Adegbohungbe: Structural Factors Impeding Economic Growth

The Managing Director, Coronation Merchant Bank, Mr. Banjo Adegbohungbe, in this speaks about developments in the economy as well as the performance of his firm. Obinna Chima brings the excerpts:

What is your assessment of the performance of the economy in the first quarter of 2021?

The first thing to say is that the 0.51 per cent year-on-year growth for the first quarter (Q1) GDP was better than the 0.11 per cent recorded in Q4 2020, which is encouraging. Then again, the growth in the non-oil sector of the economy, which is ninety percent of it, was 0.79 per cent year-on-year in Q1 against growth of 1.79 per cent in Q4. A lot of the difference came from the fact that the growth rate in the telecoms sector slowed down in Q1 and growth in the agricultural sector went back to its trend growth rate – it had grown exceptionally in Q4. Both these sectors can improve going forward into the next three quarters of the year. It was great to see the manufacturing sector return to growth of 3.40 per cent year-on-year in Q1. We significantly support this sector and we understand how tough it was for them last year with the challenges of COVID-19. There is plenty of evidence that key sectors of the economy are recovering and more growth is expected going forward.

What measures will you advise policymakers to adopt in order to accelerate GDP growth rate?

Structural factors are still impediments to economic growth. Examples include electricity, physical infrastructure and bottlenecks at our ports. If there are material improvements in these areas, economic growth will pick up faster. Policy makers are focused on these issues. We have also seen some normalisation of market interest rates and a degree of unification of exchange rates. These are prudent and expected adjustments after the very low market interest rates that were used to protect the economy from the challenges posed by COVID-19 last year, in effect a gradual and managed return to a normal state of affairs. On one hand, policy is guided by growth and on the other hand it is guided by the need for stability, which means bringing inflation under control and calming the foreign exchange markets. So far, we are headed in the right direction.

We have a situation of insecurity that appears to be worsening, inflation and unemployment at double-digit, with some of these negative indices, why do you think investors should consider Nigeria above its peers?

The case for investment in Nigeria should be considered in a wider context. The challenges currently being experienced in the country are neither permanent nor unresolvable. Discerning investors therefore know how to sift through the noise. Those who do have found that the critical market fundamentals still hold true. While there can be no pretensions that these are challenging times, we believe that those who position appropriately can expect alpha returns as things improve.
We have been instrumental in helping our clients navigate the terrain, positioning them to take advantage of the opportunities on the horizon.

What are the benefits of a demutualised stock exchange as we have in the country presently and what opportunities are there in for investors?

The demutualisation of the Nigerian Stock Exchange is a very good development for which the critical stakeholders should be very well commended. One can imagine that this pioneer effort must have placed significant demands on the proponents and executors and based on what we can see, they have done an excellent job.

Some of the benefits of a demutualised stock exchange are immediate and others will be long term. Before now, the Exchange was a not-for-profit and therefore only subsisted on contributions and fees from members. This has now changed as members have become shareholders and therefore, providers of capital, thus giving the exchange much needed access to capital. It is expected therefore that with its access to capital, the exchange will be able to make ample investments in technology, become more self-sustaining and deepen its capacity to serve an increasingly knowledge and technology-driven capital market more effectively. The innovation trajectory for the exchange is now limitless as it seeks to compete in the global capital market place.

The need to enhance capitalisation provides ample opportunity for new investors to become shareholders in the Exchange. By listing its shares on a market platform, the Exchange provides investors with entry and exit opportunities, access to information on its activities, participation rights and a pool of talents to drive its growth.

How has the corporate debt market performed this year?

The corporate debt market has fared reasonably well considering the rather challenging business and interest rate environment. According to the FMDQ, almost 170bn was raised in Q1 2021. While this may not compare favourably with the prior year, it must be borne in mind that the interest rate environment in 2020 was unusually favourable for corporate issuers who were able to benefit from it. We have since seen the return of double-digit interest rates and corporates have had to make careful choices. We have been more active this year than in 2020 and we envisage that there would be more issuance activities in the debt market as the year progresses.

How did Coronation navigate through the challenges created by the COVID-19?

Three important things were relevant to this: One, we were proactive in mitigating the risks posed by COVID-19 to our business. Two, we took several steps to protect the health and wellbeing of our people and three, we did our best to support our customers during the difficult period from the disruptive impact on their business.

Can you take us through your 2020 financial performance and what were the key drivers?

Despite the challenges and headwinds that characterized the year, our bank recorded significant financial success. The strength of our financial performance is a testament to the resilience of our business model and the commitment of our people.

We achieved a profit before tax of N5.8 billion, increasing by 15 per cent from N5 billion in 2019, while total assets grew by 63 per cent from N253.35 billion in 2019 to N412.36 billion in 2020. Earning assets reached N269 billion, representing a 62 per cent rise from 2019. This resulted in a slight growth in net interest income by six per cent to 4.68 billion (2019: N4.43 billion). There was an increase in trading income and commissions & fees, leading to a rise in the bank’s non-interest income by 23 per cent year-on-year to N7.41 billion (2019: N6.04 billion). Customers’ deposits grew by 41 per cent, from N138 billion in 2019 to N195 billion in 2020, while loans also increased from N72.2 billion in 2019, to N122 billion in 2020.

Due to many cost savings initiatives, the bank was able to curtail the growth in operating expenses to 12 per cent, below inflation at (15.75%) as at December 2020 with cost to income ratio moderating to 50.26 per cent from 51.12 per cent in 2019.
Overall, the bank maintained healthy prudential ratios above regulatory thresholds, with loan to funding ratio of 67.86 per cent, capital adequacy ratio of 19.87 per cent and liquidity ratio of 50.93 per cent as at December 2020. We also continued to record zero non-performing loans (NPL) ratio as we have since inception.

What should your customers and other stakeholders be expecting from the bank for the rest of 2021?

We will continue to grow our client base, deepen our market share and invest in expanding our digital footprint. Our clients can expect us to continue to add value to them and to enable them achieve their strategic objectives in a sustainable manner while we contribute our quota to rebuilding the economy.