‘Our Loan Portfolio is a Reflection of How Integrated We’re to the Economy’

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First Bank Chief Banker Speaks…

When Dr. Adesola Kazeem Adeduntan, the Managing Director/Chief Executive Director of First Bank of Nigeria Ltd, who only joined the bank as an Executive Director/Chief Financial Officer in 2014, spoke with THISDAY, it appeared he had been with the nation’s pioneer bank his entire professional career. Eloquent and humble with a calm demeanour, Adeduntan, who took the reins of office over six months ago, has a wealth of experience which straddles the financial industry.

Before joining FirstBank, Adeduntan was a director and the pioneer Chief Financial Officer of Africa Finance Corporation (AFC). He had previously served as Senior Vice-President & Chief Financial Officer of Citibank Nigeria Limited and was a Senior Manager in the financial services group of KPMG Professional Services where he managed high profile assurance, financial and risk advisory engagements.

He has garnered diverse expertise in treasury & financial management, risk management, accounting/auditing/internal controls, corporate governance, corporate strategy development and implementation, corporate finance, business performance management, business/financial advisory, investors, regulators and rating agencies relationship management, deployment and management of information technology, and compliance.

An alumnus of several business schools having bagged Master’s Degree in Business Administration (MBA) from Cranfield University Business School, United Kingdom and attended executive programmes at Harvard, Cambridge, Oxford and INSEAD, Adeduntan had his first degree, Doctor of Veterinary Medicine (DVM), from the University of Ibadan. Adeduntan, who sits atop the bank, which history predates the creation of Nigeria, spoke with the THISDAY Team comprising Kunle Aderinokun, Chika Amanze-Nwachuku, Obinna Chima and Nume Ekeghe, on wide-ranging issues relating to the bank’s performance, its contribution to the economy, impact of the economic crisis on the bank, status of its loan portfolio, aspirations of the bank and the recent monetary policy of the Central Bank of Nigeria, amongst others

What is your assessment of the performance of FirstBank since you took over?

FirstBank as you know is the largest bank in Nigeria and I assumed the leadership of the bank on January 1, 2016. I would say that within the very challenging operating environment in which we have found ourselves, we have successfully kept the bank intact. We have refocused the institution, but most importantly, we are managing the institution for value. For me, these are the key things.

We do have a business with very strong fundamentals in virtually all the key metrics you want to look at, this institution remains a leader in this country. We have the largest number of branches; we have the largest number of ATMs that have been deployed in the country. Not only that, over the last six months, twice now, we have won an award from Interswitch as the only bank that has processed transactions in excess of 100 million transactions in a month. Again, that speaks volume about the fundamentals of our business and that also speaks volume about the depth of our business and service offerings.

Giving the headwinds in the economy, how has the bank been coping?

Again, because we are FirstBank, and because of the diversified nature of our business, we are present in the corporate business, we are very active in the commercial business, we are active in the SME business, we are very active in the retail business and we are also very active in the public sector segment. So we have a well-diversified business. So what that enables us to do is that when there is a major issue in any segment, other segments step forward. So we are benefiting from the wide diversification in our business. We also have the largest network of branches in the country.

I’ll give a good example, when the North-east was almost a difficult place to run businesses, we felt the impact but the fact that we are diversified; the impact of such disruption wasn’t significantly felt on our financial performance. So we are benefiting from the fact that we have a well-diversified business. We are also benefiting from the fact that we have a very strong management; we also do have a very strong board of directors and a combination of all these have helped in positioning the institution for continued growth.

Going back to your bank’s performance, your results last year and those released so far this year have also not been impressive. What are you doing to rekindle investor confidence?

I actually just came out from a session where we addressed investors and we presented our second quarter financial results because we released our second quarter results today (Tuesday 26th of July). You would see that from what we have done, we are cleaning up the books. But most importantly, is that the business fundamentals for the bank are very strong. We are profitable. We might not be the most profitable bank in the country today, but for us, we see profitability and also impacting the environment in which we operate as like twin objectives that we must meet.

Again, that is one of the reasons that we must meet across the entire spectrum of the business landscape. Like I said our second quarter results which was officially released today basically supports what I have just said. We remain profitable and I acknowledge what happened last year that we needed to take significant provisions. But this year, even as we reposition the loan book, we have remained very profitable.

Can you take us through the numbers in the second quarter results? And also, we would like to know if the worst is over for FirstBank considering the massive provisions in 2015?

I don’t want to use numbers in isolation; other banks have not really released their results, so, it is difficult for me to say. But from what we have done, we believe it is a very decent performance and that the trajectory can only be up, it cannot be south again. Especially when you look at the fact that the budget that has been approved at the federal level, the implementation has commenced so we expect that to feed into the economy.

