The Nation Newspaper

Tag: Banks

  • Board failure cause of banks’collapse, says Dozie

    Board failure cause of banks’collapse, says Dozie

    THE founder of Diamond Bank, Dr Pascal Dozie, has said the spate of banking failures in the country in the past was a reflection of the failure of the board of the banks.

    Dozie, who is Chairman of MTN Nigeria, spoke at a Stakeholders’ consultative forum on guidelines for corporate governance in the telecommunications industry organised by the Nigerian Communications Commission (NCC).

    It has as theme Board leadership and governance.

    He said people who take board’s appointment should see such opportunity as a “sacred call to service.”

    He stressed that being a director is not a tea party.

    According to him, directors must see themselves as playing pivotal roles in the success of the company, arguing that should things go wrong, the board should be held responsible. This, he said, is because the board performs oversight functions in the company.

    He said the Company and Allied Matters Act (CAMA) states how a board should be constituted, adding that it is the duty of the board to appoint one among its members to serve as its chairman.

    Dozie said the chairman has a great role to play as he has the onerous task of motivating the board and ensuring that decisions are implemented because time is a scarce resource.

    He said the leadership of the board of any company is a sine qua non to its success as it determines whether the company swims or sinks.

    He added that if a chairman becomes too “autocratic to the chagrin of the directors,” voting him out becomes an open option.

    He said for effective communication, it is imperative that the chief executive officer of companies remain part of the board, adding that the helmsman would not have an excuse not to implement policies agreed upon at the management level.

    On the level of compliance with corporate governance in the country, he said it would be difficult to assess, adding that the big firms were complying.

    He, however, said it does not necessarily have to be corporate governance, insisting that all that is needed to be done is to follow the provisions of CAMA by managing the companies well and avoiding promoting people through looking ethnicity or nepotism.

  • Banks and the challenges of ATM

    SIR:Though ATM might have been introduced more than two decades ago in Nigeria, it was not until the post-consolidation era in 2005 that the machines became popular. The innovation was first piloted in Lagos before being deployed nationwide. With the introduction of cashless policy by the Central Bank of Nigeria in 2011, the use of ATM became imperative. Advantages of ATM are legion. It saves time and helps to decongest banking halls as more people prefer to use their Debit Cards to make withdrawals. It makes withdrawal possible beyond traditional banking hours. Most banks in Nigeria operate between 8am – 4pm. However, ATM is available every hour of the day including weekends and national holidays which are off-days for banks.

    On the flip side however, Automatic Teller Machine brought with it severe pains, tears and sorrow. Until recently, there exist syndicates who specialise in cloning unwary bank customers debit card. The customers debit card details are cloned in such a way as to enable the scammers make successful withdrawals from the customer’s account. The method in use varies. Some of the syndicates send scam electronic mails to thousands of people purportedly from Interswitch (debit card manufacturer) or the bank itself asking customers to update their records which are inclusive of their account numbers and debit card details. Once the customer supplies these details, they use it to clone cards and make withdrawal. Others go to crowded ATM pretending to want to withdraw and using the opportunity to steal peoples debit cards or memorise the details and later go back to clone the cards. Many have been arrested by the police and officials of the Economic and Financial Crimes Commission for this sharp-practice. It is common to hear of ATMs debiting customers for undispensed cash. There are also incidences of ATM swallowing bank customer’s debit cards during transaction. All these have decreased considerably. Replacement of stolen, lost or expired debit cards have also been simplified as I was able to apply and receive debit card same day recently.

    However, what has refused to improve is the difficulty in making withdrawals through ATMs. This is as a result of the epileptic power supply. The machines are powered by electricity either publicly supplied by Power Holding Company of Nigeria, Generators or Inverters. None of these three is totally reliable. The other shortcoming is constant breakdown of the internet backbone that networks one bank to the other or one bank’s branch to the other. Many of the ATMs are old and need being replaced with new ones. There have also been instances where bank staff in charge of ATMs also engage in fraudulent activities, helping themselves with some of the monies meant for the machines. ATM is desirable and has helped to revolutionise the banking industry. However, banks need to unite in finding lasting solutions to the aforementioned challenges faced by their teeming customers.

     

    • Jide Ojo

    Abuja.

     

  • ‘Most banks’ frauds are insider-related’

    ‘Most banks’ frauds are insider-related’

    Taiwo Otiti is the Country General Manager of IBM West Africa. The Information Technology (IT) expert, who is responsible for the firm’s business operations and growth strategies in Nigeria, Ghana, Sierra Leone and other emerging markets in Anglophone West Africa, speaks with COLLINS NWEZE on the cash-less economy, how the company is helping banks, telcos and manufacturers in strengthening their ITs to check fraud, among others.

     

    What is your view on high prevalence of fraud and security of information technology (IT) which remains major concerns among bank customers and operators in the country?

    I was the first to put in automated teller machine (ATM) in the former Societe Generale Bank of Nigeria (SGBN) in 1999. I also wrote the book: Tragedy for Payment System in Nigeria. So, I am versed on the issue of security in e-payment system.

    When we started deploying ATMs, it was in what we called mag-stripes. That was riddled with a lot of fraud because those cards can be cloned. By 2006, when we set up Interswitch, we started with mag-stripes. And later when we brought in ValuCard, we implemented chip and pin-based system. All the other schemes later moved to chip and pin, including Interswitch. Mastercard also came and they all became chip and pin. Then, the Central Bank of Nigeria (CBN) mandated in 2005 that we should all go chip and pin. So, every card in Nigeria is now chip and pin.

    Therefore, it is difficult for people to scheme; that is, putting something on the ATM that can steal your secret codes.

