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Edited Transcript of ZENITHBANK.LA earnings conference call or presentation 21-Aug-19 1:00pm GMT

Q2 2020 Zenith Bank PLC Earnings Call

Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Zenith Bank PLC earnings conference call or presentation Wednesday, August 21, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dennis E. Olisa

Zenith Bank Plc - Executive Director

* Ebenezer N. Onyeagwu

Zenith Bank Plc - Group MD, CEO & Executive Director

* Felix Egbon

Zenith Bank Plc - Chief Risk Officer, Deputy GM & Group Head of Risk Management Group

* Mukhtar Adam

Zenith Bank Plc - CFO

* Temitope Fasoranti

Zenith Bank Plc - Executive Director

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Conference Call Participants

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* Jerry Nnebue

CardinalStone Partners Limited, Research Division - Analyst

* Ola Warikoru

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

* Ronak Gadhia

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

* Tolu Alamutu

Tellimer Research - Director & Credit Analyst of Financials

* Tunde Abidoye

FBNQuest Capital Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello, and welcome to the Zenith Bank Plc H1 2019 Investor and Analyst Conference Call. (Operator Instructions) Just to remind you, this conference call is being recorded.

Today, I'm pleased to represent Mr. Ebenezer Onyeagwu, CEO. Please go ahead with your meeting.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [2]

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Good afternoon, ladies and gentlemen. My name is Ebenezer Onyeagwu, the Group Managing Director of Zenith Bank. I welcome you all to this amazing investor conference since my appointment and assumption of the role of the CEO of Zenith Bank. I also would like to introduce my colleagues who are on this call with me. I have Dennis Olisa, Executive Director; Dr. Fasoranti, Executive Director; Felix Egbon, Head of Risk Management; Mukhtar Adam, CFO; and Taiye Ayandibu, the Investor Relations Officer.

The reports of our presentation have already been forwarded earlier. But however, I'd like to draw attention to some of the key highlights with respect to our operating environment and also the regulatory environment. We have seen in the regulatory environment the CBN lower cap of 60% on loan-to-deposit ratio for commercial banks in Nigeria. CBN has equally mooted the idea of a rate acceleration of commercial banks, but the details of this are yet to be communicated. Additionally, CBN bars interest payment on bank deposit at the standing deposit facility at NGN 72 billion.

In terms of the economic highlights, it's also important to point out the key issues as follows. GDP as of end of 2018 was at 2.4% while in first quarter 2019, GDP charted 2.01%. We've also seen inflation rate moderate downwards a bit from 11.37% in January 2019 to about 11.08% in July. Previously, we've also witnessed a decline in the yield environment. As of end of January, average yield was about 17.6%. And this has steadily gone down to about 12.5% as of the month of July. In terms of foreign exchange reserves of the country, we've seen this move from $42.5 billion in January 2019. We've noticed some positive accretion with these reserves as of June 20, '19 at $45 billion. CBN has equally adjusted NPR from 14% to 13.5% at the meeting -- the MPC meeting of March 2019.

In terms of our performance highlights, we would like to report that in spite of the headwinds in the operating environment, gross earning was up by 2.9% year-on-year from NGN 322.2 billion to NGN 331.2 billion. PBT was also up by 4% year-on-year from NGN 107.4 billion to NGN 111.7 billion. Deposits also grew by 3.2% from NGN 3.69 trillion to NGN 3.81 trillion. Noninterest income came up by 24% year-on-year from NGN 88.2 billion to NGN 109.7 billion.

On the back of this is the very significant improvement we recorded on the fees on electronic products that came in with a growth of 170% from NGN 10.1 billion in 2018 to NGN 27.1 billion. And this is driven largely by our retail expansion. We've also seen retail deposits now accounting for 29.3% of total deposits, up against 23% as of end of December 2018.

Retail loans has also inched up from 1.5% as of December 2018 to 2.4% as of end of June. Return on equity on Zenith based on the current price of Zenith as of now stands -- return on equity is 21%. Then in terms of dividend yield based on our current price, it's currently at about 16%, which makes Zenith a very, very compelling investment proposition for returning investors.

Then in terms of growth in customer base, we've also witnessed improvement, which is going steadily. So I welcome everybody to the conference. And we can now 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) And our first question comes from the line of (inaudible).

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Unidentified Analyst, [2]

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My first question is on (inaudible) some uptick in absolute NPLs...

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [3]

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Can you speak up? We can hardly hear you.

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Unidentified Analyst, [4]

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Can you hear me now?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [5]

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It is better.

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Unidentified Analyst, [6]

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Okay. So my first question is on asset quality trends at the bank. So we noticed that absolute impairment picked up in Q2 and we're just wondering why. And if you could also speak on the general asset quality trends at the bank to help us understand the drivers of that.

My second question is on the NIM trends at the bank. So we noticed some volatility this quarter where interest income came off quite a bit and there was a spike in NIR. So if you could just help us understand the earnings drivers a bit better?

And my final question is on your noninterest revenue line. So with that, I saw significant growth in the fees and commission on electronic product. So if you could just speak on how sustainable this is and if we can continue with this one rate for the rest of the year?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [7]

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Okay. Thank you very much. I think I'll start from the last question in terms of the noninterest revenue line. Yes, we recorded a significant improvement. Our expectation is that we'll continue to intensify our retail drive. What you see is a reflection of the drive we have in the retail banking initiative. We think the opportunity that this will also do a lot more because if you go by the CBN report, the total number of bankable adults in the country is 110 million. And the total number of adults that have bank account currently stands at 38 million, which means we still have huge potentials in the market. And one of the reasons we also believe that we should be able to grow that business is because of the strong capability we have fused into the retail banking process. In terms of the electronic platform, our platform is efficient. And the rate at which we embolden customers is also growing astronomically. So our expectation is that we will continue to see that line grow steadily.

In terms of the question on the asset quality trend. What we've done is that we are -- typically as an institution, we are very competitive. And as a result, what you've seen as improvement was just -- those provisions were made across the line in order to ensure that we take adequate caution in terms of the quality of our risk asset. We don't have in absolute term any improved earning deterioration in the asset quality.

Therefore, the trend -- the NIM trend in terms of income, answering now the second question, we talk about -- you want to know what we've done that interest income increased. I think on the whole, in terms of interest income, there was a drop. It didn't really increase. But what we see that the key driver of our business is essentially volume. And within the period from January to June, we've also witnessed a decline in yield environment. We'll continue to keep our eyes on that and make sure that our margins are not terribly compared. So we make steady effort to ensure that we reprice our deposit.

The other issue that is helping us in this respect is the product. The growing proportion of the retail deposit, which is much more stickier is helping us to moderate the interest expense lower. We expect that this trend will continue. And we should be able to maintain a decent level of performance across all the income lines.

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Unidentified Analyst, [8]

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I just wanted to ask a follow-up question on the impairment charges that you took during the year. So I can see that your guidance for cost of risk is 1% for 2019, and it's currently at 1.4%. So I wanted to ask why that wasn't revised upward if we look at the trend at the bank [accelerating].