The new forex regime that the Central Bank of Nigeria (CBN) has also implemented and implementing, we also expect that to also feed into the economy and begin to fuel growth in the economy. Again, given the size of the institution, we tend to have our fair slice of these kinds of opportunities that would be thrown up by all these. So we expect that the trend should be positive. In 2015, we made provisions in line with international financial reporting standards. Again if you remember, 2015 was when the price of crude oil basically dropped dramatically.

This bank, given who we are, we actually have the largest exposure to the oil and gas sector in the market because we have always been not just about profitability, we are about development and creating new generations of Nigerian entrepreneurs. So we partnered a lot of Nigerians that acquired oil assets from the international oil companies and when the price of crude oil dropped significantly, in line with international accounting standard we looked at our position and we needed to take incremental positions.

We would like you to shed some light on the tender undertaken by FirstBank on the strategic alliance agreement between Jide Omokore’s company, Atlantic Energy, and the Nigerian Petroleum Development Company (NPDC). We need you to explain this given that NNPC has taken over the tender? Does FirstBank still have a lien on NPDC’s oil blocks?

We basically financed Atlantic Energy and currently, that transaction is within the ambit of what NNPC is looking at vis-à-vis including the tender. Also, there is confidentiality of customer information. But what is known is the fact that we financed Atlantic Energy as far as the strategic alliance agreement was concerned and that whole strategic alliance with Atlantic Energy contract is currently being reviewed by NNPC.

So how do you plan to recover your money?

I can give assurance that we would recover the money. We do have the right level of security. Again, I am not at liberty to disclose customer confidentiality. It is one transaction that both the management and the board of the bank are monitoring very closely. We are on top of that transaction.

Retail banking is one area a lot of banks seem to be looking into, considering what is happening in the economy, can you comment on efforts FirstBank has taken to remain dominant in that space?

Today, we are the biggest retail bank of all the commercial banks in Nigeria. As part of our strategic plan, retail banking would continue to be a key and significant part of our business. I mentioned the fact that today, we have the largest number of branches and that supports our retail strategy. We have the largest number of ATMs currently being deployed.

Currently, we have about 2,600 ATMS and we are in the process of increasing that to about 3,000. Today we have more than 10 million customers that we provide different services to. Again for us, we are deepening our share of the retail banking market. Our focus is on migrating more and more of our customers to our digital banking platform. So today, we have FirstBank online which most of our customers now use. We also have FirstMobile which enables our customers to be able to transact banking business on their mobile phones.

For our mass market customers, which are at the lower end of our retail segment, we also have Unstructured Supplementary Service Data (USSD) banking which again enables our customers to transact various transactions from their basic phones not even just the smart phones.

Again, we have lined up a bouquet of products and bouquet of channels by which our various customers can access our bank and be able to transact business with us. For us, retail banking would continue to remain a key and a very significant part of our business. We have modernised our retail banking offerings like I have mentioned and we are the bank to beat when it comes to retail banking. We have positioned ourselves to be the leader in that particular segment.

The CBN just increased the monetary policy rate (MPR) to 200 basis points what is your take on that and how has the forex policy affected FirstBank?

The outcome of the MPC that increased the MPR by 200 basis points did not come as a surprise to anyone. With inflation up to 16.5 per cent, the reality was that prior to today, we had a negative interest rate. Also don’t forget that part of what we need to do as a country is to make the local currency instrument more attractive to foreign investors as a way of attracting the much needed foreign currency liquidity to our market.

So this decision did not come as a surprise at all to very watchers of the Nigerian economy. In fact, it is indeed in line with expectation. As for the forex regime, I think the CBN has taken the bull by the horn. By liberalising the market, willing buyer and willing sellers would go through the market. We are going through the process now and we think that at the end of the day, when it settles, we would have a system that ensures that resources are allocated in the most optimised way. I think it can only be good for the economy.

Overall, what is your assessment of the state of the economy?

It has been a very tough environment for all of us as Nigerians, even for banks. I alluded to that when I said for the first half of the year it was a tough operating environment. But with the kind of initiatives that government has made, we expect that things would begin to ease out.

A good example is what we just discussed now on the new forex initiatives from the CBN, the changes that were made on the prices of refined petroleum products, all these would impact the economy going forward. The passing of the national budget which we know from the discipline that we have seen in the current administration would be dutifully executed. That was why the minister of finance said recently that the government has what it takes to be able to deal with the current challenges.

FirstBank has huge exposure to Aiteo Energy, given the prolonged drop in oil prices. How do you intend to recoup your money?

What I would say is: the worst is over. Again I mentioned in the earlier part of the interview that oil price went as low as $27 per barrel. Over the last two to three months, the price of crude oil has stabilised and has been hovering around $45 to $50. So, really we are much better today as a country and economy than we were four to five months ago. That can only be better for us as FirstBank.

