Somefun: Unity Bank Was Weighed Down by Legacy Debts

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The Managing Director/Chief Executive Officer of Unity Bank Plc, Mrs. Oluwatomi Somefun, in this interview, speaks on the challenges that over the years hindered the performance of the bank as well as latest efforts to inject fresh capital into the financial institution. Obinna Chima provides the excerpts:  

Unity Bank has over the years performed below its peers in the industry. Can you explain some of the factors responsible for this?

Let me just give a brief background of the bank and some of the things we have been doing because it is nice to put things in proper perspective. Unity Bank is a product of a merger of nine legacy banks that came together in 2006 and the biggest in that merger was the old Bank of the North. Some others were NNP, First Interstate Bank and Intercity Bank, other. I would like to say that I wasn’t part of the management then. Perhaps, something should have been done correctly or differently because, at the time of the merger, there was an opportunity to sell-off a lot of the legacy loans.  We would imagine that each of the nine banks had their fair share of baggage of non-performing loans (NPLs) and all kinds of things that will happen in a merger. We have seen mergers in this country, we know of the merger between United Bank for Africa (UBA) and Standard Trust Bank (STB). I was part of that merger I know how long it took us to integrate and I believe even right now the integration continues, it never ends in the life of an organisation. We have other mergers and acquisitions and you can imagine between two to three entities, the share amount of work and the share amount of issues that arise and compare it with the amount of work and the amount of issue that will arise from the merger of nine banks who were operating on their own. So that was what gave birth to Unity Bank, it gives you a good background of what the bank was. Had it been things were done differently then, there was an opportunity to sell the bad loans to the Asset Management Corporation of Nigeria (AMCON), maybe because of the merger, this was not done. I think Unity Bank sold only less than N10 billion of bad loans. So, the NPLs lived with the new entity. Up on till last year, Unity Bank had the highest NPLs in Nigeria. At least we could say we were number one in that aspect. At some point, we had 98 per cent of NPLs and I don’t think any bank had up to that. Now when we came on board in 2015, when you have huge NPLs and at the same time you are still accruing interest and charges over the years, you are just spoiling your loan book. That is because, even the principal is not performing and you keep on accumulating interest and charges.

In 2015, when we took over, we decided to be truthful to ourselves because we cannot continue to accumulate interest on loans that are not performing. If you look at 2014 and 2015, there was a huge decline in bank’s revenue. That was because we decided not to earn interest on loans that were not performing. So, we stopped that and if you look at the results, you will see a huge decline in revenue apart from whatever was happening in the industry, we took that decision. The second thing we had to do, when we looked at the 2014 results was that there was a profit after tax or before tax of N38 billion that was reported. A lot of the profit of that period came from this same loans that were not performing. So the sensible thing to do was to reverse the entire profit that was recognised and reported. We had to write back and revised previous years’ profit. It wasn’t something that we could do at a go. As we were discovering we were writing off. In addition, I would say then that we were the biggest customer complaint centre, because customers kept taking us to that window because there were issues with excess charges by the bank. Up till now, as those issues were coming up, we are refunding customers from current income. Remember that those incomes had been recognised even before now. That will explain to you some of the reasons why it looked as if profit had been declining. At the time the headquarters of the bank was decided to be at Abuja, that came with its own attendant issues, because most of the commercial banks were headquartered in Lagos. The bank has its image crafted for it as a result of that one. So, it was deemed to be a northern bank. That limited the kind of business and also limited to some extent, the kind of patronage and that trailed the bank up until I will say 2015. Now we struggled with issues like management, staff and the biggest was the issue with legacy none performing loans.

 

 

So, were you able to retain your customers in the face of these challenges?

Unity bank has not recorded the kind of recognition, the kind of customer acceptance or public acceptance that it has enjoyed and the kind of diverse patronage that it has enjoyed in the last three years of this management. However, you will not see a reflection of that in the revenue because of the things I mentioned to you. When you don’t have a good loan book or capital, to really earn, you have to become creative and do those things that your limited capital and resources allow you to do. At the same time, you have to spend money to grow your business. So, you are struggling with revenue and at same time, you have to spend money to build a good franchise so that when business comes you have the capacity and the platform to take them on. We have invested in our people. The bank was struggling with e-Business. All of us know that we must get the right demographics. Look at the demographics of banking today, we hardly had any young person banking with unity bank, except those who had their accounts during the National Youth Service Corps and as soon as they conclude with the youth service, they move on to other banks. I don’t want to mention those bank. The people that have been banking with us are old people. We still have a lot of loyal customers even the loyal customers still have accounts in other banks and use you (Unity Bank) for convenience. However, the best thing for us to do is reach out to the next generation because the future is in the next generation. How do you attract the next generation? You give them what they want. They are not interested in your ambiance; they don’t go to the branch; they are not interested in your financials; they don’t really care. What do they care about? Convenience. So we came out with a product for the youths that is convenient and easy to use, and all of that. If you follow our story since the beginning of January, we have launched an aggressive plan, at least, as much as our capital and resources would allow. We have launched an aggressive plan in reaching out to the youths. We have done campaigns in campuses. You will see us where the youths are to the extent that we can. Even the issue of staff, as we know, when you have a merger of nine banks, everybody comes with anybody they can. There were people who have not been promoted because they are in some remote places somewhere and nobody remembers them; there are people who actually are not performing and who were just clogs in the system. We could not have done this overnight, so we have systematically done that over the years. In the last three years, you will see that some staff have been promoted. We have brought in some strategic people. Generally, employee happiness is coming back gradually because these are some of the issues that affects performances of any institution and we have tried to do that. We have tried to create a balance so that it will not seem as if it is a northern bank. Been a northern bank is not a bad thing because been a northern bank means that we are strong in agriculture, which is the thrust of the current administration and we hope that thrust will continue. We are very strong in agriculture. We were number one in agriculture because we a lot of customers in the industry when agriculture wasn’t popular and nobody was touching agriculture. Unity Bank already had presence in the agriculture belt so it was easy for us roll out. What should have been a limitation, we turned it into strength because a lot of those merged banks came in with branches in so many places. Sometimes, we find several branches of Unity Bank in one remote area. In fact, because of our strength in agriculture, we have been approach by the Wheat Farmers Association and we are doing a lot of interesting things in the agriculture space and when we have more capital to deploy, we intend to really participate in that space.

