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Edited Transcript of ACCESS.LA earnings conference call or presentation 31-Oct-19 10:59am GMT

Q3 2019 Access Bank Plc Earnings Call

Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Access Bank Plc earnings conference call or presentation Thursday, October 31, 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

* Roosevelt Michael Ogbonna

Access Bank Plc - Group Deputy MD & Executive Director

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Conference Call Participants

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* Jerry Nnebue

CardinalStone Partners Limited, Research Division - Analyst

* Muyiwa Oni

SBG Securities (Proprietary) Limited, Research Division - Heads of Equity Research for West Africa

* Tolu Alamutu

Tellimer Research - Director & Credit Analyst of Financials

* Tunde Abidoye

FBNQuest Capital Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Access Bank Plc 9 months 2019 results presentation to investors and analysts. (Operator Instructions) Please also note that this call is being recorded.

I would now like to turn the conference over to Mr. 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, Chris, and good afternoon, ladies and gentlemen. You're welcome to Access Bank's 9-month 2019 Earnings Call. We have prepared a detailed presentation, which highlights all aspects of our business, and I'm going to be sharing that with you now. However, our presentation is hosted on our website, so you all have access to it.

On the call with me today are Roosevelt Ogbonna, who is our Group Deputy Managing Director; Greg Jobome, our Executive Director, in charge of Risk Management; Mr. Ade Bajomo, who is our Executive Director, in charge of IT & Operations. We have Mr. (inaudible), who is sitting in for our CFO. And of course, we have Mrs. Iyabode Soji-okusanya, who is in charge of our Corporate Banking business. And finally, we have Sunmbo Olatunji, who is our Treasurer.

I will briefly go over some of the key performance highlights, after which we will allow more than enough time for questions and answers.

In terms of our group's performance highlights, our gross earnings grew by 37% to NGN 513.7 billion in the period compared to NGN 375.2 billion in the corresponding period of 2018. It comprised 79% of interest income and 21% of noninterest income. The interest income was up by 48% to NGN 405 billion. And the key contributors to this growth were: first of all, 115% year-on-year increase in income from our investment securities, which was NGN 140.4 billion in the period compared to NGN 65.2 billion in the corresponding period of 2018; 75% year-on-year increase in interest on cash and cash equivalents to about NGN 8.6 billion; 25% year-on-year increase in interest on loans and advances to NGN 256 billion compared to NGN 204 billion in the corresponding period of 2018, owing mostly to the growth in the loan book as a result of the recent merger.

However, we also saw an interest -- increase in interest expense by 29%, so about NGN 104.8 billion compared to NGN 151 billion in the corresponding period of the previous year. This was also largely driven by the share side of the deposit base resulting from the merger and the interest expense of our structured funding in both local and foreign currencies.

However, you will notice that the bank is gradually winding down or repricing the book, and this has started to reflect in our cost of funds, which has continued to drop as evidenced by the 40 basis points, i.e., reduction to 5.2% in the current period, which compares to 5.6% -- when compared to 5.6% in September 2018.

As a result of this, the net interest income improved by 71% to NGN 210 billion in the 9-month period of 2019 compared to NGN 122.9 billion in the corresponding period of 2018.

Operating income again showed a significant increase by 38% year-on-year to NGN 308 billion from NGN 223 billion in the corresponding period of last year, owing largely to the significant growth both in net interest income and other operating income.

The key drivers of our operating income are as follows. First of all, we saw a 54% increase in commissions and fees to NGN 66.9 billion as of the 9-month 2019 from NGN 43.5 billion in 2018. This came as a result largely of significant increase as far as our retail and e-business fees are concerned. And we will continue to gain traction on those income lines as we extend our retail offerings.

We also saw a significant increase from other operating income, comprising largely of income from financial services as well as a NGN 22.4 billion recovery from resale of bad loans. As we have stated on our previous calls, this is one of the key synergies of the merger. We have already surpassed the target that we set for ourselves, and we hope to do or achieve a lot more in the last quarter of the year.

