There are some businesses which require high stakes. One of them is power. Since it is in the big league, it requires those with financial muscle to play in it. In the past, those in the business sought funding from financial institutions abroad. They no longer need to do so to participate in the ongoing privatisation of the sector. Nigerian banks, says Managing Director/Chief Executive Officer of Skye Bank, Kehinde Durosinmi-Etti, can take up the challenge. He spoke with Group Business Editor AYODELE AMINU.
What is your forecast for the money and capital markets this year?
For the banking industry, I think what you will get in 2013, is more of what happened in 2012. We expect to see more consolidation of the banks. The banks are behaving well, the Central Bank of Nigeria (CBN) regime is strong in terms of supervision and corporate governance and risk management practices in all the banks are good. So, we don’t expect any shock this year. For the stock market, we saw a trend in the last quarter of the year. Between the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE), there are lots of initiatives they are taking to deepen the market and they are quite novel. They are doing a lot to make the market robust. The inclusion on the JP Morgan index has helped, though what you have there is ‘hot money,’ a lot of short-term money that can go as quickly as they come, depending on how good or bad the economy is, and there is no how you won’t have some bad news that can affect their behaviour. Some of them, based on certain news, may take their money out. But we feel that 2013, for the stock market, should be more of what we had in 2012.
The CBN has deferred the implementation of the cash-less policy in other states and one of the reasons given was that some banks are not making enough investment in Point of Sale (PoS) terminals and other alternative channels. With that, do you see the policy as a failure?
I think the cash-less policy is laudable. This is something the Bankers’Committee of which I am a member supported. We discussed this at the Bankers’ Committee. If you look at the time the PoS started, they were probably less than 10,000 machines, but as at October, we had over 200,000 machines. That is a phenomenal growth. There are challenges, the biggest of which is communication and infrastructure, just like our telephones and the CBN and the Bankers’ Committee have done a lot of work trying to overcome these challenges, but as we see, with our telephones, these challenges have been with us for a while. Like other things, such as Automated Teller Machines (ATMs) and Information Technology (IT) in general, infrastructure is always a challenge, but we always invest a lot more to get the required service delivery. Why it is difficult here is because the service delivery is with individual merchants, not banks. ATMs are managed by banks, so you can make sure that the installation works. But if a PoS, which is with the merchant doesn’t work, it’s discouraging. Some banks have embraced it. If you are a bank that is focused on retail, if you are a large money-centred bank, you focus on it, if you are a niche bank that has a few branches and is not focused on retail; you are not focused on PoS. So, some banks have so many PoS while others have very few. But it is out of choice. That is competition and nobody is forced to do it. Really, it is due to your appetite and interest.
Do you foresee the cash-less policy assuming a national spread this year?
The plan was to do Lagos and then roll out to five major cities across the country. The performance of these only was to determine how many more to follow in the remaining parts of Nigeria. The limited success and the issues encountered have called for more introspection and a review of what we have done so far, and that has slowed down the pace of rollout. Twice we wanted to move ahead to new cities, but we felt that we should take a look again. So, there are learning points and we are looking at how best to approach other cities that we want to go into. So, the Central Bank, along with the banks is looking at these things. I am sure that, in due course, we would determine what to do. Whether we would be able to take on the whole of Nigeria in 2013, I am not sure if we would achieve that with the level of caution that is being employed now. But I feel that we would take on quite a few more cities and locations in this year.
The power sector privatisation is on and we understand that some of the preferred bidders are negotiating with the banks. Do you think that Nigerian banks have the financial muscle to finance the acquisition of the power assets?
Definitely, our banks have the capacity and capability to fund power projects. Already, banks are funding multi-billion dollar projects either through syndications or club deals. Both local and international banks are doing that in other sectors. So, the power sector is going to get a lot of investments from banks and other investors that are non-banks would put money in equity. So, the banks in Nigeria have the capacity to fund the power sector adequately.
So, how many of the firms is Skye Bank negotiating with?
Well, we are talking to two of the winners. We would participate in the programme. We are leading a syndicate and other banks have shown interest also because there is a lot of values added in the sector.
