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Edited Transcript of GUARANTY.LA earnings conference call or presentation 10-Mar-20 10:59am GMT

Q4 2019 Guaranty Trust Bank PLC Earnings Call

Victoria Island, Lagos Mar 28, 2020 (Thomson StreetEvents) -- Edited Transcript of Guaranty Trust Bank PLC earnings conference call or presentation Tuesday, March 10, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Julius K. Olusegun Agbaje

Guaranty Trust Bank Plc - MD, CEO & Director

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Conference Call Participants

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* Gloria Fadipe

CSL Stockbrokers Limited, Research Division - Head of Research

* Jerry Nnebue

CardinalStone Partners Limited, Research Division - Analyst

* John Robert Niepold

SQM Frontier Management, LP - Managing Partner & Portfolio Manager

* Kato Arnold Mukuru

EFG Hermes Holding S.A.E., Research Division - MD & Head of Frontier Markets Research

* Lanre Buluro

* Muyiwa Oni

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

* Ronak Gadhia

EFG Hermes Holding S.A.E., Research Division - Research Analyst

* Timothy Wambu

Absa Capital Securities Proprietary Limited, Research Division - Research Analyst

* 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 Guaranty Trust Bank Plc Full Year 2019 Investors and Analyst Conference Call. (Operator Instructions) Please also note that this call is being recorded.

I would now like to turn the conference over to Mr. Segun Agbaje. Please go ahead, sir.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [2]

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Thank you very much. Good afternoon everybody who has dialed in. As is our normal tradition and practice, we have circulated the presentation. So hopefully, everybody's had time to read it. So we'll just go straight to the Q&A. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Tunde Abidoye of FBNQuest Merchant Bank.

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [2]

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Good afternoon, everyone, and congratulations on a very good set of results. My first question is basically on the macro outlook. Given what's happening with some oil prices today, I would like to have a view just to have your view on the outlook for the Naira in terms of devaluation, particularly if the prevailing prices are sustained. What are the potential pressure points for you and particularly, given your oil and gas sector exposure? That's the first one. Secondly, for most of this exposures, what prices are the hedge? And can you give us your net loan U.S. dollar position? And finally, your impairments allow us, if you strip out the regulatory risk reserves, it covers only about 66% of your Stage 3 loans compared with about some 100% in 2018. Can you provide some clarity on why the coverage is lower? Do you expect this to reverse going forward?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [3]

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Okay. Thank you very much. Let me start from the first one, and hopefully, I'll give you some clarity on the second one. If you look at the macros, and I'm sorry, I'll try and spend some time on the macros because I'm sure people probably have a lot of those questions. If you look at the macros, I mean, we couldn't have picked a better day to talk about macros. Coronavirus has happened with 30 -- I think with $35 -- just about $35.5 at the moment in terms of oil. It, therefore, means that when we look at our own dollar book, we've done our own stress test. Our oil book is about NGN 1.5 billion. We've also stressed that it's hedged about 24 months. So we really don't have a lot of problems right now because a lot of our hedges are at like $50 oil. So for about 24 months, we're fine. As you well know, the standard practice in the industry is you hardly find hedges above 24 months. So for the next 24 months, we'll watch. Our belief is that life will become a bit normal. And then in 24 months, we shouldn't run into any trouble. But if oil prices are still at this level in 24 months, most of our facilities will have about 2, 2.5 years to go. And a lot of our -- all our licenses have been renewed. So we can always do a restructuring deal with it, but we will have no immediate need to restructure at this time.

On the massive devaluation, unfortunately, devaluation is not a decision that you and I or anybody on this call can make. I think it's a decision the Central Bank will have to make, looking at the current level of reserves, looking at all prices and probably looking at other macro variables. So what we will do is make sure that our dollar exposure is probably hedged and that in the case of a problem that we can navigate our way out of it.

In terms of impairments, I mean, I really don't understand your question because I would never strip out my risk reserves. If I take my coverage ratio, it's about 126%. And if we look at what we're dealing with, even inside there, without mentioning names, we've looked at our loan book, and we have 2 loans that we're a bit concerned about that we were giving CBN forbearances on, but we still took a 10% provision on all of them. So when we look at our coverage ratio vis-à-vis our NPLs, we are probably more comfortable than most people, having done that for those 2 loans that we think are a bit iffy at this time.

