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Edited Transcript of GUARANTY.LA earnings conference call or presentation 20-Aug-19 10:59am GMT

Q2 2019 Guaranty Trust Bank PLC Earnings Call - Pre-recorded

Victoria Island, Lagos Sep 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Guaranty Trust Bank PLC earnings conference call or presentation Tuesday, August 20, 2019 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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* Dafydd Lewis

LGM Investments Limited - Portfolio Manager

* David Adu

Meristem Securities Limited, Research Division - Research Analyst

* Gloria Fadipe

CSL Stockbrokers Limited, Research Division - Head of Research

* Johan De Bruijn;337 Frontier Capital, LP;Portfolio Manager

* John Munge;Vergent Asset Management;Analyst

* Ola Warikoru

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

* Olabisi Ayodeji

Tellimer Research - Equity Research Analyst of Industrials for Africa

* Oluwasegun Akinwale

ARM Research - Research Analyst

* Oluwatoyosi Oni

Renaissance Capital, Research Division - Research Analyst

* Onome Ohwovoriole;Nairametrics;Analyst

* Ronak Gadhia

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

* Seki Mutukwa;Ashmore;PM

* Sharat Dua

Fiera Capital (UK) Limited - Portfolio Manager

* Tunde Abidoye

FBNQuest Capital Limited, Research Division - Research Analyst

* Dipo Olowookere;Business Post Nigeria

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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 Half Year 2019 Investors Analyst Call. (Operator Instructions) Please also note that this conference is also 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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Okay. Good afternoon, everybody. We've had the presentation on since Saturday morning. So I'd like to thank everyone who has joined. So we won't be going through the presentation again. And what we will do is go straight through to questions and answers. So I'd like to hand over to [Rapa Tira] take the first question.

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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. My name is Tunde Abidoye from FBNQuest Merchant Bank. Congratulations on your results despite the challenging operating environment. My first question is on your asset quality. There was a spike in NPLs for the General Commerce segment, for the Individual segment and Others. Please can you provide some color on what drove this?

Secondly, given the pressure on yields as shown by your results and the CBN's recent regulatory for some banks, which somewhat contradicts the most of the factor and portfolio influence, do you really expect yields to come under further pressure? I'd just like to hear your thoughts around what you see yields doing.

Then also, how feasible is it that you'll get to your loan-to-deposit ratio of 60% given that your LTD ratio is currently around 46.5%? Just looking at my model, it appears that your loan growth target is a bit conservative, if you submit the 60% LTD, while the opposite is true for deposits. How do you mitigate creating an NPL bubble down in the line -- down the line, given the magnitude of risks that has to be -- of risk assets that have to be created in a very short time? That's all for now.

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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. Sometimes, I will spend a little bit of time on each question, elaborate a bit so that if people have the same question, hopefully, I would have answered it. First one, in terms of asset quality, first, our asset quality has actually improved; our NPL has actually gone from about 7.4% to 6.8%. There is no particular loan that has gone bad. Another thing I want to emphasize are about our NPL-to-total-loans ratio that we recalculated as we use IFRS 9. There are banks in this environment who are still using prudential guidelines. Under IFRS 9, you have to cost -- you have to put Stage 3 loans into your calculation, which is what we do. And so where we sit, asset quality is better than what it was last year. And I think when you're comparing our asset quality, our NPL-to-total-loans ratio, with other banks, you should check and make sure that they are using Stage 3 loans.

In terms of yield pressure, it's absolutely real. If you look at what has happened, essentially, for us, the yield pressure has really come from Fixed Income Securities. The portfolio has gone down from 17% to 15%, which is about a 200 basis point hit. However, I don't believe this pressure is going to get any worse. My prediction is that if you look at what has been happening to FPI flows, we are probably as low as we can take interest rates and that, if anything, we might have to start to inch upwards in order to preserve the FPI. So I think the yield pressure is that we've seen the worst of it. And I expect in the second half year, we would stay where it is, or it will improve.

In terms of our loan-to-deposit ratio, first of all, what you show is we're not 46%. Group is actually 49.9%, which is 50%. So the NPL-to-total-loans ratio, you're looking at is group. Bank as of half year was 55%. As of today, it's 57%. And that is without us adding the 1.5% multiple, which we will be giving for retail loans. So we're not in any sort of panic in terms of our loan-to-deposit ratio as a bank. We think we need to grow circa NGN 40 billion, which we think is manageable. So we're really at about 57%, like I said, without applying the 1.5% multiple. So we are not in any danger of creating an NPL bubble because we don't have to blow the loan book, we're at about 40% to 50%, NGN 50 billion if we have to. So from that perspective, I think we, in terms of the LDR of 60%, are in a very comfortable place.

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [4]

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Okay. On the NPL question, I was actually referring to NPLs for the segment. So if you look at General Commerce segment, it shows that your NPL of that segment grew to 30%, is around 30% in 2020?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [5]

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There is no particular name. So it's probably a whole combination of things. And if I had to pick one name out there, would be Stallion. So we have chosen to classify Stallion, but there is no -- I can't see any particular trend in our General Commerce space because we actually don't do a lot of General Commerce. But the one name that might have that we've classified is Stallion.

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Operator [6]

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(Operator Instructions) The next question is from Toyosi Oni of Renaissance Capital.

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Oluwatoyosi Oni, Renaissance Capital, Research Division - Research Analyst [7]

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My first question is in the growth in impairments during the quarter, or if you could just speak on what drove that in Q2?

And then my second question is on the significant growth we've seen in the fees and commissions line, especially with the transfer related season e-business, so I'd like to ask how sustainable this is and if we should expect this -- the run rate going forward?

And my third question is on share price. The bank is trading at one of its lowest levels. And while I understand that it's a factor of the greater macro and operating environment. I'd just like to pick your thoughts on what you think needs to happen for us to see a re-rating.

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

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Okay. Thank you so much. In terms of impairments, like I said, I think we did impair Stallion, and that's the real reason. That's the growth we saw in the second quarter because we started to see some things we didn't like around that name, so we've impaired that.

In terms of noninterest income, I don't even think we started to scratch the surface. And I believe that that's the trend you will see. If you look at what has happened to us, a lot of what has grown is our transactional income. If you take USSD, USSD is growing about 45%, mobile banking is growing about 60%, account maintenance commissions are growing. So as we have started to grow our customer base, today we have 16.4 million customers, not all are active, but that's the number we have. So in terms of transactional income, I think you will continue to see that. So when you look at our noninterest revenue line, because a lot of it is transactional, I would like to believe that we can keep that going. And that's a lot of what you'll see. So that increase was even despite the fact that NIP charges were cut from NGN 100 per transaction to NGN 50 but could have been NGN 100 to the end of the year, things would have been a lot better. So I think we are pretty optimistic about maintaining that trend.

