In this interview with James Emejo, Chief Executive Officer, Stanbic IBTC Holdings Plc, Mrs. Sola David-Borha, restates the bank’s determination to boost Nigeria’s economic development by supporting local start-up enterprises. She also discusses developments in the macroeconomic environment and other pertinent issues in the economy
There have been talks about interventions to create jobs particularly for the young ones and it has been estimated that the 15-25 years bracket are either unemployed or underemployed. Now the intervention of banks is very important. What is your bank doing in that direction to help the youth employment situation in the country?
We are doing a number of things, which include capacity building because up-skilling the young people is very important, training is very important. Developing their capacity enables the younger entrepreneurs to get a better understanding of how to manage their business and ultimately if you lend to those businesses, they have a better chance of surviving and paying you back. So capacity building is a critical aspect of it.
Also we find that the big companies help the smaller companies to survive. We need everybody in that value chain because everybody has a role to play. And we find that as lenders if you have a big company that is utilising the goods and services of smaller companies around them, it guarantees the smaller companies buyers so they have a market, they get support and they have a working capital cycle that is more manageable.
So, that whole ecosystem of both the big and small players is much easier to lend to, rather than lending to one small person that is isolated and with the slightest problem he just goes under. Those are the kind of things we encourage. We encourage small companies to try and get into an ecosystem of a larger one. We provide them with capacity building and we give the appropriate kind of financing.
You know it’s very important that when you are looking for a loan, depending on what that loan is for, you must make sure you get the right type of financing for that loan. If it’s a project that has a very long gestation period, you shouldn’t take a short-term loan that you have to pay back in one year. So, linking investors to such opportunities is part of the work that we do as well.
The worry of most people is that the kind of conditions that banks give to the small investors is always very scary. Is there any special arrangement that your bank has to be different from other banks in terms of collaterals that you require from small investors?
We have tried a lot of things over the years because we are committed to the SME sector and we think that the SME sector is a segment that is going to drive growth in this country. The bulk of Nigerians are involved in that sector. We have tried several things.
At a point we had unsecured loans that we gave out, but we found out that that didn’t work as well. Beneficiaries don’t pay back since it’s an unsecured loan. It’s best to put in place a structure that provides the support and also hold them accountable. And like you know, it’s not so honourable that they can’t provide what is required.
That ecosystem principle is very important for cooperatives where you have a group of people who come together, so one person can’t just decide I am not doing it again, there is pressure from the peers to behave correctly. You are also able to review the risk of the whole and typically cooperatives have a better bargaining power than even larger entities. So, those are some of the ways by which we try and address the challenges the SMEs face, but it’s also good to put them in a model that helps them as well as make them accountable and responsible.
It is on record that Stanbic IBTC gave lease of life to some major projects in the country, like Dangote Refinery, Lekki-Epe Expressway amongst others. In simple terms, what is your organisation doing in terms of support for manufacturing and the real sector?
If you look at the GDP of this country, Nigeria has over 40 economic sectors. Manufacturing currently comprises less than 15 per cent of the total GDP. Agriculture is about 22 per cent. Then you have the Services, ICT and Energy under 10 per cent. In terms of the sectors that we focus on, it’s those sectors that we believe will help to improve the productive base of the economy. And those sectors are infrastructure, agriculture, oil and gas and power.
We are also very active with the FMCGs; those are the consumer goods, given the large size of our population. We provide a whole range of services to them: financing, short, medium, and long term financing. We are also very active in raising capital, whether equity capital or debt capital. We have strong links with investors, both domestic and foreign investors.
We have a very strong advisory team that helps in terms of restructuring businesses or investors who are looking at acquiring companies locally or if companies are coming to merge together, we provide a lot of support in that area. We see ourselves to be financial solution providers. We are not just bankers that come and give you money. We want to understand what it is you are doing, strategically where are you trying to take your company to and then to make sure that we find the right solution for your company’s needs and then we help you to achieve your goals.
Looking at agriculturists and other agro-allied operators, what do they need to come around to get what they want? Most of them are peasant farmers who have some acres of land. What exactly do you advise them to do? Do you encourage clusters? What do they need in order to come and access loans?
Agriculture is a sector that has faced lots of challenges especially in terms of financing but a lot of progress has been made over the past five years. Essentially, with the introduction of NIRSAL (Nigeria Incentive-Based Risk Sharing Model for Agricultural Financing), which is a risk-sharing model for lending to the agricultural sector; you have found that banks are now more prepared to lend.
We are also involved in supporting the agricultural sector. A single subsistence farmer operating on his own is going to find it very difficult to get financing. That farmer has to get into a group, a cluster group of cooperatives or an out-growers scheme and then you find out that it’s then easier to support that farmer and we have done that. We have lent on out-growers schemes, we have lent to cooperatives, among others.