How will you assess economic performance in 2012?
2012 was an interesting year both for country and the economy. For the country; the Federal Government settled down to work. Key areas, such as power, agriculture, manufacturing, infrastructure were addressed and, at the end of the year, privatisation took place in the power sector and the process is ongoing and we feel that with a lot of investment in power, production will go up in 2013. The Central Bank of Nigeria (CBN) got involved in agriculture few years ago and the Minister of Agriculture has stepped up and done a miraculous work.
Bank lending to agriculture has increased from one to three per cent and the target for 2017 is 10 per cent of aggregate lending. We are involved in new initiatives in lending to agriculture. We are trying to make it more bankable. You would see that agricultural production went up in 2012 and this should continue in 2013. Banks were involved in cropping, animal husbandry and processing in 2012, and there were direct initiatives in fertiliser and seeds financing. So, you see fertilisers getting to the end users much more and also better quality seed is being distributed at affordable prices to farmers. So, that has helped production a lot and we should see that improving in 2013. On infrastructure, we have seen the airport and we have seen a lot of road contracts taking place. The states and the Federal Government are doing a lot on infrastructure.
Security, however, is still of concern, but it is fairly under control. A lot more still has to be done. I believe that the assistance of the international community where you could get better technological assistance would be of great help in resolving a lot in security. In banking, I think 2012 was a year of realisation of the efforts of the industry. With the support of the CBN, the Asset Management Corporation reported ground breaking profits. The banks are relatively sound and are all behaving responsibly and ready to support the growth of the economy. There are good signs for the banking industry today as competition is back. We have seen relatively stable interest rates with inflation at 12 per cent, still high, but stable. Interest rates are still a bit high, but that was necessitated by the fact that government borrowing is still high and also due to the need to stabilise exchange rates. So, the tightening of money supply pushes the rates up. But we feel that 2013, interest rates should slide a bit. One of the things still holding interest rates where they are is the need to maintain exchange rate. So, the tightening would continue and the CBN would continue to maintain that stance as long as there are signs that the exchange rate may go out of control. The stability in the exchange rate has enabled banks and companies to plan and has created a platform for us to work
What is the market share of Skye Bank and how does the bank intend to grow?It is believed that Skye Bank is public sector biased. Is that true?
The market share of Skye Bank is about 4.5 per cent of the industry and we have about 270 offices all over the country. We believe that we have a decent market share as we are a mid-sized bank. We believe that we have the ability to compete with all the banks and we do compete with all the banks in all lines of business. In terms of growth, our strategy is to grow organically and in growing organically, we shall do so in tandem with the growth in the industry. But we would also look at opportunities to acquire or merge with other banks as the opportunities arise. You know, in this environment, merger and acquisition is not a common thing like abroad where you can approach a bank and you guys would just marry each other. So, when the opportunity arises, we would look at the situation and see what is possible to decide on what to do. Really, merger and acquisition is not the answer because it is not the size of the bank that is critical, but the level of efficiency, the strength of the capital, and the quality of its loan which all translate to efficiency. We believe that you must be have the sizeable and we believe that Skye Bank has this as we have a N1.3 trillion balance sheet and we feel that at that size, we can take up 80-90 per cent of the transactions in the industry by ourselves and we can syndicate or arrange funding where necessary. We have taken up many sizeable projects and we have seen a lot of leadership, innovation and have carried out landmark transactions in the economy. So, we believe that we also want to do the right things at the right time. We believe that as an institution, with bias for prudence, probity and the core values that we have in the way we do our business, our bank would sustain growth over time. The bank plays in all sectors; we do not discriminate and public sector is the largest spender in Nigeria. So, we have to focus on public sector and we add a lot of value to public sector. But likewise, we do more business with small and medium enterprises (SMEs) and other areas of the economy such as manufacturing, oil and gas. On the single obligor limit, I think it is okay. It cannot be reviewed upwards; at best it can be reviewed downwards because as banks grow in size, the obligor limit can only go one way-downwards. But I think for now, it is okay.