Share price, let me first start by saying that I try not to get very worried about the share price, because I think that if we keep the fundamentals strong that the share price would eventually find its own level. My thoughts about what you've seen in the market today is I think there is a sentiment that the economy is not doing very well. And you started to hear a lot of things like sell Nigeria. I think we could do things to help our own financial sector shares even though we're not the only ones that are affected. I really think that if we looked at some of the charges and bankers tariff, I think that a lot of them can be adjusted, and they would still be better than they are. I think we can work on giving some positive news as far as that are positive in terms of revenues for the banking sector. And that, that would help move it. But I don't think the only problem is the banks. I think, generally, I was reading something someone had written, I don't want to mention the name of the company, so I won't be accused, but it's in the food and beverage space, and their share price is the lowest even though everything seems to be up.

So -- but you guys are really the ones who talk to the foreign investors. I think you have to just continue to remind them that there are not many places in the world today where you can see a company that is delivering post-tax ROEs of 33% on a stable exchange rate. And the maybe more we all have to do collectively is to start to share the positives about the economy and not focus on what is not working.

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Operator [9]

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(Operator Instructions) The next question is from [Andriollo Olawessian] of FBNQuest.

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Unidentified Analyst, [10]

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Quickly, you've answered most of my questions, but I just wanted to ask, I notice on the court case between GTBank and Innoson, any new developments in that space?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [11]

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Well there's no new developments, and obviously , I can't speak too much because cases that are in court, what's the word, I'm not a lawyer, but I use like sub judice. But what we always laugh about is when they say that they will take over the bank for a debt of NGN 8 billion. As you can see, at half year, we're NGN 116 billion in profits. If what we have to pay, that's what it turns out to be is $8 billion, I'd like to believe we can afford it.

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Operator [12]

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The next question is from Ronak Gadhia of EFG Hermes.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [13]

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Segun, I have 3 questions. My first question is on your -- a follow-up on your margins. I know you mentioned earlier that you believe yields have bottomed out. However, could we still see your margins come under pressure as you roll over your existing portfolio at current yields? Or do you think that has played out already?

My second question is on the growth strategy. I know in the past that you have indicated that you wouldn't consider an acquisition. However, given that the outlook for organic growth remains quite bleak, would you reconsider this policy, maybe consider an acquisition outside the industry or maybe even outside Nigeria?

And my third question is on regulations. Earlier this year, the Central Bank indicated that they might restrict bank's investments in government securities. What is the probability that they might still end up implementing that?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [14]

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Okay. Let me -- okay, I'll try to deal with -- let me try and deal with the first one. Just like I said about NIM pressure, we're at about 15% on the portfolio. I know that the last OMO actually went up and I think yields were like 14-point-something. So I don't expect a lot of pressure. We will also have to grow the loan book at about, let's say, 14%, 15%. So even if we were to see some NIM relaxation, maybe, I don't know, 50 basis points. So maybe we'll go from 9.5% to 9%. But another thing I'd like to say is, which might shock people, one of the best things that to me as a person, that result was the 1% loan in the -- growth in the loan book, because last year, we had contracted about 12%, 13%. So having reversed that trend, I think we're in a good place. And that even if we saw the 50 basis point contraction in the fixed income yield portfolio, we would make it up in what we do with the loan book. And so I think on that line, we will be fine.

In terms of growth strategy, I'm trying to be very careful because a lot of these things are very strategic and require a lot of other approvals, probably that I can't make alone. But you are right. I think that, in terms of growth, we will start to look at other things probably outside of what you're seeing us doing now. Some of it might be to look at making acquisitions outside of Nigeria, so that we can bulk up in certain regions. We're looking at our bank strategy. But I think it would be -- it'd be wrong for to me to say at this point that we will not consider other options because as a financial -- as a bank, we want to continue to grow. And that if you're going to continue to grow, probably 5.6%, 6%, 7% growth will be enough, and that you will have to think outside the box a bit. So without saying yes or saying no, I think we will look at -- we will broaden our options.

I'd like to believe that the CBN is not going to change the approach they've already used, which is that you're not going to force banks not to buy Fixed Income Securities and that they will continue to work with the loan-to-deposit ratio. So there'll be more and more suasion than FIAP. And like I'd said earlier on, we're at about 57%. We believe that with the multiple that will be given for retail loans, we'll look even better than that and that we will deal with it. It's kind of the middle of August and by the end of September, we don't expect to be in a bad place as far as the 60%. They have, however, said that the 60% is the first move, which means that you can't rule out that the loan-to-deposit ratio going forward might even be up from 60%, if they feel the need to. But I don't think there'll be FIAP banning banks from buying treasury bills.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [15]

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Okay. I guess that is the risk, right? Because based on what you have said and the estimates we have for the other banks, it doesn't seem like the LDR of 60% will have any meaningful impact on loan growth. So the risk is that the Central Bank could come back with more draconian measures. And I think that's what's been revised in.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [16]

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Well, no. Well, I don't -- let me be honest with you. I really don't believe you'll see draconian. I think you might go from 60% to 65%, which is -- I don't think the Central Bank themselves want to blow the loan book of banks and take the NPLs high. So if at 60% LDR, they don't have the impact they want, my suspicion is that they'll move it up, but I don't think it will be anything that will cause any systemic problems. And I like to believe that you've got rational people. And that while I have been the one who has said to you, yes, there's a possibility we can look at upping the LDR, but I don't think if anything that will be done to destabilize the system.

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Operator [17]

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The next question is Ola Warikoru of SBG Securities.

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Ola Warikoru, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [18]

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I wanted to ask around -- questions around the digital loan book, if you can just give some color on how that is going? So maybe the size of the quick cash initiative, and the size of the digital loan book as a whole.

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

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Well sometimes I wonder whether people really want to know what we're doing exactly. Well, put it this way, the size of -- I won't give you the exact amount, but the size of the digital loan book today is over NGN 25 billion. And the NPL is 0.07.

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Operator [20]

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The next question is from [Caitlyn Burn] of Prudential.

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Unidentified Analyst, [21]

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Sorry, I jumped on the call a bit late. So apologies if the question has been asked. Just on your noninterest revenue, you've had a few good years of FX revaluation gains and discounts and recoverables. Where does the noninterest revenue come from going forward? Or is there sort of something you can offset on the cost side to make up for the noninterest revenue declining going forward?

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

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Okay. First thing you will notice is that we really didn't have revaluation gains on noninterest revenue this year; neither did we really have any last year. So we're bound on the ways you can make up the revaluation gains. And part of it is, if you look at what's happening to our transactional income, our transactional income is way up as we've done customer acquisitions. If you look at our USSDs, growing about 40%, 45% year-on-year; mobile banking's grown at about 60% year-on-year. We're doing a bit more trade because we're not as shy to do the LC business anymore. The card business is growing. So one area we're compensating for a revaluation gain really is what we're doing in our retail business. Also, as the loan book has stopped dropping, there's some credit-related fees that are going in there.