On the other hand, we also saw a decrease by 81% year-on-year in terms of our net trading income to about NGN 8.5 billion in this period ending 30th September from NGN 45.5 billion in the corresponding period last year. This really comes on the back of the timing of income recognition as well as when we move close to the maturity of the various instruments that were used. So it's really a present -- it's really an income recognition issue, all right, and this basically starts to take more effect and becomes more visible as we get towards the end of the various instruments.

However, these are carefully modeled in our financial plans to ensure that when we look at it year-on-year, it will basically minimize the volatility as at year-end. However, on a quarter-on-quarter basis, we also saw a growth in trading income on the back of a strategic position we took to take advantage of the yield volatility on fixed income. Also FX gain is from the volatility and timing of income recognition of derivatives that I mentioned earlier.

As regards to costs, operating expenses have gone up year-on-year by 34% to NGN 194 billion compared to NGN 144 billion in the corresponding period last year. And this is largely as a result of the expansion and the merger, the increase in cost from personnel, depreciation and other operating costs. Again, it is coming from the scale, and of course, the impact of inflation. However, we'll continue to drive our cost reduction strategies to make sure that as we move on through time, our other initiatives, our other costs will basically come down in line with the synergies, which were set up during previous presentations.

In terms of our expected credit loss charge, it rose up by 10.6% from NGN 8.4 billion in the period -- in corresponding period last year. And this was just so that we have adequate cover for our challenged loans in order to drive our net -- NPL ratio down to traditional levels. Accordingly, our cost of risk stood at about 0.7% as at the period ended September 30, 2019.

Loans and advances grew, again coming from the merger. It grew to about NGN 2.9 trillion compared to NGN 2.1 trillion in the corresponding period over the year. But what you see is that quarter-on-quarter, there was not a very significant growth as we had to manage ourselves to ensure that our liquidity was not impaired.

The group's asset quality remains under control as our NPL ratio stood at 6.3% in the period compared to 6.4% as of half year. And the key factors responsible for this remain, of course, our oil and gas services, which was about 44.3% of the ratio; general commerce, 11.2%; and then oil and gas upstream, 10.6%.

As we mentioned in our previous calls, we will continue to drive down the NPL ratio to our traditional levels, where we used to be prior to the merger. This, we will achieve through write-offs of sticky local recoveries. On a year-to-date basis, we have written off a total of NGN 59 billion, have -- having made full provisions for them. We will continue to pursue them. For those that are not, in a way, with significant provision, we've written them off so that we recover whatever securities we can, and of course, whatever we get can only come to have that profit positioning.

Customer deposits closed at NGN 4.2 trillion, which is basically 65% year-on-year growth from NGN 2.6 trillion in the corresponding period of last year, and of course, jumping 1.3% quarter-on-quarter growth from June 2019. The growth again is largely coming from our current savings account deposits, which is basically coming from the enhanced retail presence, which we've done particularly on the back of a very strong digital platform, and of course, the synergies of the merger.

Our capital adequacy ratio stood at about 20.3% on a full impact basis. However, when we consider the regulatory transition arrangements, the capital adequacy ratio is sitting at about 23.9%. Liquidity ratio closed at 48.4%. And of course, all these ratios are far in excess of the regulatory minimum requirements. So this is essential to our commitment to remain disciplined with our capital management plan and make sure that we are well above regulatory requirements as well as the standards that we have set for ourselves.

Let me speak a bit more about our retail strategy. We continue to consolidate on the gains coming from our various strategic decisions end up pushing our retail business in line with the next phase of our transformation. We are extremely heavy on analytics to support the understanding of our customers' behavior and preferences. And of course, we're increasing the suite of products that we're offering to the market to ensure that we basically continue to deepen the market as far as retail is concerned.

And as far as financial inclusion is concerned, we are deploying resources to reach the other banks and nonbanks by expanding our agency network, and of course, leveraging of our partnership with telcos and as well as our digital technology. Today, our agency banking network has continued to increase with our agents now at about 15,000 compared to about 8,000 or 7,800 in 2018.

