Wigwe: Why We Chose Inorganic Growth Strategy

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Herbert Wigwe

The Group Managing Director/Chief Executive Officer, Access Bank Plc, Mr. Herbert Wigwe, in this interview on Arise TV spoke on the ongoing business combination agreement between his bank and Diamond Bank Plc, as well as how the deal will benefit customers and the economy. Nume Ekeghe presents the excerpts:

Looking back to 16 years ago when yourself and your partner left GTBank with dream of owning and managing the biggest bank in the country and today, once this deal is finalised, you will be managing the biggest bank in Africa in terms of retail base, how does this feel?

It is a great feeling and I think what is more import is not how big you are, but what we are doing for the country. For us, what is critical is what we are doing as far as financial inclusion is concerned and as far as deepening the financial market is concerned and all of that. Nigeria has not so many positive narratives outside yet. We have such a great economy and great people and the fact that this is coming out of the country means that we can support local businesses to become global champions and for me, that is the greatest thing about this merger.

Why did you choose the inorganic growth strategy of either acquiring a bank or merger?

We have a very unique history and at the time we came into running Access Bank, it was a very little bank and it was clear to us that organic growth was not the only way for us to get to where we wanted to get to. And so we knew that inorganic growth was the best way for us to pursue for us to become one of the strongest and largest banks in the country. If you look all over the world, the top five banks in every country typically control 75 to 80 per cent of the market share and that is how it is in the United Kingdom, the United States, etc. And so for us, we were certain and bent on ensuring that we had that kind of scale and scale is critical. So for us today, getting to that kind of scale is something we are extremely proud of and the fact that over time, we have been able to build significant experience as far as mergers and acquisitions are concerned, is one we are extremely proud of. I don’t think there is any Nigerian bank that has gone through as much mergers as we have. There is been strong learning points and there has also been weaknesses and areas where we have made mistakes and I think today, we are far finer than ever before and just from the skills we have developed over time.

With the announcement of the merger in principal, what are the next steps for the transaction. Can you give us a timeline?

We need to go through various levels of regulatory approvals. We need the court sanctions, we need shareholders to meet and approve and all of that. We believe that before the end of the second quarter of next year, we should have concluded a legal merge. But the beauty of this particular arrangement is the fact that we are working with our brothers and sisters in Diamond Bank to protect market share, to continue to build customer confidence to ensure that the merger is value accretive. So before the end of the first half of next year, we would have concluded a legal merge.  I think around April that should have happened.

What kind of value and synergy are you bringing to the shareholders?

If you compare both banks, there is so much complementarity. Access Bank brings a strong wholesale banking business and over time, we have basically perfected the act of what we referred to as a network strategy that basically supports the value chain and that was our own way of getting into retail. We are also very strong in treasury, risk management and we have a very strong digital banking business. Diamond Bank focused on retail and built an excellent and unparalleled retail franchise and it was the fastest growing retail bank. They used their digital capabilities to pursue areas that had to do with financial inclusion, women, the vulnerable groups, etc. This combination means that you are taking the value chain right from the wholesale customer to the last man. It means that things that have to do with payments for instance, would remain within the system and transmission income is going to be significant. Together we have about 35,000 point of sale (PoS) terminals, we have about 3,300 ATMs and we have a huge reach across the country and all of those things would mean that you don’t have to take incremental risks for us to do well. There were some areas of focus, for example, we were known to be leaders in supporting women, Diamond Bank was also in that space. So that combination means we have locked down that space, not just in Nigeria but in other places where we have our presence. So there is so much to be built and what is important now is actually pulling out their efficiencies coming from that combination so that our shareholders and all other stakeholders can see the benefit. The last point which is for me a very important point is that we had an SME focus slightly different from what Diamond is doing. SMEs represent a critical part of the economy and an engine for growth and what this enlarged franchise does it that it now starts supporting more SMEs and their contribution to the growth of our Gross Domestic Product (GDP) and employment and all of the things the government is trying to push. It means that to the whole country and to stakeholders, there is significant value.

