Niche Banking’s Good for Nigerian Economy


There’s a transition to macro and niche banking. Would you say this phase of banking is in the interest of Nigeria compared to what is happening in South Africa, Ghana and other parts of the world? 


I think it’s good because the capital requirement for a small bank is different from the capital requirement for a large bank. If you decide that you want to be a regional bank and not a national bank or just want to operate in a particular area, you have the freedom to do so. The initiative will definitely bring more investors to the industry and such effort would be salutary to the economy. 



Currently, the deposit rate is about one to two per cent, while the lending rate is about 22 per cent. Are you comfortable with this rate regime and is it good for the economy, given the fact that there’ll be no incentives for deposits and savings?


It is true that the rates are not going down as fast as the deposit rate but that is where we can start to ensure that lending rates crash. As time goes on, businesses will start to benefit from low lending rates. Already, depending on the size of the business, lending rates have been crashing – as low as single digit for some big customers.



So, everything has moved down by about seven and eight per cent. People generally look at the high one but there will always be a difference. And the difference represents the risk involved. You will find out that the ones you are not comfortable with or you find out that there are more risks-they are higher but it is true that it can go down even further, and it will. You see, where there’s stability in the deposit rates at a lower level, the lending rate will be moved down to match it, so it’s an ongoing process.



Banks appear not to be favourably disposed to lending, especially with the commencement of the current reforms. What’s happening?


Let’s start from a general perspective. The banks were not lending generally because first, they needed to be sure of the kind of risks they were taking, having had to make a lot of provisions, because of the quality of loans they had given out. But now, I do know that banks are lending, but maybe, they are being more careful or prudent in the manner they are going about it. Union Bank is lending. We never stopped lending. In fact, we have been increasing our loans for agricultural ventures. 



However, when it comes to corporate lending, we are careful about the sectors. Part of the reasons why we landed where we found ourselves in Union Bank was that loans to oil trading business were very large and so, when things changed course, we just had a huge amount of bad loans in our books. So, to that sector, we are very selective in lending, because we want to reduce the risk factor and spread out more to other areas. So, we are lending and all banks are lending but we are much more careful.



What is your view on the sovereign bonds recently introduced to oil and petroleum marketers and traders?


It is very good because part of their problems was getting the differentials on time and sometimes it used to take more than six months and their business is of very low margin. So far, sovereign bonds are resolving such issue and the feeling I get is that it is being paid on time and assist in improving situation in that sector.  



Do you see any major changes coming into the economy under the current administration?


I think there are two things that I have noticed. First, the emphasis is on power (electricity) and coincidentally, I think the administration is serious on doing something about power. I hope things would be fast-tracked in the power sector as issues there have been on for too long. Secondly, I believe the government would also achieve a lot on the Niger Delta issue, more so, as the President is familiar with all the issues involved.



Also, the Vice-President, a former governor of Kaduna State, made a presentation to the Bankers’ Committee sometimes in the last two months on what was happening in Kaduna State and the various things he was doing and I was quite impressed. One thing that came out clear was that he believes it had to be a private sector led process and he even came with various private sector parties and you could see that, maybe, having worked in a private sector, he was serious and he was very passionate about housing, being an architect himself. So, the President and the Vice-President have what it takes to give purposeful leadership.



There is so much talk about power (electricity), yet, there’s this cliché that if you disempowered people and you build infrastructure, the disempowered people will turn round to destroy the infrastructure. Today, we have a pile of unemployed youths and we have diminishing opportunities within the system.



Don’t you think the government is not sidetracking the unemployment issue and the concomitant empowerment of the people?


I think there are many things that this government is currently doing, which would rub-off on employment situation. One of such is the refinancing through the Bank of Industry (BOI) that the CBN Governor, Lamido Sanusi Lamido initiated, which would provide loans on long- term basis for the real sector. With such initiative, many manufacturing firms will be revived and that would provide lots of employment opportunities, especially for the youths.



For how long will this effort start manifesting by your assessment?


It is true that key statistics don’t exist. When you don’t have statistics, you don’t know whether you are progressing but I am just mentioning that if we can solve our power problem, cost will go down so much that businesses will start thriving. If you look at the impact the mobile phones have had on us and the employment it has created, it (power/electricity) will create a lot more.



On our own part as a bank, we’ve recruited about 50 senior people in different places. We’ve recruited 700 graduates. We are about to finish a process of recruiting 150 accountants and the first batch would probably start their training by end of July. We try to recruit in batches of 150 and it’s an ongoing process, so that between when we started at end of last year and end of this year, we can say that we have recruited at least 1000 people. In recruiting also, we are making sure those who are not doing things properly know that there’s a price to pay for.



