Category: THE CEO

Sterling Bank grew profit to N8.02 billion in the third quarter but the key points of the nine-month results are not in the actual face-value figures but stronger underlying fundamentals that underscore a more qualitative performance. Deputy Group Business Editor, Taofik Salako reports

Sterling Bank Plc has cut down non-performing loans by almost two-thirds this year as increasingly efficient credit risk management, aggressive retail banking drive, operating cost efficiency and strategic focus on growth sectors of the economy strengthened the overall resilience of the commercial bank to global and macroeconomic disruptions.

Key extracts of the interim report and accounts of Sterling Bank for the nine-month period ended September 30, 2020 showed non-performing loan (NPL) ratio of 2.9 per cent in third quarter 2020 compared with 7.4 per cent recorded in third quarter 2019. Actual NPL, which stood at N48.8 billion in third quarter 2019, dropped from N55 billion recorded at the beginning of 2020 to N18.5 billion by September 2020. With growing retail banking franchise driving low-cost deposits, cost of fund declined by 120 basis points to 5.1 per cent while net interest margin improved to 8.0 per cent in third quarter 2020.

Management’s focus on cost efficiency dropped operating expenses by 3.3 per cent, despite uncontrollable increases such as in fees related to the Asset Management Corporation of Nigeria (AMCON) and deposit insurance. Current and savings (CASA) deposits rose by 26 per cent, supporting total customer deposits to N951.8 billion by September 2020. Thus, cost-to-income ratio (CIR) improved to 73.4 per cent by third quarter 2020 while the liquidity position of the bank expanded further with capital adequacy ratio (CAR) of 16.11 per cent by September 2020.

The bank reported a trading income of N7.1 billion for the third quarter 2020 compared with N1.9 billion for the corresponding period of 2019, representing an increase of 264.7 per cent. Gross earnings stood at N106.07 billion in 20202 as against N109.66 billion in 2019. Net interest income rose by 3.5 per cent from N47.53 billion in third quarter 2019 to N49.21 billion in third quarter 2020. Pre-tax profit rose to N8.02 billion in third quarter 2020 as against N7.65 billion recorded in comparable period of 2019. After taxes, net profit closed third quarter 2020 at N7.37 billion as against N7.58 billion in third quarter 2019.

Total assets rose by 10.3 per cent to N1.30 trillion by September 2020 compared with N1.18 trillion recorded by December 2019. Shareholders’ funds also increased by 6.4 per cent from N119.6 billion in December 2019 to N127.2 billion in September 2020.

The third quarter performance came on the background of prevailing uncertainties that characterised the macro-economic environment in the wake of the outbreak of the COVID-19 pandemic and the attendant fiscal reforms by the Federal Government.

Managing Director, Sterling Bank Plc, Mr. Abubakar Suleiman explained that a 26.2 per cent dip in fee income occasioned by the downward review of electronic banking fees, and slower loan origination due to the protracted lock down was moderated by the 264.7 per cent spike in trading income.

He noted that the growth in balance sheet was driven by a 26.5 per cent growth in low cost funds, which saw the bank’s CASA mix improve to 71 per cent from 60 per cent, delivering a 6.6 per cent growth in customer deposits.

According to him, cash and short-term balances increased in line with the higher regulatory reserves while interest income also declined by 6.7 per cent, which was offset by a 17.0 per cent decline in interest expense. This delivered a 120 basis points drop in cost of funds and, consequently, a 100 basis points increase in net interest margin.

He pointed out that the bank was able to maintain a strong capital and liquidity position of 16.1 per cent and 32.5 per cent respectively above regulatory benchmark.

He said the overall performance in third quarter 2020 continued to reflect positive results of the bank’s strategic decisions and investments in focus areas as it continued to record significant improvement in both funding and operational costs.

According to him, with economic activity picking up in the third quarter, following the gradual ease in the nationwide lockdown, the bank had continued to leverage on its existing remote work policy to enhance workforce productivity while ensuring uninterrupted service delivery to both existing and new customers.