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Operator [4]

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The next question is from Ronak Gadhia, EFG Hermes.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [5]

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Just maybe as a follow-up to the previous caller. Obviously, we cannot forecast when the devaluation may happen and what magnitude of that would be. But in terms of your stress test, what would that -- what impact would the devaluation have on your capital adequacy ratio for [29] years up to date? My second question is just to try and get a better understanding of your forecast. So based on the forecast you've given, it seems like your top -- or at least your net interest income line would be relatively flat. You're expecting 10%, 15% growth in assets, but margins shrinking by a similar amount. So it seems like the growth will largely come from the noninterest revenue side, but I was just trying to understand how that will be achievable given the decline in fee and commission income announced by the CBN earlier this year. Plus a large part of your NIR for last year was driven by recoveries, loan loss recoveries, which might be difficult in this environment. So just trying to get a better understanding of where you see the PBT growth coming from. And lastly, just from a regulatory environment, if you could just highlight in terms of what you can do on your balance sheet. Because as I understand, your loan-to-deposit ratio requirement's 65%. Your cash reserve ratio is 27.5%, but the effective ratio is much higher. You can't really invest in T-bills because my understanding is most of the T-bill auctions for the year are done. My understanding is you can't really invest in OMOs as you get hit with the discretionary CRR. So how do you really manage your balance sheet right now? And is it really possible that, that could come under further pressure this year?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [6]

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Okay. Let me first -- let me try, and please, if I don't answer the question to your satisfaction, please let's take it again. In terms of capital adequacy, we don't think a devaluation, at least where we sit today, I mean, you would have to have a massive, massive devaluation for our capital to be affected. If you look at the CBN transition arrangement, we're 25.6% capital adequacy. Now even if you take strict capital adequacy without the CBN transition, we're at 22%. And we are making money every month and every quarter. So just like even when there was a 50% devaluation, our capital adequacy didn't suffer. Even at a 50% devaluation, I think, we'll be fine.

In terms of our forecast, let me just try and take the interplay of what you're looking at. And hopefully, this will answer you. If you look at our PBT forecast, we've only gone from NGN 231 billion to NGN 235 billion. So we expect this to be a very challenging year. If you look at what we've done to our NIM, we dropped from 9.2% to 8%. What are we going to do with our balance sheet this year? And people will always wonder, but hopefully, I will answer your question as truthfully as I can. We are going to go for market share. So the first thing we're going to do. And if you ask me and this market is we are ready to go into a price war for quality loans, and we started to do that. So we believe that will grow our loan book. The second thing is, if you watch our regional book, it's trending up nicely as well. So we will continue to push that. The third thing we will do is that if you look at our subsidiaries, our subsidiaries are doing better and better, especially Ghana where subsidiaries today are 15% to profit. We think we have enough momentum in the subsidiaries to keep that going. In terms of noninterest revenue, it's very simple. Even though you're slashing revenues, we are going to go and play a volume game. Today, we're about 19% of NIP volumes. We'll see if we can push that a bit further. The third thing -- the last thing we're going to do is that people have always said we have a cost-to-income ratio of 36%, and that, that's as good as it gets, it isn't. And you will notice that this year, we are going to focus a bit more aggressively on expense and cost containment. I think that if you take the interplay of all that, you'll see what is driving us this year. So to gain more volume, we will be ready to sacrifice some of the margins but arrive at the same place. With the growth we see on the balance sheet, I think we've been at least realistic about what it will translate to in PBT growth. And that's how we intend to drive our balance sheet this year. Obviously, focusing, as we've always done, on low-cost liabilities, which we -- which is why we're at about 85-15.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [7]

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Sorry, just on your balance sheet, how much can you do with your balance sheet? From where I stand, it seems like you can either lend or hold the rest in cash. It doesn't seem like you can do much else. You can't invest in almost. You can't do much with T-bills.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [8]

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Well, yes, I think the T-bill game has gone. You can probably do a little bit of OMO, nothing aggressive, but you can still grow your loan book. We ended the year at about 60. We've dropped a bit. And so we still have a way to go on the loan book. So yes, we're all going to have to play a bit of a loan growth game. But again, I think one thing we all have to be mindful of is that I don't believe that what we see is how the whole year is going to play out. I think that the first half of the year might play out the way we are seeing, but that the second half of the year might not look this way. So yes. So for the first half of the year, we'll look at loan growth. I think the key thing is to be very agile and, from a strategy perspective, be ready to change very quickly as opportunities present themselves or headwinds appear.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [9]

