Lagos (INVESTADVOCATE)-InvestAdvocate in its usual manner on mid-last week captured a Question and Answer Session with the CEO, Ahmed Kuru and management of Enterprise Bank Limited with the media. Below are excerpts of the Q & A with session
What is the time frame within which the process of sale of Enterprise Bank Limited will be completed?
Right from beginning our mandate was and is still is to run the bank and to run it commercially. So, even when AMCON decided to sell the institution, they appointed consultants to help them. In order for us not to get distracted with what is happening, I can reconfirm to you that we are not part of the sales process, professionals have been appointed, and they are running the process. What we are doing is to run the bank. Now the timeline was discussed with us initially, but like every other thing, there were issues adhering to the timeline; and particularly for this type of environment. Initially the target was to run up to the first quarter of this year, but because we started very late, what AMCON is saying is that the process should be concluded on or before October; that is what they are saying. How feasible that is, how that one is going to work out; unfortunately I’m not in a position to provide that. But for us, we are ready, everybody has worked hard and I think we have left the professionals to do their work; so that there will be less interference.
How many investors are vying to take over the bank?
I think about 18 to 24 prospective investors have shown interest both locally and internationally. For us quite a lot of them called us; including international financial institutions showing interest; because they have seen the figures, they have seen the financials and they strongly believe that the bank has a lot of potentials. We are not very sure about how many people finally made the lists, the consultants have that information; but what we are trying to do internally in the bank is to focus on running the institution, we don’t ask questions as to what is happening; because like I told you, if you go to the stock exchange today, you will see them trading on the stock of most of the banks, some of them trading millions of stocks per day and turning in billions of naira.
Now, if they say we are interested in that it will be a distraction. For us, we are concentrating on the bank and we are allowing those that are responsible for the process of divestment to carry on with the assignment. At any point in time we are sure if AMCON requires our attention, they will bring it to our notice; then we take it up from there. But our mandate is to run the bank and we have energised our staff and everybody is working towards turning the institution. Whoever is interested in buying the bank is not coming to buy the buildings; because if the interest is to buy the buildings maybe the person will go and buy a housing estate along Lekki or somewhere, but they are buying the value, they are buying the customers, they are buying the quality of staff and they buying the mandate that we have. We are struggling on those mandates so that the valuation of the institution will be very high on the basis of what we have been able to achieve.
You did tell us that the bank has remained profitable for the first year; unlike in the past you gave us some percentages, this year you expect us to believe or we should take it that the bank is doing well, that’s the impression I get, but I want some statistics even if not specific, because your account is still with the regulators.
I tried to avoid giving specific figures for this year, but when we came on board, I can give you in terms of percentages. We have been building the books by 20 percent averagely year-on-year in terms of our deposits and risk assets. We have done over 80 percent, because when we came on board, our loan to deposit ratio was less than five percent; but today our loan to deposit ratio is in excess of 60 percent; because we have been building our loan book afresh.
In terms of profitability, if you recall last year we closed in excess of N11billion, our rate of return on equity is also increasing; our return on capital is one of the best in the industry. Because you may see some banks declaring N50 billion or N100 billion, all you need to look at is what is the capital deployed. If I’m able to declare N5.0 billion or N10 billion in equity of N25 billion and somebody is declaring N100 billion of the capital of N800 billion or N1.0 trillion, it tells you the efficiency ratio. So, averagely on a year-on-year basis we have been building our books by 20 percent and that is why AMCON because of the health of our financial figures and the achievement that has been recorded so far, both tangible and intangible, because tangible ones are the ones that you see physically, the structures, IT platform, you see the people. Then the intangible ones are the financials, the ones that you have to dig and read that is why they picked Enterprise Bank as the first bank they want to showcase and they want to divest. And the level of interest that has been shown is tremendous with half of them international banks and investors, it shows that what we have been able to achieve so far is something that is commendable.