For customers of Diamond Bank, can they still go ahead with their everyday banking and what would be your retail number post-merger?

Nothing would change. The benefit of this merger is that we are going to keep all of those unique things about Diamond. They have an incredible mobile banking application and they have a way of reaching the mass market. We must ensure that we keep that emotional connect of that Diamond retail customer which is very critical. So nothing would change. If anything would change is the fact that they more touch points and the fact that for that woman in the market, payments get easier. Together, what we have created has 29 million customers which is more than any other institution in the continent. You can say that there might be some duplication and if you go through that and the margin of duplication is probably around two to three million customers. So if you call it 25 million customers, it is still a very sizeable amount of customers. And embedded in this, is about 10 million mobile customers. So, it is a great opportunity that cannot be compared to other parts of the continent.

How can merger enhance your financial inclusion drive?

Diamond has a very strong partnership with the largest telecoms company in the country and reaching that level of financial inclusion under this combination would be much easier than ever before. And we would continue to serve those customers and develop the unique skills of having to serve these customers. It was not one of our strengths and it is the benefit of merging these two institutions and making sure that from the corporate end, all the way to the last customer, they can be properly served. This basically takes banking to tens of millions of customers across the country. We now have the reach, we have the capability of how to serve these customers and we have the right partnership of fintechs and telecoms. For us, all these things the government wanted to do as far as financial inclusion is concerned is easily much more attainable now.

What where the compelling reasons for the merge with Diamond Bank?

I have always said that the best way to predict the future is to create it. You have to disrupt the existing circumstance for you to actually create the future. We are extremely comfortable the way we are and would have continued to grow organically. So the compelling reason is that we want to create a very strong largely diversified bank that would support the growth of our economy. And that is what is being created and we are supporting it with significant capital to ensure that given the size of that institution there is robust and sufficient capital in line with international best practice and all the things that have to do with creating buffers for capital, to ensure that this institution is able to compete with its comparators world over. Look back in time, there was a time Nigerian banks were very small and then Central Bank of Nigeria Governor, Prof. Chukwuma Soludo came along and increased capital and so Nigerian banks then grew so much bigger. So the likes of Dangote who would have been struggling to borrow internally to support the economy could sit back to discuss with Nigerian banks to raise millions of dollars to expand. If you needed to borrow $20 million before, you needed to run all over the world, today you can borrow that locally to support the economy. So with this, we are creating a large institution that can support local Nigerian businesses and convert them to global corporates. It is a phenomenal thing and that is what we are trying to achieve and we have our comparator banks that are of the same size and scale who are going to be doing the same thing. Let us show that as Nigerian, we have the capacity create decent institutions and grow our economy. Nobody would support our country as much as ourselves.

You have now merged with a bank with a high non-performing loan (NPLs) portfolio. How much of Diamond Bank’s bad loans would you be forced to write-off? 

We are fully cognisant of all of those things, and one of the things we are doing is that Diamond Bank is determined to right off all of those loans before the date of legal merge. They would do so on the 31 of December, 2018, and whatever the residue is, from next year, that solves that problem permanently. So, we have enough capital to support the enlarged franchise which is important. Now all the benefits of recovering bad loans now becomes a plus because we have cut out what becomes a cancer and taken it out totally. So we have a fresh, clean, brand new franchise that is adequately capitalised. So that concern people had of what is going to happen to the NPL is taken out decisively and we have enough capital to go on. Even if we don’t recover any capital from it, it is a brand new world. We have gone through this many times before and we have recovered money. So, we are going to get the benefits of that recovery coming to profits in ensuring that shareholders get adequate returns for their investments.

Why is your bank planning to raise fresh capital and what time next year are you raising it?

