Wigwe: Banks Cannot Provide for Power Sector Loans Because It’s Systemically Important


• Says Abu Dhabi-based Etisalat Group still has a case to answer
• Access Bank redeems $350m Eurobond
• Predicts exchange rate convergence

Obinna Chima

The Group Managing Director and Chief Executive Officer of Access Bank Plc, Mr. Herbert Wigwe, has explained why Nigerian banks have still not made provisions for most of the power sector loans, despite the fact that most of the loans taken by investors who bought up the federal government’s assets in the electricity sector almost four years had defaulted on their loan repayments.

He said if the banks were to make impairment charges on the loans it would be counterproductive, as the power sector was systemically important and critical to the growth of the Nigerian economy.

Wigwe, who said this during an interview on ARISE News Channel, the sister broadcast station of THISDAY Newspapers Tuesday, described the issues surrounding the power sector privatisation as very important and urged the federal government to look into the issues and create some form of reprieve for investors that had staked their funds in the sector.
“There is a problem in that value chain and there is also a problem with the pricing of their product which everybody needs to look at. There is a problem in terms of access to gas also. So several little things need to be resolved.

“But this is not the first time it is happening. Remember in the 80s, the government had to step in and that was how the creation of prudential guidelines came up.
“I think the government needs to revisit that whole (power) sector in terms of the people who are exposed to that sector and create some form of reprieve for them to work it out and for things to go right.
“That is because that sector is extremely important for the industrialisation of our country. But if you treat it otherwise, what you get is a collapse of that sector, which would be worse for all of us. So I think it needs to be managed and I believe the government should do that.

“You can’t tell the banks to provide for those loans right now. It is a very important issue and it is a national issue. It is a national issue because it is critical for our economy.
“And the banks that were sufficiently patriotic to support investments in power need to be given time to manage those exposures.

“Some of the problems that have come out of these exposures were actually not caused by the banks, but out of the fault in the implementation of the power policy.
“Now, having said that, there is also the issue of the systemic importance, relevance, and what you need to do about depositors’ funds,” he pointed out.

Also speaking on the banks’ exposure to 9Mobile (formerly Etisalat), the CEO of Access Bank said the consortium of banks that are heavily exposed to the telecoms firm are eagerly looking forward to the timely conclusion of the network operator’s sale, for them to defray their exposure.
Wigwe disclosed that potential investors in the troubled telco had already started doing due diligence on the company.

In a move aimed at resolving its debt crisis and attracting new investors, 9Mobile had reconstituted its board and executive management to run the affairs of the company.
The reconstitution of the board was sequel to the resignation of its former directors over the company’s inability to repay a $1.2 billion loan owed 13 Nigerian banks.

The Nigerian Communications Commission (NCC) and Central Bank of Nigeria (CBN) had stepped in to prevent the hostile takeover of the fourth largest mobile operator in the country by the banks and in conjunction with the banks constituted a new board for the firm after the withdrawal of its erstwhile parent, the United Arab Emirates-based Etisalat Group.

Throwing more light on the issue, the Access Bank boss said the affected banks had to take a collective impairment charge as far as 9Mobile was concerned in their 2017 half-year results.
This, he explained, arose from all the issues that were happening in the market.
“We had to basically downgrade the asset quality and what that meant was that there was an increased collective impairment.

“Now if you look at our exposure to Etisalat, the direct exposure may not appear to be that significant. But we do have exposures to other companies that do business with EMTS that are still going concerns with different level of securities and all of that.

“But on EMTS specifically, there was an increase in the collective impairment and we also took additional impairments with respect to those other exposures. So that is where we are on it.
“It led to an increase in the impairment on a collective basis, between last quarter and this quarter by 100 per cent,” Wigwe said.

Wigwe, who put Access Bank’s exposure to 9Mobile at about N11 billion, said the bank made a provision of about 30 per cent on its loan to the network operator.
“First of all, what we have done is to prepare the company for sale and so we have a management team that is working on it. The second is that we have appointed sale-side advisers who are now taking bids from people who are interested and we have a live room for people to virtually start doing due diligence so that we can conclude the sale very quickly.

“With respect to their parent, I think as a starting point, nobody walks into a system and takes so many loans and wakes up to say, ‘Oh I have gone.’ It doesn’t add up. So we still have recourse to them. That is a secondary level issue.

“But the most important thing is for us to sell the company and see how much we can get to defray our exposure,” he said.
Wigwe expressed optimism that the Credit Reporting and Collateral Registry Acts, which were recently signed into law by the vice-president, Prof. Yemi Osinbajo, coupled with the Bank Verification Numbers (BVN), would result in significant improvement in banks’ lending to SMEs as well as retail customers.