And I just wanted to pick a bit more on the interest income. So that 9 actually decreased. So I just wanted to understand better why there was a particular dip in NIM in 2Q as opposed to the previous quarter. I understand that they are trending downwards. But it was quite sharp. It was quite a sharp decline especially when you compare quarters. So I just wanted to better understand what happened with that line.

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Mukhtar Adam, Zenith Bank Plc - CFO [9]

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Thank you very much. My name is Mukhtar Adam. In impairment charges, yes, we've given guidance of 1% for cost of risk. Now we are 1.4%. We are maintaining our guidance because we believe that the provision, the impairment charges we have taken, is more than adequate to carry out to the rest of the year. And then as our loan book grows -- because we are tweaking the guidance for the growth in loan book. As the loan book grows, it will moderate the cost of risk, which will end at around 1% than we have guided. So that's why we are keeping the guidance. We're optimistic that at the close the year, we'll be able to achieve that 1% cost of risk as we guided.

Then in terms of interest that dropped in Q2, remember that in last year, some of the instruments that we moved into the current year have higher yields. Okay? So Q1 inherited some instruments from last year -- financial year that have higher yield that came into Q1. But once those ones mature and you roll over, you roll them over at lower yield. So the yield in Q2 stand-alone was very, very low. That's why you are seeing a drop in that interest income. But again, you also have to look at how we are also managing our interest expense within that Q2. As again we said, we are watching both interest expense and interest income. So we don't use too much on the margin. We believe that we are going to have a better yield in the third quarter and fourth quarter as the yield environment is improving now.

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Unidentified Analyst, [10]

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And just my final question would be what would be your net loan dollar position and how much you have for the current year.

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Mukhtar Adam, Zenith Bank Plc - CFO [11]

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The total swap balance is NGN 1.6 billion. That's the nominal value. Yes.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [12]

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I thought there was a second question.

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Mukhtar Adam, Zenith Bank Plc - CFO [13]

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What was the second question?

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Unidentified Analyst, [14]

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Your net loan position.

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Mukhtar Adam, Zenith Bank Plc - CFO [15]

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Loan position. Our net loan position is about $300 million.

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Operator [16]

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The next question comes from the line of [Kareem Abatir] from [SM Partners].

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Unidentified Analyst, [17]

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Just a couple of questions. One of them regarding asset quality. So if you take a look at the notes, you wrote off quite a significant amount of your loan book, I think around 3% of the loan book. So can you just give us color on is this a strategy to clean up the book? Should we expect more write-offs going forward? And then just going into 2020, the lower growth profile. What kind of trends are you seeing in terms of your NPL for yourself and for other banks in Nigeria?

And then my second question is in regards to the interest income. If you take a look at interest coming from your T-bills, the yield has shrunk significantly in Q2. And it seems that some of that income has transitioned into trading gains, if I take a look. So can you please comment on that as well?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [18]

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Okay. Thank you very much. The question in terms of asset quality, we talk about -- do you want to know on that standard in terms of the write-off? What usually -- you provide that for a facility for over 1 year, and you fully provide that. You are allowed to write off the loan book. However, that doesn't preclude a follow-up in terms of recovery. And then we don't expect that we are going to be having quite a huge write-off in terms of what you have. Our NPL in absolute terms, we don't expect it to deteriorate because we are keeping a close eye in terms of the asset quality. What we are trying to see is that the NPL level will continue to trend downwards.

In terms of interest income transitioning to trading gains, we are in a business of intermediation. And we keep our eyes open, looking for areas of opportunity. It depends on what happens. When there is a dislocation from one aspect of the business from one segment, it will be turning up opportunities elsewhere. All we need to do or continue to do is intelligently monitor and review the markets and the environment to see where we can effectively deploy our resources in order to maximize our efforts.

So that's essentially what we continue to do. When we don't know the direction, we go by whatever happens. All we will do is to ensure that we remain very, very articulate in terms of how we view that scenario so that we are not picking on our way, but the reports will start. In terms of treasury management, we have very profound skills in treasury management. And we have our eyes on the ball.

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Unidentified Analyst, [19]

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Yes. Sure. Sorry. Just -- can you please, just in more specific detail, just explain why the T-bill yields have come down significantly? If I annualize the T-bills yield, I have sub 4%. So I just wanted to understand is there any movement from interest income into T-bills trading gains that occurred in the quarter.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [20]

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What -- like we pointed out, at the beginning of January, the average yield was 17.6%. But as of end of June, we have trended downward to 13%. And within that period, within first quarter, the average yield was trending downward of 14%. So what you've seen is return is a steady decline in the yield environment. So that is primarily what affected the results in terms of what we have in T-bills.

And like I mentioned earlier, we are not -- T-bills is not the income line we look at. We look at the growth opportunities in the environment and higher values when -- as the T-bills income is trending downwards. It puts position -- it puts us in a position where we also need to monitor and make sure that our cost of funds are appropriate. We're trying to ensure that we balance the margin that we realize from our treasury activity.

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Operator [21]

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And the next question comes from the line of Tunde Abidoye from FBNQuest.

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [22]

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So just taking it back a bit. Now if I look at your e-banking income, it contributed around NGN 18 billion to noninterest income in Q2. That's from around NGN 9 billion in Q1. Can you just provide some color as to how we should be thinking of this line going forward because that growth was just so strong?

Then I want to know still on your asset quality what's driving the spike in NPL for the communication and consumer credit sectors. It appears that you request some of the exposures in these sectors. Also you took a significant write-off of about NGN 60 billion. Are these write-offs behind the decline seen in real estate and construction sectors of your loan book? How good are your recovery prospect going forward? That's all for now.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [23]

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Thank you very much, Tunde. In terms of e-banking income, what you see is a reflection of the steady progress and intensity we have in the retail banking initiative. And are we going to slow down? The answer is no. Instead, what we are saying is we'll continue to steadily build momentum. The Zenith Bank in the retail suite has been very well received. It was due to quite a number of customers. Zenith reflects an aspirational bank. So given what we have and the strong capability we have in digital platform, we expect that we should be able to soften this growth trajectory that we have in the electronic banking space.

We are steadily coming up with new products. The whole idea for us is to ensure that we chase -- we use our business platform to transform the financial life of customers looking at lifestyle, and ensure that end to end, we capture everything that has to do with consolidation in the value chain of all of our customer.

I will get Felix to answer the question on the asset quality and write-offs.

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Felix Egbon, Zenith Bank Plc - Chief Risk Officer, Deputy GM & Group Head of Risk Management Group [24]

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My name is Felix Egbon. On the asset quality and write-offs, if we look at the migration from manufacturing across (inaudible) from 2018 to 2019 and compared to what happened with consumer credit, it's just an issue of reclassification. (inaudible) because of the hardware or the principal that are classified under manufacturers. While it's true that we're a trading company and that -- we are more likely to grow our trading results on big multinationals. So there has to be (inaudible) upward process where it belongs. So they were moved from a manufacturer and into a consumer credit.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [25]

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So essentially, what we've done there is -- now, consumer and retail loan wasn't part of our segment. But when we created that segment, we have to do a reclassification. So what we have there -- this still led us in NPL that is detailed on the consumer. They are written on the (inaudible). So we have now reclassified them and brought them to consumer and retail lending.