Despite the strong belief that the agric sector can be the game changer for our economy, a lot of banks still find it difficult to finance the sector. Presently lending to this sector is at between two and three per cent. So, why do banks find it hard to lend to this sector?

What I would say is that at the bankers’ committee, we have actually focused a lot on this sector in recent times. In fact, we have a sub-committee of the bankers’ committee that is working on this. The challenge is how you de-risk the agric sector to the extent that it can attract the right level of financing. Again, if you go back four to five years ago and if you look at where we are today, we have improved but I would be the first to admit that there is still significant room for improvement.

There are a lot of initiatives that are working like the growers’ initiative is working. The CBN has also put aside on-lending facility to the agric sector. All these are geared towards ensuring that banks are in a position and are willing to provide financing to the agric sector. I agree absolutely the agric sector is the most crucial sector of the economy today. As a country, we must be able to feed ourselves and when you are able to feed your population, and then half of the problem is solved.

It is not just about feeding, it is also about employment. The agric sector still employs the largest number of people and when we get it right as a country, the value creation from processing, from exporting could be very significant. Like I said, the bankers’ committee has a team that is looking at this and what I see is year-in, year-out, we would keep on improving on prior performance.

What is FirstBank commitment to the sector?

We are very much committed to the agric sector. This is one of the oldest lenders to agric sector. In my very short stay in office over the last six to seven months, I must have visited at least three key customers who are into commercial agric. Again, it underscores the importance we attach to agric sector. Like I said, I think for all of us as Nigerians, agric is very central to what we need to achieve.

What about your role in financing SMEs, can we know how much you have given to operators of small businesses in the past one year?

I don’t have the numbers, but what I can tell you is that FirstBank is the biggest lender to SME sector. In fact, we have a programme that we sponsor at the Lagos Business School where we provide technical support and skills upgrade to SMEs. If you go to our website, we have what we call SME tool kit, which is essentially what SMEs can access and it empowers them on how to run their businesses.

We have won several awards as far as SME support is concerned. If you remember, I earlier said we are active across the entire spectrum; I specifically highlighted the fact that we were present in the SME sector. Again, I kept on highlighting the fact that for First Bank, it is not only about profitability, it is about impacting the environment. I have visited all the geo-political zones in the country since my assumption of office. And on several occasions, I have seen successful business men walk up to me and say thank you FirstBank for believing in me.

When I started this business, I went to XYZ bank nobody believed in me, but FirstBank did. I wouldn’t want to mention because some of them are very big businesses today. What that tells you is the strength of how interconnected FirstBank is to the entire economy of Nigeria. This is an amazing brand that has endured and it has endured basically on the back of financing the sectors of the economy that are important for growth not just for the profitability of the bank.

I was at a dinner sometime in the first quarter, and one of the very senior citizens, when he heard I was at that particular event, he highlighted how much FirstBank has contributed to the growth of Nigeria. And he went on and highlighted a number of businesses that he was aware that without FirstBank they wouldn’t have been where they are today.

Remember when we also spoke about oil and gas, I said our focus in supporting Nigerians that acquired those oil and gas businesses and OML from international companies, was that we were interested in creating a new generation of Nigerian entrepreneurs who are able to help the country with growth. For us at FirstBank, those are the things that are part of the DNA of the institution.

The tenure of Oba Otudeko as Chairman of FBN holdings is expected to end this year, and I’m sure he is most likely to step down, how true is that?

I am not aware that his tenure would end this year and to the best of my knowledge, it is not ending this year. He is the chairman of FBN Holdings Plc and FBN Holdings Plc started off in 2012 and CBN has a 10-year tenure.

To what extent has implementation of the Treasury Single Account policy affected FirstBank and how is the bank coping with the withdrawal of public funds from the system?

I would take you back to my opening remarks where I said this bank is active across the entire business segments. Public sector, which is where we deal with government, was a very important part of our business. In all honesty, the TSA affected us but what we have done strategically is that we have re-allocated resources.

The volume or the amount of resources we previously dedicated to that particular segment of our business has basically been re-allocated to other segments of our business where we are seeing more opportunities in today’s world. Basically, it is just a decision of resource allocation for us.

Can you tell us to what extent you are exposed to non-performing loans (NPL) in the second quarter results?

It is about 20 per cent.

Is that not on the high side?

It is a bit high, but remember where we are coming from. We said we lent more to the oil and gas sector and as the oil and gas sector went down, we had to take impairments. So, what we are going through now is a process of remediation and as we remediate them, we would begin to come out of it.

Recently, there was a court judgement, which made it illegal for power distribution companies and generation companies to implement the new tariff and we know a lot of banks are exposed to the power sector. Would the development not affect your debt recovery drive?

The power sector is a very important sector of the economy. And without the country resolving all the issues around the power sector, our push for economic growth would remain a mirage because you require power to power the economy. It is a sector that is in transition between when it used to be wholly handled by government to now that government is handing over gradually to the private sector.