    How have you been able to check that?

    We have been able to put anti-scheming devices on ATMs. We have also reduced the stealing of cards. I think the next level is that most of the frauds are internal to the banks themselves.

    So, people are priming cards on customers’ accounts and giving them to fraudsters to use. Those are the risk areas. The cards origination, processing and delivery process need to be intact. A lot of banks look at that. We also play in areas where we put intelligence that can tell you what is going on in your database. In terms of consultancy for security, we are also very high; we are actually one of the best in the world on that. In terms of assets that mitigate security, we also play number one in that space.

    So, what you are saying is that internal fraud is where the biggest challenge is?

    What I am saying is that most of the frauds are insider related. We also have issues on internet banking where people are stealing people’s Personal Identification Number (PIN). We also got tokens. We also see people going around visiting sites where the tokens can be cloned. They originate and ask you to put your PIN. They take the PIN and originate transaction on your account by stealing some of your identity. A lot of internet banking providers are talking to IBM on how to secure their customers’ internet banking applications. We have been able to show them how to tunnel and stop anti-scheming devices. We also teach them how to add infrastructure to stop all these types of incidents.

    IBM has been involved in information technology (IT) processing in banks. Can you tell us how you have been integrating banks’ IT during the banking reforms?

    IBM has been involved with banks long before the reforms. We had the first generation of banks in the country running on IBM platforms. We were here when there were 126 banks; that later came to 89 banks and subsequently reduced to 25 banks during the banking consolidation of 2005.

    We also put unit boxes in Zenith Bank around 2002 to 2006. And then the biggest, was when FirstBank of Nigeria centralised its operations in 2001. We were able to put in what we call regattas into FirstBank. It is the highest-end unit boxes. FirstBank was among the first to install such boxes. They are also putting what we call Storage Area Network. We basically run FirstBank’s banking software on our enterprise platform. We have a history of running very high volumes. FirstBank was the biggest bank then.

    From then onawrds, we started taking more market share because when people realised that IBM provides IT solutions at lower costs, many banks began to subscribe to our services.

    Did you gain more market share after the banking consolidation?

    After consolidation, we actually raised market share by 50 per cent. Between 2010 and now, we have taken another 20 per cent, which takes us to about 70 per cent share in the enterprise boxes that run the banking applications.

    There were several reasons this happened. We tied relationship with many of them. We also have close relationship with independent private vendors, who are the ones that own the banking applications. Finacle of Infosys and also Flexcube which is owned by Oracle. We have very tight relationship with P24, which is by Terminals. We have a service competent centre, which we built for them in France. Based on that, we have a lot of benchmark and experience in using these applications efficiently in our boxes.

    That also gave us a lot of market share in the industry. Apart from that, IBM basically runs a lot of the biggest banks in the world. We are not only putting hardware in, but as a master of integration, we also have integration software.

    So, from payment system coming to your swift network, to your automated clearing house, to your workflow that runs your businesses, we have software and assets that deal with all of that.

    Does this mean that the cash-less policy of the CBN is bringing more business to your company?

    Invariably, we are gaining part of it in terms of capacity building for some banks. We are helping many of the banks to integrate into the cash-less economy. We are helping them in implementing some of the things they are doing.

    After South Africa, Nigeria is next as far as Africa investment is concerned. Is it the same investment that IBM is spreading across the continent? What are your plans for Nigeria?

    I think you have to understand that Nigeria has the biggest population in Africa. The economy is becoming more diversified. We have Gross Domestic Growth (GDG) of about seven per cent year-on-year. What that tells you is that Nigeria is moving forward in the right direction. We are diversifying away from just only oil into agriculture, minerals, gas, liquefied natural gas. We have started to see a lot of work in the privatisation of electricity. So, that automatically tells you that the country is moving in the right direction. So, if you don’t invest now, you are going to be playing catch-up.

    Recently, IBM organised a conference on Small and Medium Scale Enterprises (SMEs) in which International Finance Corporation (IFC) was involved. What opportunities do you see in that subsector of the economy?

    I think, SMEs no matter what economy you are looking into, are the backbone to the economies. For what we are doing with IFC, which to us is a social service to the society where we operate, it will help those SMEs on how to do business and manage them properly. We are actually putting in the SMEs Toolkit to help them manage their businesses properly.

    We also do mentoring. We are nurturing SMEs to help them grow. We are doing a lot of that work. We are looking at how to operate in an environment and help the environment grow. Our calculation is that as those SMEs grow, they may need some of our tools. Some of our staff also take their time out to mentor these SMEs to help them grow.

    Banks avoid lending to the SMEs’ subsector because of the high level of risks involved. Will that not work against your interest in that subsector, especially when funding becomes a major challenge?

    I think, economically, in the short term when you train SMEs to know how to run their businesses properly, with cash-less banking, so many data will start going to the banks. Then, the banks would start using analytics. What you will find is that the data will assist you in understanding what type of risks you are about to take on a particular SME. So, you know their behavioural pattern and how much money you can lend to them in terms of risk.

    Therefore, we are just at the infancy of what we call big data. We have the data, and then you look at the data and that will allow you do better loan origination in that SMEs. Remember, we have put a credit bureau and you can check the amount of loans these SMEs have taken in other banks. So, you can now determine how much loan you want to send to these SMEs.

    Pure system remains one of your flagship products. How are you deploying it into meeting clients’ needs in the African and Nigerian market?