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [26]

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(inaudible) telecom sector?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [27]

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What's the question on telecom sector?

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [28]

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Just like in the communication NPL.

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Mukhtar Adam, Zenith Bank Plc - CFO [29]

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Okay. The telecom sector, yes. We have from 1 or 2 major -- 1 major name that we have put in our NPL for the telecom sector. So that happened in Q2. That's what caused the spike. But that has been fully provided for. It's just moving it to NPL.

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Tunde Abidoye, FBNQuest Capital Limited, Research Division - Research Analyst [30]

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Okay. So you have some rise of 4% as well, I think.

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Mukhtar Adam, Zenith Bank Plc - CFO [31]

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Yes. Sure. We have the write-off, as you mentioned, up to NGN 60 billion through the -- again, we've seen it provided for the past 16 years that -- though we have written them off, but recovery effort is ongoing. We have recovered some as well during the period. And we hope we are going to recover more and more. Yes, the write-off was not a single sector. It's cut across the different sectors, actually.

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Operator [32]

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And the next question comes from the line of Ola Warikoru from SBG Securities.

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Ola Warikoru, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [33]

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I wanted to ask, looking at the breakdown of loans. You have SME and commercial loans lumped together as 18.6%. I wanted to know how much of that is being driven by the SME sector.

And also looking at the loan-to-deposit ratio. So given the growth loan figure and deposit figure in the presentation, we get that 51%, which is the group figure. I was wondering if it's possible to share the gross loan figure for bank and deposit as well for bank just so we can see how the 62.7% was arrived at.

And also just out of curiosity, speaking about the retail segment. So given that there's plans to grow the contribution of retail deposit and loan to the business, what's the ideal mix from a strategic perspective?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [34]

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Thank you very much. The first question in terms of the loan bridge balance SME accounting for 18%. The first thing to notice is that in general, in terms of retail loans as a proportion to the loan book, as of end of December, we recorded 1.5%. But as of end of June this year, we have seen that grew up to 2.4%. The expectation is that the figure will continue to grow higher as we intensify our retail drive in terms of deposit and loan position. There are quite a lot of opportunities for us to expand the retail loan book given the initiative and incentive from CBN especially, which we expect to be intervention loans scheme for the creative sector and also the SME loan incentives scheme that are in place.

For the loan-to-deposit ratio, yes. For the bank as a stand-alone as of end of June, what we have 52.7. But as a group, we have 51. We also like to return to the question that if the composition from the figure is that we are looking at loan-to-deposit ratio of the bank, 52% will say yes (inaudible). This is about loan (inaudible). It will become something completely different from what we are looking at. Based on the conventional loan-to-deposit ratio for the bank, it's 52%.

The retail deposit, it's true. In terms of retail deposits, we have said that it will continue to grow. As it grows, the proportion of retail deposits of our all deposits we have in the bank, we also have said that that's doable. Right now, retail deposit as a percentage of our total deposits is 29.3%. That's against 23% in December. So hopefully, we expect that it will continue to grow. And then if you're asking for where we expect it to be, I think for me, we'll be looking at nothing less than 40%.

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Ola Warikoru, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [35]

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I just wanted to go back to the question on the commercial and SME sector. So I see the retail portion, which is now 2.4%. But I was more curious about the segment that's 18.6 percentage as SME and commercial. So I wanted to know how much of that is strictly SME.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [36]

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So that's how much of the -- what we have in the SME.

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

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Yes. So outside of corporate, outside of retail, there's a lumping of commercial and SME. So I wanted to know how much -- which is 18.6. So how much of that 18.6 is driven by SME?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [38]

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Okay. In terms of both the commercial and the SME, I would say that of that, if you look at the SME, it will work out the total proportion we have at 2.5%. I mean currently at 2.4%. I think we should be looking at it. We have a guidance of around -- out of that, about 50% of that have been -- or 40% of that have been driven by SME.

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Mukhtar Adam, Zenith Bank Plc - CFO [39]

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Yes. Also note that what constitute SME for all essentially, we have a strategy to follow the chain of any sector we deal with or any principal we deal with. So most of the key (inaudible) came that we use for collections are more of that (inaudible) of SMEs for us. So like Ebenezer said, that will constitute about 40% of GAAP percentage of the 2.6 difference in the mix between commercial and SME.

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Operator [40]

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And your next question comes from the line of Ronak Gadhia from EFG.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [41]

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My first question really is just a follow-up on what (inaudible) was asking a little earlier, which is regarding to do -- which has to do with your margins. Now I understand T-bill yield declined significantly since the start of the year, but if I look at the effective T-bill yield that you earned over the quarter, so just over the 3-month period, by my estimate, that was about 5.8%. And that's significantly lower than what the T-bills -- T-bill yields were offering during that period. So could you help us reconcile why your T-bill yield was so low during that period and what we should expect for the rest of the year? So that's my first question.

My second question is to do -- is it your research and portfolio. I see almost 12% to 13 % of your loan is still under restructuring category. Could you apply what the performance of that loan book is especially given the recent decline in oil prices as well as the discussion around the nationalization of private assets that we did recently?

And my third question is on your capital. Your fully adopted IFRS 9 capital adequacy ratio is around 21%. You still have a very healthy buffer. So could you share your thoughts of what you might be thinking about in terms of how to deploy the asset capital in the form of extra dividends or some sort of acquisition?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [42]

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Okay. Thank you very much. For the question on the margin in terms of what we had in the second quarter, if you look at the loan growth, too, you realize that within the second quarter of this year, you will see an appreciable improvement in terms of loan growth when compared to Q1. Essentially, what we did was to ensure that will be for the loan book in order to ensure that we achieve the 60% minimum requirement by CBN and also as they will for growing the business beyond what we were before. So that was a case of us balancing the requirement. We did that to fulfill in terms of our results because with margins dropping, the other option for us was to look for a more -- higher-return sources for deploying our liquidity. So the loan was a good opportunity for us.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [43]

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Sorry. On that, I mean the loan book grew by just 1% Q-on-Q. There was a significant shift from T-bills to loans. So again, it is difficult to understand how you could achieve a yield of 6% in the market where T-bills are averaging between 12% and 14%, even if you consider the shift.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [44]

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Well, if you look at it again, remember that we have our deposit. You're going to contract our obligation with the depositor dependent on the panel. Even as yearly dropping. You don't have the opportunity of repricing midyear. So you get caught in between. There is a transition period you have to go through especially when you see a spike, a downward spike in Europe. So while the yield goes down, you don't the opportunity almost immediately to reprice your deposit. You don't have to align with the drop in the yield. So that is a part of what you will see there.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [45]

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I get that. I get that. And therefore maybe the margins will improve through the rest of the year as you reprice your deposits. What I'm trying to understand is just why the yield, the absolute yield was so low during the second quarter.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [46]

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Yes. In an environment where you see the yield declining, and also bear in mind that within the second -- within this period, we've also witnessed a situation where there were no -- the opportunities for investment in government instruments were limited because of the direction of the Central Bank. So the opportunities were not there like we had in the first quarter. So what that meant was that we had execution where we have to think of other ways of deploying our results. So that impact us a lot. At the same time, like I mentioned, because of contractual deposits that span across the Q2 period that we entered into in Q1 also had its own impart in terms of the cost implication. Over the period as we go on into Q3 and Q4, we are going to clear moderation that we're -- that improvement in terms of our result on the tribute.

