Lagos (INVESTADVOCATE)-InvestAdvocate in its usual manner on March 17, 2014 captured a Question and Answer Session with the management of Union Bank of Nigeria Plc with business editors. Below are excerpts of a Q & A with session
We would very much like to hear more about your medium to long term strategy?
One thing I should mention is that this conversation we are having is a preview of what is to come, over the next period of time, you will get more details as to where we are going. But let me come to your questions, the first is clarity around our strategic ambitions and second around dividend and share price of our bank.
What I mentioned was that our strategic ambition is to become a highly respected provider of quality banking services within the six area of our focus.
And we have also identified and defined which segments we are going to play in and how we would win in those segments. Now in terms of further details, we would share those with you as we go; otherwise if we share everything today, then you will not join us again, because you may have gotten everything you want to know. But we wanted to share with you the key elements of what it is we are trying to do.
EDITOR’s PICK:
‘’ The six (6) major areas of commitment Emeka Emuwa the group managing director of Union Bank of Nigeria Plc said are: quality of customers experience, quality of client base, quality of talent, quality of banking platform, quality of professional standards and quality of the banks’ earnings,’’
When will Union Bank of Nigeria Plc pay dividend to investors?
Now as far as the share price and the dividend go, there is nothing so much I can say about dividend; but if I take on what you said which is that the investors have been kind to Union Bank, now I would say therefore that the investors understand what it is that we are doing at Union Bank is what I would like to take; and what we are doing has long term implications and to that extent as I mentioned what we are doing on transmission, we are comfortable it’s on track.
We are positioning ourselves to better serve our customers which means therefore, that as we go out in the longer term, we expect to essentially meet not just our own ambitions; because I would like to think that ambitions at least if not beyond what our external stakeholders including clients and investors expect. So, what we do is the work we are doing, stay on course and if we do that and achieve our ambitions, I think then that the investors will be sufficiently rewarded for taking the right way; if you consider what we are doing.
Are we still expecting more of your staff out of your system?
Yes there were some departures last year and would there be more? Now Union Bank like any other organisation from time to time appraise the performance of their employees at the end some have to go and some will remain. You look at the organisation, you hire a lot of people, some go; but that is not something we look at uniquely or specifically, it’s something that we look at our staffing on an ongoing basis, it’s something that we would continue to look at. Last year yes there were specific actions taken. And the good thing about those actions taken last year and I’m sure many of you know, because I think you did not find it newsworthy or the reason why it was not newsworthy is because there was no noise around it. Or you do not have a bunch of unhappy people leaving the bank; whichever way you look at people, you treat them with dignity and respect and do what is right by them; whether on the way in or out. So, last year was a specific issue that we dealt with and I believe that we dealt with it in the right way which is why you didn’t find too many people upset about it. On an ongoing basis, we would always continue to look at our staff complement, bringing people in, some people will leave, some will retire; so that’s a continuos process we will be going through.
What are you going to do with your subsidiaries?
As a clarification on subsidiaries, I had mentioned that we are divesting from all our subsidiaries with the exception of Union Bank UK, all our non-bank subsidiaries, we are divesting from. We are well on track with regards that process, we are at various stages of completion; unfortunately I cannot share the details with you right now; but as we complete them, we will share and they would be public knowledge; but we have communicated to the public at large that we are divesting from all our non-banking subsidiaries with the exception of Union Bank UK.
Your subsidiary Union Homes in the last one year have been in crisis, what have you done to reposition the place and whatever you have done, what has been the result?
As regards Union Homes, you are right, there was a variety of crisis last year, there was some picketing and it was extensive, yes from the operational side there was some hiccups. What we have done there is essentially the same way we have looked and stabilising operations across the board, we have looked to stabilise the operations at Union Homes. Now you have to understand that Union Homes is a separate company; is also listed and Public Liability Company (PLC); there is so much one can say. But we have worked with them to stabilise the operations there. However, there is some work to do; but the important thing is that the crisis that did take place back then has been brought under control, it was extensive, it has been brought fully under control; and now we are at the resolution phase and they are also engaging with their customers.