Also in terms of noninterest revenue, there's some exciting things you can still do in your deal room with your loan dollars. So we've made up for it. And for us now, if those -- the valuations we have, revaluation gains will just be an upside because we really haven't had revaluation gains in any meaningful manner since 2017. So that is why we were actually very happy with what we've seen in 2018 in terms of noninterest revenue, because we were able to make up the revaluation gains of 2017.

And if you look in the first half of 2019, there really are no revaluation gains on the books. I mean, you have transactional income, and you have recoveries about NGN 7 billion.

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Unidentified Analyst, [23]

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So would you say, if I look at noninterest revenue for the first half and annualize that, is that a fair number going forward? Or could we see downside to that number?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [24]

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No, we're going to try to make sure it never goes below that, I mean, as long as we grow the volumes and grow the transactional. The only thing we would have to make up, and I think we still have some things which we haven't yet done or recovered, the only line that we're going to try to make up is recoveries of about NGN 7 billion. We probably still have some recoveries we can do. But we think that from where we're sitting, it -- what we're trying to make up is NGN 7 billion, we think we can do that because in the first half of the year, trading income wasn't that good because there was absolutely no volatility in FX.

So if you look at the noninterest revenue, all we would have to try to compensate for through transactional volumes is NGN 7 billion, which we did out of loan recoveries.

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Unidentified Analyst, [25]

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Understood. If I could just ask one more follow-up question. Are you able to talk about the health of the oil and gas sector? So where -- with oil prices being a bit lower, is there risk to that sector? And are you still seeing some oil and gas players sort of over-indebted or is that side of the market in better health now?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [26]

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Okay. My take on the oil and gas sector is I think risks are always very different. And I'm going to try very quickly to break them down the way I see it. Upstream oil and gas, if you have structured your book well, in my opinion, is the safest, especially if you have access to primary cash flows of the fields you developed, and you didn't finance equity. Because ultimately $60, you'd still pay back most of your loans. Most people have hedged at about $50, $55. What could go wrong? You could have a problem in the Niger Delta, which affects production, but even that wouldn't be as bad as we saw in the old days, because most people have alternative evacuation. So I think, very carefully, that depending on where your upstream oil and gas book is, you might be in a good place if you didn't finance equity, which means you have primary cash flows.

In terms of midstream, because oil price is pretty good, and then is -- $60 is not bad. There is exploration going on, there's vessel financing. So your midstream might not be as bad.

The place where there always is a lot of volatility and where people tend to lose money very quickly in upstream oil, in oil and gas is downstream because it's fixed pricing, very volatile, large volumes, low margins. And so you have to be careful there.

So when I look at oil and gas, I try to separate the risk. There will always be some certain amount of risk. But when we look at our own portfolio today, we maybe are concerned about 1 name, every other name there, I think, we sleep quite well at night.

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Unidentified Analyst, [27]

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And is there any other sectors in the economy, which you're seeing under stress?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [28]

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Well, I think power has always been under stress. And I think that's going to be there. I think if you look at what happened in downstream oil and gas, where there's an interest rebate to be given, I think there probably is a little bit of stress there as well. So I think it's the usual suspects; I'm not sure of any new one has popped its head. But even in manufacturing, there might be 1 or 2 names to watch as well, that might have suffered from devaluation. But apart from that, I don't think there's any real sector-specifics that has happened.

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Operator [29]

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The next question is from Dipo Olowookere of Business Post.

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Dipo Olowookere;Business Post Nigeria, [30]

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Yes, I am Dipo Olowookere from Business Post Nigeria. I have 2 questions. The first one, the last quarter, Q2, you heard the Food and Drink Fair. Now the question is this: how has this fair really -- which you've done in the past few years now, impacted on the general growth of company? So do you get more customers through the fair? And in what ways really has this fair impacted on the bank?

So the second question is this: recently, the 2 major -- 2 out of the 4 major telcos, they announced they will be going into the banking, offering banking services. So do you think their introduction into the financial sector will be a threat to the existing banks?

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

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Okay. Let me answer -- okay, they were your questions. The first one is Food and Drink. Clearly, Food and Drink, the yields you know about it, it means that it has an impact. It was done for the SME sector. And if you watch what has happened to our SME business since we started, SMEs today are 12% of our deposit base. And so clearly, I think that in terms of awareness and the fact that we're ready to pay SME. And yes, it has opened a lot more SME businesses for us, accounts, because people now see that for a bank that they always used to think was just higher than retail has lessened the appetite. So absolutely done very well for us.

In terms of telcos coming into the banking space, of course, it will increase the competition. But I don't want to use the word threat, I mean, threat is always negative. Competition is positive. So coming of the telcos will increase competition in the financial services space. So yes, we've got to be ready for more competition. The competition won't only come from telcos, it'll also come from fintechs. So what you define as competition in the banking sector has broadened, but I would never use the word threat.

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Dipo Olowookere;Business Post Nigeria, [32]

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If I may quickly chip in this? After then is GTBank to tap on this competition from telcos? Is there not any power on biz like MCN as to penetration to the markets?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [33]

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I'd like to believe that GTBank is a very strong bank. It has a strong retail base. It's very innovative. Hopefully, we have a good brand, and that GTBank will compete very effectively with anybody, whether bank, telco, fintech and any other space.

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Operator [34]

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The next question is from [Alfred Mashee] of ARM Securities.

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Oluwasegun Akinwale, ARM Research - Research Analyst [35]

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My name is Segun Akinwale. So just a few questions. Sorry, I joined late. You mentioned something about your LDR being at 57%. But I wanted to be sure, was this adjusted for the 1.5% multiple on retail and mortgage and consumer loan? That's number one.

You also said something about impairment on Stallion. I just want to get better clarity on what you mean by you impaired Stallion. What is the size of the portfolio, and what was the impairment that was taken on it just to get a better perspective to that? Okay.

Okay. So I think that's still related to your loan-to-deposit ratio. I just want to get what sector are you looking at focusing on to grow? You mentioned on what you need to extend might just be about NGN 50 billion, NGN 40 billion to NGN 50 billion to meet up with the minimum. So what sector are you looking at so you can deploy this in order to be able to meet up with the time line?

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

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Okay. The LDR doesn't include -- that I said to you, so we have 57%, doesn't include the 1.5% that will be given to retail loans, no, so we're there.

In terms of sectors, I mean, I think we will always look at all your high-end corporates to grow your loan book. You will look at consumer loans and retail, which we have started to focus on. And if you look, today, retail is 11% of our loan book, and we still have a telco loan which we still have about 50% or 60% to disperse. So you would probably look at high-end manufacturing. You would look at retail, which is consumer lending, and you look at some telco loans.

