Kie: Branches Not the Future of Banking



Managing Director, Ecobank Nigeria Limited, Mr. Charles Kie, in this interview, spoke about how digitisation is shaping the future of banking. He also spoke about steps by the bank to significantly increase its customer base and improve experience across its alternative banking channels. Chika Amanze-Nwachuku and Obinna Chima present the excerpts:

Can we have an overview of where the bank is headed under your leadership?

During my first interaction with the press, I made it clear that what Ecobank Nigeria was trying to achieve in this market was to reposition itself and become a market leader in the next five years. Being a market leader means having leadership economics, particularly from profitability perspective and ensuring that not only we become one of the most profitable banks in the market, but also that we achieve competitive and level of customer service and also create an environment where our people feel really motivated to work with us. To support that, we designed a strategy last year and one of the key aims of that strategy is also to ensure that we bring innovation into that market. And that innovation in that market translates into ensuring that the digital journey that we embarked on would create an environment that would ease access to financial services and cost of access to financial services to the lowest possible. To demonstrate how serious we are about this agenda, last year, we introduced to the market, a mobile app that has features that almost no other bank in this market had and we have consistently been improving the services on that platform. One of them is the fact that for the first time in the Nigerian market, we are offering the possibility of making payments through QR Code with Masterpass. It is a partnership that we have with MasterCard, which allows payment to be made using the phone as opposed to using cards or point of sales (PoS) terminals. Today, I can claim that we are the only bank through which you can make instant transfers from Nigeria to almost all other countries where Ecobank is present – more than 30 countries in the continent. Digital innovation is where the bank is going and as a group, we have clearly set a target to try and achieve not less than 100 million customers by 2020. For Nigeria, that would translate into not less than 40 million customers and we have designed a clear agenda to achieve that. Obviously, that translates into ensuring that our service to our customers significantly improves. Most importantly, we also create value for our shareholders by ensuring that our cost of operating in this country also comes down significantly. Indeed, that is happening. In less than 18 months, if you look at our financials by the end of June 2017, we have been able to improve our cost-to-income (CIR) from more than 60 per cent, to only 45 per cent. Obviously, it is one of the best in the market. This was achieved on the back of taking a strategic view in terms of our expense management and in making sure that we achieve operational excellence in some key measures that we have taken; one of which was obviously the fact that we had to reduce the number of our branches. But it is important for our customers to understand that reducing the number of branches was precisely designed to improve our services to them and to make sure that instead of going to branches for transactions, they could actually use all our digital channels as a means of transacting, thereby making their lives easy and reducing their cost of transacting within the industry. The other thing that we are doing is to ensure that we have a team that is actually in line with the prospect of growth that we have clearly set for ourselves. That is why we have advertised to call for new graduates, because we are recruiting and we would be recruiting several hundreds of young Nigerians in the next few years. We would train them to be the next generation of leaders in the industry, but more importantly in Ecobank Nigeria, because as we also move into the digital space, the team that would have to face our customers also has to reflect the kind of clientele that we are effectively looking for. Therefore, by bringing the new generation of leaders in your organisation, we would be able to also create a completely different rapport with our customers. To support that, at the end of this month, after a thorough review in our organisation, we would also be promoting not less than 1,000 people. What we are trying to achieve is also to ensure that our staff are motivated and put in positions that reflect the work that they do and that they are given the opportunity to grow within Ecobank Nigeria. That is because we are here to stay and support the Nigerian economy. It is important that as a pan-African bank, we also make it clear that one of our key roles is to support the development of the countries where we operate. So in Nigeria, we think the right thing to do is to have a platform that supports the key industries of the country and that we also have a platform that effectively brings the cost of operating in this country at the lowest level.

In your digitalisation process, how do you think your customers can cope with some of your electronic channels in areas where the brick and mortar branches have been closed down, in the light of the network failures that are rampant in the system?