So what we have seen is that given the significance of the sector on the overall health of the economy, government has been heavily involved in resolving all the issues in that sector and I am certain that we would find a win-win situation for everybody. Again, it is in the overall interest of the economy for that sector to do well. For that sector to do well, there must be capital injection either by way of equity or by way of debt.

And the only way that would happen is if the bankers or the financers are comfortable they would recoup their money. I am aware that government is fully aware of this and they are doing everything possible to ensure that the power sector remains very viable. At this point in time, I am very confident that we are going to find a win-win situation for all the key stakeholders in that particular sector.

Previous administrations also set targets for the power sector which were never met. Do you have confidence that this administration would deliver on this target?

I am very positive. What I have seen is that this administration has been methodical in the way they have been going about their approach to power sector. Equally very important is that this administration recognises the significance of resolving all the issues relating to the power sector. So I have no doubt in my mind that we would find a win-win situation for the key stakeholders of this sector.

Therein lays the opportunity for the economy to grow. Without resolving all those issues, we would not be able to inject the much-needed investments into the power sector. And without those investments in the power sector, we would all continue to use the more inefficient and expensive power generators that we all use today which constitutes drains or wastages within the economy.

Giving the economic situation, has your staff been downsized?

For us at FirstBank, we take decisions relating to resource allocation very seriously. For us, remember when you asked a question around TSA I said it is about resource allocation. For executive management, that is probably one of our most important responsibilities – optimal resource allocation. And for us, that is what we do. How do we optimise all the resources available to us at any particular point in time? Resources relating to finances, human capital, landed property, etc.

So there is no lay-off? Or were there pay cuts?

What I am saying is that we would continue to optimise our resources. A number of people are well trained and they have transferable skills and because they have transferable skills, you can find need for them elsewhere. That is why I said it boils down to resource allocation decision at the end of the day.

Going back to your non-performing loans, I think at 20 per cent, it is still on the high side considering that we have a regulatory threshold of five per cent. What specific steps are you taking to bring it down? Also, with the prolonged slump in commodity prices across the continent, how profitable are your African subsidiaries?

Most of our subsidiaries in other African countries were acquired in 2013, so we basically used that period of 2014-2015 to integrate them fully from the policy process and technology perspective. So today, all our subsidiaries run on Finacle, which is our core banking application. That was what we set out to achieve within the first 18 to 24 month post acquisition. The phase that started in January 2016 is what we call the value realisation phase where we begin to work towards realising what level of returns from those subsidiaries.

So we are managing those subsidiaries actively now and given our expectations in the medium to long term, of the kind of value we expect from them, we have now put an executive in charge of what we call our international banking business, which is essentially managing and coordinating all those international subsidiaries. In the fullness of time, we expect that we would see the right level of returns. But it is the very early days now. Anytime you make an investment, there is what we call the gestation period.

So we are basically at the gestation period and what we expect to see is an upward slopping curve which reflects that overtime, that we would be making more money from those subsidiaries. On the NPL ratio, I mentioned it earlier that as the oil and gas industry comes out of its current downturn it would improve. We are working very hard as a management to ensure that we bring that ratio between a threshold that is acceptable. Like I said, it is a reflection of how integrated we are as a bank to the overall economy of Nigeria. We always lend to the real sector. We set out to ensure that we grow the real sector.

Analysts have predicted another round of consolidation of banks, are you interested in acquiring any bank, more especially, Keystone Bank, which is being offered for sale?

For us at FirstBank, we are always very strategic in whatever we do. Today from what I see, we have the critical mass. Remember I reeled out the statistics. We have the largest branch network, the largest ATM network, largest customer network and a huge presence outside Nigeria. So the value addition from an acquisition may not be that significant for an entity like FirstBank.

Our focus as the new management of FirstBank is how to extract more value from this platform. This is a very formidable platform. So for us, it is about extracting more value for all our key stakeholders, shareholders, staff, and government (by way of tax). It is about deepening financial services that we render, it is about changing the face of what we do. So those are the goals we have set for ourselves.

So, acquisition at this point in time would be more of a distraction. We already run the largest bank. So for us, our task in the short term is well defined. Make this national icon to run more efficiently, strengthen controls, bring in more customers. We have a target to double our customer base. We currently have over 10 million and in the medium term, we want to double our customer base.

For us, those tasks are crucial to what we are doing and we already have the platform. So an acquisition at this point would be a distraction. But for other entities that do not have the economies of scale, acquisition could be a growth strategy for them.

Finally, what targets have you set for yourself in FirstBank?

My goal is to leave a legacy at FirstBank. I want to make this bank not to be the largest bank in Nigeria, but the most profitable bank. I want this bank to be the most respected brand in the market. I also want this bank to be a household name across the continent and to be one of the clear leaders across the continent. For me, those are my goals.