Our total exposure to Stallion is NGN 10 billion. I mean, we've impaired it. I forget get exactly how much we have provided for. But it's something that we believe is showing signs of weakness.

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Oluwasegun Akinwale, ARM Research - Research Analyst [37]

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Okay. So just to add to that you mentioned something about -- so I just want to know what's your current swap position? And do you have any swap position, and what amount could that be?

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

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I don't have any swaps. My balance sheet is around about $1 billion.

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Oluwasegun Akinwale, ARM Research - Research Analyst [39]

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Your what, sorry?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [40]

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My balance sheet is around about $1 billion, and I have no swaps.

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Operator [41]

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The next question is from Sharat Dua of Fiera Capital.

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Sharat Dua, Fiera Capital (UK) Limited - Portfolio Manager [42]

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Segun, 2 questions for me, if I may. First question is just to get on the other income -- on the noninterest revenue, other income. A few lines there, which just a bit more detail on those would be helpful to know where that growth is coming from. So in the recoveries and others is credit recoveries. Are these are loans that were provisioned or written-off 3, 4 years ago, that you're getting recoveries from now?

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

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Yes. Okay. Yes. I mean it's a simple, yes. Yes, those are recoveries. And of that NGN 7 billion, I can give you the 3 names very quickly. The first one is [Wes Foster], which is about NGN 3 billion, [Forringham] was about NGN 2 billion and Setana was about NGN 1.2 billion. So that's about NGN 6.2 billion of the NGN 7 billion. So yes, there were loans that we had written off under IFRS 9, which are now coming back into the P&L.

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Sharat Dua, Fiera Capital (UK) Limited - Portfolio Manager [44]

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Okay. And you're saying that you think there's more of that to come still in the second half of the year?

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

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Yes. Because if you remember, we did take, and I said at the time, that we were taking about NGN 94 billion, NGN 96 billion IFRS write-offs, and that we believe that in the worst case, we would recover about NGN 40 billion of it. So yes, we hope that we're going to recover more of it because we don't think we're at the end of it. We'll continue pushing. Recovery sometime is very slow in Nigeria because sometimes you have court cases, liquidation of assets, but we're pushing very hard. And so part of our strategy was that we would recover part of our IFRS 9 write-offs. So yes.

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Sharat Dua, Fiera Capital (UK) Limited - Portfolio Manager [46]

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Okay. And the other 2 items that stand out for decent growth in that other income section are FVPL notes income. So I assume that means you just didn't have any of those notes last year?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [47]

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No.

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Sharat Dua, Fiera Capital (UK) Limited - Portfolio Manager [48]

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And discounts and recoverables, if you could just explain what that means?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [49]

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Okay. The FP -- sorry, we invested in -- we invested $150 million in credit linked notes of an offshore bank. I mean I don't want to mention the bank, but it's a decent bank. It's AAA. So that's what that is. And discounts and receivables were basically in our card business. Because of our volumes, we negotiated some rebates and discounts on fees that we had paid last year on that. Because if you look at our books closely, you will see that our debit card expenses are huge. And so we went back and looked at it and looked at the volume, and were able to negotiate better rates on that line.

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Sharat Dua, Fiera Capital (UK) Limited - Portfolio Manager [50]

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Okay. And some of these do sound that they're somewhat one-off in nature, but you're expecting that through a combination of increased retail, access and growth in the cards business that, that will continue to drive the NIR outside of the fees and commissions line, is that right?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [51]

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Yes. The one I would say, for now seems like a one-off is the discounts and receivables. I think recoveries are a part of our strategy and that if we look at the amount we wrote off under IFRS 9, I would expect that this year and next year, we would still recover some of those. So maybe that would stop being a one-off, maybe after 2020. The FVPL will not be a one-off because the way we did it was half of it are 6-month notes and the other half are 12-month notes. So we should still see some of that at least next year. So the one that might just be the one-off that you might only see in 2019 would be the discounts.

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Sharat Dua, Fiera Capital (UK) Limited - Portfolio Manager [52]

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Okay. And then, I mean you said to the local analysts that they need to be going out there and painting a more bullish picture or optimistic picture for foreign investors. So while I've got a chance to speak to you, what would be the optimistic way of looking at some of the -- at the bank circulars that have come out from the CBN in the last 2, 3 months; and generally, the macro policies that are coming out from government and the CBN? What would be the positive slant that you'd put on it?

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

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Well, look, at the end of the day, what I think is let me even start by being a pessimist, is that none of those things, at least for the decent banks, have really affected the profitability in any major way. So even if we wanted to say that they were super positive, again, they haven't been draconian, which is what I was alluding to, that even when they said that we had to grow our loan book, and we wouldn't buy T-bills, the expectation was that banks would be banned from buying T-bills. But that's not what was done. Banks were given a loan-to-deposit ratio that was reasonable, and that if you grew the loan book, you might be able to get there.

So I think what I would say is that while people are looking at a lot of those policies as negative, they're not really negative and if you don't call them positive, they definitely have an effect on banking income revenues in a very bad way. And so that would be what I would always say, I always say, look at the results, look at the macros, is FX stable, is FX available, are the banks able to do business? Yes, I would hope that the regulator will be kinder to us and maybe give us better bankers' tariffs, but I don't think anything has come out yet that has really destroyed the revenue and capacity impacts, and I believe that's a positive.

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Sharat Dua, Fiera Capital (UK) Limited - Portfolio Manager [54]

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But do you not have concerns that some of the other banks, I mean, not yourselves, but there are others that as they've tried to hit certain targets, quality is what inevitably reduces? That's the trade-off, that not all banks have the same quality of underwriting. Not all banks can access the same quality credits as you can. And if they're under pressure to hit certain targets, then that doesn't seem like a recipe for success 2, 3 years down the line?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [55]

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Well, that's the great thing about being a knowledgeable investor, you make sure you don't buy those shares. I mean, you pick quality and that's -- I mean, if I was on the other side, and I was an investor, I love what you said. Those who I thought were under that duress, I wouldn't buy their shares. Those who I thought would escape it means they become better buys. I've always said to people in the Nigerian Stock Exchange, in my opinion, there are very few hidden gems. And that most of the quality stocks are known and that if you're looking for hidden gems, that's where you tend to burn your fingers.

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Sharat Dua, Fiera Capital (UK) Limited - Portfolio Manager [56]

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No, fair enough from an investor point of view, but it's more the effect that it can have on the banking system down the line. I mean, if banks, as a result of this, get into difficulty again, it comes back to all of you in terms of how to support the sector or -- that's more the concern that I would have.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [57]

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Well, we're hoping we'll never get to that again. And that before we get to that level of stuff, other things will be done. I think what happened in '08 and '09 happened so quickly that maybe the regulator wasn't able to react. And that where we are today, there's enough time to deal with issues before they get there. So I'm not one of those people who believe that you're looking at any particular systemic crisis. I think you have very, very strong banks. You have banks that are not so strong. But I don't really see a systemic crisis, at least for today.