    Pure system is what we call a converged system. In the olden days, we used to sell unit boxes to clients, also unit servers, storage, and management software. In a converged system, we put all those things together. We have not just put them together, but actually engineered the system. So, everything becomes a system, which works seamlessly together fitting into the server. We monitor applications inside the boxes and automatically managing your workload, network and user experience. Before now, different people manage your unit boxes, unit servers, storage, and management soft ware. But now, these can be managed together under the Pure System.

    Also, lack of resources has created a situation in corporate IT globally where $2.5 trillion or 70 per cent of the global IT budget is spent just making sure the companies’ infrastructure works. For more than 100 years, IBM has provided organisations with the advances in technology to help transform their work and meet the needs of clients.

    As a result, one in five projects never sees the light of day and there is a backlog in IT of more than 18 months. Pure System is a new class of expert integrated systems designed to help businesses address the complexity of enterprise IT. It is the result of $2 billion in Research and Development and acquisitions over four years, an unprecedented move by IBM to integrate IT elements, both physical and virtual.

    What is your strategy and view about the unbanked within the population?

    You have to understand that it is not only the banks that deal with the unbanked within the population. Telcos, manufacturing among other sectors, are also involved. Our view is to put something that brings everybody together. It will look like a supply chain environment. And also managing the data that allows you understand the products that are selling well. So, we are talking about bringing integration and analytics together to help the banks render services to this group of people.

    The issue is how to bring everybody together using the right technology and agent network. We have the tools that can do that. We are talking to all the parties to see how we can work together.

    How widely used are IBM technologies?

    All the big banks in the world are connected to platforms. Also, a lot of the independent big organisations build their software on top of some of our assets. That gives us a lot of leverage in marketing our products. For instance, Finacle runs on our application servers. If you are going to buy Finacle, automatically you have to buy our application servers.

    P24 for instance is database independent, so they can run our Oracle or GB2. That also helps us to sell some of our database products. We have a lot of assets that are involved in risk management such as operational, market and credit risks. We have a lot of assets in those orientations. We also have the  International Financial Reporting Standard, which is about relating your books in international way as stipulated by regulators. So, we have a lot of assets. Also, when it comes to analytics, we have a lot of assets, which are segmented into various industries, such as banking, retail, telecommunications, manufacturing, and other sectors, and they give us a lot of leverage. So, we have a lot of assets that are prewired for those type of industries and that gives us a lot of leverage.

    There are other things, such as our being able to take client’s needs from consultancy to delivery. We are also go-partners and biggest delivery shop for SAP and Oracle. We do consulting for you in terms of what are your business process, and how are you going to fit them into either SAP or Oracle applications? And we also implement it for you. We are also very wide related to other products.

    The cash-less policy of the Central Bank of Nigeria (CBN) is supposed to have a lot of impact on how banking is done in terms of service offerings. What opportunity do you see in this policy as an operator and in the banking industry?

    In terms of the banking system, remember, the cash-less economy makes it easy for you to have much more transactions, especially high volumes. So, that automatically is related to us. So, cash-less economy is the integration of many things from Automated Teller Machines (ATMs) to Point of Sale (PoS) to serve that you are originating from various channels, such as mobile banking, internet banking and all that. But the beauty of all that is that we have the integration organisations’ point of view. We can give you integration to integrate everything.

    I was one of the committee members who wrote the 2012 Payment System Framework for the CBN. We also understand the basis of cash-less society where it comes from channels, such as ATMs or the back-end infrastructure, such as the automated clearing system, all the way to interSwitch. We also have the picture of banking the system that integrates all that, which we also run in Europe, Middle East, Asia, America, among others. A lot of big banks also run those framework. A lot of things we do,ww for instance, help our customers in what we call the enterprise architect engagement on infrastructure or data. We are doing all that for the Central Bank too.

    The African market is seen as the next investment frontier. What is IBM doing to tap into the opportunities available in this market?

    All the way to Sub-Saharan Africa, to South Africa, there is a lot of more governance in government. We have moved away from the era of coups to that of democracy. Governments are becoming more stable. There is a lot of more investments coming into our region. We are creating middle class in the whole region, and middle class means growth because they are the ones who consume things.

    All large corporates that have international clout, that is what they want. Africa is the last investment frontier. We have invested in Asia, India, and now Africa is the next area everybody is investing in.

     

     

  • ‘Banks not most profitable institutions’

    ‘Banks not most profitable institutions’

    Over one year after its introduction, how has cash-less banking fared? It has done well, says Mr Tunde Lemo, Deputy Governor (Operations) of the Central Bank of Nigeria (CBN), who is responsible for driving the policy. In this interview at the sidelines of the World Bank/International Monetary Fund meetings in Washington D.C, United States, last month, he tells Group Business Editor AYODELE AMINU about the hitches in the policy’s implementation and how they are being tackled; consolidation in banking; the credibility and sustainability of banks’ profit, among other issues.

     

     

     

     

    By the first week of July, the next phase of the cashless policy is expected to start in some states; how prepared are the CBN and the banks? Are you anticipating any shift in that date?

    Well, first and foremost, there is not going to be any shift. Recall that we started this programme actually in January, last year and we are only just continuing. We are only just moving to Phase Two, so we have learnt all the ropes in phase one in cash-less Lagos and we believe we are ready to roll out to other six locations in Nigeria. We are actually working in collaboration with the Bankers’ Committee. We have a subcommittee headed by the MD/CEO of UBA, who is the cashless champion among the banks’ CEOs and together with the other institution like the Nigeria Interbank Settlement System (NIBSS), we are working very hard to ensure that we dot all the I’s and cross all the T’s. I can tell you that we already have our road map and we are not going to shift the implementation date of the Phase Two, which is 1st of July 2013.

    What are the current and previous challenges and how are they being solved?