To what level have you reduced your operational cost relative to the time you started your operation?
When we publish our numbers you will see what we have done on the cost side. However, there are many things we have worked on, one of the things that we have done, we have gone through an exercise of looking at all our cost streams and saying are we getting the best for every naira that we have spent . We have looked at our procurement processes and we have put in place processes that will enable us make procurements and get the best value for our expenditure, we have looked at what are the things we as a bank can do better than somebody else; and what functions which are not banking that somebody else can do better and more cheaply and more effectively for us. So, we have looked at our efficiency, we have looked at our procurement, we have looked at mostly how we spend money and it’s not just at sort of a high level. It is something that we are working on everyday; trying to get a culture whereby all the way through the organisation, people are continuously asking themselves, am I spending money on behalf of the bank, am I spending it in the right way, am I spending it wisely, am I spending it as if it was my own hard earned money. That’s the culture we are developing in here; so in addition to specific actions that we have taken, we have also gotting people, our staff and ourselves to think differently about how we spend money.
Status update on your Basel II Compliance
The Basel II question is relatively easy to answer, I think the directive last year was to implement Basel II and be Basel II complaint into what we do. This has been accelerated by the central bank. As you know, the central bank has issued directives very recently on our compliant on Basel II, we are the first people to give the central bank as at the end of February where all our capital ratios as at December 31 are to be recomputed using Basel II standard, both credit risk, market risk and operational risk. And this stage its still the simple basic Basel II standard; our vision is to come to the full Basel II; with the sophisticated Basel II full credit, market and operational risks. So, now that this is a regular thing to the report, we do not have a choice; before that, it was voluntary; but now as a bank, what the regulators ask us to do, and we are in full compliance with what the regulators are asking us to do.
What’s your CRR and exposure to public sector?
Every bank is exposed to the public sector, we are not as exposed as many of the other banks, and I think that our exposure is actually quite low; but the other element is that we have a very liquid balance sheet to the extent that the CRR requirements were increased, we are able to fund that without too much pressure.
Address the rumour of Union Bank coming to raise fresh funds
Talking about the capital raising, this is the first that I’m hearing that Union Bank is going to raise new capital, we have absolute no need to raise new capital. Remember that it was just a year and half ago that the bank was recapitalised by investment through new shareholders, right now we have in excess of N170 billion in capital, it’s more than enough in our current and future needs. So, there is no question around that we are going to raise new capital.
When are we going to see some of your changes reflect following your reforms?
The question is around channels, services and technology upgrade, all related. On the channels, I believe what you are talking about, what I said earlier on is that we are well on our way, we are not fully there yet, which means that in some branches you will find what you expect to find, which is Union Bank as we would like it to be and in some, we are not yet there. But if I take the ATMs specifically, I will say about a year and a half ago, what we have in terms of ATMs were basically 200 end of life ATMs, last year, we rolled out about 300 and this year it’s another 300. So, remember we are dealing with legacy issues and that’s why I said last year, a lot of our focus was on dealing with; call them internal; but they also have external implications, because what we had was 200 end of life ATMs, it is possible that you went to one of those end of life ATMs, but today you are unlikely to find those; because we are very quickly replacing them, we are taking out the old ones and continue to replace them with new ones; increasing the numbers.
I mentioned earlier about increasing the number of touch points for our customers; that’s part of it. So, that is what is well on our way. Mobile banking platform is up and running, cards are working and working very well if I may say so; both locally and internationally; and one of the reason why I’m asking which branches is to make sure somebody gets hold of you and make sure your account is not just active; but you have got your cards and all the tools that you need to do the kind of banking that you will.
So, what we did last year was building that up, talk about the channels, that’s what we were putting in place last year and they are working and what I said earlier on was that now going forward, there is much more engagement with external stakeholders and those stakeholders include our customers, so we spend the time making sure that those things work; and we have been rolling them out. But, you may still find a branch that we have not yet fully upgraded and that will be there. It’s a journey that we are on, we have 338 branches, we will be upgrading them overtime; not overnight because we want to ensure that when we do something, it’s long lasting and robust.
Why is your IT system not yet robust?
