As the world continues to grapple with the outbreak and control of COVID-19, it is leaving in its trail negative impacts. And as the plague is resetting the global economy to a new normal, business operations are being forced to adapt to new ways of doing things. The banking industry is not exempted in the new world order and it’s in fact, playing a major role in defining the future. The Managing Director/CEO, Polaris Bank Ltd, Mr. Adetokunbo Abiru, whose bank recorded an impressive feat in 2019, in this interview with Kunle Aderinokun, explains the drivers of the performance and speaks extensively on the results.
He explains the ongoing business, strategy and digital transformation in the bank and provides insights on the future of banking globally and in Nigeria. Besides, Abiru notes the positive transformative role of technology in banking, saying the disruption is already here with the FinTechs and Telcos upping the ante of competition and challenging traditional players. Emphasising on the negative impact of COVID-19 on business and the economy, he points out that with the prevailing situation, corporate performance may be adversely affected in Nigeria and the world over. Meanwhile, the chief executive believes Polaris Bank is a positive case study of regulatory intervention in the Nigerian banking industry
Polaris Bank’s 2019 financial results that were recently released appear quite impressive. Most people were surprised about the results, in a good way of course. Did you personally expect such strong results?
What people see today as outcome, is the potential we had seen since September 2018, when we transited into the new entity called Polaris Bank. To realise this objective, it became clear that our first task was to lay a solid foundation for capital preservation and sustainable profitability. With this in mind, we immediately set out on a corporate transformation journey for the new entity covering two broad areas: market and business, model and operating model and platforms. For the former, we looked at our business development i.e. customer segments to play with more focus on retail customers and commercial businesses (with value chain business opportunities). For the latter, we took a deep dive into our organisational efficiency, innovation and digitisation and User Experience. With the support of CBN and AMCON, we were able to harness the enormous potentials in the franchise.
Can you talk us through the key drivers of the outcomes recorded and what did you do to produce these results? Where did the income come from?
The key drivers of the outcome were strong earnings from interest and non- interest income as well as through operational efficiency via cost containment, all resulting in a decent cost to income ratio. These measures are key initiatives of our on-going transformation programme.
We noticed that though the revenue performance was strong, the bank had a slight decline in its deposit base. What accounted for that? And doesn’t that mean, in fact, you may have lost some market share?
The slight decline of about one per cent in deposit levels, came about because of our deliberate attempt to re-organise our deposit mix to fit our retail strategy of low-cost deposit focus. We therefore had to let go of hitherto expensive funds carried over from our legacy operations. In addition, we also repaid about N80billion of legacy obligations. If you situate this in the context of the closing figure, you will agree that the approach is pragmatic, and in a sense a growth and not a decline.
One area of concern though in your otherwise stellar performance is the 46 per cent non-performance loans (NPL) ratio, which remains quite high. We understand your team has managed to reduce it from around 80 per cent when you took over the former Skye Bank with a very bad loan portfolio. But, how do you plan to take this down to a more acceptable level?
As you rightly observed, these are part of the defunct Skye Bank loans inherited. The major contributors are between 2 to 3 obligors, and positive loan work-out arrangements are at an advanced stage. Once those are concluded, the NPL will be significantly reduced.
Can you outline for us the bank’s other performance ratios and their implications for the institution and for your depositors and customers?
Net interest margin @ 9.8per cent, Cost of fund @ 4.7per cent, Cost of risk @ 5per cent, Capital adequacy @ 14per cent, liquidity ratio @ 81per cent, all these compete well with the industry and above the regulatory minimum. The implications are better margins, lower cost of operations for good returns to all stakeholders, and they are signs of a healthy institution that is strong and has capacity to meet obligations and support the need of our customers.
Where will you place Polaris Bank within the banking and financial services industry? How competitive is your bank relative to other Tier 1 and Tier 2 banks?
Presently, I think less of where to place the bank, but more of value we are bringing to the table, the institution we want to be, the excellent service centre we want to be known for, the frontiers of innovation we want to lead (and we are on our way), how we want our customers to see us, and the best place to work that we want to create etc. Let’s leave the ranking of the bank to financial analysts.
Beyond the financial results, please tell us what changes, if any, you have accomplished in the bank in terms of culture, strategy and operations?
As mentioned before, the bank is currently on a corporate transformation journey, which focuses on five key pillars: process, technology, business strategy, brand and culture alignment. With regards to technology, we have concluded the first phase of our I.T platform refresh to world-class servers and data centres, we are strengthening our cyber security and network capacity, we have upgraded all our digital channels with robust offerings across mobile banking, internet banking, USSD, POS, ATMs, including agency banking. As we reposition our I.T infrastructure to world class standards, we are implementing a robust digital transformation to actualise our vision of making Polaris a truly digital bank that makes banking more convenient with customised /value-adding products offering.
For business strategy, we are primarily driving a retail banking strategy, focusing on growth sectors in the commercial banking space. We have expanded the frontiers of our retail product offerings to the needs and yearnings of today’s market.