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Operator [58]

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The next question is from John Munge of Vergent Asset Management.

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John Munge;Vergent Asset Management;Analyst, [59]

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My question is on the recent directive issued by the President to restrict FX, sale of foreign currency to food importers. Do you see any particular effects them being at risk as a result of this? Whether food retailers or manufacturers?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [60]

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No. I think they've come out in the last few days and made a very strong statement that they didn't say any such thing, if I'm correct. I read some newspaper article this week where, I think, one of the advisers said nothing like that was really said or implied.

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John Munge;Vergent Asset Management;Analyst, [61]

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Okay. And (inaudible) will there be any particular businesses that you -- which you'll be avoiding at the moment?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [62]

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No, because they've come out and said that it wasn't said and that they need to avoid because the people you'd have avoided was those in like food, fast-moving consumables being nervous that if, for example, you had unconfirmed LCs, you wouldn't have FX to confirm them. But if my memory serves me right, I almost am confident that something came out where they said categorically that was not fair and that was not the intention.

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Operator [63]

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The next question is then from Seki Mutukwa of Ashmore Group.

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Seki Mutukwa;Ashmore;PM, [64]

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Two questions, please. Just you mentioned the stable exchange rate. And of course, based on sort of the oil price and FX reserves, that remains the case. I was wondering if when speaking to your corporate clients, FX has come up at all in their thoughts about when they may be investing more? Or has it all been purely based on the sort of underlying demand that may mean they're not as keen on borrowing as much as we'd all like?

And the second question was just if you can remind us just about your sensitivity and however you measure that to either 10% or 20% move in currency, granted, I know this is not a near-term thing we're talking about, but just curious.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [65]

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Okay. The first thing is, I mean, when you talk to the corporates, no matter how strong the corporate is, and I hope I'm answering the question correctly, what I as a bank and we as a bank always advise, we never advise you to borrow foreign currency if your revenues are in naira because we don't believe that you will ever be able to reprice. And I think history has proven us correct. And that there is enough money for good corporates to borrow locally if they want to do so now. Maybe the lack of borrowing to do CapEx today is due to what they see as maybe weak demand. And you also hear them talking about maybe interest rates are not low enough to do CapEx. So I don't think for many of them, we have a lot to do with FX.

In terms of sensitivity, when we look at our dollar balance sheet today, where it is, we are fine because what really comes under pressure, if you're faced with devaluation is your trade book. And when we look at where our trade book is, it's at a very comfortable level, and we haven't opened a lot of exposure in terms of unconfirmed LCs.

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Operator [66]

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The next question is from Olabisi Ayodeji of Exotix.

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Olabisi Ayodeji, Tellimer Research - Equity Research Analyst of Industrials for Africa [67]

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My name is Bisi and I'm calling from Tellimer. I just wondered if you could please give us an update of what's happening with Amcon from your perspective. I understand that the fund life is going to expire in the next couple of years. And given limited success in chasing or getting recoveries, I wondered if you think it's likely that this extends into a much longer period than was initially expected? Or if it expires soon and what implications would be from a cost perspective for banks?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [68]

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Okay. I really, really wish I could give an authoritative answer on this. So I'm going guess just the same way you would. If I look at what the Amcon exposure is today, I would guess that it's not going to wind down in 10 years, which was the original thing. And that there will be an extension to what banks have to do in terms of Amcon subvention. But I'm guessing because nobody's said anything. But if I look at what the exposure is today, I'm not sure that it can end in 10 years. But we'll have to wait and see.

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Olabisi Ayodeji, Tellimer Research - Equity Research Analyst of Industrials for Africa [69]

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Okay. So just a follow-up on the effective tax rate. I wondered what the outlook would be on how that, I guess, normalizes over the next couple of years, especially if it does happen that the tax exempt status for treasury bills is revoked. So I know it will be around 15% in first half. Does it stay at that level?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [70]

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No. It will stay there. But obviously, if you remove the tax exemption status for treasury bills, then every bank will go up. Because if you look at the amount of bills you're holding or how much of your interest income or whatever is tax exempt in terms of the yield, then yes, it will go up. But when we started banking, what I've always found is there are always tax-exempt products. In the very early years in my career, a lot of it were leases and not so much treasury bills. And that, yes, I think that if you did that, effective tax rate will go up. But there will probably be other avenues to help at least reduce your tax, but they would definitely go up, if that's the answer.

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Olabisi Ayodeji, Tellimer Research - Equity Research Analyst of Industrials for Africa [71]

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Okay, understood. Would you expect to close the year at around 15%? It is where you're at as of first half. Or do you think it goes higher? And what would be the outlook for next year and the year after as well?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [72]

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I think that, unfortunately, I wish I could knock my CFO and get him go answer this question. So I'm going to have to guess because I'm not really sure he, too, knows. I would say, put us around 15% to 17%. So kind of up 17%. Where we are, 15%. I can't see us increasing by more than another 200 basis points in the last 6 months of the year.

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Operator [73]

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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 [74]

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Most of my questions have been, well, answered. But I just want a bit of clarity. If you apply the 1.5%, where will your launched [authorization] be? I just want to get an idea of how it helps banks with...

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [75]

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Yes. Let me tell you, it depends how it is applied. If you apply the 1.5% on the entire loan book, then we are clearly above 60%. But if you apply it on just the delta, which is how much you have grown by from the day the announcement came in, then we might be about 58-point-something. So it depends whether the 1.5% is applied on the entire 11% of our retail loan book or the growth since the announcement.

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Gloria Fadipe, CSL Stockbrokers Limited, Research Division - Head of Research [76]

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Okay. And then the NGN 40 million to NGN 50 billion in loans you're talking about is taken from the 57% currently to 60%?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [77]

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Yes, without any 1.5%.

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Operator [78]

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The next question is from [Jennifer Posner] of HSBC.

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Unidentified Analyst, [79]

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I realize that the GT is not in power. But on your point of view, does the VP's recent action trying to drum up support for new investors, talk of nationalizing or restructuring power assets, does it signal any changes in the (inaudible) at all for power loans or within power supply?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [80]

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Well, I'm hoping that it will improve power supply. The impact you would have on the power loans, I really don't know. I don't have any power loan on my books, and so I don't know. I don't know whether it will suddenly get them performing, whether it's only bringing money in. But definitely, the focus on power today, I'm sure, is to try to increase the level of supply. But I really don't know what impact it would have on the existing power loans.