Talking about growth and opportunities, the process for the sale of the three banks wholly owned by AMCON will start this year. Which of them will Skye Bank consider for possible acquisition?
That would be pre-mature. But we would look at them; we cannot say which one we would go for, because we do not know what is in there. But we would look at all of them when the time comes.
Given the number of banks that we have at present, will you say the country is under banked or over banked?
Well, it is not the number of banks that determines whether you are under banked or over banked. It is the level of penetration that determines that. The kind of environment also can determine the number of banks you can have. Like in the United States, we have over 10,000 banks, in some countries you have about four banks and in others, a few hundred. I think that our culture, our diversity, and our varied interests determine the number of banks that we have. At one point, we had almost 130 banks and, today, we have about 24 plus another two coming up, and over the next few years, maybe more would come. Some people say it is not sustainable, but what I say is that it is really the penetration that matters. Banks are all able to carve a niche, there is a lot of money in Nigeria. There is a lot of interest. Nigeria is diverse and there are lots of interests. So, banks can create niches for themselves and are able to play as niche players. You can’t have so many big banks. I think that is where the confusion is, because every bank is looked at to attain a big size. So, really, it is more of the penetration because if you look at it, in urban areas, they say we have as much as 80 per cent penetration within the adults and in rural areas, only about 30 per cent. Really, we are still very far from what we can attain. Also, the government is the biggest player in business and if a lot of government businesses are privatised, what that does is that it grows the wallets of the banks. Also, if a lot of the accounts that are being lodged with the CBN are taken out of its domain that would increase the wallet for banks. Then, there is so much cash outside the banks. So, really, what would determine a lot of all these factors is the size of the market and how the players would play. I believe that our level of diversity and the depth of the economy can sustain the number of banks we have.
Fingers are being pointed at the banks and bureaux de change over the rising cash trafficking these days. What is your take on that?
Well, the bureaux de change have done nothing wrong. If you want to take money out of the country, you declare it. And dollar is not under cash-less, so you can go and buy dollar from the banks or the bureau de change in any quantity you like. There is nothing wrong, but if you want to take dollars out of the country, you declare it. That is all. So, there is no law that has been violated in the ordinary way.
The House of Representatives says it intends to push for a legislation that would strip the CBN of its banking supervisory power and create an independent body to regulate he banks. Do you support the idea?
I read it in the newspapers and was surprised. You know it is difficult to have an opinion. But what I can refer to is that in the United Kingdom, years ago, they took out the supervisory arm from the Central Bank and created the Financial Services Authority (FSA). After the crisis, they said the FSA did not do a good job and so they want to return that function to the Central Bank. But we are thinking the opposite. So, there is no one that is right and there is no one that is wrong.
But the question I would ask is what is motivating them to do that? What is their motivation? The CBN has done a very good job in sorting out the banking crisis and they are supervising banks much better than before. I think it is more of the focus and the leadership that drive the result as opposed to the structure. Either structure could work; that is my take.
Is the $79 per barrel oil benchmark sustainable?
On the oil price benchmark, I like to be a bit more conservative. I will favour more of the $75 per barrel. Really, I think it is slightly political and also to try and maximise cash into the budget, that is why we have the $79 per barrel. Now, the issue of oil price today in Nigeria, in the short-run, it may be sustainable. You have every West African country producing oil, even East Africa, but in five to eight years, the oil will not add up to something significant and if the United States is not importing oil again because they are almost self sufficient, the oil price would even be half of that. That is a bigger worry for us as a country. If we do not get our act together within the next five to eight years, we would be in trouble as a country. So, I think the next five to eight years is extremely critical to us as a country. We need to diversify, we need to invest in infrastructure, we need to take care of security, we need to sort out all our problems and become a wealthy, up and coming country.
We understand Basel 111 implementation has been shifted forward. What is the level of implementation of Basel 111 by Nigerian banks?
For Basel 11, you know Basel in itself is more applicable to international banks while Basel 111 takes care more of capital requirements. So for Basel 11, the aspect of it that relates to us is being implemented and we believe that in the course of 2013, we would have full implementation of the aspects that relate to banks.