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Okay. And sorry, just one final one. Like you said, it's very difficult to tell what's happening. I mean things are changing really on an hourly basis. As you mentioned a bit earlier, your oil and gas book seems quite safe. You seem quite comfortable on that. But could you comment about your non-oil and gas book, particularly if oil prices remained at this level and Nigeria GDP starts contracting again and you see some other pressures on the non-oil GDP? What impact does that have on your asset quality?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [10]

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Well, I mean, truthfully, if this continues, you really have to look at your asset quality. If you look at our loan book, we're about 19% manufacturing, and then the next thing apart from the oil and gas book is then retail at about 11%. And then you've got government and telecoms at about 5%. We'd like to believe that our loan book is quite insulated. It is about 74% wholesale, which is high end. Doesn't mean, as we've seen that one high-end loan can't catch a cold. But I think you will probably not find a lot. So in terms of NPLs, we're actually at a very, very comfortable place. I can't remember the last time I was this comfortable about the names on our books. Like I said, right now, in terms of what we haven't provided for, we're down to 2 names that maybe we worry about. Now those 2 names, even though we haven't been asked to classify them, we have taken a collective impairment of 10% on them. And that, in my experience, if you're down to 2 names that you're concerned about, then you're in a good place. So we don't really have a massive NPL to worry, which is why NPLs to total loans is about 6.5% because I think we've been quite aggressive in classification.

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Operator [11]

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(Operator Instructions) Our next question is from Lanre Buluro of CHD.

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Lanre Buluro, [12]

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Segun, your loan book, particularly, retail side, what concerns do you have? And what kind of outlook do you have for this year, given what the macros have suggested right now? Second of all, you said there's more room around your cost to income. I mean pretty much under 40%, 36% seems pretty good. I'm just trying to figure out how much lower can that go. Is it headcount? Is it -- I mean, what are you doing specifically to drive this number? And finally, 12 months from June, your tenor seems to be up. What -- I mean, I know you've talked about it, but could you give any granularity around who's come in and what actually is the plan to succession-wise?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [13]

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Okay. Let me try and answer. Sorry, my battery seems to be failing me. So I'll get to your -- let me start from the top one. The first thing is we don't really have any real concerns around our retail book because our retail book was built really around salary advances. So yes, the one thing you should worry about is that people start to lose their jobs, they'll come under some pressure, but I really don't see us going above 5%, 6% in terms of NPLs even with people losing their jobs. Also, the implementation of the standing facility, what they call it, GSI or GIS or whatever will help because the major risk on your retail book today is diversion. And if I can pull people's balances in other banks, which has been piloted now, then I think you will find the same retail book. So I don't really have a lot.

In terms of cost to income, well, I guess, if you look at what is happening today with coronavirus and what's happening around the world, you've got to become a little tighter. It probably will be -- we believe we can still cut some costs, and we've looked at it closely, and it doesn't have to do with HR cost. HR costs, we've managed. So no, when we think of cutting costs, it's really from operating expenses and other things. How much further can we go? Even we are going to test ourselves this year and look at it.

In terms of succession, again, my answer to succession will never change. And I will probably get more granular with you. We have 5 executive directors. Our belief as a Board and an organization is that any of those 5 is capable of doing the job going into the future. So there is no risk, and there is no real hurry or urgency to give you who that person will be today. But from an organizational perspective, if we're down to 5 executive directors who can do the job, we actually think we're in a very comfortable place. And how much more granular can I get? In an organization of 15,000 people, you're down to 5 potential candidates.

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Lanre Buluro, [14]

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Okay. Great. I guess one more question is post-GTBank, what's next with (inaudible)?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [15]

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Oh, post-GTBank, wow, well, I don't know. Maybe someone asked me the right question, I might answer. Look, there are a couple of things, but I'm going to start to answer you because someone might still answer me -- ask me this question. So when I answer questions, if I go beyond this, please, it's because I'm going to take it here. The first thing is, if you look at Guaranty Trust, and please forgive me, but this is important. About 10 years ago, we made a decision then looking at the operating environment that we were going to shed all our subsidiaries and become completely bank-focused. Everything we have seen over the last 2, 3 years has told us that it's time to have a bit of a rethink. That rethink basically involves the fact that if you look at what is happening to pure banking, most banks are growing 5% to 7%. We don't think that's sustainable, that's good enough. And if you look at the valuations, they're not very encouraging. But there are other lines of business that are doing very well. If you look at our financials closely, you'll see that our payments business has grown about 60%. So that's an area we like. If you look at what's happening in the PFA space, the PFA volumes are growing every day. And if you look at a certain bank and you look at where their profit is coming from, you'll see that a lot of it is coming out of that space.