Growth and diversification

Sterling Bank’s growth outlook is anchored on long-term sustainable partnership in identified major growth sectors of the Nigerian economy. The sectors- Health, Education, Agriculture, Renewable Energy and Transportation, formed the nucleus of the bank’s HEART strategy, win-win value-based strategy that focuses on long-term value creation through investments and financial supports in sectors considered as critical to the well-being of Nigerians and Nigerian economy.

Sterling Bank has also commenced the process to obtain final approval to transit to a holding company structure, after the Central Bank of Nigeria (CBN) granted approval-in-principle for the restructuring. A group structure, as against the current standalone commercial banking structure, will allow the bank to grow its burgeoning alternative finance market and take advantage of emerging opportunities in ancillary financial services, fin-tech and the capital market. The holdco structure may herald the return of its strong capital market brand, one of the flagships of the then investment banking space. Sterling Bank had divested from its non-bank subsidiaries in line with the banking regime which requires banks with non-bank subsidiaries to either divest from such subsidiaries or adopt holdco structure.

Suleiman said the bank believes that the proposed structure incorporates efficiencies around operations and financing efforts that will support the individual businesses in reaching full potential through increased portfolio diversification and improved efficiency among others. Under this restructuring, the bank plans to spin off its non-interest banking window which became operational in January 2014 into an autonomous entity.

According to him, holdco structure enables the non- interest bank and other non-core businesses to achieve greater results based on focused management of the distinct businesses while there would be improved efficiency resulting from the consolidation of key functions such as compliance, risk management and other support functions, yielding improved prospects for individual business growth.

Besides, the group would also benefit from enhanced corporate governance which serves to promote a consistent culture across the group and quality of service to customers thereby facilitating sustainability of earnings. Holdco structure would also facilitate better access to capital by leveraging the consolidated financial strength of the group which would have been otherwise difficult for each individual subsidiary company.

“Going into the holding company structure, our desire is to entrench our business model premised on social capitalism where we believe that private sector capital and market-based tools will offer the best types of solutions to Nigeria’s most pressing social and environmental challenges. The holding company gives us the structure to explore our business model further,” Suleiman said.

According to him, the holdco was designed to operate on three major premises of specialization, partnership and digitization. While the conventional bank will focus on building skills and using technology to provide solutions in the areas that are critical to development in the country as encapsulated in HEART, the non-interest bank will focus on building partnerships that connect individuals and businesses leveraging technology to create business optimisation while also solving individual’s daily financial needs. The digitisation drive will create an enabling environment for the separate financial institutions to grow while providing services and support to build efficiencies in different ecosystems.

Continuous innovations

Continuous innovation to meet the changing needs and lifestyles of businesses and individuals is also expected to help deepen the bank’s performance in the years ahead. While consolidating the success of its instant consumer-loan platform, known as Specta, the bank recently launched ‘Switch’, a new solution that facilitates international banking and allied services for Nigerians in the Diaspora.

Switch, a multi-service platform, enables Nigerians resident abroad to enjoy banking and other allied financial services. Approved by the Central Bank of Nigeria (CBN), the funds domiciled in the bank via the ‘Switch’ app are insured by the Nigeria Deposit Insurance Corporation (NDIC). The new product which is a mobile app is available on Android and IOS stores. ‘Switch’ enables processing of everyday banking and financial services such as bills payment, funds transfer, payment requests, investments, asset financing and insurance services, among others, in their preferred currencies.

‘Switch’, in the tradition of people-centred  value creation by the bank, was aimed at solving a nagging problem. Over the years, Nigerians in the Diaspora have often had difficulties funding their Nigerian bank accounts using international bank cards due to high charges, and inability to perform seamless online transactions without recourse to the bank or its agents for money exchange, among others.

With ‘Switch’, customers can undertake several seamless transactions including currency swap, access to asset financing diversified investment offerings and protection from mishaps with various insurance packages.