What’s the ratio? Can you give us the quantum of those who you have lent to, in terms of cooperatives?
It’s across the country that we work with these cooperatives. I’m not going to tell you x number, but it’s something that we continue to actively focus on. And it’s across all the main crops whether it’s rice, millet, cassava. Also we believe that focusing on the export products as well in terms on cashew, and cocoa, is important. Exports particularly because of the positive impact it has on generating foreign currency. Agriculture, we think is a growing sector. It grew by 4.5 per cent in the last quarter; we believe that that growth is sustainable and that Stanbic IBTC is keen to be part of the growth.
PPP has been with us for quite some time but are you comfortable with the legal framework? What do you think should be done differently by this administration to get it to work?
PPP (public private partnership) is right in the middle of what the NESG is about; the public and private sectors coming together. And given the billions of dollars that are required to fund infrastructural development, government is not capable of doing it by itself. There is a semblance of a legal framework in place. It’s clear that at the state government levels, some states are still yet to pass their PPP laws. And, what sometimes is even more important is actually the implementation of the law and what happens across the life of different governments.
Because the projects typically are long term, they can span 12 years plus and the risk we see many times is when the government that initiated that project is different from a new one that comes in and the commitment of that new government to keep to the terms that were agreed with the previous one. Financiers and investors invested in the project based on those terms.
So once there is any change of any sort, it almost triggers an event of default which then affects whether the project can be completed in some cases or continued. So I think to help encourage more PPPs, there has to be an education about PPPs in general both in the public and private sectors as to what financiers are looking for, the risks of policy changes that affect PPP projects so that there is just more awareness around it and if the political will to ensure PPPs are protected from many of the vagaries of changes in government you will find that you will see more successful PPPs.
I stand to be corrected but I believe the Lekki toll road is the first PPP that this country has had. It’s seen its own challenges as well and in fact we are hoping that that model can be replicated on other roads in the country and even bridges as well.
We are talking about infrastructure, which is very important to the development of the economy. One aspect that is lacking right now is the level of electricity that we need to get things going. How much involvement in the development of the power sector is Stanbic IBTC?
We have been involved in the power sector. We are involved in two of the assets in the distribution space during the past privatization exercise. It’s a very challenging sector given some of the changes in the tariffs. For instance, a party has taken the government to court on whether there should be a tariff increase and those tariffs were the basis by which investors came in. So, it’s a challenged sector. But despite these challenges, I believe that there’s still hope to the extent that it’s a sector that is very much needed, everybody requires power.
We believe that the fact that those power sectors are now owned by the private sector gives them the capacity to raise capital, should they require, bring in new investors, and borrow so that they can buy the much-needed equipment. It’s a long-term game, but the expectation will be that in 10-15 years, if the right investments are done in this sector, we will see that translate to an improved power supply.
We partnered with GE (General Electric) to run an embedded distributed power solution across the country, where Stanbic IBTC and GE in Nigeria and Standard Bank and GE across Africa, will basically help to put up embedded power plants across the country. We continue to work on that project and we believe that that will also support the efforts of our country to improve power supply.
Most banks have been struggling with the issue of bad loans, AMCON’s intervention and all that. How have you been able to survive such?
There is an economic recession and you find that companies find it more difficult to repay loans. For consumers, if you haven’t been paid salaries, you are unable to service your loans. So, it is an outcome of the recession and the non-performing loans across the industry have gone up. Having said so, I believe that banks are doing their best to manage the situation. We believe from our own perspective that the worst is over and we continue to look for new opportunities, particularly in growing sectors where we can mentor.
How do you think Stanbic IBTC has remained relevant and a step ahead of what is becoming an intensive and competitive environment?
We are very unique in a number of respects. First of all, we are not only a bank. We are a financial services organisation that runs across asset management, wealth creation, we have a trustees business, we have a stockbroking business, we help raise capital, both debt and equity capital, we are the largest pension funds administrators in the country with over a trillion naira in pension assets. So, that makes us unique in that we provide a full range of financial services, including insurance. We have an insurance brokerage business.
With this diversified financial services offering, we believe we are able to provide a full range of financial services to our clients. So, they don’t only come to us to borrow money, we provide advice to them, we help them manage their assets and also manage their pensions, even all the way to retirement. We call it cradle to grave – an entire lifetime of financial services.
In addition, we are the only international bank because we are a member of the Standard Bank Group, a 153-year-old organisation with a presence in over 20 countries in Africa as well as various countries across the world; we have a presence in New York, in Sao Paulo, in London, etc. We are the only international bank with a full-service offering in Nigeria. We are in every state in Nigeria. Most international banks are providing a narrow set of services, primarily to corporates. We are a full-service on-ground international institution.