Then for capital, yes, there's always been a deliberation for us to maintain very healthy buffer, and that will continue. We'll continue to reward our shareholders the way we've always done in terms of dividend payments.

Then in terms of acquisition, we will -- the first thing is that we'll continue to grow organically. But if we find anything attractive in the market that is in line with our strategic imperative, we will look at it. But we will not tell you -- we will not go out maybe -- we will go out ultimately to seek acquisition. But if we find something that is quite attractive and really fits the kind of profile of the investment we do, we will consider.

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Dennis E. Olisa, Zenith Bank Plc - Executive Director [47]

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My name is Dennis Olisa. I will take the question on the restructure in our portfolio, loan portfolio. Essentially, what at that point is that after the crash in oil prices of 2015 -- '14, '15, gradually, oil prices have picked up. And operators in this sector, as they come around to visit us again and looking at the loan portfolio with us. Through deliberate interaction with them, we've come to do some kind of rightsizing not only of the loan value but also the tenor of those loans. And then as we speak, quite a number of them have been restructured. And because they have been restructured and especially extending the tenor of the loans, we've come to realize that a good number of them are performing. And we don't have any doubt that this particular trend will continue.

Another thing we have done in recent times especially as our oil prices (inaudible) we deliberately introduced hedges. We've taken out the initial out to hedge on certain prices. And when prices go below that, we get – we are compensated by the hedge provider.

For power, the sector is still challenged. But we are working with a good number of them. Don't forget that there are basically 3 subsectors here. We are talking about the generation, the distribution as well as the transmission. In the generation aspect, most of our players that we work with, the assets are doing very, very well. In the distribution, quite a few of them have issues. And like I said, we have restructured them. We sat with them and a few of them are going to introduce consultants. We also have been calibrating not only their revenue but also the operation. So things are sticking up very well.

On the issues raised by government as to the intervention in that sector, we are keeping a very close eye on that. We are also working with some interested stakeholders both from the government side as well as the private sector side to see how at any point in time the interest of the bank will personally be protected. But as things stand now, we've taken adequate potential to ensure that the balance loan books are not unduly affected. Thank you.

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Mukhtar Adam, Zenith Bank Plc - CFO [48]

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Okay. Mukhtar here to clarify something. People are looking at the yields of our treasury bills. Please also note that the total treasury bills, part of the income in the treasury bills is sitting in the trading treasury bills. Part of the income is there as is in interest income. So if you're picking the total treasury bills we are holding, then you need to bring the 2 incomes together. Probably that will help your analysis better. You also realize that our trading treasury bills holding increased in Q2.

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

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Right. Right. That's to do with the derivative portfolio? Or that was just a separate decision?

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Mukhtar Adam, Zenith Bank Plc - CFO [50]

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We have a derivative portfolio and we have trading treasury bills. We hold treasury bills for trading. And we hold some too much, obviously. So if you put the 2 together into -- you would have a better understanding of what's happening.

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Operator [51]

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And the next question comes from the line of Jerry Nnebue from CardinalStone.

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [52]

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I think all my questions have been answered already. But just for clarity, I wanted to ask regarding your loan growth. So I see you're down 3% year-to-date. And guiding it towards a long (inaudible). So actually know was strategy (inaudible)want this. It was something different compared to last year because last year, it was so good it's almost long term but we didn't see that.

Secondly, you saw (inaudible) in Q2 like you mentioned. But then we saw a spike in that. I'd like to think of something that is likely to pitch them in. Maybe you took advantage of certain opportunities in the market more than anything. Can we expect to see that play out in subsequent quarters?

And on your -- explain to us the consumer credit space here. I know you said -- or maybe someone (inaudible) you said you reclassified some of those (inaudible) customer because I'd like to know on customer credit loan, is there -- should we be worried about it because the NPLs increased from full year to the H1 '19? I see that NPLs increased about 80% of total loan book from 1% (inaudible). So any worries with the gray areas, especially given that the CBN is pushing towards more in the lending industries?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [53]

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Okay. Thank you very much. You are right in terms of loan growth that if you look at performance last year, there was a decline in terms of the loan book. But however, if you compare Q2 results with Q1 results, you'll see an increase. But this one we'll continue to grow in terms of the loan book. And opportunities abound in our -- opportunities abound in the credit sector, the retail and SME, in this space. A number of incentive schemes, this concept, the differentiated credit results lending introduced by CBN, we can provide any platform for the sector to expand and upgrade the manufacturing facilities.

So we see a detailed -- bear in mind that Zenith Bank remains a corporate -- our hold in the corporate field remains very strong. That we are looking at it, it doesn't mean we are releasing our grip in the corporate. In fact, that defined our grip in the corporate. And we have a continued dedicated team that are focused and will continue to focus on the corporate, while another set of team are focusing on the retail. That way, we'll be able to advance our interest and increase our market share from the 2 critical assessments of the market. So to answer your question, the expectation is that the loan growth continues to grow. Then for...

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [54]

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Okay. So do you have any idea what it is currently, I mean, from H1 '19? So I noticed (inaudible). Do you have any idea what it is currently because we're reading so much into the new quarter. So if you can give us an estimate?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [55]

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Well, in terms of where we are compared to what we ended with, we have also improved. We've improved significantly, almost beyond where we closed the quarter with. That, I can tell you. The expectation is that in Q3 in terms of the amount of loan to deposit we have, we will do better than what we did in Q2. And if I look at the pipeline of projects and opportunities we have, essentially trying to be maintained in Q4. The pocket is there. The liquidity is there. The ratios are quite strong and robust. So we don't have what we call limitation and so forth. The only thing that will limit us will be lack of opportunities there. If you're in a kind of position where you have the resources, you can play between the markets. So we are able to play in the market and show that not to lead with -- retain our market share. We will increment our market share.

For exposure to consumer lending space. What you see there, like we pointed out before, was the case of classification. We have what we have before under our consumer banking. We've never created the segment for retail and consumer. So what we've done now since retail has become a critical segment for us, we've created that segment and now move what we have before under the consumer lending. The consumer lending, that belongs to the same category especially (inaudible). It's not as a result of a deterioration coming from new retail loan book. And again, it's also important to let the investors know that our upward to retail is going to be driven by the same upward to -- but in terms of return to retail will be driven by the same output we've always had in the corporate end of the market.