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Unidentified Analyst, [81]

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And do you see the -- actually, the tariffs being the biggest barrier to any new investment into power loans?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [82]

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I think it's one of the major -- I think it's one of probably the major reasons why it hasn't worked because the -- what you hear players say that is that the current tariffs, you can't put the investment in and make a return and pay back your loans. So I'm sure if we're really going to get it right, we will have to make a bit of an adjustment to the tariff structure.

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Unidentified Analyst, [83]

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And so do you think that the current TAT is a sign of a potential tariff change, something that's a little bit more cost reflective?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [84]

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The truth is I really don't because know because I think it's very early days, and I don't know what level of consultation has been done. But I -- what I would say, just like you, is that there's clearly an increased interest or renewed interest in trying to make sure this power situation works.

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Operator [85]

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(Operator Instructions) Our next question is from Dafydd Lewis from LGM.

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Dafydd Lewis, LGM Investments Limited - Portfolio Manager [86]

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Just a quick question. I mean, you talked about the write-offs that you've seen under IFRS last year. And in the first half, it seems like you took quite a number of new write-offs as well, which has been partly the reason your coverage ratio has been decreasing as well. Are you comfortable where that coverage ratio is today? And I mean, also comfortable on the asset quality outlook?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [87]

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Honestly, I think we are. And our coverage ratio at 84% is we have basically put Stage 3 loans under NPLs because that also affects our coverage ratio. I think we're fairly comfortable. I mean, I always like to be very detailed in my calls. If I look at our loan book today, I only kind of worry about 2 loans. So I'm not that concerned about the coverage ratio. I think we've done a very good cleanup. A bank can never totally clean up its loan book. But we have 2 loans that maybe give us a bit sleepless nights. So outside of that, I think considering we've classified and put Stage 3 loans into that calculation, which is about 90-something-billion, which, if you remove, the coverage ratio would be much better, then I think we're fine.

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Operator [88]

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The next question is from Johan De Bruijn of 337 Frontier Capital.

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Johan De Bruijn;337 Frontier Capital, LP;Portfolio Manager, [89]

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Thanks for a very comprehensive presentation on solid results. One question from me is just on your East Africa operations. Could you talk us through your strategy there? Some of the particular countries are either loss-making or very low ROEs. How committed are you there? Do you need more capital to invest? And what, in your view, is your competitive strength in that East African block?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [90]

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Okay. Let me first -- I'm going to be totally honest, and I always think the decisions that are not completely mine, I will also say. First of all, I'm still very, very bullish on East Africa. And if you see what happened to us in Ghana, Ghana is on [buy operation, of course,] now. We made NGN 12 billion there in 6 months in Ghana, and it took us a while. I think the truth about East African -- okay, this is where I will need -- this is my own opinion and I speak very truthfully, and this is probably the direction I see. I think we're too small in East Africa as a Tier 3 bank even with all the things we bring to the table. I think the investment we bought, we have structured correctly. I think we now have 3 banks, which is not necessarily what we bought or inherited. So we've got Kenya as a bank. We've got Ugandan now as bank. We've got Rwanda as a bank. Uganda has broken even. Kenya is below ROE. Rwanda is doing much better. I mean to have scale, you have -- in East Africa, we have to do 1 of 2 things. We either have to bring in capital or we have to think of another acquisition. And that's what I think we need to do in East Africa. Definitely need to do something different. Capital might not be the answer because even if you bring capital, you still have to grow organically. So it's 1 of the 2. You will either have to look at capital or you have to look at another acquisition that at least pushes you into Tier 2.

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Johan De Bruijn;337 Frontier Capital, LP;Portfolio Manager, [91]

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But can I just push back a little bit? Your competitive strength there, putting more capital there or doing more acquisitions. I mean, you got a highly competitive banking space there, some big dominant, low-cost banks. I mean, the scale of investment and -- would probably require a lot of management time, and certainly a lot of capital. Is it not better to direct that until you're extremely profitable in local operations in 1 or 2 of the West African operations that are producing the types of results that we've expected from GTBank?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [92]

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Okay. I wish I could agree, but I won't and I'll tell you why I won't agree. About 4 or 5 years ago, people used to ask me this about the subsidiaries and I used to say, just give us enough time. At the time, subsidiaries' contribution to group in terms of profit was about 7%. Today, subsidiaries' contribution to profit is 16%. And so I believe we know what we're doing.

We never overcommit. We never overgrow. Like I said, nobody thought we'd make the type of money we're now making in Ghana. I always used to say, and I'm always very open on calls, that for me, subsidiaries where we get NGN 100 million from them a year means that it was worth it. Definitely this year, if you look at the figures, we're going to cross $100 million in profit from subsidiaries. And that is without even having turned East Africa around.

So I still think the East African market, when you look at the size, where it has a population of about 120 million to 130 million is not one you give up on. And it's not going to happen overnight. But that if you get into Tier 2, it starts to make some sense because you need a bit of scale to start to compete. And that as a Tier 2 bank in East Africa, the profit you'll make and the ROE you'll make, especially the stability of the exchange rates in East Africa will make it worth your while. Because whatever investments you put in there, whatever earnings come out of East Africa will only suffer a devaluation of about 3% every year. And so in the long term, it will still be a meaningful contribution to group, even if for the next 5 years, you're a Tier 2 bank.

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Operator [93]

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The next question is from Onome Ohwovoriole of Nairametrics.

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Onome Ohwovoriole;Nairametrics;Analyst, [94]

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I have just one question. A large proportion of your revenue comes from corporate banking. And while the retail is expanding. In the -- are you making any -- taking any measures against the global slowdown and how it will affect corporates in Nigeria and all that?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [95]

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Okay. I mean, I'm glad you at least acknowledged for us that our retail is expanding. You always have to look at our books closely to see that retail is bigger than people give it credit for. If you look at the books, 50% of the deposit base of this bank today is retail. Yes, 11% is loans and 20% is profit. But I think that we have diversified the business enough where the reliance on the wholesale business is not as much as it used to be. We need a bit more time.

If you ask me to describe our business today because we have transfer pricing mechanisms that you might not see in the profit. The retail allows us to play in the corporate very strongly. And if you ask me today, I would say our business is about 60% corporate, 40% retail.

So it's a journey where we've been deemphasizing the corporate business over the last 7, 8 years. I think we're doing a good job. And that even if you have a global slowdown today, we are a lot, lot, lot more better prepared than we were in '08-'09, having developed, hopefully, as you might acknowledge because you're in this environment, the level of retail we now have.

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Operator [96]

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The next question is from David Adu of Meristem Securities.

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David Adu, Meristem Securities Limited, Research Division - Research Analyst [97]

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I think I have about 2 or 3 questions. The first one is on your cost of funds. It declined to about 2.3%, which is quite impressive. So my question is, how sustainable is this going forward? Are we likely to see cost of funds around these levels going forward?

