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Balogun - FCMB Is Active in Promoting Nigeria As an Investment Destination [interview](AllAfrica Via Acquire Media NewsEdge) The Group Managing Director, First City Monument Bank Limited, Mr. Ladi Balogun, spoke with Kunle Aderinokun on the bank's financial performance, following the release of its half-year results, its outlook, financial inclusion, and other pertinent issues As gleaned in FCMB's 2013 results there was an improvement in the bank's profit. Could you elaborate on the bank's performance as presented in the 2014 half year results? As at the first half of 2014, we had shown very strong growth in all key balance sheet parameters. Deposits were up 26 per cent from same time last year. Loans were up 42.7 per cent over the same six-month period. This is an indication of our growing market share which has been driven significantly by our expanding retail franchise where we are opening over 50,000 accounts consistently every month and disbursing over 20,000 loans every month. The strategy is beginning to pay off and the quality of our earnings is diversified and robust. On the profitability front, the growth was still evident, though not as much so. We saw 5 per cent growth from the first six months of last year. However, this in itself shows the underlying robustness of the business. Remember, it was at the beginning of the second half of the year in 2013 that the cash reserve ratio on public sector deposits was hiked to 50 per cent and further to 75 per cent by the last quarter. It was also in first quarter that private sector deposits were imposed with a 15 per cent cash reserve requirement from 12 per cent. In our own case, we have had to increase cash reserves on which we earn zero interest from N55 billion as at June 2013 to N145 billion as at June 2014. The impact on earnings in six months alone is at least N6 billion. The maximum commission on turnover also dropped by 33 per cent from 0.3 per cent to 0.2 per cent. Of course there were other policies such as a hike in the minimum savings rate payable and banks absorbing ATM fees previously incurred by customers. Almost every bank that has reported, except FCMB and three others, saw a drop in profit. We however acknowledge that these measures were desirable for our customers to help stabilise the exchange rate and also reduce the cost of performing banking transactions. The increased patronage is therefore gradually providing compensating income and we should see a much stronger growth in the second half relative to the same period prior year, as we believe things have now settled on the policy front. Having become a Holdco, FCMB Group Plclisted at NSE, what is your outlook? Going the Holdco route was something we had been toying with when we created the loose structure we referred to as First City Group (now formalised as FCMB Group) and the formal policy directive was a Godsend from three perspectives. Firstly, the quality of governance has improved significantly by creating this extra-layer. We have seen non-bank subsidiaries which were previously not receiving as much board attention rise rapidly in terms of profitability. CSL Stockbrokers has risen to becoming the second largest stockbroker in Nigeria by volumes traded year-to-date and in several of the last few months has actually been the largest broker. Profitability has risen by 157 per cent when compared to first half of last year. Similarly, FCMB Capital Markets has grown in revenue and profit contribution to the group. For the first time since the collapse of the capital market, our investment banking businesses are forecast to report over N1 billion in profit. The difference this time however is that the quality of earnings are much higher coming from low risk, sustainable and repeatable sources unlike the trend internationally and even locally during the boom period where investment banking profits were largely driven by trading securities or arranging public offers in a 'frothy' or somewhat overvalued markets. While much of the success of our non-bank subsidiaries is due to the hard work started by the respective management teams well before the adoption of Holdco, the adoption of this structure has been helpful in boosting both the quantum and quality of earnings. Secondly, our outlook is that it will become much harder for banks to make profits in the future. Why? Competitive rivalry will intensify as banks become bigger and foreign competition intensifies. The government and the central bank will like to see interest rates come down. If that happens, banking industry profitability normally drops by at least 40 per cent, if not more of industry assets are in treasury bills and therefore earnings on such instruments will drop. Fees like CoT will disappear. Banking will become a utility - very useful and helpful to people with stable but thin margins. Accordingly, non-bank financial services sector is where the growth will be, although initially at a much smaller scale in areas such as microfinance, asset management, brokerage, advisory services, capital markets, and insurance. I expect these industries will grow faster than banking and therefore the Holdco structure enables one to diversify. However banking will remain dominant. Thirdly and most importantly, for our customers, the Holdco structure allows us to earn a larger wallet share. We can advise companies on how to raise capital across both the bank market and the capital market and we can participate in both. We saw this recently in the landmark Oando-ConocoPhillips transaction. We can also help individuals pay schools fees and invest in long-term investment plans to meet future education expenses for dependents through our investment products. We get a complete view of the customer and we are working hard to ensure we become more relevant and helpful. This will lead to enhanced shareholder value. In essence the outlook is positive. After the FCMB-FinBank integration, how has the journey been in terms of culture, branch expansion, retail market scalability, how have they been for the bank? The merger has been broadly successful. Culturally we integrated well. There was no victor, no vanquished amongst the staff. We ensured at least two exco positions went to former Finbank staff. We liked Finbank's humility which is essential in building a retail banking culture and a service culture. Our branch network has increased by 80 per cent from 150 to 265. The most immediate impact of this was the rapid growth in our retail lending. In effect, we almost doubled our distribution network for retail lending with the consequent effect that we were by the end of last year disbursing about 20 per cent of all personal loans granted in Nigeria - a little known fact. We have now attained the capacity