Looking at that, it, therefore, means that as an organization, we've decided that in the world you live in today, as opposed to 10 years ago, and if you look at the competitive landscape, what the fintechs are doing, what the telcos are doing, what asset management companies are doing, what insurance companies are doing in the financial space, that as an organization and with the approval of the Board that it is time to consider a holding company structure. Obviously, these are very delicate decisions, and if as an organization, you have thought about a holding company structure, it is all subject to the approval of both all the regulators concerned as well as your shareholders. So what is in the future for me? Maybe part of what will be in the future for me is move up into our holdco role. But this is all subject to a lot of approvals.

So I hope I've answered your question.

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Lanre Buluro, [16]

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Clearly. Yes.

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Operator [17]

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The next question is from Kato Mukuru of EFG Hermes.

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Kato Arnold Mukuru, EFG Hermes Holding S.A.E., Research Division - MD & Head of Frontier Markets Research [18]

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Segun, it's Kato Mukuru. I just had a question. I'm really impressed by the growth in the number of your customers. I mean 18.5 million, that's an increase of about 6.7 million -- over 7 million customers in just 2 years. Our second-year levels in 2017, we had only 11.8 million customers. And you've done that with only 11 more branches and less than 500 more employees. So when we think about your cost of income, so just to the point of your cost of income, because you keep on reducing your cost of service so much, doesn't it make it more and more possible to reduce that cost-to-income ratio? Number one. Number two, the second question is, what has been the driver of that growth? What have you done that the other banks haven't done over the last 2 years? Where is the differentiating factor, you think? And how earnings accretive are these new customers? And then my last question is on the cash reserve ratio. I wanted to ask you if it would be -- if it is possible in Nigeria for the Central Bank to introduce a cash reserve ratio on U.S. dollars. Is that actually possible?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [19]

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Good. Let me answer the first one, which is within my control. The first thing is, I really -- the first thing is, honestly, I really don't know what people are doing. But for me, our retail business, what you see is what I would call momentum. We started this thing very aggressively 8 years ago. And so it's like a well-oiled machine now where there are different things we're doing in terms of acquisition. We've built it into our DNA. So what a lot of banks are just trying to get comfortable with in the last 2 years, we have learned how to do over 8 years, and we have a nice momentum. We always said to people that by the end of -- or the middle of 2021, we would have 21 million customers and -- sorry 25 million. And as you can see, we're on track to do that.

You've again asked me about cost-to-income ratio at 36%, what can we do? I promise you, we will bring it down. There are always things that you can do and that you must do because if you look at what is happening in the macros now and you look at what the coronavirus might do to your business model and your businesses, you have no choice but to be very proactive now in doing certain things, not HR cost, to bring down your own expenses and your own cost. Of course, it might affect your way of life a bit, but it will be temporary, and it's better to do it now. And so I will tell you confidently that we will bring down this cost-to-income ratio as far as the bank goes.

In terms of CRR on dollars, your guess is as good as mine. I mean it's really not within our control. We live every day, and we adhere to whatever regulation we're faced with. So unfortunately, I really can't answer that question.

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Operator [20]

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The next question is from Gloria Fadipe of CSL Stockbrokers.

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Gloria Fadipe, CSL Stockbrokers Limited, Research Division - Head of Research [21]

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Just a bit of clarity on CRR. I understand, speaking to many banks, there is no clear set of the criteria as to how liquidity debits are done by CBN. So it appears no one can explain how debits are done. Liquidity comes in the system, and the CBN just debits down at will. So if you could just explain if this is true. And if that is true, doesn't it mean that your liquidity level is completely out of your control?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [22]

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Well, again, I'm going to answer the question the best way I can. First, I would never -- I think every bank has to kind of figure out how [it's done] CRR debits are coming. We have tried in our own way to establish a patent to our CRR debits. Sometimes, we get it right. Sometimes, we get it wrong. It's obviously a function of the liquidity in the system. And when you look at the liquidity in the system, you also get debited for your percentage of that liquidity. And very broadly, that's how the CRR debits, I think, are coming. For us, we had about 42% CRR at the moment. So I think you've also just going to track what OMO maturities are coming into the system, what liquidity overhang there is, what percentage of it you're holding. And if you work backwards, that should come and give you what type of CRR debits to expect.