    The most important previous challenge was connectivity; we have over 150,000 Point of Sales (PoS) machines in Lagos area where we had the cash-less Lagos. However, only 25 per cent of them are active largely because we don’t have General packet radio service (GPRS) and connectivity alive in some of the clusters and because of that, it has affected the rate at which those machines are used. However, we believe very much that it is getting better because we monitor the transactions on daily basis and we are beginning to record large volume and value of transactions done under the PoS. So, rolling into Phase Two, we believe that there may also be a challenge. However, we are not even looking only at the PoS as a major of channel for cash-less; we are looking at all the other major channels for cash-less. That is to say that apart from the PoS, we have the mobile telephone, which we will use all the malls, particularly in PhaseTwo because, of course, you know that the teledencity in Nigeria is very high and we have over hundred million mobile phones now, which then makes hundred million Nigerians potential users of mobile money. So, we are also driving cash-less through that, don’t also forget that high volume of frequency of transactions done by banks and through the high corporate end also go through the cash-less channels. There is a product managed by the NIBSS that they call the NIPS (Nigeria Inter-bank Payment System) instant payment. NIPS records over N20 billion values per day. And in terms of volume, it is over hundred thousand (number of transactions that occur). There is also the NIBSS Electronic Funds Transfer (NEFT) that goes through the clearing house; you get value the following day. That also has increased in volume. Between NIBS and NEFT, we record over N80 billion transactions per working day and they both now account for more than twice the volume of cheques. In fact, the share of cheques as a proportion of non-cash transactions is down to 20/21 per cent on a daily basis and I think this is quite remarkable. So, this is the kind of thing we want to emphasise. When we talk about cash-less actually, we are looking at the retail end. The wholesale end is already very cash-less, so we are quite happy at the progress we have made in the area of NEFT and NIBSS. As we roll out to other six locations, we are going to engage the customers on the need to use more of the NIPS and NEFT if they are high networth individuals and also there are other card and electronic payment services or products that banks have developed that also should be seen as part of the programme. But the PoS machine will also be installed in key locations and we will also monitor the use of mobile phones. So, these are the channels that we are encouraging and, of course, we’ve been able to get a lot of customers to embrace ATMs. I was going through the papers a few days ago, there was a survey done by KPMG where they said about 80per cent of the respondent said they regularly use ATMs, which is good. But you know ATM is not cash-less, because you are still going there to collect cash. We want to encourage people to move away from cash. As efficient as ATM may seem, we want to leap-frog and then get more people to move away from cash and embrace cash-less.

    Going by the guidelines of the cash-less policy, banks are not supposed to be directly providing Cash-In-Transit for their customers. It is supposed to be outsourced, but some banks are still  doing this. What is the CBN doing to stop such banks and what sanctions await erring banks?

    Those who do it do so outside Lagos. You will recall that we said cash-less started from Lagos where we said banks should no longer do cash pick up activities. When we move over to other six locations, banks will also step back from cash pick up activities. We have registered four cash-in –transit companies that should do that on behalf of others and we are also happy that filling stations themselves and other big supermarkets are embracing cash-less. There is a company called Easy fuel, they get the filling station to install that capability at the filling station, whereby you just drive in and use your card to buy fuel. They are even going beyond that now to make it fairly more contactless –meaning that you can even fill your car with fuel without the use of card. That will also ensure that you don’t even build up cash not to talk of having CIT company to evacuate.

    What is the CBN doing in a situation where you are using your ATM or PoS and they debit you, without you getting value for it?

    We have put in place a dispute resolution mechanism. Banks have been told that at every point where you have ATM or PoS, there is a number you can call as a customer if you have a problem and that problem should be resolved within 48hours. In other words, if you are wrongly debited, may be because of a fault or an issue, the bank is expected to resolve it. If, however, by seven days it is not resolved, you can escalate it or actually escalate it to CBN. We have set up a full-fledged department called the Consumer Protection Department, that department will ensure that the banks are not only sanctioned for delaying the resolution of the problem, they will also ensure that the customer is refunded the money that was wrongly debited. But we don’t even want it to get to that point. We want a means by which disputes are resolved as they occur and I must also say that we have seen tremendous improvement because we keep tab of complaints from customers. There are less and less complaints now even as we continue to see the volume grow around ATM transactions.

    Why did the CBN increase the number of states for the second phase of the cash-less project to five?

    Yes, we actually had five before; we added Ogun State because of Ota. You know that Lagos and Ogun are almost in the same territory now in terms of the fact that the two states, the residents now criss-cross at different territories. In order to avoid arbitrage – a means by which, of course, there is cashless in Lagos and there is no cash-less in Ota, Ota is as close to Lagos and so many other places in Lagos. So, to discourage arbitrage, it is important to add Ogun because it is very very close to Lagos and we don’t want a situation whereby banks then use territories that are very close to Lagos to side-track or to avoid the strict conditions of cash-less. But apart from Ogun, we also have Anambra, which is there because of Onitsha, which has a major market. You know Onitsha also has a large market. Abia is there because of Aba market. Rivers is there because of Port Harcourt, Abuja and, of course, Kano. So, those are the five other locations. But when you add these locations to Lagos, you are accounting for around 90 per cent of the volume of cash within the country. These locations are major cash centres. The other states will be added in Phase Three. But we believe if we get it right with these six locations in addition to Lagos, we would have covered 90 per cent of the volume of cash.

    When will the Three Phase be implemented?

    Let us look and see to the success and implementation of Phase Two first. I don’t want to hazard any guess, but I reckon that in no distant future, we will get to other parts of the country.

    Why did the CBN reverse itself by abolishing all off-site ATMs not directly operated by banks?

