BK Group Plc Announces Q4 & Full Year 2020 Financial Results
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NewsTranscript
00:00 Good afternoon, ladies and gentlemen.
00:02 I'm pleased to give you a warm welcome to our virtual event
00:05 as BK Group PLC announces its reviewed IFRS-BACE Quarter 4
00:09 and full year 2020 results.
00:11 My name is Dalia and I'll be your moderator for today.
00:15 The year 2020 was a very challenging year,
00:18 but we are pleased to report that BK Group
00:20 continued to record growth across all its business line.
00:24 Due to the prevailing COVID-19 restrictions,
00:28 we were not able to hold the press conference in person as we used to.
00:32 But we are pleased to welcome all of you, media partners,
00:35 who are able to join this call through technological means.
00:38 Now appreciation goes to you all.
00:41 It's my pleasure to welcome the bank CEO, Dr. Diane Karusisi,
00:44 and CFO, Natalie Maka, who are on this call
00:47 as they'll take us through last year's performance.
00:51 I'm pleased to welcome my CEO, Dr. Diane Karusisi, for opening remarks.
00:56 Thank you.
00:58 Thank you, Dalia.
01:00 Good afternoon, everyone, and welcome to our virtual event
01:04 when we present our results for the year 2020.
01:09 As Dalia said, by any measure, 2020 was a very challenging year.
01:15 The COVID-19 pandemic has had an adverse impact on human lives,
01:20 on families, but also on economies, businesses,
01:24 including financial institutions like BK Group.
01:28 For the first time in 2020, over two decades,
01:32 the Rwandan economy contracted by 3.4% as a result of the lockdown
01:38 and all associated health measures to curb the spread of the virus.
01:44 But today, as BK Group, we are pleased to announce that the group
01:48 has demonstrated tremendous financial and operational resilience
01:53 during a period of intense stress.
01:58 I'm happy that our years-long efforts to build and maintain
02:02 strong liquidity and capital levels have enabled us to weather the current storm
02:08 and even to support the economy and our clients in absorbing the shock
02:13 of the pandemic.
02:15 Also, our efforts in the past years to strategically position our business
02:20 in the digital world has helped us to continue to serve our clients
02:24 during the crisis.
02:27 Operationally speaking, we were pleased with our level of readiness
02:32 across all our business lines.
02:34 We've seen during this period of instability, all our investments
02:40 in our people, in processes, in technology have proved to be the right ones.
02:47 My colleague, the CFO, Natalie Mhaka, will share the details
02:52 of our financial performance for the year 2020, but I want to share
02:57 the main highlights that Natalie will be sharing with you.
03:02 The first one is growth amid crisis, mainly led by government-related business,
03:10 like a massive school construction and renovation project led by government.
03:15 That has been a key driver of the bank's growth.
03:20 The second highlight that is important is very strict discipline
03:24 in management of our operating costs that have reduced significantly
03:29 by 11% year on year.
03:31 And finally, as Natalie will probably mention, is the significant increase
03:36 in our loan loss provisions in line with the losses that we're expecting
03:42 on our lending business and as required by the accounting standards.
03:48 So I'll let Natalie go through the details, and I look forward
03:51 to an interactive session, although virtual, but I still hope
03:56 we'll have an interesting discussion afterwards.
03:58 Thank you very much.
04:01 Thank you, Diane.
04:02 Good afternoon, everyone.
04:03 Thank you for joining our earnings call.
04:06 I'll dive in straight into the numbers, and I'm very happy that despite
04:11 the challenges brought to us by COVID-19 pandemic, we are reporting
04:16 a bottom-line growth on our P&L.
04:22 Our net income grew overall by 0.3% compared to the year 2019.
04:29 Most of the growth was actually registered in the second half.
04:33 When you see our numbers, the pandemic impacted mostly the first half
04:37 year on year, and total operating revenue for the year were
04:42 129.6 billion won and funds.
04:46 In USD terms, this is over 140 million USD.
04:50 A growth of 15.4% year on year, mostly driven by the loan book growth
04:58 of -- our gross loan grew by 27.8% year on year.
05:05 And our FX related income also registered a strong growth of 22.5,
05:13 followed by our general insurance business, which we reported a
05:20 near year on top line of above 30%.