Beside private customers, Sterling Bank has also stepped up its supports for governments across the tiers to ensure realisation of societal well being, a core pillar of the bank’s philosophy. The bank partnered with Kwara State Government to actualise the Kwara State Health Insurance Scheme (KSHIS), which was moribund despite its inauguration three years ago. The scheme is structured to cover three segments: the indigent people who are the poor of the poorest in various communities in the state who will not pay any premium because of their financial predicament, the informal sector comprising people with daily income, but no structured salary who will pay N6,000 per annum and the formal sector which covers structured salary workers in both the public and private sectors that will pay N9,000 per annum.

The bank said its support for KSHIS was in line with the HEART strategy as the health sector has influence on the overall economy.

The bank also recently partnered with Osun State Government and other stakeholders to launch a tourism master plan known as ‘Culture and Tourism for Sustainable Economy’ (CUTOSEC) for Osun State. CUTOSEC is expected to drive implementation of plans that would make Osun Sterling Tourism Vision (OSTOV) 30-30 a reality. The OSTOV 30-30 involves development of 30 projects, including development of sites and programmes across the state into premium tourist destinations by 2030. This will not only enhance the status of Osun as a leading tourism hub but also create several economic opportunities for the citizens of the state.

Sterling Bank stated that the OSTOV 30-30 initiative aligns with its philosophy of enriching lives through financial intermediation in critical areas that create jobs, enable growth and sustains wellbeing in rural and urban areas.

With stronger underlying business fundamentals, diversification, innovation and focus on key sectors and institutions, Sterling Bank’s business model appears sufficiently inured to withstand headwinds and ensure steady growth in the period ahead.

The ratification of the African Continental Free Trade Agreement (AfCFTA) last week by the Federal Government is expected to have resounding impact on the Nigerian economy. Some firms are positioning to key into the pact. One of such firms is the Inland Containers Nigeria Limited (ICNL), the parent company of Kaduna Inland Dry Port. The firm, which has been in the forefront of taking maritime activities to the North, says it is set to explore the Niger Republic market. ICNL’s Managing Director, Ismail Yusuf speaks on this and more, including his company’s projections for 2021 in this interview with journalists. MUYIWA LUCAS was there.

This has been a challenging year for businesses due to the COVID-19 pandemic and the ENDSARS protests. How have these affected your business?

This year, we all know the problems we have faced and still facing as a result of the corona virus pandemic which affected every sector of the economy. As Inland Container Nigeria Limited (ICNL), the operator of a bonded terminal in Kaduna and Kano, it affected us seriously because majority of our customers were unable to go abroad to place their orders. You know 60 -70 percent of products brought into the country are manufactured from China. A lot of businesses were affected around the world as a result of the pandemic. As per our own operations, the volume expected of us dropped drastically, notwithstanding that the Federal Government allowed us to come into the port and operate during that period as a result of essential services privilege that are required for the medicals being brought in. I think we have lost about 40 percent of what we were expected to make during that period. Even those ones that we got, we still have problem and challenges from government officials in terms of documentation, holding on to jobs, etc which affected our business. The roads are also very bad which causes containers to spend extra days on their way to Kano and Kaduna which accrues more cost to importers. Apart from that, there are other challenges facing Kano and Kaduna businesses. We are looking at how we can remedy that next year to avoid a repeat of what happened this year.

What is the value of the loss ICNL incurred during this period; also how many staff members  lost their jobs?

Loss of revenue during Covid-19 for close to six months was about N750 million. We are however happy that we did not lay off any staff member, although some left the company voluntarily. It was not an easy decision not laying-off workers, but we had to work around it because we didn’t want to throw anyone into the labour market; it was nobody’s fault that there was a pandemic.

Government is desirous of extending maritime services to the North, especially Kano and Kaduna, where you have presence. To what extent have you interfaced with business communities there? How have you influenced them to patronise maritime services?

