Dozie: Nigerian Banks Have Built Buffers to Absorb Shocks



Diamond Bank Plc recently attained a new level in its digital banking drive with the signing up of two million subscribers on its mobile banking app – Diamond Mobile app, and its Diamond Y’ello account. In this interview with Chika Amanze-Nwachuku and Obinna Chima, the bank’s Chief Executive Officer, Mr. Uzoma Dozie spoke on the bank’s aggressive drive for digital banking and how it is changing the lifestyles of its customers. Dozie also doused concerns about the health of Diamond Bank and other commercial banks, insisting that the banking system has built buffers to absorb any shocks. Excerpts:

One of the challenges with mobile banking is discoverability. Today, most people still don’t know that they can use their phones to do a lot of transactions, especially those residing in the rural areas. What are banks doing to push the awareness for such?

People have been using their phones for transactions for a very long time. If you look at today, Diamond Bank has seven million customers. But two million out of that are using mobile apps or mobile channels to do their transactions. That is close to 40 per cent of our customer base. That is quite high for a supposedly country where a lot of people don’t know how to use smart phones. Then, when you understand that only 20 per cent of our transactions are done through the branches because everybody has to use their cards, it means that, that discoverability is actually happening. Now, in the rural areas, what have we done; we have gone into partnership with MTN to come up with the Diamond Y’ello, through which one can open a bank account in less than a minute. Again, one of the things that the Bankers’ Committee decided for this year is awareness on mobile payments, especially on its benefits. So, the drive for cash-less banking is going to be enhanced by the Bankers’ Committee as well as policies that would encourage people to use mobile payments. So, that missing link whereby one or two banks would be promoting mobile banking would no longer be there. That is because the whole financial industry agreed, because we know the benefits from a cost perspective as well as to bring everyone into the banking industry. More importantly, it would bring about reduction in operation risk. So, by this time next year, there would be a huge difference in discoverability as more people get used to mobile banking. For us, it is even great because if we can increase the pool of customers available, then competition would drive who would take market share. We have made great in-road because it is as if we have first mover advantage when it comes to bringing new customers to the banking industry and by giving them better ways to do their transactions. In the last two years, we have acquired more customers than most banks have.

But there are lots of complaints about mobile banking by most customers, especially with regards to text alerts, which are one of the most important mobile banking features. What are you doing to address some of these issues?

When people say most customers, I have two million people that do transactions in Diamond Bank on our mobile banking platforms and get alert. The level of complaint is very minimal, so we can’t use the word ‘most.’ But those complaints are important to us. Even if it is one person that has issues on our mobile banking platform, we want to make sure we take care of that. There are some things that are not in our control. For instance, SMS alert is a network thing. But we also give customers different methods to check their details. When you make fund transfer and you don’t get the alert, there are ways to check your balance. Now, we have added USSD to it, you can go to your ATM to check your balance, and many other ways that you can check that were not there before SMS notification. Don’t forget, in the past what we had was that I would issue a cheque and I won’t know when you will draw the cheque and there used to be a lot of uncertainties associated with that. We have removed a lot of uncertainties from the banking system, but a lot of people may not remember. I like to always remember where we are coming from. Yes, there are still some levels of uncertainties, but certainly not like before whereby until you see the money hit your account or until you go to the banking hall to check your account balance, but as an industry, we have removed all that.

So what is the future of traditional banking, especially as some banks are still busy setting up new branches all over the places?

We have stopped. Diamond Bank has stopped building branches. In the last two years, I have built only three branches and that was probably as a result of relocation of the branch or if the market moves, you move that branch out of that location and replace it. But our outlets have increased because we now have sales agents and we have agency banking. So, there is no need to build branches. We have enough branches to take care of the needs of those in the metropolis and you cannot use that same model in the new places you are going to. You have to come up with a new model, which is agency banking. These are people that already have established businesses that you partner with. It takes banking closer to the people. It also links the bank to the market people. You cannot go and build one big branch where the transaction level is low because you will be wasting shareholders’ funds.

So for rural communities in states such as Ekiti, Edo, Imo and several others, how are you banking the people there, because your agency banking network is still not wide?