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Operator [23]

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Our next question is from Jerry Nnebue of CardinalStone.

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [24]

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I guess on get a sense of what you think your expectations regarding the regulatory environment in 2020 is going to look like. So with everything that's going on, last year, we saw a split of measures from the Central Bank. And then this year, it's coronavirus, oil prices going down. The general expectation that you'll probably see some new measures. So what are you thinking around that? What are you hearing? I just want to know what you think. And the implications also for bank's position because [some smaller headroom for big sort of] banks is that this seems to be the new normal for banks. I'm probably not expect to see the kind of return on equity that you've posted in the last couple of years. And so what do they really mean to you?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [25]

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I think that you're in a very challenging macro environment and that in a challenging macro environment, your regulation is going to be strict and tight. And that to make money in this environment, you're going to have to work a lot harder than we've all worked in a while. From my perspective, I'm not yet ready to throw in the towel and say that our ROEs are going to come down. We're not going to be able to sustain them. I think we're going to work a bit harder than we have in the past, but I'm not yet ready to give up. I also had told -- I also mentioned -- answered to one of the other speakers that what you're going to have to do with financial institutions is also find other lines of income outside of just pure banking and maybe such also the fact that banking is not going to give you more than 5% to 7% growth. So yes, it's going to be very tight. It's going to be very tough. But I think, again, you have to think of it outside the box and find a way to continue to grow as a financial institution, so that you can preserve and maintain the type of ROEs we are used to as opposed to just giving up.

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [26]

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So are you still looking at some sort of inorganic growth, which talks about bank -- potential bank loans capitalization? Just in the way for us to see that expression. If the organic ways of gen businesses is [in fivefold], are you also considering organic options?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [27]

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I'm not a big fan of inorganic options because I just think that it's more of the same. That even if you grow inorganic and acquired another bank, you're still faced with the same realities, the same regulation, the same sort of growth rate. And that, that will never give you a quantum leap, and that all your growth will be linear. And that what you have to do today is look for other ways to have quantum leaps, and you have to look for other areas of business where you are capable. I remember about 10, 15 years ago, when we used to do projections, we used to look at balance sheet growth of about 60% and profit growth about 40%. Today, we're all struggling a balance sheet growth of about 14% and profit of about 5% to 7%. So for me, the attraction is not more banking. The attraction is you look for businesses that will give me 60% growth.

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [28]

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So speaking of this other alternative options, so yes, when we were talking about noninterest income and then on the fee side of things, so we see the disruption that has been brought about by fintechs and potential and [PSVs]. So what specifically is that you're doing which is still relevant in that particular space? Give you, for example, I know they are banks, but I'm looking at agency banking, for example, just a relevance. You've talked about it being a volume growth or volume-related kind of thing but anything specific to be able to stay relevant, especially with the potential disruption that's going to come in the fee electronic business side of things.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [29]

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Okay. Again, I think I've answered this question, but I'll try and help you again. I don't believe that agency banking is where the answer lies. Agency bank is just a cheaper way of bricks-and-mortar and that with (inaudible) anyway, we will all have that over time. The (inaudible) will give us about 500,000 agents from an agency perspective. We'll take care of that. I don't think that's where the fintechs are beating the banks. I think the fintechs are beating the banks in building platforms that are quicker, faster, cheaper and are friendlier. And that is where banks have to continue to look to compete and left out of the bricks-and-mortar space. I think from Guaranty Trust Bank's perspective, we are looking at that very seriously, and that what we are looking at is the payment business from a platform perspective, which is why you saw us launch Habari as a first step. And then that will be more responsive as opposed to agency banking.

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [30]

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All right. I think I just have one last question. The devaluation of the Naira, any conversations around it? Do you have -- are you shifting your strategy around the potential for that to happen, really?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [31]

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I think you always shape your strategy around plus or minus. It's the smart thing to do. And then when you come into any year, you plan for what you'll do if there is an appreciation, and you also plan for what you'll do in a devaluation. So yes, we do have a plan for both sides of it, whether it's a plus or minus on the currency, absolutely.

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Operator [32]

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Our next question is from Timothy Wambu of Absa.

