Dozie: Collateral Registry Will Help Businesses to Unlock Capital

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Uzoma Dozie. Photo: ABIODUN AJALA

The Chief Executive Officer of Diamond Bank Plc, Mr. Uzoma Dozie, is optimistic that the Secured Transactions in Movable Assets Act (otherwise known as National Collateral Registry Act), recently signed into law will make it easy for a lot of micro, small and medium scale enterprises in the country to access capital. Dozie, who  spoke  with Kunle Aderinokun, Chika Amanze-Nwachuku, Obinna Chima and Nume Ekeghe on the sidelines of the just-concluded IMF-World Bank annual meetings in Washington DC, United States, also addressed other pertinent issues in the banking industry and the strides taken by Diamond Bank

 

How did you receive the news that one of your staff was nominated for the position of a deputy governor at the Central Bank of Nigeria?

 I received the news like everybody else. I am not a member of the Board of Governors. But we see this as an honor and it reflects the kind of people we have in Diamond Bank. And as a whole, I think we need younger people to participate in forging Nigeria’s path. In most parts of the world, we see younger people beginning to take part in the realm of affairs. May be not at the top, but certainly in policy making and in driving leadership, weather it is in the public sector or private sector. So, I think this is good for the country and we hope to see more of that in Nigeria.

 

Your peers in the industry are all rushing to the Eurobond market to beef up their capital, is Diamond Bank also considering doing same in the medium term?

Ours is more of capital management and making sure we have the right type of capital to drive our strategy and to ensure that we have enough regulatory capital and buffers in case of shocks in the system. So, if you look at our strategy and where we are going to, which is purely retail, it means that with those big transactions we have been doing in the past, we would not be there. And if we are going to do big transactions, it would be participatory from a syndication perspective. Also, our focus is going to be more on Nigeria than beyond Nigeria’s border. 

When Diamond Bank first started, our philosophy was to be in key financial parts of the world. However this was before the explosion of technology and how we could leverage it. Now, our focus is to be able to provide services to Nigerians regardless of where they are in the world.

So everything is changing. It is more about how we can provide services without any physical linkages. So, we question whether we should be in a location first for us to provide services. Now, we are looking at more partnership and collaboration within banking and financial institutions and mostly with non-financial partners. So, it means that our capital requirements would not be much. I think we have over 300 locations, which is enough. So we would increase our footprint, but it would be through collaboration and partnership. Two good examples are our partnership with MTN where we have 40,000 agents providing Diamond Bank services, so we are using their outlets. The second one is our agency banking model where we also partner with our customers to provide banking services. 

One other thing that absorbs capital is lending – whether it is through loans or through non-performing loans. So in that way, we are also in line to be driving our lending from the retail and small business perspectives, diversifying our portfolio and reducing the risk profile of the organisation. So it means our capital requirement is not going to be much. So the only capital requirement is going to be if we are only operating in only Nigeria, then our capital requirement would not be that of an international bank. It would be that of a national bank. So the question is, what are we raising capital for? So for us it would be to make sure that we meet regulatory requirements.

Does this mean you are closing down your branches outside the country and selling assets?

We are focusing on Nigeria. If anyone is interested in those assets, we would consider it. The good thing about our assets is that they are all profitable. You just need to weigh the offer with the value.

Is there a time frame for you to achieve that?

There is no time frame. Time frame means you are under pressure. So there is no time frame. 

Is there a plan to for this asset sale?

Our plan is very simple, so first of all we are meeting our capital adequacy requirements. You don’t want to be at the edge and you also don’t want to be at the brink because for the fact that you are in a volatile economy means you must have shock absorbers. As Nigeria’s macroeconomic conditions are improving, your capital needs or should I say the buffers you would be needing are reducing. 

We  are in a state where foreign currency liquidity is improving, inflation is going down, reserves are up, oil prices have been stable and also, disruption has been minimal as well. So those are the key indicators that show we are moving in right direction. 

Are Diamond Bank shareholders happy with your strategy?

Our major shareholders understand the strategy Diamond Bank is going towards, which is a retail-led strategy. So it means your returns are not going to be short-term, but long term. So Diamond Bank is a long-term investment and we met their expectations, which is the most important thing. What the shareholders want to see is progress and I know we are not going to get our returns today, but I want to make sure that the retail strategy is working. So  if you look at the indicators – the number of customers that we have and cost of business, you would also see that there are more people using our mobile banking solutions, whether it is smart phones, USSD or Diamond Y’ello. So, we are bringing more customers into our platform. 

