Adeduntan: Banking Sector Recapitalisation Will Support Economic Growth 

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The Managing Director/Chief Executive Officer, FirstBank Nigeria Limited, Dr. Adesola Adeduntan, in this interview says the focus of the Central Bank of Nigeria in ensuring that the Nigerian banking industry sector remains strong will position the financial institutions to support the overall growth of the economy. The FirstBank boss also predicts that the economy will record stronger growth this year. Obinna Chima, Goddy Egene and Nume Ekeghe present the excepts:  

The CBN in its five-year plan that was unveiled last disclosed plan to recapitalise the banks and there have been expectations that the regulator may make an announcement in that regard this year. How prepared is First Bank for another round of industry recapitalisation?

The focus of the central bank is in ensuring that the Nigerian banking industry sector remains strong and is well positioned to support the overall growth of the economy. And for you to have banks play that strategic role, you need strong banks that are well capitalised with good governance and with good internal processes. I think what the central bank governor is setting out to do is something which is very good for the entire industry and the economy. If you take your mind back to 2005, when we had the banking sector recapitalisation and consolidation exercise, it was actually that initiative that made banks in Nigeria bigger and were able to develop the capacity to write bigger cheques that enabled the kind of growth that we saw then. I believe the government is trying to replicate and bring that back and it is something that anyone that loves this country and supports the growth of our economy would readily support. For us at FirstBank, the good thing is that we have been around for 126 years now and we have seen all the ups and downs in the system. So, engrained within our system is our capacity and capability to continuously ensure that what we are doing fully aligns with the objectives of the government of the day. Specifically, on the recapitalisation, with the quality of our franchise and the kind of footprint we have, we do have our own plan. Indeed, 2020 marks the beginning of our 2020-2022 strategic plan and imbedded within that strategic plan, we would have our capital plan even though you call it recapalisation, we call it capital plan. We are clear on what we do, we fully support this initiative of the Central Bank of Nigeria (CBN) and we have our own plan on how we intend to respond to that policy initiative of the governor of the central bank.

Will you like to share the plan with us?

For now, the answer is no and the most important thing is for all our critical stakeholders to be rest assured. And typical of us at FirstBank, we have mapped out what our plans are and they are very clear to us. It would be a combination of several other things like tier 1 and tier 2 capital. Also, we are a profitable bank and we are very clear on what we need to do.

 What are your expectations from the banking sector in 2020?

 Very interesting question. We have all seen the new banking tariff by the central bank and we are also fully aware of the central bank’s policy around the minimum loan to deposit ratio. We are also fully aware of the policy of central bank that has resulted in significant drop in the interest yield on treasury bills. So, if you throw in all those different things, you would discover that the industry would be much more competitive in 2020. On the back of that, one would expect that pricing in the sector for loans and deposits would come under pressure. Therefore, to remain profitable, we would expect that a number of banks would embark on initiatives that makes them more efficient. So, I expect to see more digitalisation and automation and banks basically working at reducing their cost profiles. Ultimately, in the medium term maybe over the next five years, I would expect that the pressure would make banks to begin to look at consolidation.

What are likely effects of reduction in bank charges on the earnings of banks and specifically, FirstBank?

Because the charges have dropped, what the banks need to do is to ensure that we compensate by actually growing our volume and that is what we are actually doing around financial inclusion.  Our bank, FirstBank is by far the biggest and largest bank in the area of financial inclusion. As I speak to you today, we have over 45,000 FirstBank agents spread through the nooks and crannies of our country. On the average, we process more than eight billion transactions on a daily basis. So, the way out for banks is to get more and more customers currently unbanked or under-banked into the banking sector. Banks would also need to be more innovative. And what we did as a bank was that two years ago, we started our digital laboratory innovation center and the whole essence is to continually bring out new products; to refine and revamp existing products offerings such as FirstMobile; Agent banking to ensure an enriching  customer experience . So it is about compensating with volume and enhancing the quality of customer experience.

Overall, we have noticed a sustained and gradual decline in FirstBank’s non-performing loans (NPLs) since you assumed office. What did you do to achieve that and what should we expect from your financial 2019 performance that is expected to be released soon?

