Duroha: With Covid-19, Banks Must Be Creative in Product Offering

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Anya Duroha

The Chief Executive Officer/Managing Director, Nova Merchant Bank Limited, Mr. Anya Duroha, in this interview advises financial institutions to look beyond their traditional means of operation and embrace innovation. He also speaks about the performance of the three-year old bank as well as shed more light on its recent bond offering. Obinna Chima brings the excerpts:

Can you tell us about your recent bond issuance, how much did you set out to raise and what you are going to do with the proceeds from the bond offer?

As part of Nova Merchant Bank’s strategy, we knew that at this point we needed to get long term fund to be able to finance long-term assets. Being a merchant bank, we would like to do a lot more developmental financing and you need long term fund to do that. So, that was why we went to the market to raise those bonds. Our plan was to raise N10 billion through a 7-year tenor, callable after five years, subordinated bond, such that it would count as tier-2 capital. But it was oversubscribed by about 300 per cent. That means that we had investors subscribing to about N31 billion, whereas we set out to get N10 billion. But the instructive thing was that the investors were diversified – from individuals to corporate entities, asset management companies, insurance companies, foreign investors and other investment groups. The bond was issued at 12 per cent, so it was a good outing for us. Like I mentioned earlier, the proceeds is to finance long-term corporate loans for our customers. We have a rich pipeline of such loans and we feel this is the right time to do this.

Specifically, what sectors are you looking at supporting?
We are looking at creating some medium to long term loans. Specifically, we would be looking at sectors such as agriculture, fintechs, telecoms and healthcare. These are the areas where we see opportunities now. And substantial part of the money would also go into building capacity for export for the country.

How has the bank performed since its establishment in the past three years and particularly, how has the virus impacted your operations this year?

I can say that in the last three years, the bank has done very well. We have seen our earning grow from about N1.2 billion in 2017, to about N5.8 billion in 2019. We have also seen profitability in the upswing. It is instructive that in the first year, the bank made N510 million. In my 28 years of banking in Nigeria, I can’t remember any bank that made profit in their first year, but we did. And by the second year we actually doubled it to about N1.15 billion and by 2019, it printed at N1.65 billion. Now, as you rightly pointed out, the Covid-19 pandemic has really affected everybody all over the world. But I think the good thing is that Nova Merchant Bank foresaw this. The moment we heard about the outbreak in China, we knew that inevitably it was going to filter down to everybody. So, right from when it surfaced, we started looking at what to do to make sure that we continue doing well and doing business. Our first quarter results are unaudited, so I won’t give the figures. But, I can tell you that the results were very good. The second quarter was also much better than the first quarter. So, let’s just say that in the first six months of operations in 2020, we have done extremely well and much better than we had expected under this Covid-19. I think it is all thanks to our being proactive, looking ahead as well as identifying areas where we can do business and make money.

Now, with the pandemic which would be here for quite some time to come, are you re-writing your medium to long term strategy for the bank, looking at the disruptions in the global environment?

A strategy document is a living document and we would keep tweaking it to bring it in line with prevailing conditions. But at the core of Nova Merchant Bank, from inception we knew we were going to run a very lean structure that would depend a whole lot on technology, to do business. As a matter of fact, at the beginning, the question we kept asking our client was why do you need to go to a bank? At Nova we don’t even see the need for our customers to go to a bank. So, Nova was set up to use technology to support businesses. So, today we have customers, not just in Lagos, but all across the country. So, our strategy has helped us. What has become apparent with this pandemic is that most banks would have to do contactless banking in order to succeed, not just in Nigeria, but anywhere in the world. So, we are in a good place, the prevailing conditions have actually played to our strength and perhaps that was why we made positive results in the first half of 2020.

What has been the impact of the virus on the bank’s non-performing loans?

The non-performing loans (NPLs) of the bank has remained nil from 2017, 2018, 2019 and as we speak now, we have zero NPLs. Beyond having zero NPLs, in the category of ‘Delay in Payment,’ we don’t have any delay in repayment that is more than seven days old. Again, that speaks to our risk management framework and how we approach lending in this market. If you look at our portfolio of risk assets, you would find out that over 45 per cent of that portfolio are companies that are rated standard Grade A and above. So, these are investment grade levels. And if you come down to the other 55 per cent, you would also see that almost 80 per cent of them are collaterised by cash or near cash items. So, that portfolio has been very healthy and we have been deliberate in growing that portfolio and we would continue growing that portfolio.

We have seen a number of pronouncements from the CBN with regards to intervention in the manufacturing, healthcare and other critical sectors. Are you also looking tapping those intervention funds for you customers?

Exactly. It is an area we are working on. And we have few deals in the pipeline. We are going into manufacturing, pharmaceutical and health sector. Again, we just got an approval from the Bank of Industry to be able to work with the development finance institution. So, we are very conscious of our role as a merchant bank to support in terms of economic growth. Those sectors you talked about are sectors we play in and that was why we went for that long-term fund.

What is the outlook for the bank and also, how are you coping with the continuous Cash Reserve Requirement deductions by the CBN or are you not affected?

Of course, every bank in the country is affected by the CRR debit. But again, you must also sympathise with the regulator because they are trying to solve all kinds of problems in the economy – the lowered forex reserves, rising inflation and other challenges. So, you must sympathise with them because they have to use every tool available to them to manage the situation. In as much as we would have loved a lower CRR, since we are part of the country, we are doing the best we can to manage the situation. In terms of the outlook, as you pointed out earlier, this Covid-19 is not going away in the short-term and the most dangerous thing about the virus is that people are no longer afraid. So, it is a tough operating environment for everybody. But has come out clearly is that the traditional ways of doing business would no longer suffice.

Every bank and every institution would have to get very creative about the product that they sell and how they offer those services in the market. But, even with the pandemic, there are clear winners in the market. If you look at information technology, fintechs, healthcare, these might be the clear winners. So, banks would need to refocus and support these sectors, even while fulfilling their role of working with the sectors that are not performing very well, to bring them back on stream. It is something we take very seriously. One of the things we do on the advisory side of our business is also to work with industries that we have identified that are struggling, to see how we can be of help to them.

Why did Nova opt for a merchant banking license and how is the competition in that sub-sector of the market
So, whether you are a merchant or a commercial bank, once you are entering a mature market, the competition is stiff. I may not be able to speak for other banks, but I know that at Nova Merchant Bank, what we did was to look at where we have core competence and where we want to focus on, which clearly is in the corporate space, advisory services, asset management and securities business. So, we feel that working with corporates, we should be able to offer them the whole gamut of financial services. That was why we went for a merchant banking license. It fits into our strategy.