In the next couple of months, we'll start rolling out some practical, cheaper and eco-friendly outlets in specific neighborhoods, where you have limited banking penetration, but where you have the demographics and economic requirements that can basically ensure that those outlets break even and make money.

Again, on our retail digital lending, which is our part -- again, part of our retail strategy, we are continuing to gain momentum as we continue to make available channels of opportunities to eligible customers to finance either their lifestyles in fulfillment of our promise to deliver more to our customers. Our retail loan portfolios have grown significantly as we continue to do an average of about NGN 1 billion a day in terms of loan disbursements through PayDay Loan and other products such as Salary Advance, Small Ticket Personal Loans and Device Financing. It's being done in a risk-managed manner to ensure that we don't see significant increase as far as our NPL ratio is concerned, and of course, our very strong analytics is going towards ensuring that behaviors are monitored, collections are monitored on a daily basis, not just on a portfolio basis.

In terms of the outlook for the last quarter, we are committed to driving an effective and sustainable business growth by intensified efforts on generating local deposits, increasing the velocity of our transactional income and reinforcing cost optimization strategies to ensure that our overall balance sheet is efficient, and I would say, maximize profits.

We'll continue to concentrate on the added gains of the merger. We have realized so far about NGN 58 billion from the synergies, which includes NGN 22 billion from recoveries, NGN 4.7 billion from sale of assets, and of course, a bit more from IT integration and data consolidation.

On our system integration, let me quickly say that we're extremely proud to have completed our Day 2 integration process with respect to IT. So what that means is that all systems, Access and what used to be Diamond, have been fully and completely integrated. This integration witnessed the migration of value of the institutions and customers on to a new infrastructure. We have carefully invested in this process to give our customers a true world-class experience at all our touch points and to keep up for the good aspiration of the bank going into the future.

We appreciate all our customers, investors and all of our stakeholders who have joined us so far on this historic journey. This concludes our performance overview for the third quarter. And I will now leave the lines open for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Tolu Alamutu of Tellimer.

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Tolu Alamutu, Tellimer Research - Director & Credit Analyst of Financials [2]

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I have a few questions, please. The first is about the recent Kenya acquisition. I just wanted to get more detail about why you decided on that particular lender rather than opening up a greenfield operation? And how you intend to turnaround profitability at that bank, given that it's reported losses quite recently? Also, maybe you could update us on your African strategy and what management sees as being the target in terms of size and other countries that you might look to grow in Africa?

Secondly, on the bond market, I just also wanted to get an update on any plans you might have to return to the bond market? I know your existing security doesn't mature until 2021. But any update on that would be useful. And on foreign currency loan demand as well as it relates to a potential return to the bond market.

Thirdly, on asset quality, you mentioned that you are still chasing loans that have been written off. When you said recoveries of NGN 22 billion earlier, are those the recoveries on loans? Or they are other recoveries? And then can I maybe get an update on any customer attrition that you've seen since the merger happened?

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

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Thank you, Tolu. Well, let me speak to the Kenyan acquisition. First of all, if you go through our presentation, it basically shares with you our African strategy, which is part of our 5-year corporate strategic plan. That plan was shared on the (inaudible) stock exchange about this time in 2017. So we're very clear that we wanted to create what would be Africa's gateway to the world. In that plan, we shared the countries in which we -- where we wanted to have a physical presence, where we want to have some partnerships. We also shared -- and that is within the context of Africa. We also shared outside of Africa where we wanted to have rep offices, where we wanted to have physical presence and all of that. And it's, of course, posted on the website.

Now with respect to Kenya specifically, Kenya represents one of the major trade corridors in the continent. Not just is it at the heart of East Africa, but of course, if you are visiting the Central Africa, et cetera, Kenya is important. We have gone through the list of lenders in that market, and basically, asked ourselves and -- what it meant in terms of either pursuing a greenfield license or buying an existing lender. Now if you understand how that market is configured to date, getting an existing license would have taken a lot longer. This specific entity is not of significant skill, but does have a reasonable network of [something like 58] branches. They started making losses about 2 years ago when they lost their correspondent banking line. Now we believe that because of the corporates, for instance, leveraging of our subsidiary in the U.K., we will basically find themselves having more lines to do business, all right, with all of those corporates and all of them. But more importantly, it fits perfectly within our strategy of being Africa's gateway to the world. So we have done the analysis and compared them to other lenders, and of course, compared it to the prospect and timing it would take to basically get a fresh license before we went in on it. It will return to profitability very quickly because we've looked through the books, we've done the relevant due diligence, and of course, whatever payments we're making for it were basically on an adjusted book basis.