We will continue to do something. We will never be reckless. It is not a do or die. We are not desperate. But we'll be out looking for the right and the best type of deals. Again, it's important to let the market know that the introduction of the BVN has also provided a reasonable level -- it provided reasonable level of comfort in terms of the loan growth to the retail segment. The BVN -- there's a capability being built into the BVN so that if you have a retail loan before that, who gets the difference in one bank and decide to go to Bank B and abandon his loan in Bank A, once the BVN has gone through in the quarter. Electronically the BVN -- the system will hunt the BVN. And whichever bank where he has money, it will recover it and repay the bank where the delinquent loan exists.

Beyond that, even outside the recovery, the inconsistent borrower will be blacklisted from having a bank account in the country. So we believe that will provide reasonable guidance for the industry to ensure that we don't see the incidence of the recreation of bad loans in their retail segment. But even at that, then we are disciplined. We are cautious. We are conservative. We will continue to uphold those strong values. We'll stay true to our values when it comes to loan creation. So we don't think our foray into retail will change because we are now doing retail. Instead, we will define the same value, the same discipline. If it doesn't make sense, no matter how much money we make, it doesn't make sense at all and it will not be in any way completely.

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Mukhtar Adam, Zenith Bank Plc - CFO [56]

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Okay. On your quick follow on, trading treasury bills, whether we expect growth or not. We have to mention here that trading book by its nature is not something that you net the income and you amortize. It's subject to much variables. You carry them at fair value, okay? So that is what drives the income. What we do as a bank, we keep exploring opportunities in the market. So come Q3, Q4, if there are still opportunities for us to grow that line, we will grow there. If there are no opportunities to grow that line, the resources that we have, we redeploy them into other places to grow that line. As we already mentioned, we're growing the loan book. So even if you see a drop in this line of income, then I can assure you that you will see a compensating group or a model compensating group in another line of income. That's why we can -- that's the assurance we can give you. Thank you.

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Jerry Nnebue, CardinalStone Partners Limited, Research Division - Analyst [57]

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And finally, just one last question. I know the whole talk about this figure and what's explicit cap on bank's exposure to treasury securities if it's lowered now but -- is there a world where you see that happening? And if that's the case? What kind of strategies are you against to lower your yield streams mitigate -- what my guess, potential ways to move from that space?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [58]

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When the integration business. Like (inaudible) said, where one goes, look is another one's (inaudible). If we put the opportunities are not there, we'll create it. We have a talented group of team. But our team is so talented that total development and innovation is part of the goal. That's CBN concluded that, certainly we'll find out our means of deploying our liquidity. We don't see that as a threat. We see that as a challenge to be more creative and innovative to generate niche opportunities q segment in the market. It's a huge market we have in the country. So we can't be doing this certain over and over again. There are so many things I will think will drive new opportunity. There is the managing of an organization going on. The retail gate is opening up. Even from work, we can do in the retail, it can also help to increase the level of the performance of the GDP. It is opportunity. The economy is not on a lockdown so we don't see that as a restraint to outgrowing our business. Whatever happens, we will take it on.

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Operator [59]

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And the next question comes from the line of Tolu Alamutu, Tellimer.

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Tolu Alamutu, Tellimer Research - Director & Credit Analyst of Financials [60]

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Apologies. I joined the call late. I guess it's possible that some people have asked this question. The first question is just on the opportunities that you see in retail banking. I know someone asked about potential M&A. But I wanted to ask specifically whether you would consider visiting your retail business by looking at retail-focused lenders and whether you see any domestic lenders as interesting in terms of acquisitions at the moment. And linked to that, do you think it's important to the Zenith to remain one of the largest banks in Nigeria or is that not a focus?

The second question is about the restructured loan book I think you discussed earlier. Can you maybe remind us of the oil price of which you restructured or renegotiated those loans?

The third question is also about the oil sector, specifically about oil importers. Can you give us an update on your -- on what your exposure is and on the discussions that we had about the 4, regarding the government maybe stepping in to help the borrowers in that sector?

And finally, on the foreign currency loan growth, I just wanted to ask if Zenith has participated in any of the recent syndications to that we've seen or talked about like settle act and the others in upstream oil and gas? And can you maybe update us on your current foreign currency position and whether you would consider returning to the bond market?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [61]

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Okay. Thank you very much. In terms of opportunity in retail banking, the way we think retail banking service is a huge fact, and then there's enough to accommodate. But not just accommodate, we want take the entire (inaudible), obviously, in that space. The whole objective is the same where we have taken a leading position in the office. We want to replicate that in the retail. That's the minimum for us. And opportunity to acquire any of the -- maybe retail lender. First is that we'll continue to remain an organic, thus, primarily go to -- grow organically. If we find everything that is strategically relevant and will add reasonable value to us, we'll look at it. And we will not just do acquisition for the sake of the hubris of Zenith. We took a bit (inaudible) there's money to be made. There's incremental value. We won't do it for cosmetic reasons.

And again, you talked about as far as the Zenith being the largest bank. There's a second on that where we stand and we want to defend that. That's the legacy passed on to us by our leaders. It can't be that some of these escorting led by me that will have the division know. The whole essence is to project and maintain our leading position in the market. No matter the condition, no matter who has -- we were digging. We will do this heartfully and ensure that we maintain our current position in the market. I will get Dennis to speak from the oil sector and FCY loan growth.

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Dennis E. Olisa, Zenith Bank Plc - Executive Director [62]

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Truth be told, we worked with a lot of consultants, some of them were renounced on determining this edge number. So as a -- let me go at the strategy of the bank, I don't believe it yet. But I can tell you that the figures that we took, they are reasonable and then they come from very, very liquid sources, most of them, if I mentioned, if I define that, they are advices what they have taken. We've done that.

On the issue of our exposure to the downstream oil and gas business, the CBN intervened and then they issue an -- they issued promissory note, which we have already discounted for a good number of debt. But the only thing is that those are the results we have issued at 0 discounts. So the coupon is just 0. So we've taken the losses into our books and all of them are being actually provided for. But those reaching for the maturity of good mood and then we gained the right of way. We don't really do the much of the loans out there. They are issued again.

From our FCY loans for offscreen business, yes, there are huge opportunities, too. I'm sure you're aware that LNG is also in the market looking for funding right now. In terms lease, our credit com score is considered and not only convertible because we are positively, but we are only partaking that. There's one coming up being put together up by [Techone]. There's another one being put together by mobile. So these are areas where we think opportunities exist and we will participate in that. I don't think that (inaudible)

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [63]

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Okay. Let me clarify more in terms of the downstream oil we put up. We received a promissory note, like Dennis mentioned. And the obsidian asset discount us at 0. -- discount at no cost to the importer. We will also make a right of interest that accrues from up on to that. From...

