FCMB Group Plc (FCMB) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the FCMB Group PLC First Half 2026 Conference Call and Webcast. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Ladi Balogun, Group CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome once again to our H1 2026 Investors and Analyst Presentation. I have with me in the room my colleagues from the holding company that will be supporting me in this presentation. Mr. Gbolahan Joshua, the Group Chief Operating Officer; and Mr. Deji Fayose, the Group Chief Financial Officer, and they will be taking various aspects of the presentation before you. We also have on hand to be able to answer questions the CEO of the bank, Mr. James [indiscernible], the CEO of our Asset Management business, Mr. James Lori, CEO of Credit Direct; Mr. Chuk Nwanze; and the standing into the Chief Risk Officer, who's currently on Lead is Mr. [indiscernible]. If we move to the next slide, just to give you a sense of the agenda that we'll be going through today, which is consistent with other presentations with me. I will walk you through the highlights of the 2026 H1 performance as well as our strategic update and then hand over to the Group CFO that will take us through the performance review of the group, the bank and nonbanking divisions. Chief Operating Officer will take us to the digital business review, and I will summarize with the outlook. So moving on to Slide 4, where you can see the highlights of our performance. has shown strong growth across all our indices, profitability being the most notable, margins, particularly net interest margins, also very healthy, and our efficiency ratios are moving in the right direction. Our funding mix has also improved significantly, and we are seeing very strong growth across many of our indices. So key ones that I'd like to highlight is the improvement that we're seeing in low-cost deposit mix that has moved from 65% to 74.9%. This is key because it plays an important role in reducing our cost of funds and boosting our NIM. Also important to note that PBT, as has been widely reported, is up 98.8% year-on-year. ROE stands at 27.9%, which is 470 basis points improvement on where we were at the full year 2025. Cost to income ratio has also improved materially to 41.4%. We think we could be sustainably below 50% going forward. Net interest margin is also very healthy at 11.2%. This has been driven partly by the growth in interest income, supported by our retail and SME lending businesses as well as the continued reduction in cost of funds, and steady growth in our customer base, rising to NGN 17 million since the year-end. So on the next slide, just talking about some of the key things that are driving the performance in the H1. Recapitalization of the bank has played a key role. I think we had highlighted at the time of our various capital raises that one of the impacts that we think this would have is it would enable us to pay down on more expensive fixed deposits and focus much of our growth on the deposit side on current and savings accounts. We've seen current and savings accounts growing now in the range of about 20% plus. And our fixed deposits have been generally in decline, either as a result of pay down from recapitalization or replacement with low-cost deposit funds. We are also doing well when it comes to diversification of our business. We see that all parts of the group are growing strongly, not just the banking side of the business. And we are continuing to clean up the loan book following the end of forbearance in 2025. Core lending has grown quite strongly to NGN 269 billion -- sorry NGN 266 billion. That's the growth that we've seen, 26% year-on-year growth. Retail, SME and consumer lending has driven that. Digital lending revenues have also grown steadily by about 32%, now representing about 13% of earnings. As mentioned earlier, our cost to income ratio is trending in the right direction, down to 41.4%, down from 53.8%. This has been driven partly by digital transformation where we're seeing our costs growing a lot more slowly and our revenue outpacing the cost growth. We were also able to achieve much of our growth from the wholesale banking side of the business that is less dependent on our branch network or human sales. So therefore, the operating expenses on the wholesale banking side of the business is not growing as fast as the revenue. So the combination of digital transformation and much of our growth coming from the wholesale banking side of business has supported the widening of the draws, and therefore, a much better cost-income ratio. Net interest margin at 11.2% shows a healthy balance sheet from an efficiency point of view. As mentioned earlier, the low-cost deposit growth and the injection of First Capital have played a key part on the cost of fund side, while our retail and SME lending and Credit Direct have supported the yield on earning assets. Our nonbanking business continues to grow significantly, and we expect that this will continue, representing about -- we have about 185% year-on-year growth in the nonbanking subsidiaries. PBT at NGN 40.7 billion. We also have been proactive in actively resolving Stage 2 loans to improve asset quality. We increased our impairment by NGN 85.9 billion and also wrote off about NGN 63.4 billion to get coverage up and restore our NPL ratio significantly below 5% using IFR and just slightly above 10% -- just slightly above 5% at 5.2%, Nigerian NGAAP. So that's the summary, and I will hand over to Deji to take us through a more detailed analysis of the performance.