and the scale is coming steadily. Though not as rapidly as we would like, especially on the deposit front, but again we have a clear roadmap for that. It's about acquiring customers and growing our wallet share, or products per customer. This kind of scale doesn't come overnight, but when it comes it's extremely robust. This year, we will open 600,000 accounts across corporate SME and personal banking, taking our customer base to three million. The tipping point is when you reach five million active customers. We hope to get there in four years. This also gives us time to invest in technology and ensure the cost of serving this large base of customers is low. With your new retail banking inclusion? How is your investment banking in Nigerian banking industry's scheme of things faring? I had earlier addressed how the investment banking business is fairing in an earlier question. So let me elaborate on the nature of our investment banking under a Holdco arrangement. For us, investment banking is about helping to develop the economy on one hand and increasing and preserving the wealth of our society on the other. It's a very client and community-focused investment banking business as opposed to a market-focused one. Hence, we are closely aligned with the governments objectives of indigenising the upstream oil industry, eliminating and processing flared gas to support our power generation needs, expanding and fixing our electricity generation and distribution capacity, producing things we currently import (from agricultural produce to refined petroleum and petrochemicals, et cetera), and expanding our non-oil exports to help improve our balance of payments. We do this by advising clients and arranging financing for them and we have a long list of such accomplishments. In addition, we are active in promoting Nigeria as an investment destination as one of the leading brokers in Nigeria. Finally, we are expanding our asset management business, because we recognise that as prosperity increases in Nigeria and Nigeria offers some of the best growth opportunities, as much of that prosperity as possible should be reinvested safely and professionally in Nigeria. Hence, our investment banking business is really about creating a more prosperous economy and in so doing we will create value for our shareholders. It is not interested in proprietary trading or speculative activities. The Nigerian banking Industry is a force in the West African sub-region. Do you think the industry is up to speed when compared with what is happening in places like Kenya and South Africa? I think each of these markets have their strengths. Kenya is ahead in mobile banking and financial inclusion. South Africa is ahead in regulation and risk management. But we are closing fast in those areas and hats off to our regulators post-crisis. They have done a fantastic job in restoring confidence and improving the industry's stability. I believe this is also the focus of the new governor of the central bank. In addition, Nigeria is at the front of the pack when it comes to growth opportunities as we have the largest portion of unbanked, the fastest growing and largest economy. Hence, in spite of the fact that our country is currently behind these two on infrastructure development and behind South Africa on institutional effectiveness, we hold the greatest potential if we can harness it. Looking at the cashless policy of the CBN, how are Nigerians and customers embracing financial inclusion? In Lagos and other major metropolitan areas, adoption has been impressive. Today, most retailers have PoS terminals. An increasing number of transfers are also done through mobile phones and the internet. I think over time, as telecommunications infrastructure improves, this will only rise and eventually spread to semi-urban areas. But compared to where we were just five years ago, it's like night and day. The BVN number registration of bank customers in Nigeria has commenced in the Industry. How is FCMB getting ready for the CBN and Bankers' Committee's biometrics project? We are educating our customers on the merits of registering their biometrics to ensure an enthusiastic response. We are also constantly training our staff and our contact centre to respond to enquiries. We have begun taking delivery of registration equipment and begun registration in about 40 locations. Hence, these are early days but so far so good. FCMB is 30. We have seen banks come and go, for your consistency and long history, what has been the secret? I think some of this is providential. God certainly has a purpose for the institution and until that purpose is fulfilled we can only get stronger. I could theorise and blow our trumpet about how dynamic we are (which we are - having been able to evolve through time) how professional and disciplined we are (which you need to be in order to survive in Nigeria). I could talk about the attributes of the founders and leaders we have had, who have shown both courage, imagination and discipline and built this culture in our people. All these things are part of the story, but the truth is that it is simply God's will. Your father is now 80. He is the grand master and founder of FCMB.Has OtunbaBalogun truly retired? How has he been supporting your management from retirement? Obviously he has retired. I don't know many 80 year-olds are still working. However, he is the core investor in the business and it would be strange of him not to keep abreast of his investment. So his involvement is really in getting information on our performance and the drivers and exercising his voting and governance rights as a major shareholder. Why are you media-shy? Some of us think you like to stay away unlike the majority of your counterparts in other banks. I do not think I am media-shy but I accept, that is your perception. I simply speak when I am spoken to and like to get on with my work. I can be very outspoken, but I believe that if I do speak it needs to be relevant and important and not self-promotion. However, I acknowledge the brand FCMB needs to speak. I would like us to speak through our customers and their experience. Hence I spend a lot of my time working on this experience in a bid to ensure our customers speak for us. QUOTES: "While much of the success of our non-bank subsidiaries is due to the hard work started by the respective management teams well before the adoption of the Holdco, the adoption of this structure has been helpful in boosting both the quantum and quality of earnings" "Our investment banking business is really about creating a more prosperous economy and in so doing we will create value for our shareholders. It is not interested in proprietary trading or speculative activities" Copyright This Day. Distributed by AllAfrica Global Media (allAfrica.com). |