meristem Securities Limited, Research Division - Research Analyst [25]

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Okay. So by NGN 15 billion, do you mean NGN 15 billion in losses going forward?

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [26]

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Yes. NGN 15 billion in losses for each of these quarters. Correct.

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David Adu, Meristem Securities Limited, Research Division - Research Analyst [27]

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Okay. What about for foreign exchange? Foreign exchange.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [28]

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We do that with the aggregates. We would typically see it in aggregate. Yes.

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David Adu, Meristem Securities Limited, Research Division - Research Analyst [29]

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Aggregate, okay. All right.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [30]

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But also remember that this represents a portfolio in terms of your foreign currency liabilities, if you like. And those monies are available for other uses. So you could see a change in terms of the income lines and where the money is coming from. It could be on the net revenue from fund site, depending on who we choose to give the money to, all right? So that line will reduce. We see a loss. But in terms of the aggregates and impact on the numbers of the bank, it's not going to be material.

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Operator [31]

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(Operator Instructions) The next question we have is from Olusi from United Capital.

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Olawale Olusi, United Capital Plc, Research Division - Analyst [32]

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My name is Wale Olusi from United Capital. Sorry, I joined the call late. Most of my questions, some of the analysts already asked. But I'd like to get your thoughts on the recent drive we've seen across the industry, which I think was led by Access and thus to do with the earlier recall of Eurobonds that we've seen. I'd like to get your thoughts on some of the reason or the perspective of the bank behind this early recall.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [33]

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Well, simply put that 2 things in my mind that come to it. The first is the fact that people are trying to manage their balance sheet more effectively and see whether it can bring down the overall cost of doing business. Now these eurobonds are maturing. And right now, you can get better priced instruments, foreign currency instruments either locally or internationally. So for most people, the idea is unwind your loan book, payback on those eurobonds and bring down your overall cost of funds. And that's all of the things that we've done. We've paid back what was down most $200 million. What was as -- I'm talking about $400 million, and these are early redemptions. And that has helped as well in bringing down our overall cost of funds, which you recall at some particular point in time was about 6%. So that is one aspect.

The second is our people are being extremely cautious, with over extending their foreign currency loan book. And so that taking decisions with respect to reallocations of their portfolio and bringing out the foreign currency loan book, and freeing up those liabilities to repay those eurobonds. So on the face of it, those are the 2 things, I think, that are driving corporates that are taking those decisions with respect to early redemptions are basically paid by the eurobonds and not going into fresh issues.

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Olawale Olusi, United Capital Plc, Research Division - Analyst [34]

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Okay. I mean I like your perspective, and I appreciate the response. I wondered are you -- do you have any concern around the exchange rate, an adjustment with medium to long term or near term?

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [35]

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Well, exchange rate will always reflect the fundamentals of the country. It will reflect our rate in trading values, exports versus imports. We'll remain largely an import-rated economy for the government and the entire bank committee. And the office of the Central Bank is doing a lot of work to basically curb the amount of imports coming into the country and forcing people to produce locally and for us to consume made-in-Nigeria products. So I think in the short to medium term, exchange rates will remain reasonably stable. Stable development that it is fixed. You will see this slight division, it could be a 3% [accretive] or whatever it is as you see anywhere in the world. But I think we're likely to see reasonably stable currency over the next couple of months, we're going up to here or a bit more. So that's my own thought process with respect to currency.

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Operator [36]

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The next question we have is from Ola Warikoru from SBG Securities.

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Ola Warikoru, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [37]

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So I have 2 major questions. The first one is on the digital strategy. So you mentioned that customer base is now about NGN 31 million, and that the last 3 or 4 months, you've been able to grow customers by 1.6. So I wanted to find out the 1.6, is there a function of the digital player as well as the offerings that people are interested in?

And then secondly, how many of the customers, that's 1 million active customers versus the dormant customers?

And finally, given the fact that a lot of -- across the industry, there's a lot of conversation around the digital potential of banks. I just want to know from your perspective, how is access going to differentiate itself from the rest of the market? And then just also on that, given the size of your customer base and the retail drive as well, how soon will we start to see that reflect in noninterest revenues as well?

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [38]

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Thank you. Today, we reap about 500,000 customers I mentioned earlier on a monthly basis, and it's a combination of those who signed on digitally through our lending products. We can basically sign on to Access through the click of a button, if you want to loan because a lot of it have been pre-profiled, okay? And the direct marketing efforts, which we have. So it's not combination that is creating about 0.5 million customers on a monthly basis. No, I think digital is good to take the lead as we move into the future. I think we're going to see a lot more people. Like I said already, we've signed on about -- we do now have about a million unique loans, all right, digitally to people who bank with us or basically who now want to have an account with us and have directed their payroll to us. I think you're going to see that figure ramp up a bit more even in this second half of the year to maybe 600 or 650 and largely coming from the digital experience that they're having.

Now in terms of how this is coming up from our digital strategy, remember that we have a very well scripted digital strategy, which started about 4 years ago. And we've created a digital banking division and the appropriate governance framework, all right, to basically support all of this. And the governance framework means that we meet twice a week with respect to one on the technical part, which are the digital council, design council, and of course, [Histericom] to which also meets on Wednesdays to basically look at what is happening on the more strategic issues around digital.

You also know our relation to Africa FinTech Foundry, which represents endeavor, all right, to basically start to seek innovation that is outside in, all right, coming from the external environment and making sure that whatever is happening in more developed markets, we can basically bring them, import them insofar they are useful, all right, into our local markets and play it locally apart from our own internal business, which basically allowed us to basically take projects or take suggestions or take products or whatever it is internally and refine them to basically help our customers do better. So we scripted a very delicate or sophisticated governance stream work to make sure that our digital innovation strategy is unique and robust. And that is one of the things that is helping us.