    There was no reversal. Recall that at the time the Central Bank said banks should not put branded ATMs outside their premises in offsite, it was because then, when you get to some key locations like Hilton, you see 25 ATM machines, virtually every bank is there and yet other areas are not well-serviced. So, we felt that instead of wasting resources, why not then get licensed Independent ATM Deployers (IADS) to have those equipment there that will serve the entire industry. The IAD, then were just three and so we had three in those important locations as opposed to having 20-25 different machines, just to save cost. But recall that at that time we didn’t have cashless exercise. But when we came up with the cash-less programme, we decided to look away from that to encourage banks because, then, we had told banks to invest heavily In ATM machines. So, it was the cashless programme that made it unnecessary to do that and, of course, we discussed with the IADs and we have since ensured that they were compensated for the change in policy.

    Let’s move to the banking industry. Given the number of banks in the country, would you say Nigeria is over-banked or under-banked?

    I don’t want us to be looking at whether Nigeria is over-banked or under-banked in terms of the number of banks. For instance, the biggest bank in India has more branch networks than the entire banks in Nigeria; so, if that bank were to be in Nigeria, probably we would think that Nigeria is under-banked, because it is only one bank. Banking penetration in Nigeria today is monitored in terms of the number of Nigerians who have bank accounts and the number of bank branches. Today, we have around 6,000 branches of banks all over the country and we believe that we can do better. However, we are asking banks to look away from the traditional means by which they deploy their services, because it is not cost effective; technology has made deployment of banking services cheaper. You don’t have to have the physical presence of the brick and mortal type banking before you can conduct banking business. Today, if you go to Kenya and you go to a normal grocery shop, the grocery shop combines with his core business about two, three or four banks. And most of the people outside the city, what do they do when they go outside the city? They either go to deposit, save or open accounts. So, these normal three not-too-complex services can be rendered without the physical presence of a bank. That is why we came up with a regulation around agency banking and we have since released guidelines and, of course, before long we are going to license or register accredited agencies of banks. Through the agencies, we expect that we will be able to get a lot of people into banking network. So, access to finance, banking services is a better barometer now to measure banking penetration as opposed to brick and mortal presence of banks or the other numbers of banks. Today, I will not be surprised if these numbers shrink and yet with wider network of branches. If a bank can have 60,000 branches in India, why can’t we have a mega bank that will have the same number of network that the entire banking industry has? So, we should look at penetration in terms of the number of people who have access to banking services and that is improving and we will continue to improve on that.

    Do you foresee further consolidation in the industry?

    That should be driven by business exigencies. Banks are free to discuss that among themselves if there are opportunities. What we are telling banks is that they can achieve a lot better by sharing facilities, which is the shared services’programme that we have put in place in the last three years and we are beginning to see a lot of transactions there. The banks’ cost to serve ratio is going down. Going by the results published by banks, they are returning very good profits and the customers are beginning to get the benefit of that in terms of lower interest rate. Only last month, the Bankers’Committee came up to say that they were going to reduce interest charges on the Small and Medium Scale Enterprises (SMEs) and, of course, they are by that introducing the benefit of the cost to service ratio. Banks, on their own, can choose to merge, but the CBN is not going to force that. It is not going to be regulator induced. However, it may bother us when we begin to see a cluster among two-three banks. But the anti-trust issues are there. How far can they go? Can we just sit back and look at the whole thing shrink to one or two? May be not. But today, so long as they can still get a lot more mileage by combining resources and reduce costs, we will encourage mergers and acquisitions up to certain level.

    We have seen about two banks posting over N100 billion in profit. How credible and sustainable are these results?

    Credibility first. Of course, with all the strict regulations around integrity of data and strict regulations around prudential issues, I am not sure any bank will take the risk of playing games anymore. Don’t also forget that we have the International Financial Reporting Standard (IFRS) – a new accounting policy that ensures that all the risk you have in your balance sheet is well-explained to investors and that you also make enough provisions. You mark to market if you have real sensitive assets in your books. So, because of that, I believe that all the numbers that are being shunned out are real and they are good.

    On sustainability, I think the public thinks that these banks are making super normal profits. You are just looking at the numbers, you are not looking at the capital that is employed. I think that at the end of the day, banks are not the most profitable institutions in Nigeria. Take, for instance, oil companies and telecoms. They are having superior arrow eyes on returns to investment. Banks’ return on investment is at best 20-21 per cent; that is not abnormal in terms of the risk that they take. So, talking of sustainability, I believe it will remain sustainable to the extent, of course, that the business climate is good, that we continue to fix infrastructure and continue to de-risk the business environment. Don’t forget that we have not even yet seen enough penetration that we expect in Nigeria. When you look at the total financial assets relative to our Gross Domestic Product (GDP), I think there’s a lot more that banks can do.

    With inflation decelerating to about 8.6 per cent, do you foresee the CBN changing its monetary stance at the next Monetary Policy Committee (MPC) meeting this month?

    Well, first and foremost, you cannot expect me at an interview like this to begin to tell you the direction that the MPC will go. First, I don’t even have all the facts with me to tell you the way my mind is working and yet I am just one in 12 members. So, you can see it is difficult for me to sit down here and tell you whether or not when we meet, rates will go up or come down. It all depends on so many things. But don’t forget, we are happy that we are beginning to see traction in the area of lower interest rate, but how sustainable are these? And then you have not yet removed the base effect. These rates are low, because if we look at year-on-year, there were spikes this time in February/ March and when you consider that as a denominator, you can then understand why year-on-year the rate is low. Although if you check month-on-month, there is some deceleration of interest rate, but it is not yet time for you to begin to say that it will be sustained; we need to wait a little bit longer.The reason, again, is because of what is happening in shale oil and in the international scene. There are still some downside risks that are there, that may not make it expedient for the MPC to look at loosening the monetary stand now. However, we don’t yet have the facts on the table; so, it is too early to make a judgment on whether or not the rate will come down. But, of course, when we meet and we will see all the figures, we will then be able to know where things should be.