The first quarter result of the bank showed that it has returned to profitability. How was this achieved?


Between the time we came on board and the end of December last year, we have done what is called ‘close the tap.’  In other words, we cleaned up the books of the bank and wound down what I would call the ‘old things’ that took us where we were as at August and then repositioned the bank for growth as from January.  In repositioning the bank for growth, there were two strategies employed. The first was to turn the bank into profitability within the first quarter by end of March and the second was that we commenced our medium and strategic renewal plan for sustainable growth from April.Well, I am happy to say that both, in terms of “closing the tap,” we were able to do what we wanted to do and by the end of March, we were able to achieve our goal in respect of profitability.



How do you plan to sustain this trend?


This year, a new reloaded Union Bank has been born. With the initial steps successfully taken, we are blocking all leakages. Already, we have the income audit team, headed by Mr. Ade Shonubi, one of our executive directors, to ensure that new transactions are properly done. There’s still a lot of work to do on that side. Often, it’s because we were not doing things on time and not doing them properly, plus legacy issues, but we are addressing all of that.We have got new customers and they are happy with the new situation in the bank.



So, in “closing the tap,” what did you discover? 


First of all, let me explain that we had to classify all our loans properly. So, loans that were not on the balance sheet were brought back and if they were not performing, we made sure that by prudential guidelines, we classified them properly, so it was bringing out all the cobwebs and indeed, seeing us as we are. That was basically it. Then, we also went on an aggressive loan recovery drive. We set up a six-tier structure with a structure to focus on the loan recovery because as you know, loans go through a life cycle, and they were all at different stages, so that we could have a good focus and had a key senior personnel to drive each aspect. Details of what we discovered were mind boggling and we consequently did necessary things with the regulatory body and other relevant agencies. 



What is the key focus of the bank now?


Currently, our key focus now is what we call the ‘medium term renewal’ and sustainable growth plan – and these were the key things that we were doing, that is, focusing first on the large customers to sort out their issues. I have called on many customers but not as many as I would have loved to because there were so many things to take care of, but they are beginning to see that across the board, we are accessible.In other to be clear on how we are making progress, there are actually two ends we are focusing on in the short term – the corporate customers and the retail.



The reasons why the individuals and SMEs are not in the immediate focus is that through the corporate, you’ll capture them because in the corporate, we say we’ll follow the value chain. So whoever is dealing with a particular large customer will try to follow that chain so as to capture them. However, we are not looking for new customers but to make the ones that are with us happy: yet, if any new customer strays in, we would capture them. 



But first, we would want the ones that are there to be better served and I’m glad we are beginning to see some results. There’s also the human resources management system, which makes the life of the HR manager easier, but more importantly even a person in remote places can send information online. That way you’re closer to the centre and information that is captured on everybody is more correct. 



We have mentioned how we were attacking our bad loans but you also have to make sure you are handling the good ones properly. The risk management enterprise framework is what everybody is using and we’ve gone far in implementing that. What we also discovered is that we have about 15 subsidiaries and were not talking to one another. So we are not even trying to save cost using a good scale. You have a situation where we at the head office are buying computers cheaper and in the subsidiary, they are buying it more expensive. 



Recently, some of the bank’s ex-staffers protested at your head office. Have you resolved the issues involved?


The protest raised two main issues. Those who were protesting were made up of a group of people who left the bank as far back as 2000. One of the major contentions was that they claimed that the bank didn’t pay them the right rates – that they were underpaid. The other key issue was the one that has to do with the share ownership scheme or productivity scheme, which the bank introduced. For those key issues, some interested parties have already gone to court and our position remains that the issues are before the court and we’ll wait until the court resolves them.



There were other issues that were raised by the protesters. One has to do with the transfer of the pensions contributions to their PFAs. As you are aware, the pensions reforms Act of 2004, brought about the issue of contributory pensions scheme and there were some people who retired from January 2006 to date, which was when we commenced the transfer of remittance of contributions and we had actually communicated with the pensioners association to let their members know that those whose contributions have not been transferred should let us know their selected PFAs, because we couldn’t have transferred contributions until we know the PFAs of the individuals.



Before and after the protests, we again contacted the pensions association and we are of course remitting as we got the relevant information. I think it’s an ongoing dialogue and some of those issues were unresolved because there was a communication gap. We explained to them that some issues were in court, and are being sorted out.





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