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Dennis E. Olisa, Zenith Bank Plc - Executive Director [64]

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As of July 2018.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [65]

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June -- July 2018 to end of December 2018. But interestingly before Zenith, when we saw that, that sector was challenged, what we did was to suspend interest recognition. So in terms of what the interest (inaudible) we are taking, they are just negligible. So what we have, we received the first set of promissory notes and we applied to them the expected the recovery. What we have outstanding now in the build, we adjust in terms of exposure is led NGN 30 billion, and we have the promissory note that our end of 2020 that will now apply to such recovery. So we don't expect that apart from CBN write-offs, we are not taking an impairment. So I would say that we are completely square in that business. The important added loan and the syndication of quarter, the opportunities in the market and then given our position where we stand, there's no serious indication that comes off in the market that you will not find them in being mentioned. So as the opportunities come, we will look at them and then expectedly participate in and see what share of the business we can get.

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Mukhtar Adam, Zenith Bank Plc - CFO [66]

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Your question on the FX market, whether we're going back to the bond market. You know we have $1 billion bond project, but we have issued almost -- we take -- we took almost all the $1 billion. We've repaid $500 million. We have only $500 million running. Asked and when we have opportunities to go back to -- we'll definitely go back with the opportunities coming in the option oil and gas, and the rating -- credit rating on other financial institution and on the bonds that we have an issue, the ratings are good enough to give us a very good pricing. So if you see opportunity that our current liquidity cannot meet, we will go take those monies and take advantage of those opportunities. But you also have to look at our loan book, sorry, our deposit. Our domiciliary deposits also are not doing too badly.

So our dollar liquidity is also doing well for now to meet our need. But if there's any need for us to go back, the program is already there. We'll take advantage of that. But for now, we are not on the market.

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Tolu Alamutu, Tellimer Research - Director & Credit Analyst of Financials [67]

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Just a follow-up. Can you maybe give us a figure for your foreign currency position? Are you long or short dollars at the moment and by how much?

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Mukhtar Adam, Zenith Bank Plc - CFO [68]

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We are long by about 300 million.

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Operator [69]

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And the next question comes from (inaudible) from (inaudible).

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Unidentified Analyst, [70]

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Just a few questions on the expense line. So the first is on the income expense. Actually, year-on-year it's flat. I do know if you take expense basically at the beginning of the year then it's still the safe, the same drop the course of the year. But I just wanted to understand why it's flat year-on-year concerning if I use sort of tariff losses as a very crude major. And in short, over the period so that we would expect that the income charge to interrupt as well. And then, lastly, on the compensation line, particularly with directors' compensation. It's increased quite dramatically by about NGN 1 billion year-on-year. And it's actually higher than where you guys have been for the full year last year. I just wanted to understand why? Is it a timing thing and -- or what's going on there?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [71]

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Okay. Mukhtar, take the first question?

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Mukhtar Adam, Zenith Bank Plc - CFO [72]

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Okay. On the AMCON, you know the formula for computing AMCON is defined, okay? So is your base on your balance sheet for the previous period and then you would also add your off-balance-sheet transaction that you see in the computation. So if you look at our balance sheet year-on-year, we have not had significant growth, though it's a growth, but the growth is not significant. That's number one. If you also look at our off-balance sheet, the gross amount has also dropped. So that's sort of compensated for the AMCON charge.

So there is really nothing different on the AMCON, okay? Because if you have these huge AMCON charge, then we also have to be very careful of the off-balance sheet transactions that we take to be sure that the chart and the revenue we are making on them, we are able to make profits, that's by that. So that's what happened. In terms of directors' emolument. Yes, you would have to -- the group directors' emolument we have directors that are outside the country. U.K. subsidiary has directors. Our Ghana subsidiaries have directors. So sometimes you have the exchange rate effect affecting some of these directors' emolument. And also directors' emolument is not necessarily flat. You have reviews in those emolument. And then you also have number of the directors, board members also changing an increase over time. But the growth for us, we don't think it's too significant. It's reasonable within our limits.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [73]

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Let me also add to that. Across the group, we've seen new directors being appointed across the different subsidiaries. So that also we have some impact in terms of the emolument. Next question.

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Operator [74]

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(Operator Instructions) And the next question comes from the line of Timmy Orrick from HSBC.

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Unidentified Analyst, [75]

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This is Timmy from HSBC. My questions are mostly around the deposits and the bank's funding strategy. So it looks like you guys have been gathering domiciliary deposits quite aggressively. As a proportion of those core deposit savings, they've increased from 17% to around 27% in one year. Is this primarily to ensure you can continue the sub trade with the Central Bank given you wrote off your Eurobond? Or is this primarily to fund foreign currency loans? Also, can you please give us a sense for the cost of these domiciliary deposits and what proportion is driven by corporates versus retail? And then what's the tenure of these done deposits and how frequent are they repriced? Then also has the Central Bank's appetite for the sub transactions increased recently given the scale of scheduled offshore maturities in the coming months? And then can you please remind us where the side of your sole portfolio is? And my final question relates to your loans. Term loans have declined from 70% to 65% year-to-date. Is it fair to assume that this reflects a decline in demand for CapEx borrowing? And if this is the case, when do you think Capex lending will start to tick off materially?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [76]

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Thank you, Timmy. First is that the done deposits you have likely is coming from improvements in the flows we are getting from most of our customers who flew there in dollars. So I will say that it's slightly corporate and led deposits and nor the retail portion of it is very, very insignificant. It's very, very insignificant.

And in terms of pricing, average pricing of our dollar deposit, I will put at an upgrade of about maybe 2% to 3% in terms of what we have. And then how often do we price, depends on the tenor of each of the deposit. There are different contracts. We have the deposits on for -- you have some for 60 days, 90 days, 180 days as the case may be. So it is priced as the maturities for due or as new deposit contracts are being signed.

In terms of our sole book. Mukhtar answered that earlier. Currently, we have $1.6 billion. And then the soft book is not strictly with CBN. We do with other counterparties. It depends on what opportunities we see in the market.

Term loan. Yes, we expect term loan, we expect growth. We expect growth because like I mentioned earlier, the term loans that we'll see, what the opportunities there will come from customized. We will be interested in assessing some of the CBN's gain because of the further. They are long tenor, single digits. And beyond that, too, we've also seen a situation where in the last 5 years, most of the corporates have them but are in terms of expansion and upgrading their manufacturing facilities. So with a lot of improvement in technology, we are beginning to see a good number of them making inquiries and asking for RFP in terms of how great of their facilities. So over time, what do we see, we assess our responsibility to be that. We expect -- although the growth will be muted. So that is why we are also careful in terms of the guidance we're giving on the loan growth. But we will continue to work out so that to improve on that.

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Operator [77]

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And the next question comes from line of Dennis Trenchard from Franklin Templeton.

