The Managing Director/Chief Executive Officer, FSDH Merchant Bank, Mrs. Hamda Ambah, in this interview urges Nigerians to support the federal government in taking some difficult decision which would be beneficial to the country later. Obinna Chima brings the excerpts:
In your outlook on the Nigerian economy, you expressed optimism that the economy will grow in 2019. Few days ago the Nigeria Governors’ Forum warned about the likelihood of another recession. What are those factors driving your optimism?
One of such is the current level of crude oil prices. The price at which the budget was benchmarked for crude oil is much lower than where it is right now. Love him or hate him, Donald Trump continues to do things that seem to cause support for the oil market. You may be aware of the exception that had been made to embargo on Iranian oil, he seems to have withdrawn those exceptions and we all saw what happened to oil price during that time. So, there are some opportunistic developments. I don’t think you can plan on those long-term, but you can exploit them while they exist. Apart from that, you have seen some problems going on in the United Kingdom with regards to the fracking market. So, we have to as a nation take our opportunities where we find them. There are also certain things that we are hopeful that in this new dispensation and with the government not needing further re-election, we hope that we would be able to address certain issues that we as a nation must address to make progress. We believe that in the course of this year, at some point, the issue of oil subsidy, has to be addressed. I am a believer in the fact that capitalism must have a human face and that any government that must care for its people must think of the less well-off in the society. So, I have no problem with people who need assistance being assisted, but I have a problem with the assistance that is equally given to billionaires in the country and the poorest men on the streets, which is exactly what we are doing with our current fuel subsidy regime. If you think about it, a lot of people tell you that in this official pump price, there are limited places where you can get them and one of such places is Lagos. Those of us in Lagos and the South-west states are even privileged to even get petrol at the pump price. So, that price we are claiming is too high, most people in other states have been paying it for years. So, the question is, is it really appropriate for the government to be subsidising a select few of us in this part of the country? Even if you are going to say some people in this part of the country also needs it, should the government be subsidising some officials and even people like me and some of my colleagues? I understand the concern of the populace when there is the talk of removing fuel subsidy and I think that is where we need the media to get the right message out in terms of enlightenment. I was recently invited to present a paper to the major oil marketers association. You might be aware that FSDH had the privilege to be appointed as the local adviser to the federal government for the last Eurobond and there have been debate around government’s borrowing. I made them to know that, as an individual when you borrow for investment, there is no problem, it is when you borrow to finance consumption that is a problem. And I think as it is for human beings, so it is for countries. If a country is borrowing to finance development, that is a good thing. But if you are borrowing to finance consumption, then there is a problem. If you look at the figures for subsidy, which I think we have a new way of referring to as we now call it under-recovery, the amount in 2018, was roughly equal the figure we have for what was raised in a bond issuance by the federal government. If we issued a bond and we are trying to raise money to develop our economy, it is a good thing. But it would be a pity when we have almost an equal amount of money just going into oil subsidy. We then realised that if we don’t have oil subsidy, almost twice of what was raised would be available to finance development. But I think it is about the way the message is carried out. So, if we explain to people that by removing fuel subsidy, it means we would have better transportation, better education for our children and better medical care. So, if we are able to support the government in making this difficult decision and hold them accountable to deliver the required infrastructure and ultimately it would be better for all of us. So, we believe that in the short-term there would be growth and as we continue to grapple with some of these issues, the growth would get better.
But do we have reasons to worry about the concerns that were raised by the governors’ forum with regards to the likelihood of another recession?
I think in any forecast, there is always a possibility of a downside. But I think the beauty of a discipline like economics, which is different from most other disciplines is that the behaviour of people and what people believe would happen, would often determine what actually happens. So, if all of us believe that there is going to be a recession and we behave in a way that supports that believe, there would be a recession, regardless of what happens. So, when you ask if there is a possibility of recession, my response is that there would always be that possibility and our collective behaviour can influence it. I am not suggesting that things would be easy. Things are not easy anywhere and particularly not in Nigeria. But I am saying that there are opportunities that we can exploit to keep this fragile growth going, until such a time that it can be ramped up and really get us back to that seven per cent, were it used to be. And it is about all of us, as a nation, collectively doing those things that would make that happen. When we get a critical mass behind the right ideas, then everything would be possible. Guess what, in spite of the global slowdown, some countries are still doing well. Meanwhile, there are countries whose growth in terms of percentage are far less than our, but because where they had attained in the past was so high, even the little growth, the effect of it is much better than what we have here. It is basically for us to move this country away from being known as that country that is perennially identified as having great potential, to a country that has realised some of its famous potential.
Some state governments have expressed concern that they might not be able to implement the new minimum wage. What advise do you have for those who are unwilling to implement this policy and how best do you think they can enhance their IGR to meet this obligation?
When we talk about Internally Generated Revenue (IGR), I think we need to ask what a state government needs to improve IGR. And I think one of the things that can be low hanging fruit is for people to create a conducive atmosphere that would allow employment in their states. If we go on with a situation where it is only government, that then refuses to pay salary, then we would continue to have problem. We all agree that many, if not most of our state governments have been indebted to their employees for months. But it was interesting for me to know that a state like Borno, where there is so much upheaval, the governor is not owing. What did he do differently? If we understand that human beings deserve a living wage, we would know that N30,000 is not too much for a human being who gets up in the morning and takes public transport to work. So, maybe we should turn the issue on its head that if we accept that this must be paid, a forward-looking state administrator would look at ways to ensure that they pay.