When I assumed office in 2016, part of what I said we are going to do was to strengthen our risk management capabilities with the goal of reducing the non-performing loans. I said it would be a two-prong approach and that we would strengthen our capabilities to ensure that we don’t create NPLs. But remember that no matter how good your risk management capabilities are, because by default the kind of business we do, loans must always go bad from unexpected things. My plan was to revamp risk management capability and the entire risk management architecture to ensure that we keep new NPLs to the barest level possible. So my team and I focused on the already existing NPLs and then worked on reducing it down to the levels that are in line with the central bank regulation. What we have achieved is to successfully reposition the risk management system of the bank and today I am particularly very proud of what we have achieved. And it is a combination of these that ensured that we pushed the NPLs to single digits. When we started 2019, our presentation to the investor community was that we are going to end 2019 with single digit NPL. And by October 2019, we actually achieved single digit NPL ratio for FirstBank.

But for me, what delights us the more is that the level of NPLs we have created over the last four years is negligible. That delights us. So, we have not only revamped and strengthened the risk management architecture, but what we have done in the last four years is that we have also successfully imbedded the new process to ensure it works.

In terms of our 2019 results and what it would look like, we are in a close period now and I’m not allowed to say. But what I say is that we had a decent outing.

Cybersecurity is an issue that is giving a lot of financial institutions, not just in Nigeria, but across the globe, sleepless night, what is FirstBank doing to mitigate this threat?

Cyber security is an area where as a bank we have made very important investment and we couldn’t have done otherwise because we are a dominate bank in the sector. And we also had the strategy of being the leader in the digital banking space. And I must say that if there is an area where we have been successful, it is in the area of making this bank to be more digital. Today, on the USSD banking platform, we have over 8.2 million customers actively transacting business with us and we are by far the largest in that particular space. In mobile banking, we are also dominant and I have also spoken on what we have done in agency banking.

Indeed, today, over 80 per cent of our customer-induced transactions are conducted on channels such as FirstMobile, Unstructured Supplementary Service Data (USSD) and the automated teller machine (ATM). Again, we have been quite successful in -moving our customers to electronic channels. It is because of the kind of comfort we have been able to give them in terms of security in the cyberspace. So, we needed to as a matter of business priority, have made those kinds of investment.

But the Central Bank has also supported the banking industry by coming out with regulations that define the minimum level of infrastructure and personnel they expect banks to have as far as managing cyber security is concerned. Today all banks are required to have a chief information security officer and security operations center which we have. We have also gone over and above that to build a world class security operations center with well trained personnel who man our perimeters 24/7 and it is something we are very proud of.

 What is your bank’s level of support to the agric sector?

We are one of the biggest lenders to the agric sector. On an annual basis, FirstBank always brings in critical stakeholders in the agricultural sector together under our Annual Agric Expo which has been quite useful. It also allows policymakers, farmers and buyers to come together to dialogue on how we can take the sector to the next level. It is an area that is important to us because as a bank that operates in this clime, we have said to ourselves that if we are indeed 200 million people, the business of feeding 200 million people is a massive business. And any bank that understands this environment must be a part of that entire value chain and ecosystem. It didn’t also just start today; this bank has been supporting agriculture for over the last 50-60 years and it is an area we understand very well. And it is an area where the central bank has also played a significant role in trying to de-risk the sector as much as possible and that has allowed banks to lend to that sector.

You mentioned earlier that FirstBank is a leader in agency banking, what other measures are you taking to enhance financial inclusion?

The objective of the central bank is to move financial inclusion to 80 per cent and we are not yet there. So, that means for all of us in this space, there is still plenty of work we have to do. We have deliberately positioned financial inclusion as an integral part of our business strategy and as such, it is something we would continue to do. We are working on a plan that we call Agency 2.0, which means taking our agency banking business to the next level. We are not going to relent and for us at FirstBank, profitability is very important, but also supporting economic growth and development is equally important for us. It is only when the country is growing and there is development and we are all collectively create a bigger cake or pack, that is when the whole country can thrive.

Do you perceive the upcoming payment service banks as a threat?

For us at FirstBank, because of our dominance we have what it takes to compete and we also have what it takes to collaborate and corporate with them. I mentioned earlier that we have our digital laboratory where we are working on products. So, basically, we are a fintech company, if I can put it that way. Payment Service Banks would come and I’m sure they would try to establish themselves, but what I can tell you is that the existing banks have what it takes to compete. Again, part of what I said earlier was that we would see a higher level of competition in this sector this year and going forward.