Thank you, Ladi, and good afternoon. I attest 1H group results, starting with Slide 6 to 14, which covers the group results overview. On the screen now, we have Slide 7, which is just a visual summary of our income converted to profit for the first half of the year. Interest and similar income of NGN 60.5 billion net of interest expenses to divide net interest income of NGN 2.5 billion to NGN 6 billion, which we will lay in our noninterest income of NGN 58 billion, the event of written income of NGN 415 billion, inclusive of operating expenses of NGN 152 billion and a net impairment charge with NGN 85 billion to H1. The group delivered a profit before tax to NGN 7.3 billion and [indiscernible] tax of NGN 9.9 billion. This gave rise to a 9% year-on-year growth in PBT, all driven by core earnings within the group. The next slide is a snapshot of our group income statement on Slide 8, where gross and is up growing by 20% year-on-year, driven by a good net interest income was down 2% despite a slight decline in noninterest income of 4%. On a quarter on quarterly basis, gross gains have grown by 11% and at the end of second quarter, while operating income have also grown by 2%. And further details of the main drivers of our financial performance will be discussed in the subsequent slides. Slide 9, please. Slide 9 is group's earnings contribution from our respective subsidiaries. Contribution from the Nigerian banks is less than 4%, moderating from a 5% in the prior year, [indiscernible] were NGN 9.3 billion requiring the holding company for a minorities menu pensions business, which we discussed in the last quarter. Also on a quarter-on-quarter basis, the loss in our U.K. business declined by 72% from ngn 37 million in first quarter to about NGN 110 million at the half year. In addition, we expect that this franchise will return to profitability by the end of the year as advances this transaction banking and [indiscernible] strategy. Slide 10 [indiscernible] I detailed on our half year group earnings. [ 20% ] year-on-year growth in gross earnings, as Ladi mentioned, was driven by 7% on interest income to NGN 6.5 billion from higher yields and an expanding asset base. Interest expense also declined by 2.7% year-on-year, reflecting an improved funding mix and lower cost of funds. And this has led to 30% income [indiscernible], where we have closed that NGN 2.5 billion to NGN 3.5 billion. Noninterest income despite a decline of 4.1% to NGN 5.8 billion, which was largely driven by currency valuation losses and [indiscernible] income grew quarter-on-quarter by [ 12 ]% to NGN 41.1 billion, as we saw trading income recover and our relation on losses eased into the quarter. Slide 11 touches on the group margin analysis, where net interest margins improved from 9.1% and 1H 2025 to 11.2% as a half year 2026. Cost of funds declined year-on-year to 7.7% at the end of half year from 8.3% [indiscernible] in 2025. This is slightly driven by an improved funding mix and a stronger low-cost of mobilization. Our [indiscernible] mix improved from 55.4% in December 2025 to 71.1% at the end of March 2026 and [indiscernible] 4.9% as of June 2026. [indiscernible] and ending assets have also improved year-on-year, closing at 22.1% at the half year from 20.2% in the previous year. Slide 12 is in our group operations and expenses whereas our cost growth continues to moderate with operating expenses of 12.3% year-on-year to NGN [ 2.1 ] billion at the half year, reflecting sustained cost discipline, the rent inflation and sharper focus on our cost-to-income ratio. And notably, operating expenses declined 2% quarter-on-quarter, NGN 85.2 billion at the end of the quarter. In addition, the increased contribution from trade sales and trading, wholesale banking and decor financial services across wealth, retail and SMEs is driving efficiency and revenue growth to a lease our excellence growth. As a result, group CIR improved to 41.4% at the half year from 57% in IH 2025. All the above are consolidated profit before tax rate mine 99% year-on-year, [indiscernible] NGN 7 billion from JPY 79.1 billion in IH 2025. Our return on average assets, our return on average equity also strengthening to 3.5% and 27.9%, respectively, at the half year from 2% and 20.6% as of 1H 2025. And I think importantly, this was achieved despite the NGN 2.7 billion capital transaction rather leverage in the second quarter. So it sort of reflects the stamp lease momentum as profit net doubled year-on-year. Slide 14, please. Slide 14 provides a detailed update on the normalization of asset quality, following the [indiscernible] resolution of our Stage 2 exposures during the first half of the year, the banking of CRs potential of nonperformance loan ratios improved to 5.2% in 1H 2026 from 56.97% in [indiscernible] 2025. Which now falls within the regulatory thresholds, our effort is also subject to regulatory approval, which is ongoing. This was likely driven by the following: required a net guide in a loan book of NGN 100 billion, a reduction in our GAAP NPLs of to NGN 201 billion and the total impairment charge of that NGN 3.4 billion absorbed in only 2026. The movement in is NPL is also shown as [indiscernible] follows. From December 21 opening position of NGN 270 billion, we're taking in write-offs of NGN 6.4 billion and customer NGN 4.9 billion. We've also restructured the lalegacy oil and gas exposure of NGN 7.2 billion, and we have never on movements of circa NGN 4 billion. All of this has contributed to NPL closing NGN 8.7 billion at end of June 2026 given right NPL figure of 5.2%. Thank you. I'll now please take you to Slide 15 to 19, which covers our banking division review for 1H 2026. Slide 16, please. The bank associate grew by 12% year-to-date to NGN 5 trillion with a low-cost deposit mix improvement by now a 60 basis points to 74.6%, while loans and advances also grew 4% year-on-year to NGN 2.3 trillion. And the banking franchise protest was also strong with PBT-grade year-on-year to NGN 216 billion from NGN 64.8 billion in 1H 2025 billion. Return on average equity of 23.5%, while CIR improved to 4.4% to 4.6% in the prior year, an improvement of 100 -- sorry, to 1,200 basis points. Slide 17 highlights our business recognized contribution within the banking subsidiary. Deficits are Event, approximately 48% each between wholesale and retail banking. Wholesale banking group lending accounting for 50% of loans and our treasury and financial market business level profitability, contributing for general profit before tax in 2026. Slide 18 reports a low portfolio cassation my sector, where the loan book remains well divisified with no single sector accounting for more than [ 10% ] of the portfolio, and largely led by the finance and insurance and manufacturing sectors. Slide 19 shows the Stage 3 loans breakdown by sector. [indiscernible] 4.7% of the loan book as of 1H 2026 or 6.1% as our full year 2025 and a 30% reduction driven by write-offs and paydowns as disclosed earlier notwithstanding an energy exposure that was market from state to State 3 [indiscernible]. Next slide, please. I'll now please take it to Slide 24, which highlights the performance of our nonbanking divisions, starting with Consumer Finance business on Slide 21. Gross spendings on PBT grew year-on-year by 58 and 92%, respectively. Our Investment Banking business also grew gross earnings on PBT year-on-year by 20% and 76%, while inverter management present [indiscernible] earnings and PBT as well. Group AUM led our pension franchise grew by 10% year-to-date to NGN 1.9 trillion. And for the further details that are nonbanking division performance as follows. On Slide 22, Consumer Finance. The business acquired 71 customers in [indiscernible] with a 1H with a 30% [indiscernible] year-on-year green disbursements. Revenue from digital eons also grew 1% year-on-year from NGN 28 billion in 2025 to NGN 4.3 billion at the end of 2026. The loan book also grew by 6% year-on-year, NGN 207.5 billion, while the business divided cost-to-income ratio is 110 basis point improvement year-on-year. NPL for the [indiscernible] business closed at 7.4%, largely driven by temporary period deduction suspension across states. [indiscernible] sort out a facial issues. Adjusting for this access exposure as the demand for us NPL ratio stands at about 4.2%, below FY '25 NPL of 7.3% and well within regulatory [indiscernible] of 10%. [indiscernible] have resumed in Q2 2026. And we expect that a reservoir continue into the rest of the quarter. On Slide 23, Investment Banking. Gross payments and PMT for division grew year-on-year by 20% and 76%. Our stock booking business delivered broad price revenue growth led by on antisense in traded value to NGN 251 billion; quarterly upon the full year FY '25 level of 66 billion, with traded income growing to NGN 512 million for NGN 625 billion. Our Cartons business also required 9% year-on-year decline in PBT reflecting exceptionally high prior year base last year and a [indiscernible] franchise. Obviously, a lot of activities in the previous year from the equity stake compared to this current year. Active [indiscernible] robust with executive mandates writing to [ 42 for 36 ] 2025. And we expect that this momentum will continue across the investment banking business in the second half of the year. For universal management franchise, [indiscernible] grew to NGN 1.95 trillion or 10% at the end of 2025 for NGN 1.7 trillion at the end of 2025, with our Petro business accounting for 17% of our assets under management. The AUM from these out products also increased by 5% year-on-year, wealth management fees have increased by 81% year-on-year. A number of return centers that can have also grown 4% year-on-year with [indiscernible] platforms contributing 40% of this increase and a net inflow of NGN 4.55 billion from the transfer window. Overall, investor management PBT increased by 2% year-on-year to NGN 5.74 billion with a pension business accounting for 4% of PBT and [indiscernible] other business lines contributing 46%. I'll now pleased you back to our Group CEO, Gbolahan Joshua, to take you through our detailed business review. Thank you.