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Unidentified Analyst, [78]

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I've got 3 questions. The first one just comes back to sort of the yield and assets, and in particular, just the yield in loans and advances to customers. I compute in sort of an average rate of 12.7% coming down from 14.7% about a year ago. You mentioned about lower yields and government bonds, and I understand that specifically looking at loans to customers. Can you talk a little bit about why the yield has shifted down so dramatically? My second question looks at your loan portfolio by segment. It does look like you have increased loans to the oil and gas segment and reduced loans in the manufacturing sector. So are you now becoming comfortable with the loans in the oil and gas segment to start increasing loans again?

And then the third one just sort of talks about your sort of e-banking income and fee income that you're getting from electronic or alternative channels. Just your thoughts on if the PSB or payment service bank licenses will happen to be issued to the mobile companies, do you foresee sort of a dropoff in digital revenue for the bank assuming that those come through?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [79]

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Thank you very much. In terms of the yield on loans, you realize that as the yield on treasuries from abroad is going down, it has a direct correlation with interest rate, which equally almost in a linear -- or has a linear relationship with the lending rate. We've also seen the key corporates asking for a reduction in the rate.

Moreover, part of the growth you see in the loan has also come from the DCRR. That's the DCRR. That is the customer result lending, which is at 9%. In terms of the growth we've seen in our loan, a significant portion of it has also come from DCRR priced, I mean, which contain up 9%. So that also has an impact in terms of the yield you see on our loan book.

But speaking essentially -- because of competitive pressure, lending rate has come down. We noticed that lending rates that are coming down in Q2 because we needed to defend our position, we have to move in the direction of the market. We simply have to clear the market.

Then in terms of loan segment, I think Dennis will speak on that. But the critical thing is that loan to oil and gas hasn't really advanced. What you see is the product, but because of the loan book have trended downward and trending downwards more from water segment other than oil and gas, that gives oil and gas a proportion -- a higher rate than it used to be.

I'll assume the expansion of the income with respect to PSB and the implication for us at top line, we will take that.

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Temitope Fasoranti, Zenith Bank Plc - Executive Director [80]

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Okay. Thank you very much. My name is Tope. We welcome competition from the PSBs. That's the business we are in, a very competitive environment. So we don't expect to panic. We will continue to offer to our customers the best of our services and to respond positively to the challenges that come with these PSBs. Our retail focus will continue. We see a very strong potential in the retail market and then we'll continue to replicate in retail all our achievements in the corporate sectors. So we don't see anything to worry about with respect to the PSBs. We'll complete our response appropriately.

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Unidentified Company Representative, [81]

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For the oil and gas book, as far as the loan portfolio is concerned, there has not been any new incremental in the recent project within the quarter on the review. Essentially, what has happened because of the shrinkage in the total loan books, the oil and gas one that has not shrunk suddenly stands out as if its increasing. Actually be no incremental -- at least within this quarter. What will there be increase as we progress down to the end of 2019? The answer, I believe, is yes.

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Unidentified Analyst, [82]

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Okay. So just looking at the -- just on that oil and gas loans, it does look like there was some movements within the last 2 quarters from NGN 510 billion to NGN 540 billion. Did that all happen in the first quarter? I assume then, is that what you're saying?

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Unidentified Company Representative, [83]

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I believe so.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [84]

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Well, the oil and gas sector is not an endemic sector. So let's not -- because of the challenge we have in the sector that the sector is not endemic, no. There are deals available. And when we find the good deals, will we do them? The answer is yes, we will do them. So the whole concept is that we must ensure that for as long as we're going to the sector because of the volatility of the commodity price that nobody can predict, we mentioned that we'll get the necessary comfort and hedges in place to insulate us from any eventual rifts associated with sharp commodity declines. That is clearly the way to go.

So the inquiry, the opportunities, so we'll continue to take them on. The PSB-like software mentioned, where we need to compete, we'll compete. We are not scared to compete fiercely. We are known to be very combative when it comes to competition. And where we need to collaborate, we'll collaborate. If we also need to be creative, we'll be creative. So we work on it. We're not scared about -- it is something we work on, and it will keep us on our toes.

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Unidentified Analyst, [85]

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Okay. Just one more question. Just on the nonperforming loans over the oil and gas book. It was roughly NGN 40 billion at the end of December 2018 and now roughly NGN 25 billion. That shift from NGN 40 billion to NBN 25 billion, what was -- most of that -- just did that become performing or was there some write-offs on that as well?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [86]

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Well, essentially, we'll speak to that. I think we spoke to that before. It's the fact that where we have a situation, once we fully provided for a loan over a period of 1-year or 2 years, you can write it off. But that doesn't preclude follow-up on recovery. So what we've done essentially, the movement you see there is the further already fully provided items were now written off.

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Operator [87]

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The next question comes from the line of Segun Akinwale from ARM Securities.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [88]

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Please, can you speak up?

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Unidentified Analyst, [89]

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Okay. I just have a few questions around your key lines and specifically your noninterest revenue. I'm actually (inaudible) so it seems to be around your electronic and trading income contact that gives (inaudible) for the larger part of the increase is solely your NIO. I just want to just speak to the treasury good trading part of it, what are you looking at if my going straight for the year. Is this something I'm likely to see be right so -- or what happened to that because I know it's between what -- about 23 billion in Q3. I just want to your place on what the (inaudible) other line and also your electronic banking income. I just want to know what is the CapEx strength of this line -- what should we expect going forward?

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Unidentified Company Representative, [90]

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Yes. Thank you. So actually banking fees -- coming likely from the intensity of our retail banking is only an implementation, too. We are quite happy with what we've achieved and the reception we are getting from the market is so encouraging. So will we continue to intensify our effort, outside the figures? In terms of the T-bills, I think Mukhtar explained it. I'm just going to explain and again because you have a situation where the NS from [indiscrenible] core assets in, in 2 different buckets. Mukhtar?

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Mukhtar Adam, Zenith Bank Plc - CFO [91]

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Okay. Yes. In terms on the trading treasury bills and the treasury bills income generally. For the trading treasury bills, I explained earlier that it's driven by revaluation. So you can easily predict -- okay, please, can you go off speaker? It's echo in here.

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Unidentified Analyst, [92]

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No, I'm not on speaker.

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Mukhtar Adam, Zenith Bank Plc - CFO [93]

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Okay. So for the trading treasury bills, it's driven by trading. So the parameters that gradual trading will determine how much you are going through rating from that income. There was a recurring -- held to maturity. You amortize the income over time. But if you are looking at the total income comparing it on -- to our total treasury bills holding, then you need to look at both the trading and the amortize -- the one holding the maturity. So your question, should you expect that amount of trading into the rest of the year? I explained earlier. Even if there are opportunities to move more trading treasury bills income is not there. The result is up today. We are going to deploy them elsewhere. So if you find out the down line of income is dropping, I'm assuring you that we'll find another line of income that will compensate that drop. That is the assurance that we are giving.