05:24 Our fees and commission struggled slightly in the first half.
05:30 We managed to recover the second half.
05:33 However, full year fees and commissions dropped by 5.6%.
05:39 You will recall that we forced all our fees during the lockdown in
05:45 the second quarter of the year.
05:47 We moved all traffic online.
05:50 We're pushing more for online traffic as we had the lockdown imposed
05:54 to manage the spread of COVID-19.
05:58 On the provision side, our profit before provision, our profit grew
06:05 by 34.6.
06:07 As Diane mentioned, a strong discipline on cost management.
06:12 Although we stayed connected with our customers and our staff,
06:15 mostly online, we managed to save some costs such as marketing,
06:20 travel related costs, and the like.
06:23 So some variable costs we managed to save.
06:26 On the bottom line, we got significant hit on loan loss provisions.
06:34 This is because of the IFRS 9 models.
06:37 We had to increase our loan provision to comply with IFRS standard
06:42 and the BNR reporting guidelines, and also to just be very prudent
06:48 due to uncertainties around COVID-19 crisis.
06:52 We saw our loan loss provision increase from 21.5 billion last year
06:59 to 39.3 billion this year.
07:02 We still managed to make some gains on recovery.
07:05 These are assets that were previously written off.
07:08 So we recovered 2.2 billion despite the lockdown and the adverse
07:13 condition that we had to deal with in the second half,
07:16 which was a reduction year on year of 39.5%.
07:21 Overall, we are very happy with the 3% growth registered,
07:25 tax increased by 26% as a normal computation at effective tax rate
07:33 of about 31.7%.
07:35 On the total asset side, our total asset grew by 28%, as Diane mentioned,
07:41 mostly driven by the loan book growth, government-related projects
07:47 to support schools around the pandemic and also other large
07:51 infrastructure projects.
07:53 But on the liability side also, we managed to retain a lot of liquidity
07:58 from DFI, so we raised our deposit with financial institutions,
08:04 grew by -- our deposit to financial institutions grew by 141%.
08:10 This is to support our liquidity level.
08:12 And our customer deposit was actually very strong,
08:15 and this I'm very pleased to see that was cutting across all the markets.
08:21 So we saw the result from other banks.
08:23 We saw strong growth on the customer deposit side,
08:27 and ours grew by 23% year on year.
08:30 And for the last quarter of the year, we grew by 2.3% to 790 billion.
08:39 This is quite commending because we are looking at a situation
08:43 where we thought the businesses are really underperforming,
08:49 and we're really worried about liquidity going into the crisis.
08:54 Of course, the additional liquidity has not come cheap.
08:58 We are looking at a cost of fund increase.
09:02 Our cost of fund increased to 3.8% for the full year 2020
09:10 from 3.1% in FY19.
09:14 We retained strong margins.
09:16 When you look at our NIM, we managed to retain NIM at around 10.7%,
09:23 and loan yield also decreased slightly from 16.2% to 15.7%.
09:30 Overall, I'm very happy with the result because we managed to report
09:34 the lowest ever cost-to-income ratio at 32.5%.
09:39 We see lots of efficiency and culture change,
09:42 which is encouraging to support lower level of cost-to-income ratio.
09:48 Our investment at the moment is to move from cash economy
09:53 to cashless transactions.
09:55 So penetration of online banking and digital transaction
10:00 is what we are pushing for.
10:03 If I quickly touch on provisioning,
10:07 we have cost of risk that increased to 4.5%.
10:11 All-time high, however, this is a win-win situation
10:14 when you look at the projection for FY21.
10:19 We expect to stay very close to our customer.
10:21 Again, as they are starting to recover from the pandemic,
10:26 we will see the reduction of this provision.
10:28 So it's a win-win situation on the cost of fund, cost of risk,
10:32 and also maintain efficiency on the cost-to-income ratio.
10:37 Our coverage at the moment is 107%.
10:40 This is how much we are providing compared to the non-performing loans.
10:47 This has increased from 105 in FY19.
10:51 We still had a very prudent approach then,
10:54 and we are monitoring closely our non-performing assets during 2021
11:00 to see that any releasing provision goes straight into bottom line gain.
11:06 Our subsidiary performance, most of our business is still from the bank.