If you are to advise the incoming administration, what areas will you want the government to focus on?
If you think about it, when the Investors’ and Exporters window was introduced, you would have seen the reluctance that surrounded it. It took nearly 18 months of constant pressure and today, everybody is talking about its success. The truth is that you cannot make an omelette without breaking eggs. If we are too afraid, we can never do the right things and we would continue operating sub-optimally. When there are 20 things that should be done and if we can’t do all of them at once, why not pick one and do it and later you do the next one. We must set our priorities. Since Independence, we have just been going downhill. We cannot arrest decline of 59 years in one year or in four years. But we must decide to make a bit of progress. Let us agree that government is a continuum and ultimately we get there. So, there is no magic wand, it is just a series of difficult situations that we need to take, one after the other.
You own a pension subsidiary. There appears to be some form of apathy on the part of operators regarding the newly introduced micro-pension scheme. What do you think can be done to increase awareness on this new scheme?
I can say that we are very interested in anything that would develop that sector. If you are noticing any reluctance on the part of the Pension Fund Administrators, I think their concerns right now is that the guidelines have not been fully spelt out and in the past when they moved quickly ahead of their regulators to assume certain things and started on certain basis, later on it cost them a lot of money when the regulator takes a different approach. So, now they are going softly until all the rules are spelt out. So, it is in our collective interest to capture as many people as possible into the net.
Can you take us through your financial performance in 2018?
On 29 April 2019, we held the seventh Annual General Meeting (AGM) of FSDH Merchant Bank. This does not take into account the 20 annual general meetings the company had previously held when it was a discount house.
The AGM provided us with the opportunity to update all shareholders about the financial performance of the bank in the 2018 financial year. During the meeting, we laid our audited accounts for the 2018 financial year (approved by the Central bank) before the shareholders. The Group achieved a profit before tax (PBT) of N6.75 billion for the financial year ended 31 December 2018. This represented an increase of 21.4 per cent from the profit of N5.57 billion for the year ended 31 December 2017. Profit after tax (PAT) attributable to the group increased by 13.2 per cent, to N5.37 billion, from N4.74 billion the previous year. Earnings per share (EPS) for the group was 166 kobo, which is 2 kobo more than the 164 kobo earned in the previous financial year. During the period under review, all our subsidiaries posted profits. FSDH Asset Management (FSDH-AM) recorded a PAT of N326.87 million, while the PAT recorded by Pensions Alliance Limited (PAL) and FSDH Securities (FSDH-SEC) were N1.47 billion and N64.16 million respectively. A dividend of N3.07 billion has been declared for the financial year ended 31 December 2018 (2017 dividend: N2.21 billion). The amount translated to N1.10 kobo per share (2017: N0.79kobo per share). So, the year 2018 marked the seventh year of our operations as a Merchant Bank. We remain committed to fostering mutually beneficial relationships with our customers by providing tailored solutions that meet their specific needs. The FSDH Group will continue to work within a robust risk management framework leveraging on technology. We will also continue to collaborate with like-minded partners to develop innovative financing and investment solutions which will enable us to exploit emerging opportunities and create shared prosperity in 2019.
Your results showed that your asset base dropped by 17.4 per cent and customer deposit by 14.8 per cent. And of the five merchant banks, it was only your bank that had this kind of trend. What was responsible for this?
We should understand that the figures that come out of a statement of affairs or a balance sheet, because it is a snapshot. Having said that, for us, there was a significant transaction that we were involved in that was repaid towards the end of the year. So, in terms of asset base, that was the reason for the drop. From the point of customer deposit, it is one of the things we are working on. We engaged Mr. Taiwo Otiti in August last year was hired as Executive Director for Information Technology and Operations. We understand that, IT is a critical part of our operation for any bank, especially for a bank like ours that does not intend to grow by way of bricks and mortar and branches. The way to reach out now is via technology and some of you must be aware that as a merchant bank, there are certain restrictions we have in terms of deposit size, but we can leverage on technology. Some of the distinctions that existed between the merchant banks and commercial banks are disappearing. For instance, as a merchant bank, I can’t issue cheque books to my clients. But the question is who is interested in cheque book today? So, we are leveraging technology. Also, one of the things that resulted in the drop in our deposit is that we are very mindful of how we raise funds and the cost of funds. We were able, in the course of last year, to issue commercial paper. So, the people who we were taking deposits from in the past bought our commercial paper. So, its same funding, but it was not reported in the balance sheet as deposits. And the beauty of going down the commercial paper route is that in Nigeria somebody can make a 90-day deposit and after few days, he or she will come back for it. But when they buy commercial paper, that is an instrument, they can’t come back for the money. They either hold it till it matures or they sell it to somebody else.
In 2018, you did very well in terms of profitability. However, you lagged the merchant banking sub-sector whose total profitability grew by over 40 per cent. What was responsible for that?
I will like you to re-compute that figure and exclude Rand Merchant Bank, and tell me whether you will still get the figure you got. So, I will say there is an outlier in the industry and you need to look at what took Rand Merchant Bank to where it is, from where it was. However, there are some legacy positions that I will say we have had over the years, that we have been working with, in terms of bond holdings and as we go on, you will see that it is being addressed.