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Unidentified Analyst, [94]

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Okay. So why I'm asking that question is if you see (inaudible) one on the interest income, which I believe is only you are referring to that as amortized. Then the one on trading is different. So there was -- there was a method. So the one on trading went up. The one on amortized level actually went down. So I'm asking, did you move your assets from, say, HDM to trading? So I just want to know if anything was done around treasury bills?

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Mukhtar Adam, Zenith Bank Plc - CFO [95]

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Not moving assets. When assets mature, you roll over. At the point that you rolled over, depending on the market condition, you know that in Q2, the yield -- the treasury bills, the rich white load. So if you are rolling over and you put them in trading, you have benefit of getting the mark to market gain, at the same time, getting the discount, the interest or whatever it is. So you make that decision when you're rolling over but not to move from one bucket to another because of the market direction has changed, no.

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Unidentified Analyst, [96]

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Okay. All right. So just a second question. I once -- I noticed your cutter was down to, I think, 61 now. Just want to get what led to that -- why the decline? Because you mentioned that the retail side of the market dilution side of the market is probably by a fee of claims and figures that comes so in Q2, you want us to treat December 9 as if it's one and the same? Can I ask if (inaudible)

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Mukhtar Adam, Zenith Bank Plc - CFO [97]

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The CASA, break it down. The service account of the CASA increased. It is the current account that broke. And most of the balances on the current account (inaudible) to have significant balances. That do transaction, the more the good transaction, the more you see those who are sometimes going out and coming back. But you will see consistent growth in our savings account, which is a real retail, what the retail is driving. So it's better to really look at the savings account separate and look at the current account separate.

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Unidentified Analyst, [98]

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Okay. Just I know you mentioned this before but the jump in cost of risk for H -- over Q2. Can you suspect which event that sector is coming from or what really happened to that line?

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Mukhtar Adam, Zenith Bank Plc - CFO [99]

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The jump in cost of risk. Okay, we have to make provision generally. Yes, we have to make provision across different lines, largely the manufacturing sector. We have some few challenges there. We are not talking of 1 or 2 names, okay? It got across different names that we have to make enhanced provision, okay, because we always want to be prudent. Once we have any signal of our nonperforming, we take the provision on. But we're not going to see more provision coming into the remaining half of the year. And then also, we are keeping our 1% guidance because we are very optimistic that the loan book is going to grow. So with a stable impairment and a growth in the loan book, the cost of risk is going to trend down in the remaining part of the year.

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Unidentified Analyst, [100]

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Okay. So lastly, just want to -- the loan-to-deposit ratio have devalued currently. I just want to know was that adjusted for the 1.4x that was given to retail and consumer credits? So I haven't seen them for the bank. I'm seeing them -- you putting up (inaudible) I just want to know if it is after making the adjustment for the 1.5% for the others.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [101]

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Adjustment for 1.5% of...

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Unidentified Analyst, [102]

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We 1.5% value that was put on...

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [103]

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No. No. There's no -- that adjustment is by CBN. So it's not of -- what you have is the absolute position of our loan book.

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Unidentified Analyst, [104]

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Yes. Just -- this is just to get your sense around what is up and within the sector. I don't know if you haven't done, so just want to get your view on you think the intention of the CBN on the meeting the deadline for the 50%, do you think it's something that will be extended? Or is it something CBN will stick to coming September? So that was that. And also, on the loan to fund, do you think there's a net debt that CBN will be looking at taking or do you think that they are going to stop on (inaudible)

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [105]

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.

If you ask me, I wish we compared it the direction of regulation. We'll be very happy if you compared it to that. We don't know what will happen. But what we know is that regulation by itself is never -- you don't see communication in regulation. It challenges you. It puts you out of your comfort zone. So but what we try to do is ensure that (inaudible)for most complaint. Compliance is critical to us, and we are an institution that do scenarios, different scenarios over different circumstances, different situation. And already at the beginning of the year, in one of our scenarios, what came out clearly was that there was need for us to grow the loan book. So in a way, what CBN is asking us to do aligns completely with our own strategic agenda. So if they decide to shift the date or they decide to change the model, whatever they want to do, a critical is that our objective would be compliance. We will pursue compliance. We will just be watching out. And it's also for us to adapt very quickly. We have that capability to be able to adapt and move in the direction that the regulation is going.

So if you have a sense of what CBN will do, we don't mind, you let us know.

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Operator [106]

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And the last question comes from line of [Kaitlin Byrne] from [Prudential].

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Unidentified Analyst, [107]

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I just wanted to understand with your coverage, your intel coverage seems higher than peers. So what would be the reason for this? Do you have this collateral? Is it just being conservative? And I mean, earlier you also mentioned that in the communication sector, there were new NPLs that have really been written off. Are there any other loans, which have been provided for but are not in yo

ur NPLs?

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [108]

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Okay. Mukhtar?

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Mukhtar Adam, Zenith Bank Plc - CFO [109]

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Okay. Coverage, you want to know why coverage is higher than peers. Okay. So coverage is a reflection of your level of prudency in terms of making provision when you see loan is challenged. Our coverage ratio is around 145%. Once we have a coverage ratio above 100%, what it means is the potential bad loans in the system, we have provisioned to cover everything. We are very comfortable with that. Sometimes, it goes below that amount, below 100%, when you have very marketable and sellable collaterals that you can easily fall back on to recover. But as we have now over 100% coverage, we are very comfortable and we always want to have buffer for our coverage ratio.

Communication sector. Yes, we have loans that have been fully provided that is classified another NPL. So that is what is happening in the communication sector, as explained earlier. There are loans that have been provided for that are not in NPL. Yes, there are different levels of provisioning. Sometimes you can do 2% level of provisioning because you have seen a potential challenge in the loan, not that it is actually challenged. So you provide for it. There are some times that you also see that a particular loan, for example, under IFRS, we have some loans that are watchly. You are watching them. Very, very critical to see whether they are going to do NPL. In IFRS, we put them under stage 2. But that doesn't mean there are NPLs. You are watching them carefully. So you have those kind of classification of that are not in your NPL.

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Operator [110]

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As there's no further questions, I'll hand it back to the speaker.

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Ebenezer N. Onyeagwu, Zenith Bank Plc - Group MD, CEO & Executive Director [111]

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Okay. Thank you very much, ladies and gentlemen. In closing, we like to reassure you that under this new management of Zenith Bank, we will continue to stay true to our values, our culture of focus, discipline, integrity, determination to ensure that values are not destroyed. But since we'll review incremental value in the system, we'll continue to hold on to our share of the corporate segment and even increase our market share. And the joining the retail space will intensify. The whole target will be to see that the proportion of retail in terms of our deposit and loan book is increased appreciably.

In the same manner, our expectation is that we intensify our drive to increase the fees and commission on our electronic products and the noninterest income. We expect that we should be able to consolidate position in the market as a leading institution.

We thank you very much. And I'll show you that Zenith remains a very, very compelling investment proposition, which we'll work on everyone that you should be interested in and look into it intensely. Thank you.

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Operator [112]

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This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.