You say you are ready for the market, how many branches did you takeover, how many you have right now, some key metrics that can give us an indication of how healthy the bank is.
Generally you look at the health of your risk assets, ours is also very solid, you look at the quality of your risk asset, you look at the character of your customers, and you look at your active accounts. We have almost 160 branches. The way banking is today, it is not the number of branches that matters anymore, because banking is now electronically driven. What we have tried to do is to take the banking services into the offices of our customers. So, most of the branches that we do have and that also applies to most of the banks, you try to get them more of e-banking to such an extent that from inside their offices, customers can scan documents, they can go into the internet and give you instructions and you carryout those instructions without necessarily coming into the banking hall.
In fact, what most banks do now is to come out with incentives to encourage people to use ATM machines, to use the cards; so that they don’t need to come into the banking hall and that is why the cashless policy is been supported strongly by the banking community because it will bring down the cost of operations and operational cost is very high in the industry today and that is what is contributing to the high interest rate. If you are able to share services, you are able to bring down the operational cost, you are able to take your services to the customers’ offices, obviously it will reduce cost and ultimately it will also bring down the cost of financial services.
Sir you said you are focusing on running the bank and making profit, in what areas are you focusing and what is your loan growth target for the year?
Our loan growth target for this year, when we started, we started operating on a loan book of less than N5.0 billion in 2011, and we have grown it to around N76 billion. Last year our target was to do about N100 billion, we are a small bank and we don’t want to go back to the old days; so we are very conservative when it comes to building the loan book. This year, we intend to grow our loan book to about N130 billion, and because we believe that it’s what will support our balance sheet. Also, we are very careful to diversify the loan book volume. It’s easy if you want to build your loan book, for instance in oil and gas you can do that with one transaction and it can cost you about N5.0 billion or N10 billion it’s very easy.
You said you are targeting small businesses, what specific products have you developed for these targets?
But you know for a retail bank, you are trying to build the small loans and the small loans which you normally sell through products takes a longer time because you are talking about N10 million, N20 million, lease or so, it takes a longer time and like I said earlier, they also perform because the irregularities are not usually up to five percent (5.0%). So, by the time you do your calculations, you can afford to rollout the product.
Head of Retail Keystone Bank: Good Morning everybody my name is Ori Ogba, in respect of our products, I will say that the bank has a focused approach on products especially as it relates to retail products. We have a dedicated product development team, whose responsibility is to look at the various segments of the market and develop products that will suit the identified needs of that market.
And we have the retail segments whose responsibility is to market those products to the specific categories of people or segments that we have. We have the retail, mass market and the small and medium enterprises (SMEs). So, in each of these segments, various products have been developed and you will see that our electronic platform is also used to support these products.
As we speak, specifically for the retail business, we are dedicated to serving in the area of risk assets and quite a number of products have been developed. For instance for tertiary institutions, we have what we call the tertiary products that is dedicated to serve the teachers and the institution in terms of their specific needs. We also, have another product, what we call COTPLUS, we use this to serve our SME customers, we know that they deal on turnover and we would want to assist them by ensuring that they don’t have to pay us COT.
In fact we pay them COT to enable them to do their business efficiently. We also, have our Salary Plus account, we realised that quite a number of institutions also want to serve their staff in terms of loans for small household products and the rest of them. For those of them that maintain an account with us, we ensure that we give them adequate credit to serve them in terms of home appliances, to serve them in terms of auto loan and their personal needs.
We also, have the education loan for our customers, the education loan we dedicate them to our elite customers. We realised that quite a lot of people send their children overseas and we need to take care of that. We try to target at schools and those parents that have these needs and we serve them along this line.