We are also trying to make it more attractive by providing customers with our Gemzone’ loyalty point. I believe we are the first that have done this. So we have done a few firsts in the retail space. We are also now working on new innovative ways to lend to customers in the consumer space by using non-traditional information to determine the credibility of people. We are working with different financial parties who have done this in other parts of the world. A typical example of this is that, for most people who want to borrow money, they go to a bank and that alone is a big inconvenience. Why can’t they just initiate a transaction just like you initiate a payment? So these are the things we are going to be offering customers. So it means that instead going to a branch to borrow which sometimes come with that cultural stigma that one is going to borrow. So, it means that regardless of where you are and what time it is, do it yourself at your convenience. You can make a request and it is also interactive so it would tell you what your expectations are. So, there is full transparency. Part of the problem when you are dealing with human beings is that you might go to bank A, and they would tell you something different from what bank B told you, Whereas they are talking about same products. But with this system, it gives us information on why the customer wants to borrow and also tells the customer on time if the loan is approved. That is beauty about data. For example, you offer something to a customer and then they are using it for something else, but with this you can monitor it enables you to improve on your solutions. One classic one is USSD. What we found about data is that although we were deploying ATMs in certain areas, customers now prefer to use USSD for certain transactions. So we are beginning to see a shift from ATM to USSD transaction simply because of convenience. So those are the things our investors what to see. We have more international partners and people who are collaborating with us. For example, we were the third bank MTN attempted to do something on the mobile space and we are successful. 

I am also on the board of Women’s World Banking. So that is the acceptance of our bank because I am the only person on that board in Nigeria. Also, they believe in our agenda and financial inclusion drive. All those things reflect in our results and also where we are going to. And even from a balance sheet perspective, 70 per cent of our fees is today coming from retail-driven transactions. Five years ago, it was corporate and trade-related activities. But since the drop in foreign currency our trade income dropped, that has been replaced by consumer transactions. So we know that the more consumers we have, the more we would put more solutions on the platform and with more diversity of our income. 

Talking about balance sheets, the issue of NPL for the energy sector is a cause for concern for banks. What is Diamond Bank doing to reduce the level of its non-performing loans?

Of course, we are worried. No man is an island and so you want a strong financial system. Nigeria is a very big country with huge financial needs. I would tell you that although we are 25 banks, there is certainly more room for more players, especially when you consider that it is only 30 per cent of Nigeria that is banked. We still have about 18 million small businesses that are not banked. You also have a market that has not been developed to provide more products and solutions for customers. So you do not want any loss of confidence in the system. Loss of confidence is probably a bank going down and when that happens they would start wondering if other banks would go down. So, for us, financial stability is key.

 From the energy perspective, the concern is the ability of cash flows to payback the loans that had been extended. Firstly, oil price have improved and production has improved as well. So it means that the cash flows are coming back in. And it is reflected in the capital market as well. So  a certain level of confidence is actually coming back. I think it is not the ability to pay that is the issue, the issue is, if they would be able to pay back over a period of time. I think we have seen almost a full year of stability and if we see another year there would be more optimism. There are more rigs going into the field, which is also a reflection of confidence in the market.

There is so much focus on the agriculture, how is Diamond Bank playing in that sector?

There are three anchor borrowers’ programmes in different parts of the country that we are participating in. So, we are going through the process of making sure the governance is right. It is a retail area, so we are interested in it. It is an area where the government and the central bank is focused on. So it means that, if one plays in there, the risk is shared. From a consumption perspective, it is about 20 per cent of GDP, so it is an area where the more data and information we have, the more we would lend in that space. From the last time that we spoke, I think we had close to half a billion naira that we are processing in that space. And that N500 million is going to affect over 300 hundred farmers. We are moving from an era where N500 million would probably go to one person to giving that to over 300 people. You can imagine the multiplier effect. Agriculture would also deal with the unemployment problem in Nigeria. We would also be seeing a shift from people moving from the urban areas to rural where we would a certainty of jobs. So, agriculture is an important area for Nigeria and would also be an important area for financial institutions. We are also working together to try and create an enabling environment as well as the road  to markets. So it is not just about planting and production. It is about making sure there is transportation, so that the cost to take it to the market is much lower and also price stability as well and storage unit so that you can be selling all-year round. So all these things are beyond banking. So, we need to also collaborate with the different stakeholders to really accelerate the agricultural aspiration of Nigeria. 

Are you going to lend to the whole value chain?

Of course, we lend to everybody. So we lend to farmers, we lend to people who are in the transportation segment area. In processing, there is lower risk. You have gotten the raw materials, input and then you are selling. So the higher you go up the value chain, the lower the risk. When you are processing you already have the end market. So, it is a premium. So it is when you are harvesting cocoa to sell that is when you have a huge risk. But when you begin to go into refining the cocoa then the risk is much lower. 

Since a bank like you is focusing on agriculture, does it mean banks are now changing their business model?

I can only speak for Diamond Bank. We changed our focus about five years ago, at the time of my predecessor. But we started executing when I became the managing director and we took a stand and said this was what we were going to do. We knew these were areas we were going to be playing in and we wanted to invest and develop these markets and this isn’t going to be a side business, but the core business of Diamond Bank. So these are the things we would be doing. If you look at the areas in small businesses where we are focusing on, it is education and healthcare which are  as important as agriculture.  Without those two, you cannot have a viable agricultural sector. So those three work hand in hand so it is also focusing even on gender. So it is health, education and women, because they are the core foundation of any society.