Thank you, Deji. Good afternoon, everyone. My name is Gbolahan Joshua. I'll be taking us through our digital business, covering lending payments and wealth on Slides 25. Slide 26 just shows key highlights of our digital business. We generated revenues of NGN 89.1 billion. It's up 32% year-on-year from NGN 67.7 billion in 2025. Digital now accounts for 13.2% of gross earnings, largely driven by [indiscernible] payment. Loan disbursements are up 26% to about 958,000 customers, almost NGN 270 billion is Total portfolio has grown by 12% year-on-year to about NGN 290 billion, and this portfolio is split 58%, 42% to retail and SME. For our mobile and Internet banking users, they've grown 4% year-to-date to 7.7 million customers. Slide 27 just shows the trend on customer acquisition. Q2 2025, we've moved from 15 million customers to almost 17 million in Q2 2026, acquired about 1.9 million customers over the last 1 year. 45% of those customers enrolled in our mobile and internet banking channels. And for 2026, we've acquired about 700,000 customers. Slide 28 shows the breakdown of the revenues. 48% of the revenues coming from our nonbank subsidiaries, 52% from the bank. Lending leads at about 83.7% of total revenue. It's grown by about 41% year-on-year to NGN 74.6 billion, lending revenues are split 63% between the retail and SME business. Payments accounts for 13% of total revenues, [indiscernible] for 3.3%, we've seen strong growth of 62% year-on-year in the wealth business from about NGN 1.9 billion to PEN 3.1 billion. Slide 29 shows the trend of our digital revenues has moved from NGN 13.9 billion in Q2 2025 to NGN 48.3 billion Q2 stand-alone quarter 2026, 35% year-on-year growth, just looking at the 2 quarters. Digital contributes 12% of interest income, 14% of noninterest income. Slide 30 just shows the breakdown of our digital loans year-on-year has moved from NGN 211 billion in Q2 2025 to NGN 292 billion. Digital now contributes about 11.8% of the total loan book. The digital loan book is split 49%, 51% between the bank and our non-banking subsidiary, CDFC Limited. Slide 31 just shows highlights of the digital business. From a lending perspective, we disposed about NGN 144.7 billion to SMEs, about 9,500 loans, average ticket size of NGN 15 million, portfolio size of NGN 122.7 billion. For retail loans, about NGN 124.5 billion disbursed to about 94,000 9,000 customers, average ticket size, 58,000, portfolio size is closer to NGN 170 million for wealth. We now have 120,000 customers. Revenues are up 62% year-on-year. AUM has grown 46% to almost NGN 47 billion. And then you see the breakdown of our digital payment revenues, largely driven by mobile, the mobile and the cat business. Overall, when we look at digital, it's becoming a major revenue engine for the business, 13% of group earnings and [indiscernible]. It's moving towards the NGN 200 billion annual revenue business. This year, we expect it to be north of NGN 190 billion. and it's also helping us improve the economics of the group by lowering customer acquisition costs, supporting local deposit growth, improving our cost-to-income ratio and helping us deepen product cross-selling. Thank you. I'll now hand over to Ladi.