    The Holding Companies are burdened by double taxation. How is this being addressed by the CBN?

    Fiscal issues are not under the Central Bank purview. When we talk about taxation and tax concession; these are matters for the Federal Inland Revenue Service (FIRS). The Central Bank together with our colleagues in the Financial Sector Regulators Coordinating Committee (FSRCC) are helping to talk to the relevant tax authorities on the need to look at these areas where there are double taxation so that they we can at least have some concessions and some understanding, so that banks are not unduly penalised. We can only advocate and push for a consideration, because it is not within our control. So, I cannot be upfront on whether or not they will get it.

    Looking back at CBN’s intervention in 2009, would you say it was justified, given what some critics had said?

    I think if there is any doubting Thomas or anybody who doubted the veracity or the importance of what we did in 2009, they should by now be convinced that we did what we were supposed to do and if we didn’t do it, it would have been a lot more devastating. We had a similar problem with Europe. Europe was in denial and you can see what began to unravel in Europe after all the actions that we took. Everybody thought that we went overboard, but we are glad that two years after the action, Nigeria’s case even became a very interesting case study in the United States to the point that the governor of the Central Bank was even invited by the Congress to share his experience and his thoughts and at the end of that meeting, he received a very good commendation. But, again, what is happening in Greece and other places in Europe now confirms that had they done what we did in Nigeria three or four years ago, the problem wouldn’t have gotten that bad. So, like the proverb says, “A stitch in time saves nine.” We tried to stitch our own problem in time and that is why it has saved us a nine that we are beginning to see in Europe.

     

  • ‘Banks prefer lending to oil firms’

    THE Group Managing Director/Chief Executive Officer, Skye Bank Plc, Mr Kehinde Durosinmi-Etti, said banks are more favourably disposed to lending to oil producing firms if such firm’s oil reserves are confirmed.

    Speaking during the United Kingdom-Nigeria Investment Partnership forum in Lagos, he said oil exploration is capital intensive and it only makes sense to ensure that funds being availed the oil companies are paid back so that the banks will not suffer monumental losses and put shareholders capital at risk.

    Speaking on Sustainable oil and gas sector reforms, he said the consolidation in the industry has strengthened banks’ ability to fund the oil and gas sector. He added that his bank has contributed in strengthening players in the local exploration market.

    He said since banks do not want to lose money, they would rather lend to oil exploratory companies after reserves have been confirmed.

    On the marginal oil fields which were given to indigenous companies and investors, he said the challenge banks face in lending to indigenous oil firms is that some of the companies have one dominant individual as the promoter which is not in tandem with good corporate governance.

    According to him, where the money needed by the oil companies is huge, loan syndication or club arrangement is preferred as it shifts the burden of providing the capital from one financial institution.

    He said out of the 29 marginal oil blocks granted sometime ago, only nine are operating, noting that sustainability of operations is hampered by communal unrest, environmental factors and corporate social responsibility.

     

  • MTN to sign $3b deal with banks

    MTN to sign $3b deal with banks

    Mobile giant  MTN is set to sign a $3 billion (N470b) loan with a consortium of banks.

    The telecom operator said in an invitation to the ceremony that the medium-term facility will be signed today. MTN officials declined to give details of which banks are involved or what the money is to be used for.

    MTN has been borrowing to upgrade its network in Nigeria, as competition hots up in its most lucrative African market.

  • N40b Cabotage fund trapped in banks

    N40b Cabotage fund trapped in banks

    The N40billion Cabotage Vessel Financing Fund (CVFF), designed to assist indigenous shipping firms to acquire capacity to match foreign dominance in coastal and inland trade, is trapped in the banks.

    The fund, established under the Coastal and Inland Shipping Act, 2003, is derived from the two per cent deduction from all contracts awarded under the Cabotage regime.

    The banks, government sources said, are reneging on the agreement they signed with the Nigerian Maritime Administration and Safety Agency ( NIMASA) before it made  the deposit.

    Under the agreement, NIMASA is expected to contribute 55 per cent each to all approved companies, while the partnering banks and the respective firms are expected to contribute the balance of 35 per cent and 15 per cent required to buy the vessel at an agreed 5.6 per cent interest approved by the Board of NIMASA.

    The banks, sources said, are reluctant to meet their financial obligations under the agreement in the disbursement of the fund, which has risen to over $255 million (about N40 billion).

    NIMASA is the government agency charged with managing and disbursing the fund to indigenous operators.

    Sources alleged that the banks are foot dragging in matching their own 35 per cent obligation based on the agreement.

    “There are serious indications that the banks are not willing to bring out their counterpart funding based on the 5.6 per cent agreement they had with NIMASA. Although NIMASA may not be willing to say the fact, I can tell you that the banks are responsible for the delay in the disbursement of the fund, “ the source said.

    The Nation learnt that some maritime lawyers, who are uncomfortable with the twist of events, are considering initiating legal processes to resolve the issues.

    “The banks need to note that the industry watchers are interested in the disbursement of the fund. If they intend to sabotage the efforts of the Federal Government and NIMASA, I am sure they should be prepared for litigation after using the money to promote their businesses,” he said.

    When contacted, the Deputy General Manager, Public Affairs, NIMASA, Hajia Lami Tumaka said the money would soon be disbursed.