What can you tell us about the national collateral registry and have your customers started taking advantage of it?

I think it is a good idea. Collateral registry would help unlock capital. We have people who have capital that are locked and they cannot use them to drive their business especially because for banks, you cannot lend without some collateral. Secondly, if you could lend without collateral, which we are going to do, I think you would need the person’s commitment.   And thirdly, I hope we are not going to be fixed on collateral because our philosophy in Diamond Bank is that, yes collateral is a second way out, but the first way out is a primary cash flow. If your cash flow cannot support your business, I don’t care about the collateral. 

So the collateral registry is actually customer-centric. It is to help people use their assets in a cost-effective manner to borrow. And the fact that they have assets that they have placed down, it shows their commitment and their level of seriousness. I think it is a fantastic innovation and also help discipline and enhance credit culture. So it is definitely welcomed. We have over 50,000 on that register right now. So it is a mandate for every loan. We started compiling that about a year ago. It is not perfect yet but we are still on course. It is like a new house, where you have to move into first then you would see where the problems are. This is going to play a big role in financing small businesses in the future.

 Are there any new innovations your bank is doing to enhance financial inclusion and what should we expect in technology space?

Our innovations are to enable our customers do everything by themselves. So we are taking banking out of banking halls. So our innovations are coming from the mobile perspective. We would do a lot of work with fintechs by providing payment solutions for our customers. Where we are going to is a place where we are not carrying cards and no point of sale (PoS) requirement. So it is either mobile to mobile payments or USSD, QR codes. So we are doing a lot of work in that space. We have some customers in that space who don’t want cash because of the inconvenience of cash. So we are taking electronic payments seriously. So that is where we going to in the payment space. On the small business space, one innovation for us is going to be in the area of financial education. To bring all these together, we would announce that in January next year, we are going to have a one-day tech conference called ‘techfrence’. And the whole idea is to bring fintechs and businesses together so that we can create that market that connects our customers with solutions and technology that would help them drive their businesses. 

I was watching the Tony Elumelu Foundation where they were actually talking to entrepreneurs and most of the conversation was on those education people take for granted. It is not all about the money, it is about enhancing and using the new social media to market and create awareness. It is about those cost-effective things that would put you on a global map.  So for us, innovation is continuous. We have moved from products to solutions so I can’t tell you that we want great products tomorrow. I am going to tell you that we are coming out with ways to make life easier for our customers. So I no longer care of share of wallet anymore, I care of share of life. So I am looking at how to collaborate with company A,B and C to play a bigger role in your life not just in your financial life. That is why banking is changing now and that is why we are now playing a bigger role in the market. 

There is a growing fear that Fintechs would take over traditional banking. What is your position on this?

Most new generation banks in Nigeria are actually fintech-driven. So when Diamond Bank started, we started with technology. So if you look at the new generation banks around 1991 era, with western banks that have legacy systems, you see that their type of banking was old. To give you an example, when I left the UK in 1991 and came back to Nigeria, while I was in London, they had PoS terminals, cards and ATMs. In Nigeria, we didn’t have ATMs then and then I went back to cheque books and savings booklets. But 20 years later, our mobile banking is the best. We don’t need even debit cards as they have become inconvenience because you have to remember to carry them. With e-payments, if you want your money, I can send it to you immediately. The only way you can do that in the UK without incurring additional cost is with cash. So our banking has actually evolved and we can even do much more. We have done that by collaboration with fintechs. 

When people talk about fintech taking over banks, I don’t know how that is going to happen. First of all, banking is about trust. So if a fintech is going to take over my business first of all what of all the regulations, Know-Your-Customer (KYC), anti money laundering and all that has to be put in place, who is going to be the regulator and where is the legislation and how many are you going to change? I am talking about the Nigerian context. The common man, is he going to leave his life savings with the fin-techs? So that will take a while. So for me the solutions we have to provide must meet the needs of the man in the village. And for us in retail banking, one of the biggest costs is convincing people that electronic payment is safer than cash payment. So if Diamond Bank is the only bank in the retail space doing that, do you know how much money I’m going to spend on financial literacy? Nigeria has 25 banks with 180 million people. The market in Nigeria is very big and to cover that market, you need more players who believe that it is the future before you start talking about fintechs taking over the banking space. Our Diamond Y’ello platform came about by a fintech company. Our app solution where we take banking to is also fintech-driven.

What do you say about the award given to the CBN Governor by Forbes?

The award was deserving. Firstly, where we were two years ago and where we are now deserves an award. We are still all here and the banking system is still very vibrant. We are seeing capital inflows and in the last three months, what we have seen is probably more than what we have seen in the past two or three years. He has steered the ship in the right direction and we have all flown through a storm or a hurricane. I don’t need to say much because we are still here. I think it is great !