We have issued a statement in the newspapers basically calling for an extraordinary general meeting (EGM) to raise capital. We have traditionally determined what our capital adequacy ratio should be. Nothing to do with what exists now, we always create adequate buffers. The Swiss banking model for instance, as developed as their economy is, their regulators insists that they keep 19 per cent capital adequacy level not to talk of an emerging economy fraught with risks like ours. So we have a determination to ensure that our capital adequacy level is north of 20 per cent. And because we are a systemically important financial institution with presence across several continents and as a group, all we trying to do is to ensure that even after the deal, and even though we would have enough capital, we believe we need to create capital buffers. When you have a presence in the UK, there is something they refer to as a recovery and resolution plan and so the Prudential Regulation Authority (PRA) is always also concerned about the state of the parent. Now as a global enterprise which we are creating, we try to make that anywhere any of our regulators in any of those countries in which we have our presence is, when they look at the parent, they would see an institution strong enough to continue to ensure those subsidiaries function properly.

And it is not just the rights issue, we also did a tier II capital raising and the essence of the capital raising which is in dollars, was to ensure that if there is any depreciation for any reason over time, we have the adequate capital to support ourselves.

What is the time frame?

Our EGM is going to be on the 1st of February and I reckon that in the second quarter of next year, we would do the rights issue.

This would be coming after the elections, are there any downsides to this?

Our stakeholders have infinite confidence in our institution and I’m certain that they would support us. We have done it several times before and it is never a good time. We have elections now, the next thing, something would happen, etc. This is basically a call on the stakeholders who I know would support and they have supported before and I don’t envisage any issues. And by the way, the rights issue is also available for existing shareholders of the enlarged bank which is also Diamond Bank shareholders. So I remain confident that we would raise the money.

The public often quick to cheer when we hear news of a merger and acquisition in the banking sector, but we don’t know the kind of work that goes on behind the scenes to make these transactions seamless. What procedures did you have to undertake to fully integrate two different entities, culture and personnel and how long does it take?

It is a lot of work. The first thing you would probably do is set up an integration committee or a steering committee and of course you would have different committees required to ensure that the business does not suffer. So, basically to keep the traditional lights on while you are going about doing the integration.  And then, in the integration committee, in our case what we are doing now is that you create work streams around systems, processes, making sure the alignments happen, around people which are the most difficult aspect.  Also around culture; how to harmonise pay between the two institutions, what do you do to direct sales agents, how do retool or re-skill people etc. Now, culture is different and it refers to the norms and practices of the two institutions and how do you integrate it takes a little longer. So, there about 13 or 14 different work streams and people have to work day and night to ensure that there is a technology alignment. For instance, a Diamond customer must continue to use the same account, they must not feel any pain and they must continue to use that application and it has to be seamless. You have to ensure that the branding retains the emotional connect the customers had with that institution. So those are all the different streams that need to be worked on. And people work tirelessly overtime and that makes the difference between what is a successful merger and what is not successful. Because if you don’t get the people working together and if you don’t get trust between the two institutions and you start segregating one set of people from the other, then their ability to engage customers is threatened and then customers can just revolt and then leave the bank. So you have to make sure that those elements are working very closes together. Now it is something we have done a number of times and we have become quite adept at it. You would never get it 100 per cent but certainly in this case, we would get it 95 per cent. We have already started engaging our brothers and sisters in Diamond Bank and we are one family and we would do all the various roadshows to the customers. For customers that are asking what happens to their bank account, it is absolutely safe and it is business as usual. In fact, if anything, we would start ensuring that things we do within the two institutions are the same. So whether you are a Diamond or Access Bank customer, if you go to an ATM, it is free of charge so that the customers can start seeing us as one.  And then start benefiting from the products and services of either. The physical aspect of the integration would happen and it would become manifest by the time we have a legal merge but the culture aspect continues because it takes time to build trust. But the good thing is that we pretty much have the same DNA a bit different and it wouldn’t be difficult for us to harmonise it.

How much of branch and staff rationalisation is expected?