     

  • Banks and development

    Banks and development

    LESS than four years after the Central Bank of Nigeria’s (CBN) governor, Mallam Sanusi Lamido Sanusi’s axe fell, wiping in one fell swoop, the careers of dozens of top bankers, opinions expectedly remain divided on the overall impact of the exercise on the industry. At the heart of the debate is whether appropriate lessons have been learnt, given the N3 trillion cost of the clean-up. This amount includes the initial N620 billion injected to bail out the initial eight banks, the N1.725 trillion spent by the Asset Management Corporation, (AMCON) to acquire the non-performing loans of banks, and the N679 billion also expended to recapitalise the three Bridge Banks.

    Today, financial stability has no doubt returned to the industry just as the path of profitability seems pretty assured. Naturally, there are those who would argue that the outlandish figures of banks profitability being declared mean nothing in an economy where poverty and unemployment rule, and where the phenomenon of de-industrialisation is a grim, distressing reality. While the point is unquestionably a valid one, it merely highlights the yawning gap between what is expected of the banks as catalyst to the economy and what it is doing at the moment. There can be no questioning the fact that the banks have a long way to go.

    The rosy picture of an industry on steady growth path is however a partial one. The humongous cost of the bailout aside, the real sector remains ill-served both in terms of access to credit and cost of funds – about four years after. Credit, the lifeblood of business remains a sticky issue. Where available, it is only to a few privileged class; not necessarily those who need them the most, at least, not the small and the medium scale industries that have impossible requirements to contend with. And then of course is the prohibitive cost – the result of which our traditionally non-competitive firms are rendered even more so.

    We wish we could vouchsafe that the factors which precipitated the crisis are no longer with us. We refer to the problems of fraud, corruption and mismanagement in the environment of poor corporate governance culture and ineffectual leadership. These were to manifest in sundry abuses of credit guidelines, the jettisoning of the extant industry’s financial controls, and in extreme cases, outright theft of depositors’ funds.

    We recall the once upon a time when bank executives took heavy bets with depositors’ funds; when they lived large and chased after luxuries that money can buy at a time the real economy headed south; when bumper profits, which rather than reflect the grim actually reflected the creative book-keeping of the era, were cited as proof of financial soundness. We wish we could state that these belonged in the past; the truth however is that it is far from being the case. The men who ravaged the industry and brought it to near ruin are very much around still; those who took bad credit decisions for personal gains are walking in freedom; their accomplices – the chronic, pathological debtors whose portfolio debts nearly took the economy down have since gone back to business despite the so-called naming and shaming of barely four years ago.

    Several cases on the matter presently linger in various courts for want of diligent prosecution. As for those convicted of grievous economic crimes, they have since been asked to go and sin no more. The atmosphere of impunity has all but returned – sadly a few years after the last crisis. A variant of the same malignancy of institutional corruption which although has been with us, has not only gone full bloom, it has since metastasised. In its more serious form, it comes in the billions of public funds misappropriated, stolen and laundered by officials through banks’ vaults. A most recent example is the alleged scam in the police pension’s office running into hundreds of billions of naira. We have also seen milder forms of the same malfeasance in the countless reported cases of officials putting funds meant for paying salaries and other emoluments of workers in interest-bearing accounts for private gain. Yet another example is the phenomenon of ghost workers that has come to characterise the public service.

    To cite a specific example – a recent staff audit involving 153,019 Federal Government employees. The exercise reportedly yielded 45,000 ghost workers said to involve a net loss of N100 billion to the treasury. Who collected the money? Of course, the ghosts were not paid through the relevant ministries’ cash offices but through the banks. Whatever happened to the Know Your Customer (KYC) rule which requires banks to keep basic data of their customers?So pervasive is the menace that nearly all the states have at one time or the other reported ‘shock finds’ of ghosts in their work force. The verification in Bayelsa State for instance, is said to have yielded a net saving of N2.5 billion in the wage bill – from N6 billion to N3.5billion in one year. That of Rivers is said to have yielded 8,000 ghosts; Delta 7,000; and Kebbi 9, 300. If the amounts involved are mind-boggling; the frequency is even more benumbing. Their prevalence raises questions on the efficacy of existing financial intelligence regulations and the willingness of bank executives to comply with them. And if we may add that these workers are ghosts only to the extent that the top officials prefer to make the individuals unknown, and to the extent that the officials of the banks through which these payments are made would shield them for their pecuniary benefits.

    The point here is that banks have a huge role to play in providing muscle without which the economy will not lift. They have stayed far too long in their comfort zones of conservatism when their creative interventions are sorely required. They need to address the issue of access to credit by the small and medium scale industry; ditto the issue of prohibitive cost of lending. It is high time the bankers committee did something about the high cost of funds.

    We believe that the banks have a big role to play in fighting corruption. We do not think that the banks have done enough to assist the anti-graft bodies to fight the menace neither have they done enough to purge their ranks of same. Rather than new regulations, we believe that existing regulations, scrupulously observed, will go a long way to tame the scourge. It seems about time also the CBN made good its threat of zero tolerance for violations of financial regulations.

  • Banks seek acquirer licences for e-payment

    Banks seek acquirer licences for e-payment

    TO participate in the e-pay-ment market, banks have initiated moves to get acquirer licences. They are to get the licences from card association like Mastercard, Visa and others.

    An acquiring bank (or acquirer) processes credit and or debit card payments for products or services for a merchant.

    The licence enables the lender to accept or acquire credit card payment from card associations such as Visa, MasterCard, American Express, Diners Club, Japan Credit Bureau, Attijariwafa Bank, and China UnionPay, among others.