Now other aspects of our African strategy, like I said, is clear as is on website. The country, though, what we present in -- within the different economic (inaudible), particularly given the upgrade that has basically come into play right now. If you look at our subsidiary networks, they are all making money right now. But we think that having a proper network across the continent, all right, that today, I think, a sense of trade, we've seen probably about $200 billion worth of trade happening within the continent. And I'm talking of -- this just refers to imports, not to talk of the intra-African trade that does exist. And given the programs that we have, we think that a lot of money can be created by just having those networks, and of course, certain partnerships in specific jurisdictions where we do not think it is right to just go and get a physical presence. I think that by this time next year, we probably would have added about 4 more subsidiaries, some of them greenfield -- most of them greenfield actually to our list of African subsidiaries.

Now speaking to the Board. We have a very rigorous and disciplined capital plan. Our existing instrument matures in 2021. We are careful as to what's going to the market, means in terms of the cost of funds for the institution. And so we are still watching and trying to decide what has to go to the market. So for us right now, we are under no pressure. We are able to meet the material obligations of Diamond Bank. We're able to meet our last maturing Eurobonds and prepaid them, if you like. We're able to still meet all foreign currency demands of our clients. But we have determined what is core and what is required going into the future. We will basically determine and agree at what particular point we want to enter the market. But like I said, it -- this was prepared in our 5-year corporate strategic plan as (inaudible) capital management plan. And so we will approach the market at the appropriate time.

Speaking to loans that are written off, the NGN 22 billion came from loans that were written off and recovered. We're not talking about other assets at this particular point in time, even though that bills will exit. But I think we still see a significant pressure to recover some more loans in this last quarter.

On customer attrition, I guess, lately because of the experience we've had in doing M&As, we've pursued this in a very interesting manner as far as making sure that a (inaudible) methodology, so keeping the traditional light on while going ahead with the combination. We've also changed the sense of how we manage people and how we deploy the platform and the franchise. So yes, at the very beginning, at the announcement of the combination, we saw a little bit of what would have been less than 5% loss in terms of liabilities coming out of what was Diamond Bank. But I'm pleased to see that all that deposits have come right back, and we are now on growth trajectory. The commissions and fees of the combined institutions has almost doubled, given there are 3 major sectors. So that can only mean that we are basically starting on doing increased business with customers. We are also signing on anywhere between 400,000 and 500,000 fresh customers on a monthly basis. So the issue of attrition is not an issue at all. What we're thinking of is how do we maximize the volumes and the liabilities and market share and wallet -- share of wallet of the customers that we are getting. Thank you very much. We'll take more questions.

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Operator [4]

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The next question is from Tunde Abidoye of FBNQuest.

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [5]

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Congratulations on your results. My question is a follow-up to the one asked earlier. It's on the TNB acquisition. So I'd just like to get a sense of the size of the deal? How will the acquisition be paid for? Is this going to be all cash or a combination of cash and shares or just shares only? And what kind of synergies do you expect to realize in the next couple of years going forward?

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [6]

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Well, to put it very simply, what we've done is that we've basically bought about 97% of the bank or that's the deal metrics. It's being paid for in cash, all right, so that we have daily said -- we've taken out the existing shareholders, and we'll basically inject a bit more equity into the institution. So those will be given equity. Those make up about 3% or 4% of the existing shareholders.