Now specific question around technology, last year the key thing was and when I talk about stabilisation, it was on many fronts, including technology. So, last year was stabilisation and since the latter part of last year, we are on the upgrade part to the technology that we want to do.
So, the first thing we had to do is to make sure that what we have doesn’t let us down for today’s business and then on top of that, we are now building what we need for tomorrow and I don’t know any of you that has the technology background would appreciate is not something you do overnight; there is a plan, as we sit here today, we have two teams in India working on the conversion part, so its very well underway and it’s something that we will do and do it right and do it well because once we do this, it is something that will serve us, not just for next year, nor the next five years, but in perpetuity and then we just continue to build on it. That’s why we have to do it and do it right. So, we already started working on it, but my expectations are that we will get there by the end of this year. Working with what we have was important to make sure that it works well.
Are you going to roll out more branches or consolidate on existing ones?
We will optimize our branch network and what that means is that, I mentioned that we have a mix of lean and full branches; which means that depending on where you are or what location or what business we are doing there, we have a lean or full branch and you may have various channels. So, I like to think of it in terms of the number of touch points for our customers; because that’s what is important for the customer. For you the customer, some want to deal with a branch, some want to deal with their phone, some on their Ipad. But what we will make happen is that there would be many more touch points than in the past. So, when I look at that entire configuration, we will certainly be expanding it and expanding it very rapidly; that has already started; so the configuration of branches will change, the number of touch points will increase and increase significantly.
Why didn’t Union Bank pursue a holding company option and when would the bank complete its divestment?
We considered all options in conjunction with the board, and the decision we took we felt is in the best interest of all our stakeholders; given where we were and where we want to get to. One of the things I talked earlier about was that we want to deliver quality service, quality on all fronts and that quality is what I believe that will earn us; one, the trust of our customers, it will earn us the trust of our various stakeholders and it will enable us gain our positions within the banking industry and in order to do that, it is important to focus all our energies on what it is that we felt was our competitive advantage and what it is that we felt we know best; which is commercial banking and that’s why we focused on that, commercial banking is our focus, and the subsidiaries, yes they do a variety of things; but they are not aligned with our strategic vision of becoming the leading commercial bank with quality service.
So, as to when those divestment will be completed, the central bank did give us till early next year, we got the approval in July and they gave us 18 months; so its till January, February next year is what we have approval for, but I expect it to be concluded well before then, I don’t expect us like I said the process already started last year, its moving quite well, I expect that to be completed in 2014.
Like I said earlier, we have the regulatory approval till January, February 2015, but I expect us to conclude our divestments by the end of 2014, we are well on our way and as I said also, as we complete anyone, we will also communicate that publicly. So, you should expect to be hearing specific communications around the completion of any divestment. Once it’s completed, we will share that information publicly.
Now I just would like to clarify my comment around commercial banking which is what our focus is, when I say commercial banking, it’s a function of the licence, because you know there is retail, commercial and corporate. What I mean is commercial banking from the licence perspective; not that we are just going to be doing commercial banking. By commercial banking I mean the whole of retail, commercial and corporate banking. If you recall, in Nigeria, there are different kind of licences, there is the commercial banking licence, merchant banking licence, what we have is commercial banking licence and our focus is doing commercial banking and commercial banking I mean the full spectrum of banking which is retail, commercial and corporate banking that’s what our focus is, just to clarify that point.
On the roadmap what are you targeting in terms of turnover, profit etc over the next five years?
I can tell you that we have very detailed roadmap by customer, by loan, etc. It’s a very detailed roadmap. However, it is not something I’m able to share at this forum, as we go along and we have further engagements, we will share more and more with you. What I said earlier was the whole essence of our discussion today was to give you a preview; but as we go along, we would share more details and you should expect that; if I were in your shoes, I will be asking the same thing; but you probably would just have to have a little bit of patience we would share as we go along, it will give you an opportunity to come back and engage with us.
What loan growth are you expecting for Union Bank in 2014?
We will give that guidance when we have that conversation, just stay tuned, there would be loan growth, that has been and there would be loan growth.
End