Kano, we all know, is a hub of commercial activities. If you look at the volume of import that goes to Kano and aggregate the total that goes to the north, Kano takes 50 percent of it. ICNL established in Kano in February 1980 and the purpose is to move the maritime activities closer to the people of the hinterlands, saving them the stress and much cost of coming to the coastal areas themselves. I believe they are happy with the services we are rendering and we are number one, no competition. Even if we have competitors, they are not doing 30 percent of what we do in terms of efficiency, effectiveness and customer satisfaction. I was in Kano three weeks ago to meet with some of my customers. I met with the Commissioner for Commerce to discuss business and how we can organise seminars with the business community in Kano. I also met with the Deputy Governor who assured us of the state’s support. Very soon a change will also come for Inland Containers, Kano, in terms of upgrade.

Government recently talked about extending rail lines through the Kano axis to Niger Republic. To what extent is ICNL prepared to maximise the logistic linkage between Nigeria and Central Africa?

It is a good move for us because we have been looking at how to penetrate surrounding countries. With this planned African Continental Free Trade Agreement (AfCFTA), our target is to see that we do business with countries like Niger, Mali, Chad and even Cameroon. Earlier this year, I and our subsidiary company went to Maradi in Niger to canvass for business and we were accepted. The people there are eager to do business with us. We had gone to Niger Republic ahead of Federal Government ratifying the AfCFTA. We have been there with the Association of Nigerian Licensed Customs Agents (ANLCA) President, Prince Iju Nwabunike. We visited about three states there- Maradi, Niamey the capital and one other state. In Niger, we met with their Chamber of Commerce and they are willing and eager to do business with Nigeria. They even prefer Kano because of the local language similarities which makes transaction easier. When we came back from the trip, we reported to the Nigerian Shippers Council (NSC) and also wrote to the Nigerian Customs Service (NCS), telling them our plan. The NSC set up a committee to look at the modalities to ensure that we have a smooth running in terms of business transactions with those countries. The committee has met thrice and once they conclude their deliberation and report, we will take it up from there.

How has the ongoing rail repairs affected your operations considering that ICNL is very much dependent on road haulage?

This has affected us 100 per cent. The purpose of establishing inland dry port or inland bonded terminal is to make cost of clearing cheaper to the users. That is why the company was sited very close to the railway in Kano. With this new development, the narrow gauge we are talking about has been suspended by the Nigerian Railway Corporation (NRC) as they are not operating fully due to Covid-19. We believe that by the time the pandemic subsides, they will go back to full functioning capacity.  Apart from that, the standard gauge that the Federal Government is working on has not reached Kano. That of Lagos to Ibadan will also be standard gauge. We have discussed this with the NRC and they assured us that they will not abandon the narrow gauge. If the standard gauge is working to Ibadan, they will still put the narrow gauge to use for us to transport our goods from Lagos to Kano, pending the time the government extends the standard gauge from Ibadan to Kano.

What is the degree of ICNL’s presence in other ports like Warri, Port Harcourt, Onne and Calabar? How is ICNL operating there?

We are yet to be in Warri, but we are in Port Harcourt and Onne. Necessity also made us have an operational office there due to the stress of accessibility in Lagos as a result of congestion and gridlock in the area. Our priority is to service our customer with a lesser cost, but we discovered that trucks will come from Kano with exports and will not be able to access the Lagos port. Our drivers have to sometimes pay their way through Ijora, a move that does not work all the time. Sometimes, after paying, you are turned back. There is also the issue of Lagos State Traffic Management Agency (LASTMA). The company felt it was becoming too strenuous and people were tired to come to Lagos to clear their goods, so we opened an office in Onne two years ago, from where we now move containers to Kaduna and Kano. Things have been going very well. I have about six staff working there now.

Let’s look at 2021. What are your plans, projections and programmes for the industry, your business and the economy?

The Chairman and Board of Inland Containers are working seriously towards the expansion of the business and also how to make our services more attractive to our customers. Apart from opening an office in Onne, we have engaged barge operators who will move containers out of the port to suburbs and the truckers will not need to come to Apapa again. One of them is the Ikorodu Lighter Terminal. We have already started operations but we will increase our activities there next year. Secondly, we have also engaged another barge operator, operating in Itokin, after Ikorodu, in Ogun State. I have been there to assess the terminal myself and work has already started. I think in the last one month, we have moved over 300 containers from Itokin to Kano and Kaduna. We have started with Ikorodu, also moving nothing less than 200 containers there so that our customers do not need to come to Apapa to load with their trucks. These are steps we have taken to save time and achieve customer satisfaction.