A whole lot of products are actually out there for them, but the other thing for us also in serving them on their transaction activities, with the cashless in place, transferring money from one account to the other; either within the bank or to other banks, it’s now electronically done; so we have our corporate pay products that enables the customers especially the SMEs to stay at the comfort of their offices to make payments to people wherever they are. So, we are creating efficiency, convenience and creating speed. All of these help to reduce their cost of doing business and in turn create a lot of liquidity in the system. So, we have all of these and for some of them, you will realise they don’t even have an efficient way of managing their operations to enable them to even electronically transact with banks. So, we deploy portal, we look at their processes and through the use of our IT platform, we develop portals for them that will enable them to upload most of their manual processes to electronic platform. It helps them to quickly do what they need to do in terms of receiving funds from the direct public as well as sending out funds. These are some of the things we have. There is also the mortgage which is a huge one for us, we serve our clients with this particular product, and there are quite a number of them.
I want to know specifically where your strength lies in view of deepening the revenue base of the bank
Our revenue strength just like most banks in Nigeria is from lending, because that is the core line of our business. You do have a lot of incomes that are derived from fees and commissions. But ultimately if you go through the balance sheet of most banks from 60% to 80% of their revenue base is from lending; so we are not an exception, we made more money from lending; but quite a lot of fees and commissions are derived from be it foreign exchange transactions, treasury activities; but basically, lending is where we make more revenue.
What’s the level of your benefit from holding public sector funds?
On public sector funds, for us in the industry before now is a source of cheap money; because there are no strings attached to them. And usually they keep them in current accounts and it gives you a lot of leeway to have a lot of resources for lending. So, quite a lot of banks, some of the big and small banks, you will realise that the composition of the deposit profile has a lot of public sector funds in it. Whether we like it or not in Nigeria the government plays key role in our economy, they are the major source of liquidity in the economy; so, banking in public sector used to be very profitable because it gives you a free cash flow. Obviously, the increase in the CRR will affect the investable cash flow that banks have. Now, if its 50%, all it means is that if you collect N1.0 billion from any government office N500 million of that money will be kept somewhere at zero interest rate, meanwhile it’s also part of your balance sheet. So, there are a lot of other benefits that usually you get if it’s part of your balance sheet; but now it works on the other side. Definitely, it will affect the cash flow that you have around the business; but I can tell it’s also a welcome idea; it’s something that the banking industry can also deal with.
What’s your reaction on 75 percent withdrawal of public sector funds?
What it means is that we now have to be focused, restrategise and go after the small businesses, because of you recall, the financial inclusion in Nigeria is less than 60% which means that there is still a lot of room to grow from the other sectors. What is happening now is that most banks have gone back to the drawing board to now see how to compensate the exclusion of the public sector funds to up to 75% from the funds that they have to play around with. So I will say it has affected the business because if you are going to Ikeja and you have a friend that has a boat, he will take you there faster than if you go through third Mainland Bridge. So, we are in business and once you are in business, you will look for opportunities and public sector funds I can tell you provide a lot of opportunities. But, gradually given the implication of excess liquidity in the economy as a result of the availability of public sector funds, I think the banking industry has come to realise that it’s important that this have to stop so that we can maintain price stability because if we have excess liquidity in the market, what it means is that we will not be able to control the foreign exchange pricing. So looking at it from professional perspective, I think it is something that we in the banking industry have come to accept and identify with as a sacrifice to strengthen the banking environment because it will help the exchange rate, it will help inflation and it will also regulate money supplied in the market.
The CBN issued a lot of policies to regulate the banks, I want to know which of these policies affected you most either positively or negatively?
Now if you ask me what CBN policy has affected us as a bank, one can selfishly say the CRR, it’s like taking money away from me. Typically, is something that is free, so if I have N50 billion, which typically I am earning money on it, now you, have taken it out, definitely, there is an income loss to me? From selfish perspective, I think that is a major policy that has affected us in the industry. But, from a professional perspective, I think it’s something that is necessary and has been done and it’s something that we have identified with because you know in the last couple of years, what the CBN does is that they bring it to the bankers committee and its discussed, we agree with some and some we do not agreed, but its justified and sometimes even when you remove the urge to get profit, and you look at the larger economy then you can see the sense in some of those actions.
Ends