Agency banking started about two years ago in this country. And if you look at the regulations surrounding agency banking, there are certain criteria that you must fulfil. So, first of all, what did we do? We had to come up with a banking application for it. We built and customised it with the design we had in mind because agency banking is different. Secondly, you have to get the agents which must be established businesses that must meet the stipulated criteria. Thirdly, you have to train. But before you do that, you test the product you are offering. So, it is not something that you just deploy nationwide. So, we have started, but it is going to take some time for it to go round. In the meantime, we have 50,000 Diamond Y’ello agents. So, anywhere we have MTN agents, they are actually fulfilling people’s banking transactions if they have Diamond Bank account. Diamond Y’ello is not like Mpesa in Kenya which is all about mobile money because in Nigeria, mobile money is restricted. With Diamond Y’ello, which is a full digital financial service, it is a savings account. You can open it in less than two minutes, you can receive money from any bank in Nigeria and you can transfer money to anybody in any bank in Nigeria immediately. That is the benefit of it all. But we also need government policies that support all those innovation. Cash transactions are very expensive for stakeholders in the financial sector, the regulators, the banks and other players. The cost of cash even to businesses is very high. All you have to do is to look at the checks and balances that people would put in their business because of cash. If they don’t trust the teller, they would employ security men to be monitoring the teller and also employ another set of person (s) to be taking stock. Imagine when you pay in electronically. If you pay electronically, wherever you are, you can see what is happening. Just like SMS notification, once there is a transaction on that account, you get an alert. For example, my son is schooling abroad, he has a Diamond Bank account. He is 14 years old. I gave him a card. Every time he does a transaction, I see the notification. I can even tell the location he is from the notification I get. It is also a way of monitoring people’s spending habit. But in my own case, because I also schooled abroad, they used to give me cash and nobody would know how I spent it. But today, I can monitor their spending pattern. As a bank, it helps us in data analyses. It can tell the profile of your customers, the things they like and those they don’t like. So, these are some of the benefits of digital banking and we believe that it is going to change our lifestyles positively. There is banking service and we also have customer experience. Banking service is just about cash withdrawal. So, we try to find out what actually you want to do with the cash so that you can do it in convenient and more efficient ways. Imagine, 30 years ago, if you listen to a song and you like it, you will try to find out who sang that song. Once you find out, you take the pain to go to a record store to look for it; you find the record, pay for it and go home to play it. But today, if there is a song you like, you can get the link to itunes store, you pay for it and you start consuming it immediately. That is digital and that is what we are doing.

But there is still scepticism surrounding digital banking because of privacy, risk of compromising sensitive data and others. What will you say to such people?

I always laugh when people say that. Most people who even say that are already in digital. If you are on wattsapp, you have already compromised security because somebody already has your information. That is a digital means of communication. People’s information ready on the cloud. For example, if I have a piece of paper in my drawer, I may not know how many people would read it. If people accessed it, I won’t know those that accessed it and I may never find out those that accessed it. But if I have it on my system with all my firewalls, if somebody accesses, I can see the trail of when, how and the time. So, it is part of that education, which the Bankers’ Committee is going to spend a lot of resources doing. The world is riskier, but we just have to remember what it used to be before. So, instead of attacking bullion vans now, people are attacking systems. But that risk has always been there.

There have been lots of concerns about the banking industry as a result of the naira depreciation and drop in crude oil prices. We would like to find out how prepared is Diamond Bank to withstand any shock in the industry?

First of all, we are an international systemically important bank (SIB), so our Capital Adequacy Ratio (CAR) has to be above 15 per cent. We are in an economy that is deteriorating and if things do not improve, good businesses would suffer. That poses a threat to the banking industry and the country as well. So, in Nigeria, 15 per cent CAR is one of the highest in the world. Liquidity ratio at 30 per cent is very high and Cash Reserve Requirement (CRR) is very high as well. So the banking system has built buffers to absorb any shock. I also believe that the central bank is aware of these buffers and they can unlock them when necessary. When you talk about CAR, the best banks in the world have CAR of about eight per cent, but Nigerian banks have twice of that. Secondly, part of the issues that affected the industry was a result of the devaluation of the naira. We did not increase the risk of our business; the banks were just exposed to the devaluation. So, there are many levers that can be pulled by the central bank. We can look at reducing the CAR. But beyond that, the most important thing is making sure that the bank is above the prescribed capital adequacy level and ensures that you avoid things that would be a drag on your capital and ensure you don’t lose money. We also have a situation where there is lack of foreign exchange for businesses to get raw materials. So, it means that for the banks, we have to be looking at new markets that do not require foreign exchange, but can generate income. Sometimes it is not how much you are losing, but how much you are making to recover your losses. If you look at Diamond Bank’s operating income in the last two years, despite the challenges, our top line has been increasing, our deposit base has been increasing and the number of our customers has been increasing. We are becoming more liquid because of our retail strategy. If you look at the cost over the last two years, our cost has been flat or even declining. Despite the subsidy removal, devaluation of the currency with foreign exchange being about 30 per cent of our cost, despite inflation at 18 per cent, what is driving all these? What is driving it is digital. What is driving it is our customers saying they are moving from branch to digital banking. Every time they do that, the cost of serving them is a fraction of what would been spent going to the branch. It also means that if I can only do 100 transactions in the branch which I can generate fees from, I can do one million transactions in that same time through digital platform without cost. So, I believe that the deterioration in oil price and production level is an opportunity for us to look at how to leverage on the numerous opportunities in this country. We can see that with what is happening in the agriculture sector. Despite the fact that we had a decline in the national Gross Domestic Product (GDP), the agriculture sector grew by four per cent. So, we need to take advantage of these.

Is Diamond Bank raising fresh capital?

We are always in the business of raising fresh capital. We are a bank. We are always looking for capital that best suits our requirement. If a capital deal that is cost effective appears, whether it is naira or Eurobond, we would definitely look at it. So, we are definitely making sure that we always have two things: the liquidity to meet our obligation and capital to absorb shocks that may arise in the economy. In a volatile economy such as ours, it makes sense to always be on the lookout for capital deals.

What is the level of Diamond Bank’s investment in the agriculture sector?

We have an agriculture team and we have customers in different spectrum in the sector. We are also beginning to work with people who are aggregating farmers and we have recorded successes in some of these. Again, we are working with our customers in this space to see how we can move agriculture from a cash-based system to a digital system. It is a journey that we have started and we are ensuring that we understand the sector more so that we can add value.