Next year, we are also looking at how we can penetrate the South-East. We want to have a presence there. Our plan in the next six months is to have a bonded terminal in a town in Oba, Anambra, about 30 kilometers away from Onitsha. We have gotten a land and provisional approval from the Customs while we have an architect already working on the drawing. I believe construction will start next year. We are also not surrendering our hope for the Onitsha River Port. We were told it has been given out but the preferred bidder has not done anything on it yet. Our belief is that we may still get it because our bid bond is still there and has not been cancelled. We are optimistic about getting it as preferred concessionaire.

COVID-19 has had a dire effect on the economy, leading to persistent lockdowns and looming high unemployment. It has also increased the strain on food demand.The situation is a critical challenge. In this interview with DANIEL ESSIET,  Chief Executive, Agricultural and Rural Management Training Institute (ARMTI), Dr Olufemi Oladunmi suggests  measures to improve the country’s food security and achieve a better position in its balance of payments.

Some significant reforms have been introduced to increase the country’s agricultural output. How has the agricultural sector responded to them since 1979?

Reforms and policies are instruments of change. They do not, on their own, change anything until they are set in motion by consistent implementation over a period of time. I will say that the nation’s agricultural sector is growing, but not at the pace we hoped it will yet. This is, perhaps, due to the fact that we are still being distracted by the cheap money we get from oil. However, the path of agricultural commodity value chain development that the country is treading is a welcome development for accelerated growth and development of the sector.

What are the top agricultural issues Nigeria should focus on to meet its food security needs?

We need to pay more attention to issues of post-harvest loss management, agricultural produce processing, farmer (i.e. smallholders) empowerment, market linkage, access to improved agricultural inputs, irrigation, mechanisation, among others.

People have been talking about productivity enhancement through development of high-value commodity supply chains. While this has been driven largely by the private sector, what greater role can the public sector play?

Agricultural commodity value chains are basically private sector-driven. The public sector is expected to complement the private sector by providing an enabling business environment; and regulating actors and transactions along the various commodity chains.

Would you say agricultural research has become more relevant to address the emerging challenges faced by farmers?

Given the rate at which the world is evolving, agricultural research continues to be highly relevant in addressing the challenges confronting farmers, including low productivity, post-harvest loss, etc. There is, therefore, the need to develop more high value varieties of various agricultural commodities, for instance. To increase agriculture growth, what is fundamentally required is to increase productivity and the efficiency of the agricultural research system.

What should the government do to improve the quality of the research system, increase the accountability of the researchers and reward them based on performance?

We need improved collaboration and coordination among agricultural research outfits in the country; goal and target setting for each institute; effective monitoring and evaluation framework/strategy; and adequate funding. Moreover, the theme of agricultural research development should be holistic along the nation’s objectives of agricultural development.

The share of agriculture in gross domestic product (GDP), however, has been declining due to the growth of the industrial and service sectors. How can we reverse this?

The observed low productivity in smallholder farms is worrisome. For instance, in cereals the nation’s average productivity is just about two tonnes/hectare, which is far less than the global average. Low productivity is the product of a number of factors, including low technical know-how, poor access to improved agricultural input, low or no farm mechanisation, restriction to rain fed agriculture, poor access to funds, etc. To  reverse this trend, all hands must be on deck. First, the smallholder farmers must help themselves by working together in formidable commodity-based groups. Moreover, extension agents need to be empowered to do their work. Smallholders, through their groups, need to develop direct linkage with their off-takers. A lot of ingenuity (in form of business services) need to be incorporated into various commodity value chains to solve the problems of poor access to funds and mechanisation.

The processing sector lags significantly behind that of several other developing countries, because of poor rural infrastructure characterised by low-quality feeder roads, the erratic availability of electricity, and a lack of cold-storage facilities. What blueprint would you recommend for the government?