Thank you. The outlook for the second half of 2026 is very positive. We're seeing growth growing at a compounding rate, our margins are defensible and the earnings are diversified. There are a number of key things that we think are going to drive the H2 performance. The continued deployment of our recapitalization proceeds to support lending in the higher return segments will be key. We expect at the very minimum, we would be at NGN 325 billion PBT guidance for this year. which would put us at around 25% return on equity using a slightly higher tax rate of 15% that we used in H1. This is in spite of the fact that there would have been significant impairments during the course of the year. We think the margins are defensible. We see that the current levels are the floor at which we will see them, and we think there's a good chance that they will actually improve subject to what happens in the money market in the second half of the year. OpEx discipline will remain, costs will grow lower than inflation in our view, powered by digital transformation and the rising contribution of both the wholesale business and other low-cost income ratio businesses. So we expect cost-to-income ratio to be well below 45%. Earnings remain diversified with the nonbanking subsidiaries growing at a fairly fast rate. Impairments, whilst elevated in 2026, will begin to ease in the second half combined with a sustainable cost-to-income ratio well below 45% and rapid growth in our revenue, diversified across banking, consumer finance, wealth and investment banking that we think that we are well on track to attain a return on equity above 30% as we go into the year 2027. Thank you. This brings us to the end of the presentation, and we are happy to take questions.