Now in terms of synergies, I'm certain that, that franchise will break even in the first year when we get in, I have no doubt whatsoever. I think you will see increased volumes in terms of what we refer to as our AccessAfrica payment, which is basically a payment across the (inaudible) most of the trade that happens Rwanda where we have the strong presence, basically out of Kenya, where you have the seaport. All our major clients exist there. As you know, Kenya has a -- is one of the excellent markets in East Africa, and all the large corporates exist there. So one bank means -- and the relationships which we have here, we're basically going to migrate and initiate and our accounts start rolling in that institution. By the way, they do exist. But because the institution did not have the capacity to support them, they're migrating their business elsewhere. So I think from the first year, that institution will definitely break even and start making money. More than all the others, we have a lot of confidence that this should be a very profitable franchise. Next question?

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [7]

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Can you quantify?

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [8]

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Can we do what?

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [9]

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Can you give some -- yes, quantifying C&I returns...

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [10]

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(inaudible) across yet. But it is in terms of collaboration?

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [11]

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In terms of the synergies, what kind of value are you...

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [12]

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I think by the end of the second year, we would start to see an ROE that is close to 20%.

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Operator [13]

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(Operator Instructions) Our next question is from Muyiwa Oni of SBG Securities.

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Muyiwa Oni, SBG Securities (Proprietary) Limited, Research Division - Heads of Equity Research for West Africa [14]

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I have a few questions. So one, I guess, it's still a follow-up on the Kenya acquisition. So I just want to understand your view on market share and size that you expect that business to go through, given that, I believe, currently, market share is less than 0.2%? And then also for your overall Africa business and strategy, what kind of contribution do you expect for -- on your group on revenues and total assets? And on your customer base, wanted to get an update on the 14 million digital account that you inherited from the Diamond acquisition. I wanted to get the sense of dormancy and activity rate on those customers. And also -- I think, thirdly, just wanted to get your views on the recent Central Bank policies, LDR, OMOs and wanting to understand the impact on your business?

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

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Okay. So Muyiwa, let me put it simply, the Kenya bank has very limited market share. Well, that is the beginning of the story, like all institutions in any market, and this is where we're going to. We have to build from here. I think what is important is the fact that it's not a 1-year or 2-year or 3-year or 4-year or 5-year story. We're trying to create an institution that will last and outlead each and every one of us. Now my sense is that, first of all, we have a head start because we have a lot of the one-bank names already present in that bank, albeit dormant, okay? Two, we have significant retail offerings, which we can push into that market, all right, or at least, even I saw that a lot of the transfers and payments that happen outside of that market can go through our own channels. I think it will start to grow. The most important thing is that it remains profitable, and we retain the earnings there and continue to build on it just the same way we've done in other subsidiaries and support the network.

Today, our subsidiary in the U.K. provides correspondent banking services even to those institutions that are considered to be doing exceedingly well. There is no reason why to not support Access Bank in Kenya, and let us start to gain market share over and above some of the existing small banks that exist there. So we're very confident that the story has started. Year-on-year, you'll continue to see improvements. This is not one that you would say we require 3-year breakeven or anything of this sort. Having looked at it, having done the due diligence and looked at what is possible, we believe that in the first year, we will more than break even. And the fact that we have [68] branches already, we'll continue to chase retail customers and push it on from there. We know that digital technology -- digital has found a strong way in which things happen in Kenya. But there are several aspects of the business, which are not being captured by all of that and which have to do with payments across -- coming from other parts of the continent into Kenya, payments to other parts of East Africa, et cetera, et cetera, et cetera. And it's not just a domestic payment structure that Mpesa currently rides on. So we do have a clear strategy as to how all of us get to play out.

Now as we continue to look in the context of Africa, let me share with you the fact that today, when we look at Africa and the rest of the world, which is basically the U.K., Dubai, et cetera, it constitutes, what, maybe 27% of our overall profitability. My sense is that, that figure will continue to grow as we spread more and more across the continent, all right? And the fact is simple, we don't want to create a local Nigerian bank. We want to create a bank that is global, is (inaudible), that is digitally led and that is profitable and returning proper returns to its shareholders. If you stick to Nigeria alone, all right, and you don't look at the opportunities and the network effects, all right, and the value chain synergies, the revenue from other parts of the continent and outside, basically, one day, you will shrink into a macro-finance institution technically, all right, as the valuation of all of those things do happen.