And also, on interest expense, so I saw in your books that interest expense reduced; interest expense bit outside Nigeria just from about NGN 21 billion to NGN 9 billion. I don't know if you can just speak a little bit on the factors responsible for this decline.

Then finally, also regarding oil prices. I think I lost -- I got disconnected when you were answering that question. 25% of your loan exposure is to the upstream oil and gas. And given the -- given how prices are a little bit shaky in around $60 per barrel, what is the outlook on your exposure to this sector? Are we likely to see more classification?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [98]

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Okay. Let me start from the bottom. Oil prices, at $60, we're in a very good place because we've hedged all our exposure to the oil industry at about $55, and we're good. I also never like to tell you that there's nothing. We do worry about one name in our upstream book, but we think we can navigate it. So from the perspective of oil price, I think we're fairly comfortable at where it is. And even if it drops below that, because we have hedged at least for the next 2 years, which is roughly what you hedge for, there should be no problem.

Interest expense, the major drop you see if you talk about the subsidiaries is in Ghana. Because we brought in capital into Ghana at the end of last year, it allowed us to get out of wholesale deposits. And also, we have changed strategy in Ghana, and we're more the retail banks. So we're mopping up more retail deposits. So our interest expense is down. I mean we're funding ourselves out of part equity and more retail.

Cost of funds, 2.3%, is this sustainable? Look, what happens in the environment really dictates -- I don't want to lie to you, what happens to your cost of funds. If suddenly we start going up in terms of the macros and the interest environment in terms of interest rates and the environment is going up, then our cost of funds would go up because everybody will reprice their deposits, the clamor for deposits will go up. But what you should worry about is the net interest margin because if the cost of funds goes up because of a general increase in interest rates, then your asset yields would go up. Where it had come down from 13% to 12%, so if that goes up, would we tend to concern ourselves about it? Yes, we like our cost of funds to be down, which is why we have a mix of 85% low interest bearing and 15% high interest bearing. But our major concern is what happens to the net interest margin. So what we will make sure is that even if the cost of funds goes up, the asset yields will go up, and we will try to preserve the net interest margin.

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David Adu, Meristem Securities Limited, Research Division - Research Analyst [99]

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Okay. Then one more question. I saw that we -- I mean there was an increase in individual loan segment. So the loans classified as Stage 3, there was an increase to -- about NGN 6 billion worth of increase in the loans to the individual loan segment. So I don't know if you can speak on that as well.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [100]

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Look, like I have explained earlier on, in terms of our retail loan, honestly, the NPLs we see are less than 1%. And if you take that in a retail segment, there's no cause for alarm. And so even if you see an increase in classification, in terms of the total loan book, which is today over NGN 130 billion, we are very happy with our retail loan book, and we will continue to grow consumer loans in the way we've been doing.

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David Adu, Meristem Securities Limited, Research Division - Research Analyst [101]

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Okay. So at any point, you're not worried about that there could be high risk of it becoming nonperforming in the future?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [102]

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Absolutely not. If you look at the quantum of loans you give in the corporate segment, you can imagine how many retail loans would have to go bad before you equal a corporate loan that goes bad. So I tend to think that people exaggerate the risk around the retail segment. Considering we lose money all the time in the high-end corporates and you see what volume it is, think how many retail loans would have to go bad for you to get to that quantum. So no, we are not concerned about retail loan NPLs, no, at this time.

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Operator [103]

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(Operator Instructions) Our next question is a follow-up from the line of [Alfred Mashee] (sic) [Oluwasegun Akinwale] of ARM.

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Oluwasegun Akinwale, ARM Research - Research Analyst [104]

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Segun, I just want to tap your brain on some key items. Though we've spoken about the loan-to-deposit ratio and you've mentioned what you guys are doing around that, I just want to get your -- pick your brain. Do you think CBN could move from a loan-to-deposit ratio perspective to loan-to-funding ratio that -- from loan to deposit going to funding? That's my first question.

Also, do you think there could be an extension to the timing of the compliance when it comes to LDR based on what CBN is doing? So let's say by the end of September, do you think it would extend that time line? That's my second question.

And then thirdly, I can see that based on your guidance for full year, your NPL guidance and cost of risk are still the same thing. So I'm just thinking, if you're looking at creating additional loan build on the guidance from CBN, which wasn't expected at the beginning of the year, why are we still maintaining the same cost of risk guidance and also NPL guidance? I don't know if you can draw a picture there.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [105]

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Okay. I think very simple. The first one is, do I believe they can go to loan performing? Absolutely. And I would actually guess that that's what they will do. I actually think that you will use loan to funding as opposed to loan to deposit. Do I think they will extend compliance? No, I don't think they will extend compliance.

The reason we are not changing our guideline is that we don't think we have to go to any dramatic increase in our loan book. So we don't believe that meeting the current thing we've been asked to do will lead to any deterioration in our loan book. So we're very comfortable that if what we have to grow our loan book by is NGN 40 billion, NGN 50 billion, that we're not going to do anything desperate which would lead to a massive deterioration of the loan book. So we don't really need to change the guidance.

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Oluwasegun Akinwale, ARM Research - Research Analyst [106]

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Okay. All right. Just to add another one. This conversation around the classification by land -- by banks there, there might be a need to raise the minimum capital requirement for banks. Are you seeing that coming anytime soon?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [107]

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Well, I don't know. I mean I don't think there's been any further pronouncements about it. But I mean, it's obviously something everybody has to keep in view. I like to think that if you look at our equity of over NGN 600 billion today, that no matter where that goes to, at least from a selfish point of view, we'll be fine.

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Oluwasegun Akinwale, ARM Research - Research Analyst [108]

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Okay, but just where you -- just guessing, how much do you think it could go to?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [109]

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Honestly, I don't have a clue. But like I said, sometimes, you have to think selfishly. And we look at our capital at about NGN 600 billion that we basically say to ourselves, well, no matter where it goes to, we should be fine.

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Oluwasegun Akinwale, ARM Research - Research Analyst [110]

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Okay. So lastly, you mentioned something that -- when a question was asked about your LDR, you mentioned that the calculation could be based on either additional loans that was created when the pronouncement was made or your total loans. What is CBN really using? Or what are you focusing on? Is it on the additional loan or the total loan book?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [111]

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We tend to do both scenarios when we do our calculations because we're not sure where it will end up. And so it's only wise to use both when you're doing your analysis.

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Operator [112]

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The next question is from [Caitlyn Burn] of Prudential.

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Unidentified Analyst, [113]

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I just wanted to follow up on your e-banking income. A couple of years ago, you mentioned that there was a spark in the e-bank income, and it had to do with when the money gets -- got paid over to Visa. And it was when there was sort of ForEx shortages. We've seen a lot of banks' e-business income increase. Do you think this is because of mobile? Or is there sort of slowdown on ForEx being paid over to Visa, if I've understood it correctly?