I recommend the development of agricultural produce processing clusters for the priority commodities in each local government area of the country. Concerted effort should be made to ensure the provision of required infrastructure in all clusters to enhance efficiency and sustainability.

Since the lifting of the lockdown, food prices have risen dramatically. Why? What policies or practices would you recommend to reverse this trend?

Commodity price is a function of a number of factors, chief among which is the cost of production and marketing. The recent rise in the price of food may not be unconnected with the increase in cost of input, especially, those imported; increase in cost of transportation occasioned by increase in fuel price; shortage in supply of farm labour resulting from the ban on transnational movement due to COVID-19 pandemic. Moreover, seasonality affects food availability and prices in Nigeria.To reverse this trend, the productivity of the nation’s agricultural sector needs to significantly improve so that the production cost can be spread on larger output; post-harvest loss needs to be reduced to the barest minimum; agricultural production should be an all-year activity, not limited by rain, etc.

What should the government do to incentivise agro food processing?

Stable power supply, tax reduction, enforcement of quality standards, ban or tariff increase on the importation of similar processed food products.

Why do we need food parks?

We need food parks to facilitate linkage between producers, processors and marketers. This will help reduce post-harvest loss, increase actors’ income, create more employment opportunities, contribute significantly to national food and nutrition security, among other things.

The dairy and animal husbandry sector can develop and prosper only if it is able to increase farmers’ income and prosperity. How can we make dairy a source of farmer prosperity in this sector?

The journey to a prosperous dairy industry begins with the establishment of effective linkages between smallholder producers and the market. This affords the producers valuable information on market requirements (e.g. quality, handling, breed, etc.). Once the link is initiated, strict adherence to pre-set terms and conditions by parties will ensure sustainable prosperity for all actors along the chain. Moreover, we need to inculcate into the smallholders the culture of business (away from subsistence production which they are used to).

What is your view on the sustainability of aquaculture and fisheries in the future?

It can only be sustainable if the sub-sector is run on the concept of agricultural commodity value chain, which requires that the main actors along the chain are well integrated with each other.

What is the potential of Micro Irrigation (MI) in Nigeria?

Micro irrigation will significantly increase productivity in crop production in Nigeria. This will serve as insurance against unexpected drought; and make all-year round crop production possible. Farmers practising micro irrigation will also earn higher returns, especially, during off season periods.

What are the challenges associated with implementing MI across Nigeria?

It is capital intensive, but we will eventually achieve so much by starting and going a step at a time. With determination, it can be achieved.

What is the future of irrigation systems?

Irrigation is the future of global food production. It assures higher productivity and all year-round availability of food. We must begin to plan to seriously invest in irrigation facilities.

What are the challenges of the food processing segment?

Power supply, availability of quality raw materials, adherence to quality standards, competition with imported products, etc.

How has improved seeds sown the success of agriculture?

Productivity starts with sowing quality and improved seeds.The better the seed industry, the better the agricultural sector of the nation.

Where does the seed industry stand in terms of innovation?

A lot of work is being done by breeders and other experts in the seed industry. Today, we have crops that are bio-fortified with essential micro-nutrients, high-yielding varieties, etc. All of these are the outcome of the innovative and assiduous work experts in the seed industry are doing.

What are your thoughts on genetically modified (GM) technology in crops? Is it favourable for our agricultural development?

While GM technology helps to improve agricultural productivity, I will rather wait for our health and biosafety experts to certify that GMOs are sustainably safe for human consumption before I approve of its consumption.

What suggestions would you like to present the government for improving farmers’ condition?

Facilitate the development of the value chain of priority commodities. Encourage cluster food production and processing. Provision of basic amenities/infrastructure e.g. feeder roads, irrigation facilities, power, etc. and access to farm machines in the clusters. Provision of relatively cheap funds, etc.

What scope of growth do you see for the tractor industry?

Productivity improves with mechanisation. To improve our food security status as a nation, the tractor industry must grow.