Our user experience and service quality have also improved considerably, and we are further overhauling our internal processes to support the digital transformation drive. We have also strengthened our personnel capacity to not only keep up with, but to beat the pace at which technology is reshaping the banking landscape. Staff morale, which we met very low, have also been significantly galvanised across all levels. The recently released results are an early validation of the transformational changes that are ongoing in the bank. To further reinforce the evolving brand value in the mind of the banking public, we are also re-projecting our brand identity both in the virtual and the physical environment.
What is your vision for the bank?
I envision a Polaris Bank that is a top, innovative and digital-led retail bank. A preferred partner that provides superior financial solutions to our customers and that is not afraid to be different from the pack.
We read in some of the literature about a corporate transformation in Polaris Bank. What is that about?
More on this has been discussed before, but I will summarise it to be a complete enhancement of our corporate identity across process, technology, business strategy, brand and culture to add value to our customers and other stakeholders.
Is your proposed or on-going digital transformation part of this corporate transformation?
Yes, it is part of the transformation journey on which we have made significant progress. We have strengthened the necessary resources required to set up a fully digital bank including recruiting seasoned experts and young talents.
What will you say about the role of your key regulators, especially CBN and AMCON in this successful turnaround? Polaris Bank looks like a case study of a successful regulatory intervention in the banking sector. Isn’t that so?
The role played by the regulators particularly CBN has been incredibly significant in turning the fortunes of the bank around and averting a systemic crisis. The selection and composition of the board by the CBN with seasoned experts from different backgrounds, and the capital injection through AMCON are some of the factors that contributed materially to the success of the bank. To your second question, the answer is yes. Polaris Bank will remain a classic testimony of a successful turnaround of a troubled bank through a regulator-induced intervention.
In spite of this commendable performance, questions remain about the future of Polaris Bank. My understanding is that the bank remains a “bridge bank” – a kind of transitional institution. Where do you expect this journey to end?
From all indications the future of the bank is now very bright as evidenced by the improved prudential ratios of the bank. We are no longer a bridge bank, from the moment the legacy bank was liquidated by NDIC, and Polaris Bank came into being and adequately capitalised to the level of a national bank. And as per where we expect the journey to end, we expect the regulator to fully divest its 100 per cent stake, so that the bank can become more competitive, and equally rise up to the changing landscape in banking.
Beyond Polaris, what’s your view about the future of banking and financial services, not just in Nigeria, but globally?
I think this is clear for all to see. The transformative role of technology in enabling banking business is no more a future conversation, but a present reality. As you can see, this has already gained momentum in more advanced jurisdictions. Indeed, the disruption is already here; the FinTechs and Telcos are already upping the ante of competition and challenging traditional players. Banking as we know it today will be different from what it will be like tomorrow and banks will have to continue to reinvent themselves to remain relevant and retain dominance. Frankly, the future of financial services is evolving and technology will surely redefine it.
2020 will certainly be more challenging for the entire economy and particularly the banks given the effects of the COVID-19 pandemic and the ensuing global and Nigerian recession as well as fiscal crises predicted by the IMF. What challenges do you expect for your bank and the industry in the rest of 2020?
Clearly, corporate performance will be adversely impacted not only in Nigeria, but the world over. Credit quality will be challenged, business market size is already shrinking, and inflationary pressures are mounting, while currency pressures can also not be wished away. Indeed, on the face of it, 2020 will be a challenging year and Polaris Bank is not insulated from all these. Nonetheless, we have laid enduring foundation with capacity to weather the storm and COVId-19 will not be an exception. We have outlined and are pursing various measures to minimise the impact COVID-19 could have on the bank’s performance. Typical in all crises are inherent opportunities, we will seek out those of the current crises and maximise them.
How will these challenges affect the bank’s performance?
With the general slowdown in the economy, you can hardly outperform the environment where you operate. While maximising all available income sources, we will also seek ingenious means of containing its negative impact.
You seem to believe a lot in technology and digital transformation defining the future of banking. What informs your belief?
That has always been known and it is playing out during this COVID – 19 crises. Our preparedness moderated the impact that the crises could have had on our operations. Specifically, we can provide unhindered services to our customers leveraging technology, while significant percentage of our staff were able to perform their daily duties remotely in a seamless manner.
Technology made this possible. Just look around you, is there any area of our lives that technology is not reshaping? Why should banking be an exception?
More so, if you look at the nature of our business, it lends itself to digital adaptations more than other areas of our lives. The world is a global village; just look at what is happening elsewhere, and you know it is only a matter of when will it catch up with you and not if. So, it is not so much of what I believe, it’s where the world is evidently heading.
Not much is known about you outside your resume as a banker, who previously worked in First Bank as an executive director, GTBank as well as in Lagos State as commissioner for finance. Who is Tokunbo Abiru outside the official environment?
Although my life after school has been largely around banking, but there is more to life than banking. I am enthusiastic about the family, and I devote my get-away time to my wife and children. In my reserved profile, I appreciate the team value in football, and the entire ecosystem around the game.
Through self-talk and concentration, the lovers of the game, owners/managers/players, manage their persistence, stress levels and their emotions, which in turn improves their overall outcome.