And then my next question is just on the dividend payout. So you're -- I mean you're very well capitalized. I know you've just mentioned maybe there could be a potential increase in the ratio so you want to give yourselves some room. But would there be a case to be made to increase your dividend payout?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [114]

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Okay. Let me start with the e-banking income. And I can only ever speak for myself, please. I think a lot of the e-banking income you should see today on the books of banks should be transactional. That income that used to come from the card business should no longer be there because, today, there is FX availability. So whatever e-banking receivable you have, you should be able to clean up, even if things are slow, in 5 days. So if you are seeing income coming from there, I think you need to question it. The only banking income I see is transactional. The card-based e-banking income should no longer exist because, like you said, at the time, there was FX scarcity so we couldn't close those positions immediately. Today, without any FX scarcity, you can close those positions in 3 to 5 days. So that's my simple answer to that one.

In terms of dividend payout, we like to wait until the end of the year to see what happens. If we make the money, honestly, we'll pay to the shareholders. What we always promise is that our dividend payout ratio will be around 50% to 60%. Obviously, you have to take out withholding tax to get to that ratio, but we won't come below that. So if it's there, if we make the money, we'll pay it out in a rate in the region of 50% to 60%.

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Unidentified Analyst, [115]

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And if I could just ask a question just on the FX. With rumors in the market around the restrictions on imports, it sort of reads that there might be FX problems. Is that -- do you think there's any truth to that or not?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [116]

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No, I don't think there's an immediate truth to that. I mean, today, we're sitting on about NGN 45 billion in reserves so I'm not sure we're near -- anywhere near panic. The one that seemed to come up was when there was talk about food importation, but I think there's been clarity on that now that, that wasn't an intention. So I don't think we're in a stage of FX scarcity at all. And I think most demand is being met right now. I haven't seen any scarcity at least on our end. So I'd like to believe that with NGN 45 billion in reserves, we're still fine.

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Operator [117]

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(Operator Instructions) We do have a question from Olabisi Ayodeji of Tellimer.

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Olabisi Ayodeji, Tellimer Research - Equity Research Analyst of Industrials for Africa [118]

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I just had a quick follow-up question. Please pardon me if you answered this before. But I wondered if you could please tell us what you think the current single-greatest risk to the health of the banking sector is outside of the weak macro growth outlook. Are there any systemic issues that you've identified that concern you as a bank that you think you could share?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [119]

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I think the current single risk in the financial system, if you start to see the macros weakening, is what happens to the loan book because, ultimately, even good companies and good loans go bad if the macros are not looking too good. So what you must keep your eye on really is the loan book.

I think the second thing -- you asked me for a single thing. So I apologize if I have to give you a second one. A second thing is you have to...

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Olabisi Ayodeji, Tellimer Research - Equity Research Analyst of Industrials for Africa [120]

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That's fine, please, as many as you can.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [121]

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No, no, no, I think the second thing is that we have to make sure that the tariffs at a time like this are not being pulled back, and you have to make sure that in terms of commissions and fees and allowable charges that they're not being reduced. Because in a time of kind of tight profitability and tighter pricing environment, you need to allow banks to put a bit of profitability on their books to withstand any shocks that might come from increasing their NPLs.

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Olabisi Ayodeji, Tellimer Research - Equity Research Analyst of Industrials for Africa [122]

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In a way, though, that's been constrained, isn't it, with restrictions on how to allocate your assets and also on the possibility of getting taxed -- of having customers taxed on them carrying out online transactions and stuff.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [123]

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I know. And that's why I said that's a risk you have to watch out for. So you're kind of -- we're saying the same thing. And that's something we have to watch out for. You can't, at a time where macro's a bit tight, start restricting the abilities of banks to make profit or restricting the ability of customers to do transactions because of higher tariffs because, ultimately, you want to put a bit more profit on the books of banks so that they can absorb any shocks if they happen.

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Operator [124]

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The next question is from [Achmed Zoheiter] of [Gadara].

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Unidentified Analyst, [125]

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Segun, just a more broader question on valuation. So just looking at the last decade, decade and a half, your ROAs and ROEs are printing at almost record levels, just looking at trailing. And yet, your rating in the stock market is pretty much at all-time lows on a PE basis. And then on a price-to-book basis, you're very close to your -- the trough levels you printed in 2016. So the market obviously isn't rewarding you for the great performance you've achieved.

If you were allowed to buy back shares, why would it not make sense to do that relative to just growing your business organically at this juncture in light of the 2 things I just described?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [126]

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I mean I think you're absolutely correct, but there are always other considerations. I think buying back our shares at this point would make the most sense, just like you said, to the ROEs. But you know, we're also a Nigerian institution that has a large retail customer shareholder base, maybe about 40%, 50%. And honestly, I have to be honest with you, irrespective of what the stock market says, we have to be responsible social citizens. I think there are people who these dividends mean a lot to. It is part of their annuity income. They've been loyal to us, they've been there for us, and we must not make any shortsighted or short-term decisions.

So even for me as CEO, I would have a really hard time buying back the shares because of all the people who've shown us loyalty from a retail base that have continued to give us business. And then while the numericals make sense, I think sometimes as an organization grows, you owe a little more than just what the numericals are showing you.

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Unidentified Analyst, [127]

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Fair enough. And would that statement apply if you start to trade at a meaningful discount to tangible book? You're sort of at tangible book or close to it.

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [128]

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Well, look, I would -- exactly at every point, we will examine the decision. I mean I really understand you. But one thing about banking too that I've learned is that you need people -- it's funny. Any company, at least -- sorry, and this is my opinion -- that is not loved in the environment that it does business is going nowhere. And so even in making those sort of decisions, you have to weigh them against the intangible backlash you might get from doing it. So at that time, we'll look at it. But I really don't think we're going to get to that point. I think that our share price is suffering like a lot of people's because there's a bit of a pessimism about the country's macros. And then I've been around when we went to NGN 12 or NGN 13. And if as long as we stay focused, we continue to deliver the returns that we are showing that we can, then eventually, we will find our right level.

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Unidentified Analyst, [129]

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Great. And one last question. Can you just update us on succession plans for yourself?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [130]

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Good. We continue -- we're continuing to work on succession. I think it is in progress. And as you know, we are -- you've got to trust us that we know what we're doing. We'll look at different options. We'll look at different models. We'll -- but we will -- one thing I can assure you is that succession and the continuity of the long-term sustenance of the organization is in good hands and will be in good hands.

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Operator [131]

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Sir, we don't have any further questions from the queue. Do you have any closing comments?

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Julius K. Olusegun Agbaje, Guaranty Trust Bank Plc - MD, CEO & Director [132]

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No. I'd like to thank all those who were on the phone. And best of luck. Thank you very much, obviously, for calling.

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Operator [133]

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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.