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Timothy Wambu, Absa Capital Securities Proprietary Limited, Research Division - Research Analyst [33]

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Just 3 quick questions. Kindly just run me through the NIM compression guidance. Maybe speak about what you've seen. I can see your cost of funds are down to, I believe, probably the flow. So is this more a yield conversation? The next question is on the loan-to-funds ratio directive. You clearly shared a 65% minimum requirements. So has there been any penalty, whatsoever? And is there some forbearance now given that the cash reserve ratio was raised? And then lastly, just your thoughts about the opportunity that lies in mobile money. The bank's working with the telcos. What kind of scope do you find -- do you see there from a transactional income point of view?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [34]

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Okay. Let me try and answer the -- I think the first 2 are related in a funny sort of way. Yes, there was a debit at the end of last year, if you didn't meet the 60%. So yes, if you didn't meet the 60% of the debit, which is a 50% additional to your CRR for the shortfall. Really, the NIM compression is because we are going to get to the 65%. We've decided we're going to do that. To get to the 65%, you've had to lower the price of your loans. So by lowering the price of your loans, you're going to have some NIM compression. We budgeted about 120 basis points. Just like you said, our cost of funds are down at 2.3%. So that's pretty low. I'm not sure we're going to be able to squeeze a lot more out of it. So what we're going to have to do is kind of bring down our asset yields a bit by bringing down our loan pricing, and that's the NIM compression you see. So in order to grow the volumes and have more size and meet be it not just the LDR but kind of sweat our balance sheet better, we're willing to give up some NIM compression. And hopefully, what we'll do in the volumes will make up for whatever NIM compression we have put in place. So we'll have to see.

The other question -- I see you called me from Absa. The other question I always laugh about when people ask me about mobile money and telcos is I've always wondered why nobody's ever asked me why the MCC hasn't given a bank a telco license. Because just the same way everybody seems to think that telcos have a right to mobile money, likely, I also believe the banks have a right to telco licenses. My simple answer is that where we see advantages, we will always be ready to cooperate. But where we see disadvantages, we will also do everything to protect our own market share, and that we will adopt a business model that will allow us to do either, either to cooperate or to compete.

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Timothy Wambu, Absa Capital Securities Proprietary Limited, Research Division - Research Analyst [35]

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Just to clarify the other question I was asking was about, so you'll remember after the 60% minimum requirement was passed, the banks who are short of that were penalized. So the other question I'm asking is, given that as of December, 65% was the minimum requirement, and from your presentation, you're clearly shy of that. So I'm asking, subsequent to the original 60%, let's say, penalty, has there been any, given that now they raised it to 65% in December and you're shy of that? And if not, is there any forbearance because of the cash reserve ratio increase?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [36]

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No, I don't believe so. I think the last debits were done at the end of December. And I believe there will be debits done between now and the end of the quarter.

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Timothy Wambu, Absa Capital Securities Proprietary Limited, Research Division - Research Analyst [37]

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Okay. So clearly, there's still -- because you're shy of that, so the expectation here is that we will see -- you asked to part more money with the CRR, isn't it? Or the CBN?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [38]

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Well, you don't know what I am today. So we have to wait and see. You're looking at a December 31 figure. We're hoping that we wouldn't have to part with a lot of money and that we will get as close to the 65% as possible, which is why you see we've advised about 63% for the year. So we are going to work very hard to get to the 65%, so we don't part with too much money to CRR.

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Operator [39]

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(Operator Instructions) Our next question is from John Niepold of SQM Frontier Management.

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John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [40]

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Two questions. One, did you take -- did you do any write-offs of any loans in 2019? That's one question. And the second question is, what's your current net dollar long position?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [41]

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Okay. Write-offs, we get...

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John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [42]

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With everything that's going on?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [43]

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Okay. Sorry, sorry, okay, long position, okay. All right. All right. Let me answer the first one. Write-offs, we did -- yes, I think we did about NGN 29 billion of write-offs. I forget the names off the top of my head. So that's how we go from NGN 90-something billion to NGN 68 billion. So we did do some write-offs. In terms of our long position, our long position is somewhere around $1.3 billion, $1.4 billion long.

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John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [44]

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Okay. Great. So you're pretty much hedged if the Naira drops?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [45]

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Well, I guess, you'll find it of me, if I would make a bit more money. If the Naira drops, yes, the answer is yes. If we have a devaluation, we'll make a little bit more money, yes.