    Speaking at the BT Africa conference in Lagos, Head Electronic and Personal Banking Sales, United Bank for Africa, Henry Obike, said Merchant Service Charge (MSC) must to be reduced from six per cent per transaction charged by some card associations to encourage a wider use of cards by bank customers and travellers.

    He said: “The charges are really an issue that needs to be addressed. But as a bank, we always ensure that we create value and that is why I am confident that before June, this year, we would secure an acquirer licence. This will boost competition and drop charges.”

    Visa Country Manager, West Africa, Ade Ashaye, said banks should let customers know what value they are getting by using their cards instead of cash. He said there should be a cost for cash and an incentive for using e-payment tools.

    He said Visa, a global electronic payments company, has reiterated its commitment to unlocking business potential within the Sub-Saharan Africa. “Visa plays an active role in travel and tourism and its research in the tourism industry provides key insights into the trends. We believe that continued engagement in the industry is important,” he said.

    Ashaye said Visa is committed to consolidating its position in the travel industry throughout Sub-Saharan Africa. He said the company has been instrumental in reshaping the payment landscape in West Africa with the introduction of several products, including the Visa Corporate card, for enabling secure and convenient cashless transactions within the region.

    “As Nigeria moves towards a cashless economy, we are looking to share the benefits of electronic payments with the travel industry. There were a number of interesting and lively panel discussions during the conference that affect the industry,” said Ashaye.

    He said Visa is committed to consolidating its position in the businesses arena throughout Sub-Saharan Africa. He said the company has been instrumental in reshaping the payment landscape in West Africa with the introduction of several products, including the Visa Corporate card, for enabling secure and convenient cashless transactions within the region.

    He said Visa’s approach is to minimise fraud in the payment system by building policies, tools and technologies that will help prevent fraud before it happens. Such technology he added, also protects vulnerable card data wherever it is stored, processed or transmitted throughout the payment system. It also monitors and manages fraud to ensure prompt response to issues. It also minimises impact to stakeholders, which include, cardholders.

    “This conference serves as a great opportunity for all those with a vested interest in West African business travel to come together under one roof,” said Dylan Rogers, of BT Africa.

     

  • Banks’ 2013 outlook ‘seems’ positive, says FT

    NIGERIAN banks have passedthrough reforms that seem to have put their future in a likely positive outlook this year, a report in the Financial Times (FT) of London has revealed.

    The report from a blog (beyondbrics) in the FT, said that in the last few years, the lenders have been to the bottom and back again, with the 2009 crisis, bailouts, mergers and the Asset Management Corporation of Nigeria (AMCON) are positive indicators that could make the sector shine this year.

    A report from Standard & Poors, “The Nigerian Banking Sector Outlook 2013: At the Start of a New Cycle,” had earlier said the mixture of strong economic growth in the country and political stability should underpin a year of expansion.

    It said economic growth and a sustained period of lower political risk, including the successful reform of the natural resource, power, and agricultural sectors could in its view improve Nigeria’s economic diversification.

    This, it said, would support stronger long-term economic growth, reduce the risks arising from an oil price or production shock, and help Nigerian banks diversify their loans books. It said loan growth could then proceed at manageable levels to the real economy, mitigating the inherent risks of foreign currency lending, large concentrations, and real estate bubbles.

    But FT said S&P had only a few months back, put out a report that worried over the capital ratios of Nigeria’s banks.

    It said Nigeria’s narrow economic structure also exposes the economy, and the banking sector, to a fall in oil prices or production. This risk is exacerbated by foreign currency lending and loan concentrations in the oil and gas sector. Furthermore, competition and shareholder expectations could lead to a return to aggressive lending growth and weak underwriting.

    FT said that although capital ratios do get a passing mention as a concern, but S&P now thinks that maintaining lower dividends will sort that out.

    Overall, S&P thinks that Nigeria’s banks will see a boost to their earnings in 2013 but not all the lenders.

    Nigeria’s banking sector is usually described as being in two tiers. S&P think that will split into three tiers, with rated banks in the upper two sections.

    It said that the larger banks mop up could leave the others behind. Actually, now S&P thinks that the smaller banks may be aiming for a particular niche, but that they will be unable to resist competing for low-cost retail deposits and for the expanding corporate sector, and all banks will grow in size. Foreign banks will remain on the margins, given the high barriers to entry.

    It insisted that for the past few years, Nigeria’s banks have been getting their house in order post-crisis. From here on, S&P thinks loan growth will increase around 20 to 30 per cent in 2013, from 12 per cent last year.

    At a conference in London earlier this year, Ladi Balogun, chief executive of First City Monument Bank, said that Nigeria’s big problem before was that most loans went to oil traders and speculators. “Now we are lending to the real economy,” he said, noting that the ratio of domestic credit to GDP was still very low.

    S&P supported that view: “Loan expansion could be supported in the short term by strong growth in non-oil sectors and the currently low levels of corporate and household leverage. We also anticipate that strong growth in the so-called reform sectors (namely power, agriculture, and infrastructure) will increase loan growth… For the first time, we see consumer lending as one of the major areas for loan growth in 2013. This is because the middle class is expanding in a context of high growth economic prospects, and banks are bullish about credit card and salary-backed lending opportunities.”

    It said that 2013 looks set fair but its 2014 and beyond that many should worry about, in terms of non-performing loans at least.

    “We expect asset quality to be stable in 2013, reflecting our expectations of strong economic growth and political stability. However, we believe rapid loan growth and increased competition will raise the inherent credit risk and conceal the growth of problematic assets, thereby raising credit risks for 2014 and 2015,” FT said.