So our sense is that over the next couple of years, not just across Africa, but in the rest of the world, we must start to pierce our sovereign ceiling, all right, but try to get contributions that could be upward of 40% compared -- as far as the entire group is concerned. Now that will be significant or that will be difficult, because as we are speaking, the group also, hopefully, given all the efforts of things we're doing, particularly in retail and all of that, and our corporate banking business that is still growing as well, all right, should be growing significantly. But a contribution of 35% to 40% can be a very strong case for people to look at the risk prediction that can almost begin to pierce the sovereign ceiling.

Now on the 14 million digital accounts of Diamond, let me quickly say that when we say we have 31 million accounts, we have not included those 14 million accounts, but I will share with you what we're doing with them. Those accounts are mobile wallets. And we've started to engage each and every one of them as we have onboarded them into our system. So you would have seen freebies that are going on. You would have seen still of airtime and things which we are doing, so basically get those customers more active. Today, we are able to engage something like about 20,000 to 30,000 of them every day to basically become more active. That is the kind of norm we're seeing on a daily basis. The whole idea is that we will also come up with a suite of products that will make sure that all 14 million (inaudible) become active. So our 31 million customers does not include these 14 million customers, but what you'd find in a specific project company which we're all about now, all right, is that over the next 1 year, you will see significant reactivation coming from that. Today, it's just about 20,000 a daily business that is basically -- that we have that ability to reactivate it. There are 2 million that are transacting right now, but we are activating 20,000 every day. And we hope that by the end of the year, next year, we should have gotten to a situation where we can see something like about 80% activity as far as the 14 million accounts are concerned. And we have more and more sign-outs every day with respect to this thing. We expect that, quite frankly, by year 2023, we must find ourselves banking 1 out of every 2 Nigerians on our platform. That's what we are pushing.

Now on other things with respect to CBN's initiative on LDR, as you know, we are compliant. One of the things that came out of the merger was the fact that putting the loans together already, our loan-to-deposit ratio is more than 65% or 67%. So we are fully compliant. I think government is trying to ensure that there's a lot more support going to the real sector, because that is the only way growth can happen. We think it's the right thing. It may put a little bit of pressure from a liquidity standpoint on banks, but I think we've all come to the realization that it's something we all need to think very seriously to make sure that it does happen, while I'm sure that the Central Bank also made these all monetary policy aspirations.

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Muyiwa Oni, SBG Securities (Proprietary) Limited, Research Division - Heads of Equity Research for West Africa [16]

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If I may just ask a follow-up question?

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

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Sorry?

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Muyiwa Oni, SBG Securities (Proprietary) Limited, Research Division - Heads of Equity Research for West Africa [18]

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If I may just ask you a follow-up question on the LDR policy. I wanted to get a sense of the kind of margin pressure you're seeing on your loans, given other banks trying to boost their loan book to meet up the guideline? So are you seeing any contraction in your...

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

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There is some pressure building up. There is some pressure building up, but there is (inaudible) give out the loans. So yes, with respect to specific names we're seeing where people are trying to extend themselves a lot more, but not a lot of liquidity exists, if you like, all right? So that pressure could be significant. Now if you've seen and looked at our own numbers, you'll see that margins -- NIM has basically increased. I don't think that this is enough to pause those margins down. We have more than enough means that are willing to take money under the current pricing arrangements that we have. But are we seeing our competitors try to lend actually at reduce risk, (inaudible) but that's what specifically is.

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Operator [20]

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The next question is from Jerry Nnebue of CardinalStone.

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [21]

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I just have a couple of questions. One is on term deposits. So I noticed that between Q1, that's post-merger, and now, you've grown term deposit about 15%. And most of the deposit growths have seen about 80% that have come from expensive deposits. So I would like to know if this is the strategy around this? And most importantly, the implication for cost of funds, because as far as the institutions think, it's -- amongst your own banks, it's really, really high. So what's your strategy for cost of funds...

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [22]

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Sorry?