Another thing I need to say is that we did not inherit any bad or huge oil and gas loans as a lot of banks did. Today, whatever happens in that sector, Unity Bank is insulated. We had our shares of bad loans, but those bad loans where from different sector, there was no concentration in the power or energy sector.

What is the present situation on the much anticipated capital injection in the bank?

I agree, the issue on the table is the issue of capital. We cannot run away from it. But the bank in the last three years has given it perhaps more attention than has ever been done in the history of Unity Bank. There is no hiding from the Milost issue. We are all aware of the unfortunate incident. They (Milost) took advantages of the fact that we were desperate for funds. But we are talking to different partners and we would soon finalise. We are concluding a memorandum of understanding (MoU) with parties that are credible and serious. The Central Bank of Nigeria (CBN) knows what we are doing and they appreciate the efforts that is been made and know that they need to continue to support us so that we can get to that promise land. We have been carrying them along in serious engagement.

All I can assure you is that this time around, it is very clear, this are credible and strong parties. Maybe I can leak a little bit of it and say that one of the parties is the second largest infrastructure finance institution somewhere in Asia. Even as we speak, although we said we have closed this process, people are still approaching us to say some of the parties we had engaged before that were dragging their feet, now that they see that we are closing the deal, are still persisting such that they have even reported us to the CBN, saying they want to continue the discussion. All these are happening because we now look good. Two years ago, we were appealing to them.

 

What led to the technical suspension that was placed on the bank’s share price by the Nigeria Stock Exchange (NSE), even though it has since been lifted?

The NSE incident was unfortunate because we had intimated the Exchange of what we are doing and explained to them that the strategy was for us to finalise our MOU with the prospective investors and let us be able to present to the investing public the result and the outcome. I forgot to mention that we sold off the remaining of the loans in our book that was bad. We found out that the business of the bank almost became debt recovery, which the bank was not set up to do. A bank is supposed to be in the business of banking. Unfortunately, we found out that we were spending so much time on debt recovery and legal cases. I am sure that Unity Bank has the highest number of cases in court because when people refuse to pay, you will take them to court. So we said, let’s sell the bad loans to people who are expert at this and let’s not get involved. It was a novel idea which some of our competitors are now trying to do. So, even though it was a long process, we finally got rid of the legacy NPLs in 2017. We wrote off all those bad loans from our books. The second thing that we did was that we wrote off the goodwill that was in the books at the time of the merger all of that put us in negative of N14billion. Today, the bank is doing far better than it has ever done. However, all those factors that I mention resulted in a loss position. So, we were waiting to see if we can conclude the MoU and make the whole announcement. That was why we were delaying our results and taking our time.  Also, the CBN wanted to be sure that those accounts were not performing and so it took a while before our accounts were even approved by the central bank in the first place. We cannot publish a financial statement that has not been approved. Unfortunately, the NSE decided to take that action on November 1 and immediately we complied, we were reinstated. So, we building on our alternative platforms, our customer service has improved and we will expand by the grace of God when our capital comes and we will be able to do a lot of things. But presently, we are working with what we have and we are improving our information technology infrastructure. In the last four years, we still maintain our strong presence in the north but we cannot be ignored in the south as well. Unity Bank was the first to sell loans to privately owned asset management company. For me, it was very bold move. If you sell to a government entity, it is quite understandable. It took time because we had to get approval from the CBN. The biggest advantage is that the bank can now concentrate on its strategic functions instead of pursuing loans and going to court. The bank can focus strictly on growing the organisation and we have seen the benefits so far. The bank has made profit from January to October this year and we want to be a bank that is able to earn revenue to recover all its loss. I need to also say that some initiatives that Unity Bank pioneered are now redefining the market. If you look at today, those who are publishing the list of debtors, Unity Bank initiated it in 2013.  

 

What are you doing about cost containment and enhancing your risk management practices?

 

The new management has already started to take bold and specific steps that eliminates wastage, and significantly improve efficiency. The key areas of attention for the bank includes the improvement and automation of key processes as well as optimisation of branch and other channel network. We are invigorating our technological platforms and improve service quality, enhance customer analytics and adapt rapidly towards changing market dynamics.

On prudence and enhancing risk management practices, considering the sale of NPLs and the eventual de-risking of the financial position of the bank, the management and the board have developed sound governance structure, practices and policies around its Enterprise Risk Management Framework in order to tame credit loss, prevent the elevation of NPLs and maintain a strong credit portfolio for the bank.