11:13 So we are over 95% reliant on banking business,
11:18 although our general insurance, as I mentioned earlier,
11:21 grew by 32% on bottom line year-on-year compared to FY19.
11:28 Gross premium increased by 26% despite the lockdown
11:33 and lower level of trading volume.
11:37 On the BK Tech House, first time during a tough year,
11:43 they reported profitable bottom line.
11:47 So we've been investing in the past years,
11:51 and in FY20, BK Tech House registered a small profit,
11:56 and we are very pleased with that.
11:58 On BK Capital side, that is our asset management arm,
12:03 we also saw a growth of revenue of 57%,
12:08 and asset under-management also grew significantly by 32%
12:13 as we launched Aguca funds.
12:18 All our segment in terms of business segment were resilient,
12:23 from corporate deposit all the way to retail deposit
12:26 registering very good growth.
12:29 So I'm very pleased to see that,
12:31 and I have high hope that in 2021 we'll do much better.
12:35 We retained market share across all our key metrics,
12:39 and on the loan side, we expect to see slower growth
12:44 on the SME and retail due to risk appetite
12:49 and also the uncertainty still in the market.
12:52 On the large corporate, our loan book grew significantly
12:56 from 490 billion in 2019 to over 680 billion.
13:06 I'll pause here for questioning,
13:08 and we welcome any comments from the media.
13:12 Thank you.
13:15 Thank you very much.
13:16 Now comes the time for question and answer session,
13:19 and let's take a little interactive session.
13:21 And to our media partners, please note that we'll take three questions
13:24 at once to be answered, and feel free to raise your hand
13:28 or leave your comments or question in the comment section.
13:35 While we wait, we have some questions that were given before.
13:39 We have a journalist from Kigali Today.
13:42 He's called Simon Kamuzinzi.
13:45 He has five questions.
13:48 I'll start with a question in Nyananda.
13:51 I'll read them.
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30:50 So thank you.
30:54 Indeed, you've seen in our numbers
30:56 that our NPL ratio has increased significantly,
31:00 mainly driven by some sectors that have struggled,
31:04 like hotels, public transport, trade.
31:07 All these sectors have struggled significantly.
31:10 And I think in conjunction with government efforts,
31:15 there are ways to support these businesses
31:18 to recover from the crisis.
31:20 There is this economic recovery fund for hotels.
31:23 We've been able to refinance a good portion of their loans
31:28 at a much lower rate.
31:31 But again, we stand ready to support our clients,
31:34 to provide more facilities when and as possible
31:39 to help them recover from the crisis.
31:41 But generally, with economic activity rebounding
31:45 towards the second half of the year and even next year,
31:48 we'll see, I think, people recovering slowly
31:51 and we'll be there to accompany them into the recovery.
31:55 So that's what I can say.
31:56 I think it's not only BK.
31:58 Of course, we'll be listening to our clients
32:00 and understanding what we can do better
32:02 and how we can support them.
32:04 But there are country, nationwide efforts
32:07 that are led by government to support economic recovery.
32:10 Thank you.
32:11 Thank you.
32:12 And we also have Julius Ndungu.
32:14 He has a question.
32:16 Julius, the floor is yours.
32:18 Yeah.
32:19 I actually had a question on NPLs.
32:22 But I think the CEO has answered the question.
32:26 I was just interested to know what kind of risk
32:29 does that pose to your general performance,
32:34 especially as the NPLs continue to increase.
32:37 And I think historically, when we look at the previous crisis,
32:41 whether to talk about the 2008 financial crisis,
32:46 that has made the NPLs pile up in many banks across the world.
32:53 I'm just interested to know whether this
32:55 is the same trend we are likely to see,
32:58 especially because of COVID-19 and not knowing the--
33:01 starting it around when this pandemic is going to recede.
33:05 And then maybe lastly, if the CEO
33:09 would be able to share what are the next moves for the bank?
33:13 Are we likely to see the bank making more investment
33:17 in other sectors, expanding the expansion beyond just banking,
33:26 insurance, and technology?
33:28 Yeah.
33:30 Thank you.
33:31 Maybe I'll let Natalie speak also.
33:33 But in general, NPL means costs for the bank.
33:40 If a client is not able to pay us back,
33:43 then we have to take hefty provisions.