The third thing that distinguishes us is the fact that the Standard Bank Group has a strategic partnership with ICBC, which is the largest bank in the world, it is a Chinese bank. ICBC owns 20 per cent of Standard Bank. Therefore, in terms of the partnership between Chinese businesses and Africa, we are able to help them in terms of their own growth plans in Nigeria. We work with them, and in the process help to strengthen China-Nigeria business ties. It is possible using the Renminbi, for instance, as a trade currency to encourage either Nigerian businesses doing business in China or vice versa to use alternative trade instruments. So, we believe that essentially differentiates us from the other financial institutions in Nigeria. Our diversified business model also enables us to better withstand the headwinds that are coming through because we are not just focused on banking, we have a much wider remit and that enables us to build a much more sustainable business in the long term.
What do you think the regulatory agencies should do next to encourage the financial services sector? Are you comfortable with the policies and some other things that they do?
Globally, the regulatory environment has been much more intense and regulation is important for any industry or sector. The most important thing is that the regulator should be firm and fair because regulation is important especially when you have free markets operating. The regulator needs to step in when required, but then should not hinder the free flow of business.
Are you comfortable with what is operational in Nigeria?
For everything, it can improve. There is nothing you can’t improve upon. Given the fact that Nigeria is in a recession right now, it is important that regulators work with business to ensure that we all come out of that recession faster and sooner. If you come down too heavy, you can actually destroy the business. I think the most important thing is to ensure that the regulators focus on ensuring that business is done properly and not in a way that hinders the business.
There was an alarm raised by the House of Representatives recently about the health of Nigerian banks. How true?
All I can say is that we are in good health and we are adequately capitalised and our liquidity ratio is well above the regulatory threshold. Our rating was recently reaffirmed as Triple A. We want to assure everyone that Stanbic IBTC is an organisation that they can continue to do business with.
What is your impression about the recent 2016 Nigeria Economic Summit which had the theme Made in Nigeria?
The Nigerian Economic Summit Group, as you may be aware, is the leading platform for public sector and private sector engagement. The theme, Made in Nigeria, is particularly important at this time when the economy is in a recession. This is not the first time that Made in Nigeria has been promoted or discussed but you find out that during crisis people are more attentive. We now have a better understanding of why it is much better to use local goods and services because that ultimately helps to achieve an improvement in productive capacity in the economy.
Essentially, our message is to tell both domestic and foreign investors that Nigeria is still an economy with great opportunities. The current challenges, which is primarily driven by the commodity price drop and subsequent foreign exchange scarcity, is temporary, it is a business cycle and that hopefully if we do the right things in terms of our policy direction and also working together with the government such that we support their efforts to promote an enabling environment, that will then attract investors to come into the country and invest in various sectors. This ultimately will lead to a private sector-driven growth.
We believe an important aspect of achieving this is to ensure that the financial markets are transparent, are liquid and the prices at which goods and services are obtained are done at an optimal one. So, whether you are selling your foreign exchange or it’s the money market or the equity market it is at your market rate and on the back of a properly functioning financial markets you will find that capital is attracted and that capital will then drive the growth that we so desire.
From the outcomes of the summit, are you comfortable with the coherence between the fiscal and monetary policies? Could that actually achieve the purpose for the summit ?
It is very important that there is alignment between fiscal policy and monetary policy and given where our inflation rate is now, inflation has to be tamed. That has to be the priority and in the short-term, it does mean that interest rates will still remain fairly high but strategically the longer-term direction when inflation starts coming down is for interest rates to also come down. In the meantime, there are a number of other things that can be done to support the overall objective of stimulating growth in the economy. One of the keynote speakers, Dr. Doyin Salami, pointed out that if we look at the four main drivers that impact our economy – the global trend, which we don’t control, international trade, commodity prices, which we also don’t control, and our expectations in the short to medium term is that oil prices is not going to rise significantly.
The fourth aspect is our own policies that we implement. Of the four things the only thing that we can control is our policies. Therefore, it’s very important that we put in place the right policies and that we are consistent in implementing them. What investors look for is that policy consistency. They are very nervous when policies change because it means they can’t manage that risk. They can manage the risk of a drop in oil price. So our policy response, what we do, making sure that essentially we regain the confidence of investors in this market has to be the priority.
Where do you see Stanbic IBTC in the next few years under your leadership?
Stanbic IBTC as a financial services organisation is an organisation that is a leading end-end financial solutions provider in Nigeria. We want to continue to support our customers in achieving their dreams. We are committed to driving the growth of our clients. We are committed to ensuring that investors are attracted to the economy and committed to seeing that the Nigerian economy grows and develops to its full potential. We believe that we have the skill and capabilities, the experience and the passion to ensure that Stanbic IBTC supports the Nigerian economy as it continues to grow.