These, he explained, would compel banks to seek for other ways to raise earnings.
“With these, if somebody defaults on a loan, we can blacklist that person and he cannot have access to credit in the system. The fact that I can’t lend to somebody who has defaulted means that, that person has been excluded from borrowing in the system.

“Now, as banks are beginning to look for other ways to make money, look at even the EMTS exposure we are talking about, God knows how many millions of Nigerians you would have lend to for you to have that amount of bad loan. It is not even going to happen.

“So people are looking for more ingenious ways to make money and it is happening. There is increased agency banking. One thing I can tell you for sure is certain: the proportion of loans that are going to be lent to retails and SMEs is going to be a lot more in 2017 than it was in 2016. And in 2018, it would be a lot more.
“If you take my bank, for instance, our traditional arrangement was we were a wholesale bank, but we are now a large diversified bank and we have invested significantly this year as far as expanding our channels and the retail network is concerned,” Wigwe explained.

He also stressed the need for sustainable economic growth in Nigeria, saying there was a need to diversify Nigeria’s revenue base.
According to him, “I think we really need to address the fundamentals of our economy. I think we need to pay a lot of attention to agriculture, we need to pay a lot of attention to SMEs and most importantly, we need to pay a lot of attention to the power sector which drives all of these things.

“Today, the critical engine for growth is between agriculture and largely oil prices. Now, we can achieve double-digit growth in our gross domestic product without any change in oil prices once we address power.
“So I think in my mind, exiting that recession as quickly as we expected, for me is not Eureka yet, because you are still susceptible or vulnerable to too many influences.

“However, I guess, given the current emphasis of the government and the central bank on agriculture, if we pursue some of those actions, what you are likely to see is that we would create a much more robust and resilient economy, even though it will take a bit more time.”
He opined that as more investors get into the Investors and Exporters’ foreign exchange window and as more of them see that the market is real, the CBN would achieve its aim of exchange rate convergence of various segments of the market.

On his prediction for the financial services industry, he said: “I think a couple of things would happen. You don’t just come out of a recession and nothing happens.
“You would see a spike in non-performing loans, particularly as loans mature. You know, some of those loans would just be maturing, so you would see a spike and then it would get better.
“So what you are likely to see, depending on the risk management philosophy of the bank, you would see a spike between now and December 2018.
“But I think the banks are certainly in much better positions to handle it than they did during the last exercise that happened in 2007-2008.

“It would cut across sectors, but more in sectors where you have people who require imported raw materials to support production. But I think banks are going to look at other ingenious ways of making money and by lending a lot more in the retail space where you have a wider margin and in a much more structured and secured manner, pushing cards and their channels, so that they can find replacement income for all of these.
“So I think 2017 would still remain a year of muted growth for banks. But the stronger banks would continue to do well because they still have strong capital adequacy ratios and strong capital to support themselves. Overall, I think the industry would play out better.”

Access Redeems $350m Eurobond

Meanwhile, Access Bank Tuesday announced the final redemption of its $350 million Eurobond notes due July 25, 2017.
The securities were issued in 2012 by Access Finance B.V. – a direct, wholly owned subsidiary of the bank – on the back of an unconditional and irrevocable guarantee of the bank.
In October 2016, holders of $113 million of this note elected to exchange same for a new five-year bond issued by the bank at the time.

According to a statement from the bank, upon maturity of the Eurobond in July 2017, the outstanding portion of $237,003,000 as well as the final coupon value of $8,698,010 was redeemed from the bank’s available cash reserves.

“Access Bank has continued to maintain a robust balance sheet, supported by its strong liquidity position. The implementation of a disciplined capital and liquidity plan ensured that the bank was proactive and focused on raising capital in the International market,” it stated.
Key successful Eurobond transactions by the bank in the market included US$350 million (2012), US$400 million Subordinated Notes and the US$300 million Senior Notes comprising US$113 Million exchange and US$187 million new notes (2016).

The statement from the bank said the last note was issued under extremely difficult macroeconomic conditions in 2016.
Nonetheless, the success of the transaction, the first during the period, repositioned the Nigerian market in a positive light, following a year of volatile market conditions, and paved the way for other corporates to gain access to the market.

According to Wigwe, “Access Bank’s ability to redeem the $350 million Eurobond Notes highlights the resilience of our balance sheet and the efficiency of our asset and liability management process, especially in the face of a macro underlined by FX illiquidity, double digit inflation and currency devaluation.

“By building a robust risk management culture and sustainable capital and liquidity management strategy, the bank has positioned itself to compete and win in the challenging but recovering macro condition.
“Access Bank has continued to leverage its corporate strategy and an experienced board and management, to consistently deliver solid performance.
“The recent re-affirmation of its credit ratings by several credit rating agencies as well as an upgrade to Aa- from A+ by Agusto, reinforces the bank’s strong fundamentals.”