We are not planning for any Diamond staff to leave, that I not the idea. We are optimising people and training people and they have done an excellent job as far as retail is concerned. So, we are taking it and plugging it into Access Bank. The issue about branch rationalisation has to be handled very carefully because you would be totally shocked as to the relationship, interactions and customer behaviour across branches. An example, the relationship between customers in Idumota and Onitsha you would be shocked that it is a very strong correlation. So if you rush to go and close a branch, it might affect you. So it requires some deep analytics for you to get there. We would re-tool and re-skill them and now apply them differently within the institution. It is the same argument people used to have by saying technology would replace human beings and it is not going to happen. So people are going to develop new skills and be used differently. So we have absolutely no intention of asking people to go. We know that people are expecting issues from an integration standpoint but I think that people are making a mistake because this is one thing we have done several times and we are experts at it and this integration is going to be seamless.

With this merger, what legacy are you hoping to leave behind as the CEO?

At the time I am leaving, I want to ensure that we have a sustainable institution. I must begin to see the second, third and fourth generation of this institution. I don’t want to create a titanic. I want an institution where successive leaders leave the institution and the institution would be able to stand the test of time. We are a global institution in the making and we want to see our people standing side by side with their comparators and I’m not talking about just in Nigeria, I am taking about banks in New York. I see them standing side by side with JPMorgan, HSBC, etc. That is the kind of institution we would want to create to ensure that we run away from all the issues from dis-intermediation that is a problem in Africa and that we ourselves are present in the global financial markets and can support our businesses and African trade by ourselves.

Do you see Access Bank taking the top spot in the stock market now that you are the biggest bank in the country?

I don’t know about being the biggest bank in country and that is not what is important to me. I think our comparator banks have done exceedingly well, they are efficient, they are big and they have the reach. I think we have grown and we have come of age, and it is for us to pull out the efficiencies and the market will tell and it would happen in 2019 and we would see it in 2020. Do know what it means to have 29 million customers or 25 million customers, by pulling out the efficiencies from them, it changes the landscape totally and the more efficient we get the greater value you would see to shareholders. And the share price would reflect it and I remain extremely confident. People have asked questions on how many shares we have in issue and how we would support these shares, etc. I am absolutely clear in my mind that the efficiencies would show in the profitability and it would show in the return on equity and all of these things would determine the share price. It is a great future for all Access and Diamond shareholders and stakeholders.

There are four subsidiaries of Diamond Bank, including a bank in the UK, are you taking on the subsidiaries or are you selling them off?

Diamond Bank has actually sold most of them. The one in the UK is going through their final approval and it would be sold. Whenever the money comes out, I think it would come before the legal merge and it would go into Diamond Bank. And there is no need to duplicate it because we have a very strong presence in the UK. Diamond Bank had also sold its subsidiaries in Côte d’Ivoire and I don’t think it is necessary for us to set up in countries that we have not taken strategic decisions to set up in before

How about the Diamond Bank Pensions Custodians, are you taken that as well?

We are reviewing it. Obviously there are implications and rules that come from the National Pension Commission with respect to if you have a subsidiary and what to do with it. So we have to take a decision if we are to keep it or to sell it and that decision has not been taken yet and it would happen in due course.

Do you have any final words for all the stakeholders affected by the merger?

It is a great time and it a great opportunity, and the assurance I want to give all stakeholders, staff, shareholders and customers most importantly is the fact that this is a brand new world and there is something in it for everybody particularly our customers. Those who did not get enough of what they wanted in Diamond, now have Access to a larger platform and it remains a safe institution. And for staff, obviously I am communicating with everybody and we are not asking people to go, it is certainly not on the table. All we seek to do is to create a value accretive enterprise. And for our regulators, what is important and what is critical is that we create a safe institution that is adequately capitalised and that is already happening. But I think for the government, the best way to look at it is that we have created an institution that would support the growth of our GDP, and an institution that would support SMEs that would lead to greater financial inclusion, greater financial deepening and all of those things which are required to propel an economy.