33:45 And you've seen that our provisions have increased
33:48 by more than 80% year on year, which is unprecedented.
33:53 And this is a cost to us.
33:54 So obviously, as a bank, we have to pay
33:58 as this number, this ratio of NPLs improves,
34:02 then we'll be able to release progressively
34:04 these provisions that we'll write back
34:08 and we'll go directly to the bottom line
34:10 and improve, increase the profitability of the bank.
34:14 So this is what I can say about NPL,
34:15 but Natalie will complement.
34:19 About next moves for the bank, we've
34:23 continued our expansion.
34:25 We are now eyeing still life insurance business.
34:29 We believe it would be very complementary to the services
34:32 that we're already offering.
34:35 We are in discussions with stakeholders at the board level
34:40 as well if we should go greenfield, meaning
34:44 like we did for the general insurance business,
34:47 start a company from scratch or looking at the market.
34:52 So this is something that we hope
34:54 we'll be able to give more news towards the end of the year.
35:00 And I think that that's the plan for this year.
35:02 Now, next year, I think technology
35:05 has proven to be a solution to many problems.
35:11 And the post-COVID world is going to be enabled even more
35:17 by technology.
35:18 So we are looking at a number of investments in our technology
35:21 business because we believe it will not only
35:24 support the growth of the other subsidiaries,
35:28 but also provide much needed services to the economy.
35:31 So I'll let Natalie say something around NPLs
35:34 and the impact on the general performance of the bank.
35:37 Thank you.
35:39 Thank you, Diane.
35:41 Thank you, Julius, for the question.
35:44 On the NPLs, I'll say that I'm particularly
35:47 pleased to see that it has increased,
35:51 and the provision have also been quite aggressive.
35:53 However, this is more of a prudent approach.
35:56 When you look at most banks' returns that
35:59 were published yesterday and today,
36:01 you'd see that NPL ratio managed below 5%.
36:05 So as at 6.7, after taking an aggressive look in hotels,
36:11 sectors, transport, and so forth because they struggled
36:15 in last year, I think I'm of the view that FY21 will be much
36:22 better because we will release this provision as the economy
36:25 starts to recover.
36:26 So we are looking at various sectors that have struggled.
36:29 However, it is the sectors that is concentrated around hotels
36:33 and transport.
36:34 And with the economic recovery fund that is available to them,
36:39 we see a slow growth.
36:41 However, a realization of this asset quality turning better.
36:49 One thing that I would say that is particularly good is when you
36:54 look at the growth in deposit for retail and SME,
36:58 on the press release, you note very strong growth
37:01 despite the crisis.
37:03 So asset quality can only improve from my point of view
37:07 as we go into the second half of 2021.
37:11 On digitization also, we see opportunity because we continue
37:16 to invest in our large project to bank more of the retail
37:20 and SME.
37:21 Retaining this deposit means we will tailor-made product
37:25 to offer them smaller loans on the phones and some consumer loan
37:30 that will not need collateral, and that will be very good
37:32 for asset quality as we grow.
37:35 [AUDIO OUT]
37:37 He wants to know, has the group already secured the credit line
37:51 from development finance institutions?
37:54 How far have you gone with the discussions,
37:56 and which institution did you pick,
37:58 and how much is the credit?
38:03 Should we walk to the back?
38:06 Thank you, Sol.
38:08 You saw our DFI deposit grew by over 100%.
38:13 This is mostly for the likes of CID, [INAUDIBLE]
38:20 various partners that are able to support us with liquidity
38:25 during this fast growth on large infrastructure projects.
38:30 So we saw an increase of over 100%,
38:34 and we expect to stabilize into the current year,
38:37 looking at the customer deposit and also demand slowing down
38:42 on the asset side, especially for the loans.
38:44 So we look at liquidity above 60% and just manage this DFI lending
38:50 on the lower end going forward, because this has been quite--
38:53 it put a lot of pressure on our cost of funds,
38:56 and we are not looking at increasing it above 4%.
39:00 Thank you.
39:01 Thank you, Natalie.
39:05 Do we have any more contribution questions?
39:08 We also-- I can see we have [INAUDIBLE] from [INAUDIBLE]
39:14 I think she's typing the question,
39:16 or do you want to go ahead?
39:17 OK, yeah.
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