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Operator [46]

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(Operator Instructions) Our next question is a follow-up from Ronak Gadhia.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [47]

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Just a quick follow-up. Segun, you mentioned a couple of times how strongly your retail loan book is growing. For those of us who've been following Nigeria for a while, we've seen that before many other banks have tried to grow their retail loan portfolio and failed quite miserably sometimes. I know you've mentioned that you've been doing retail for around 8 years now and you gradually learned the process and it's in the DNA. But if you could just highlight what the difference is between your retail loan book and what -- and the retail loan book of some of the others who've tried it in the past and failed. Just trying to understand the underlying risk.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [48]

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Okay. I think a lot of people in the past who do retail loan books did what they call retail was really SMEs, and that they gave money to small businesses based upon cash flows and no security. Most of our retail loan book is to individuals, and they're tied to salaries, whether on a salary-advanced basis on a longer-term basis. Therefore, what we found is that the greatest risk to that portfolio when we dimensioned it using all the data available to us was that you would lose your job. However, we found another risk, which was that people tended to sometimes after they took those loans move their salaries. And we really didn't get a lot of cooperation from their companies. So that gave us some NPLs but well under 5%. So I think the fact that we did it to salaries and to individuals gave us the up.

The other thing that we're very excited about is that now, for the other risk, which we were unable to hedge, which is the risk of diversion with this whole standing order thing from the Central Bank where we can pull credit balances in other banks, we think that, that NPL will be even lower. So I think it was our approach. We didn't dive into the SME space. We basically grew our retail book around salaried accounts and individuals as opposed to SMEs.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [49]

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Understood. And just one final one. On your East African business, I think in the calls we had last week -- last year, there was some indication that you might be looking at options of acquiring within that space. Has there been any progress on that? Or should we expect something this year?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [50]

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I think this year, we're doing a lot of things in terms of restructuring ourselves for this decade. One of it is bulking up in East Africa. We still like the region. As you can see, Kenya is profitable. Uganda is profitable now. Rwanda is profitable. We're just trying to bring Tanzania. We still are very excited about the space. So it will come as part of all the things that we're doing to help diversify our earnings base into this year. So yes, we are still looking at an acquisition, what size and what scale will come out of all the work we're doing at the moment.

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Operator [51]

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Our next question then 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 [52]

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I just have a follow-up question. So the first question, you talked about considering the holding company structure. So wanted to think -- I just wanted to know if you're considering asset management or insurance subsidiaries are likely companies in the holding company structure. And then secondly, I wanted to get your sense of within retail segment or mortgage model, so I know it's still very limited in Nigeria right now. And I just wanted to get a sense of what you think is limiting that growth in Nigeria.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [53]

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Okay. In terms of a holdco, yes, we are considering. We're looking at asset management. We're looking at insurance. But as you can imagine, we don't believe you can do everything at the same time and that you have to pick where you think your core competencies lie as well as where you believe there is the most opportunity now. I think for now, we have decided we might look at it. I'm not sure yet. But definitely, asset management is there. Insurance is there. Payments is there, and PFAs are there. So yes, that's the simple answer, that it's something we are looking at.

In terms of retail and mortgages, I think it's just the risk of foreclosure and the title and the cost of perfection that is slowing down mortgages more than the interest rate. And that if the risk of foreclosure and the process to foreclosing on security or mortgage are mortgages that have gone bad improves, I think you would find that people would be more eager to do it. Part of the risk you have today that you book a mortgage and it goes bad, trying to realize security takes forever.

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Operator [54]

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(Operator Instructions) We have a follow-up question from John Niepold of SQM Frontier.

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John Robert Niepold, SQM Frontier Management, LP - Managing Partner & Portfolio Manager [55]

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Segun, just one other follow-up. You were talking about payroll deduction essentially for your retail book. We have seen, in some cases, in some countries where if that payroll book is largely focused on government employees, if the government starts running out of money, sometimes the government will pay the employee but not pay the bank. Have you seen any kind of situations like that happening in Nigeria, thus far? It seems like that the payroll deduction is not as easy as it once was in other places.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [56]

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Okay. I haven't seen anything in Nigeria like that. But if it will give you any comfort, I think out of our own retail and payroll loans, outside of which we're very comfortable with the regulatory government agencies that you will find that pure government, especially state government loans, is a very small percentage of that book.

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Operator [57]

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(Operator Instructions) Sir, it would appear we have no further questions in the queue.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [58]

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Thank you. Well, thank you very much. Yes, so there are no questions. That's it for today. Thank you.

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Operator [59]

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