So, what role does financial inclusion play in driving sustainability?

Financial inclusion is very central to the Sustainable Development Goals (SDGs). Directly, financial inclusion, has a link to poverty eradication, women empowerment education and health.  And that is why the government, central bank and all the banks are all working on promoting financial inclusion, because of its significance. And like I said, a number of the SDGs are linked to financial inclusion. For example, education, ending hunger and achieving food security, good health and wellbeing, gender equality, creating decent work environment, all indicate that there is a direct correlation. With access to financial services people can invest in businesses; education; live healthy lives; farmers get rich agricultural produce and women are more empowered.

At FirstBank, our approach to driving the SDGs is in two-fold: firstly, aligning our corporate responsibility & sustainability strategy based on our business goals; the Nigeria Sustainable Banking Principles (NSBPs) and global best practice in integrating sustainability within the business operations; and secondly creating awareness amongst staff and other stakeholders through sustainable partnerships.

While the Bank work towards promoting all 17 SDGs, we focus more on 7 of the goals because they are material to us. These goals are:1, 2, 3, 4, 5, 8, 13 & 17

In terms of gender equality, is there any product your bank has put in place to drive that?

One of -the biggest achievements of our bank last year was that we started a FirstBank Women Network which we formally launched in March last year. The whole essence was to promote a more inclusive working environment. To ensure that the ladies with us are supported to be whoever they want to be. Also, about three years ago, we launched our female product line called FirstGem. So, if there is any bank that is in the forefront of promoting gender equality, it is actually our bank.

If you also look through our board, and our subsidiaries, you would discover that the females are adequately represented.

Looking at the performance of FirstBank, are you satisfied with the holding company structure? I asked this because FBN Holdings’ stock performance, compared to other banks on the Nigerian Stock Exchange, does not reflect on all the efforts you are making at FirstBank?

The major reason why the stock of our holding company, FBN Holdings hasn’t performed like other stocks is because of the size of the NPLs on the book of FirstBank. FirstBank is the dominant company within FBN Holding, which is almost like 90 per cent of that. So, with what we have achieved in bringing the NPLs down to single digit, it is quite phenomenal and we are extremely proud of the leadership of the institution. And with that, it is a clear signal and we have also committed to the investor community that we are going to drive down the NPL to single digit by the end of year 2019 and we achieved that.  So with that, you will see that in the next 24 months, our share price would correct itself.

 As an operator in the industry, how do you think the stock market would fare this year especially since it has recorded decline in the last two years and also what is your expectation of the economy this year?

 My expectation is that the economy will do better than last year. If you look at the International Monetary Fund growth expectation, the forecast is that it is going to grow slightly higher than last year. But, being someone who is an operator and someone on ground, a couple of things clearly suggest to me that things would be better this year. The federal government has done a lot of things in the last four to five months which a number of people might have not paid attention to. This is the first time since democracy in 1999 that the budget was signed at the appropriate time. So, we started off 2020 with an approved budget that has been passed by the National Assembly and assented to by the President.. We should not underplay the importance of that because what that means is that all the fiscal measures that are incorporated in the budget, the execution could have started from day one of the new year. I’m not sure a number of people understand the significance of the new Finance Act, which is also quite high. Again, when I look back at the last 20 year of democracy, this is by far the most comprehensive review in tax law that has taken place. So, that is also quite significant and I just used those two examples. There is also the Petroleum Sharing Contract law that was signed into law relating to the oil and gas sector, which we have been working on for years. The federal government is very purposeful; they have not made a lot of noise around it, but you can see a government that is moving with purpose. And those are the things that give me comfort that the performance of the economy this year would be better than last year. However, having said that, if you look at our growth forecast, it is still not sufficient enough because this is an economy that we need to be growing at a minimum of seven to eight per cent yearly. But I am comforted by the quality of people the president has put in the economic advisory council. I am also very comfortable that the President would get the right quality of advice in terms of things that need to happen. Fundamentally, we need to move more and more towards a market-determined pricing. So, readily what the government has also done recently on the electricity tariff is also very important. Again, quietly but boldly, we are moving in the right direction. We are hoping we should also move to the appropriate pricing as far as petroleum product is concerned.