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [23]

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For cost of funds, your strategy of 5.2% is really high compared with other banks. So do you plan to do anything drastic to bring this number down, especially in light of the growth in loan book and deposits? So my second question is on Basel III. So I know that there's some conversation recently, CBN has hinted at that. I just want to have a sense if this conversation is still ongoing? And if it's likely (inaudible) next year, what this implies for you?

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

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Okay. I'll let Mr. Ogbonna speak to the issue of term deposits, our cost of funds, calibration of (inaudible) is coming from so that we see what we're doing. And then I'd like Mr. Jobome to speak to Basel III and what the Central Bank is doing.

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Roosevelt Michael Ogbonna, Access Bank Plc - Group Deputy MD & Executive Director [25]

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All right. So I think the real question that you're asking around that is, we're managing that NIM and ensuring that the cost -- the pricing structures and cost of funds is not putting us (inaudible) when you compare us to our own competitor group. If you look at our numbers from 2018 to 2019, even with increase in fixed deposit side, we have actually reduced our cost of funds and our NIMs have expanded. We've seen a margin expansion of about 160 to 180 basis points. This has caused about by an increase in yields as well as a reduction in overall cost of funds. The 5.2% that you make reference to is the average cost of funds. As we speak today, our cost of funds actual is about 4.7%. So between Q1 of 2019 when we started the year, post-merger and now, we've actually seen further reduction in our overall cost structure. We had to reprice significantly our term deposits. So they've grown. But from a cost perspective, the average cost of that book has reduced. We've seen about -- the dollar side of the group, we've seen about 40 basis point reduction from about -- well, I'm not giving numbers, but about 40 basis point reduction in our FX cost of funds. And I think the guidance we gave for NIM is about 6% (inaudible) is at about 6.8%. Projection is that we still expect the NIM to expand before the end of this year to about 7%. So there's additional 20 basis point expansion we expect to see on our NIM. This will come, as I said, from the continuous pressure to reprice deposits both on the Naira as well as on the foreign currency side as well as expand our yields on our asset book.

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

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Let me just add to what Roosevelt has said. So begin to imagine what -- where we start from next year, January next year, we will be starting from what should have been almost 200 basis points when you look at us from an actual standpoint or 150 basis points when you look at us from an actual standpoint December last year. And what that means to profitability on an expanded basis, it means the 150 basis points additional income technically, all right, would basically come into the book because of the -- from -- coming from our net revenue from (inaudible). So next year, as far as NRFS (sic) [NSFR] is concerned, you are likely to see a significant uplift. Well, Greg, I think you should speak to the Basel III.

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Gregory Ovie Jobome, Access Bank Plc - Executive Director of Risk Management Division & Executive Director [27]

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Okay. Thank you, Herbert. As you know, the Central Bank has been encouraging banks for a number of years now to begin to adopt the elements of Basel III that their systems and infrastructure can support. So several of us have been doing that. That (inaudible) things like liquidity coverage ratio, net stable funding ratio, (inaudible) et cetera, et cetera, which are meant to guide for the liquidity and quality of funding aspects of the bank's operations. So in terms of formal guidelines, we're working very hard on this. Some provisional guide was provided a couple of years ago, and more specific guidelines are going to -- are still expected, and as they are coming out, perhaps banks will also have a chance to make contributions to make further drops in that process. And I recon, we'll have to look out for Central Bank to formalize this. But on our part, like I said, we've already invested in this for a good number of years now on all those key Basel III aspects, who have been internally operating them.

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

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Next question?

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Operator [29]

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(Operator Instructions)

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

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Okay.

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Operator [31]

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We have no further questions, sir.

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Herbert Onyewumbu Wigwe, Access Bank Plc - Group MD, CEO & Executive Director [32]

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Well, in the absence of any other questions, I think this brings us to the end of our investor presentation. We look forward to speaking with the investor community next year where we'll publish our full results. Thank you very much, ladies and gentlemen.

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Operator [33]

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Thank you very much, sir. Ladies and gentlemen, that then concludes this conference call, and you may now disconnect your lines.