How is it going to -- how do we compare to the rest of the industry? I think we've been at the forefront of digital. I think if you take our lending capabilities today and compare it to any other institution across the country, you will see that we are ranked in highest, all right. And how is it going to play out in terms of commissions or fees? I think you will see it as we move into next year, all right, where our digital strategy alone may produce as much as NGN 12 billion to NGN 15 billion through commissions or fees, separate and distinct from the traditional business. So that in itself, which is basically NGN 1 billion in revenues on a monthly basis after discounting for risk, which is a significant amount of money. Not to talk about the other ancillary income that will come from, whether it's issuing cards, the net revenue from funds from transfer, the term of payments and all of those things. So that is basically how it's going to play out. And I think we've been extremely proud of what we're doing because we can see it mature, all right, every day and we're going to transform from PayDay Loans, expand the funnel a little bit more based on algorithms that are being developed to customers while in trading, et cetera, et cetera, and partnering of some of the skills, all right, leveraging of some of the skills that have been developed from Diamond Bank, which led into the SME market. So those are the things that I think are fundamental, which should basically keep us totally different from the rest of the industry.

We've also come up with several things, which have to do with customer acquisition, particularly with respect to agency banking and making sure that customers are onboarded and the journey is seamless. A customer is considered a customer only when it is probably onboarded with a card and all of that. So the entire digital experience, first of all, with respect to providing loans, all right, to deserving customers, right down all the way through to as well, signing on fresh, new customers, all right, who are just seeking to benefit from the wide products that we offer as totally different from the rest of the industry.

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Operator [39]

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(Operator Instructions) The next question we have is from (inaudible).

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Unidentified Analyst, [40]

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I'll ask you questions concerning asset quality. You mentioned earlier that most of the loans in stage 2, they are due to restructuring and the like of that. I just want your guidance, firstly, going to the full year, how much of these loans should we expect to come back to -- to move down to stage 3 or move back to stage 1. I just wanted what you're expecting for that level, for that stage 2 loans before the end of the year.

Also, still on asset quality. I would like a few guidance on your geometrics. I want to know what the state is right now. What has been done around geometrics so far?

Okay. So thirdly, I want to take it back to the presentation in -- for Q1 where you laid down some of the lines you're expecting for write-off and the like of that to be able to achieve your 5% loan book at the end of the year. I just want to know how much of this write-off should we still expect before the end of the year? And for you to achieve these write-offs, how much provisioning should we look at towards the end of the year? I think those are my questions for now.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [41]

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Thank you. I'll let Greg speak to those questions.

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Gregory Ovie Jobome, Access Bank Plc - Executive Director of Risk Management Division & Executive Director [42]

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Thank you. So with respect to potential migration from the restructured loans to possibly migrate in, obviously, it can be downwards or upwards. I'm sure you meant 2-way migration. What would we normally do in Access Bank, we do a very thorough job with respect to the cash flow forecasted and we ensure that those cash flows, there's not going to restructure any of the cash flows or will that restructure is based is going to end up inside the ditch within a few months' time. So given that we restructured a few of them over the last sort of 3 to 6 months, we are not expecting to see them realizing into NPLs, for example, stage 3 between now and the end of the year. So that's number one.

Now will there be some that might deteriorate down the line that may not meet the covenants that we've established? Of course. I mean it's banking. So you may find a few that will not meet the cut. Now the record of the bank is that the rate at which our restructured loans migrate into MPS is actually extremely low, and it is in the neighborhood of 5% or less in terms of the number, actually, the common MPS post restructuring. And that's because of the careful way that we do our cash flow forecasting and the restructuring process itself. Of course, that means that there's a substantial number of data migrated from stage 2 into stage 1 over time because they do meet their requirements. And in line with IFRS 9 rules, a few of them will also migrate back into stage 1 provided before the end of this year, you're not going to see too much change with respect to those migrations. So that's number one.

Then number two, with respect to geometrics, you mentioned the name geometrics, it's the name that no longer exist on our books. In line with our commitment with respect to our write-off process is fully provisioned and written off. We're now in the course of pursuing a full recovery. Of course, all our write-offs, the bulk of them are full recovery, full recourse to the borrower, and a restructuring process with respect to that is in progress. We are fully engaged with it, and it's a recovery prospect that we're holding very strong.

Now will there be more write-offs before the end of the year? There will be 1 or 2. Again, it's in line with our provision in [PAT]. All the names where we have between 75% to 100%, impairment's already taken. A few of those will also be written off before the year runs out. So I hope I've addressed all your questions.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [43]

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Let me quickly add a few words to what Greg has said. We continue to clean this table. Geometric is one name that's affected as well as Diamond significantly. We've taken the additional provision, like I said, and we've written it off. However, there is a bit of good news, which is the fact that geometrics, we've worked with them, they've obtained the relevant only to complete the project. And that project is pretty much completed now. Our expectation is that it should start generating in the next quarter, and then we start to see recoveries over time. So in terms of provision, it is clear. But with this one, an example of something that we want to see walk back for the better. Whatever comes out of Geometrics now will be income. So we're signing the final documents with the rest of the syndicate to make sure that we put the appropriate governance framework to make sure that we see huge recoveries coming out of geometrics, even though we fully provisioned and written off the facility. Thank you very much.

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Operator [44]

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(Operator Instructions)

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [45]

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Well, I think this brings us to the end of today's investor call. Once again, I want to thank you all for dialing in. We look forward to the end of the quarter when we shall be sharing with you the performance of the third quarter. Thank you very much, and have a good day.

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Operator [46]

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Thank you, sir. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.