Let me be very clear on this, there are many channels that we are using to support financial inclusion. So, when we talk about enhancing digitisation of our platforms, what exactly do we mean by that? What do customers go to branches to do typically? They go and deposit money or they go and withdraw money. Today, frankly, why would someone go into a branch to withdraw money or transfer money? That was why ATMs were put together in most places to allow customers to just withdraw without having to go into the branches. Digitisation is not just about the app. Today, you don’t need to have access to internet to transact on your mobile. That is why you have USSD technology that is available and you don’t need to download it. If you use it, you will see that you have access to all the features. We are even going the extra mile because at the moment we are working to make sure that our customers experience exactly the same level of excitement that they have on the app when they use normal phones. I think it is important that in this journey, while we look at what doesn’t work, that we also look at the real innovation and improvements that are being brought into the industry. How many banks can claim that with your phone today you can go to a merchant and pay with just taking a picture of a QR Code? Until recently, we were the only bank. Is that innovation? Yes it is. Does that make the lives of our customers easy? Yes it does. So, these are some of the things that we want to do. Obviously, like in any innovation, there is a learning curve and there are adjustments. We want to make sure that while that adjustment takes place, the customers also continue to enjoy the platform that we have. In the branches that we have and we have kept, obviously in the next few weeks, the customers would see something different because we have decided to significantly improve the kind of fulfilment that they have when they go into our branches, so that even if the digital channels are not available, they can have ease of transacting. But you should know for sure that branches are not the future of banking. Let us be clear about it. Today, you also notice that the banks that are seen to be among the most profitable in the country do not even have 300 branches. Today we have 404, after we tried to close 75. So, we still have a network which is one of the most important in this country. It is important to state that as we create value for our shareholders, we also make sure that our customers enjoy the platforms that we have made available for them, both the physical and digital platforms.

So how do you allay the fears globally that the digitally focused fintechs are most likely to damage the operational model of traditional banks?

That is where partnership comes to play. You must know that the banking industry is actually partnering most of the fintech companies in order to make sure that they come together with solutions. It is not competition. It is obviously disruptive, but it is about building such partnership in such a way that the end user finally enjoys the outcome of what is made available to the market. And that is exactly what we are doing as an organisation.

Has the credit creation appetite of Ecobank Nigeria changed and what should we expect in terms of credit creation going forward?

We would continue to support the economy in the sense that we know today some of the industries require the support of the banking sector. It may not seem to be popular, but I think it is important to state that agriculture is a sector that needs support. Manufacturing is a sector that needs support. The implication of supporting the industries is the significant improvement in the country’s forex reserves. Obviously, capital is scarce and allocating capital to specific industries has to go with the right assessment of the risk that we are taking and the returns that would be generated out of those assets. It is a fact that today, the level of non-performing loans (NPLs) in the industry is quite high and that is because some of the industries with which most of the assets were allocated to in the past suffered some downturns. Today, that is impacting the whole industry and the country as a whole. So, it is not about just saying that the credit appetite would reduce, but it is about making sure that proper allocation is made to the right industries and applying the best economic return assessment to ensure that we create value while doing that.

In your investors’ presentation, you talked about Nigeria being challenging country. So, in what areas are you facing challenges?

It is not secret that this country was in recession and even if they said we slightly got out of recession last quarter, it is still fragile. Forex was an issue for a long time in this market and its availability has also put a lot of pressure on banks. As I mentioned, the NPL in the industry has risen. So, from a Group perspective, when a currency like the naira depreciates, while the Group reports in dollar, there is obviously an impact. It means that for us to deliver the same level of returns to our shareholders, our bank in Nigeria has to do much more from not only revenue perspective, but also from a profitability perspective. So, let me put this conversation into two perspectives – the country and the macro dynamics. As I mentioned, the environment in which we operate today as a bank, because of the forex challenges and the industries that have suffered from the non-availability of forex which is also impacting the ability to produce and the ability for them to meet their obligations, translated into higher NPLs. The cost structure that we have, as you can imagine, can only go up. When you are running on diesel generators the whole day to support your branches to be in operation and knowing well where the oil price is, you can imagine what kind of impact that can have on your earnings. Notwithstanding all of that, as I mentioned, we managed to bring down our CIR to 45 per cent, from 62 per cent the previous year, which is a tremendous achievement. That is from the macro side. On the Ecobank Nigeria side, what we did was to make sure that we restore the fundamentals of sustainable profitability as we move forward. That is why as part of the measures that were taken, there was a resolution vehicle that was created at the end of last year. That resolution vehicle allowed us to move some of our assets to the group and as a consequence, we got some injection of liquidity into the bank and that supported our ability to continue to operate and improve our profitability. And we would continue on that path to ensure that as we close 2017, we are able to deliver on the expectation that the group has set. As you probably know, Ecobank Nigeria represents between 35 and 40 per cent of the Group.