[Operator Instructions] Mr. Ladi, there are no audio questions at this moment. Please proceed with any written questions.

Okay. So I'll take the questions, first of all, from Fermi, I hope I pronounced that correctly. What is the final dividend payout outlook for FY 2026. Maybe I'll hand over to our Chief Operating Officer.

Okay. Thank you. Projected for this year is NGN 1 per share, largely coming from expectations that the bank of seams dividend after the Q3 audit, credit Direct Limited also upstream's dividend and then a couple of the nonbank subsidiaries. But largely coming from the fact that the NPLs are now below 10% -- NPLs below 10%. The bank is allowed to upstream 20% of profit after tax after statutory options to the holding company. And so that's what the projections are based on. Thank you?

Question is 1 of the long term in terms of plan that the bank proposed for CVN approval? Sorry, you want to...

Okay. So it's a plan to basically incentivize top performance in the group, starting with the senior management team and key talent within the group. It will not involve an issuance of new shares, so there will be no dilution to existing shareholders, but it's just a standard and LT plan. I think we'll give more details when we get our regulatory approvals.

Third question was that we noted elevated write-off of over NGN 86 billion of the book of the bank as 2026. What is the level of write-off we are still expecting for the rest of the year 2026?

Okay. For the full year call, we have guided that to get the NPLs of the bank below the regulatory threshold. We might have had to take additional impairments and write-offs to the tune of NGN 250 billion. What we've seen in H1 is between a combination of the write-offs, the paydowns we've seen and restructured loans, we don't expect to have any further significant write-offs. However, there will still be some level of impairment in H2, taking total impairments for the year north of 6%, just about 6% cost of risk. So no further significant write-offs, but there'll still be some level of impairment, which will model into the numbers to give us the PBT figure of NGN 322 billion -- NGN 325 billion, sorry.