Still talking about NPLs, how is Ecobank Nigeria able to manage its loan portfolio?

Again, when it comes to NPLs, it is a combination of two things – it is a combination of your total loan book and the loans that had been accessed as being damaged. Therefore, your ability to recover some of these loans is critical in ensuring that you bring down the NPLs. And a lot of efforts have been put in ensuring that our customers who are in that position are effectively brought back to the bank through the right conversation as to how they are going to repay some of their loans. It is important that we keep that conversation going because there is no way a bank, not only Ecobank, can survive without ensuring that they effectively recover some of their loans irrespective of whether we are in a recession or not. That is because a recession cannot be used as an excuse not to meet obligations. Obviously, because we continue to support the economy, we would ensure that our loan book also progresses in line with whatever new loans that we are expanding to those sectors that we have mentioned.

Retail banking is one area a lot of your peers are aggressively moving into. What is Ecobank Nigeria doing to withstand competition in that segment of the market?

When it comes to consumer lending, I have made it clear that our target is to have 40 million customers. We have set a target, knowing that today we have approximately seven million customers. That gives you an idea of where we want to go. It now becomes for us, a key driver for anything we are trying to do, particularly when it comes to making sure that the channels for transacting for those 40 million customers have been made available for them. That is where digitisation comes into play. We would not be moving away from that because that is where the industry is going. People would increasingly be transacting on their phones. Without any doubt, today you can sit down anywhere and make transfers. Just two years ago, think of the process you would have to go through to make a simple transfer. That has completely changed. Today, I can take my phone and make transfer, not only in Nigeria, but also abroad. That is where things are going. So, the more you make such products and channels available to consumers, the more obviously you deepen your penetration into the consumer space, thereby achieving the level that we have in mind. Obviously, that doesn’t mean we would be doing it alone. We would be building partnerships. That is where agency banking comes into play because we are not going to do it on our own. We have to build partnership with some agents – those who are closer to the customers, so as to make sure that they distribute our products. We need to make sure that we have the platform to support it and we need to make sure that all of these platforms talk to each other in order to facilitate that transaction base.

What really is the bank doing in agriculture since you said it is one of your focal points?

Obviously, it wouldn’t be appropriate for me to start disclosing the names of my customers. But what I can tell you is that obviously, this is a sector that we are looking at very closely. Again, there is always a lot of conversation around whether commercial banks are the most appropriate to support agriculture. But we have to be mindful of the fact that agriculture is a value chain and there are several steps from growing to selling; and finding the right space in which you can support the value chain is what really matters, so that each of the stakeholders in that value chain plays his role. The government will play its role in ensuring that the environment is made easy enough for agriculture to thrive and create condition for consumption and export to also be made as easy as possible and then to ensure that the logistics around moving products from one point to another is also made easy. So, we have to look into all the value chain so that you don’t just believe that since it is something that has to do with farmers, it is something that nobody wants to touch.

So, what are you doing with SMEs?

On the SMEs, it is exactly the same story. If you take a country like Nigeria, it has a population of about 200 million people. There is no way large corporates alone can support the economy of this country. The backbone of this country is really the SMEs. The mistake not to make is to think that SMEs should be looked into exactly the same way large corporates should be looked into. When you talk about SMEs, the mistake not to make is to bundle them into one segment and think that they all look the same. What we are doing today is that we looked into the segmentation of the SMEs and ensured that we also talk to the right people at the right level. The reason why I am saying this is because there is a large difference between the one man SME business that would be trading by going to China to buy goods to sell and an SME that is part of the value chain support large corporates. There is a wide range of constituencies within that value chain and you cannot look at them the same way.