Lagos (INVESTADVOCATE)-In his usual manner Peter OBIORA Online Editor at www.investadvocateng.com on Tuesday September 22, 2015 captured a Question and Answer Session with the Board and management of Heritage Bank Limited at a media parley with Financial Journalists.
Below are excerpts of the Q & A session
Your thoughts on the Treasury Single Account (TSA), its impact and how the Banks are navigating to overcome that challenge
MD: Our thoughts on TSA given the Government’s position is essentially that we don’t want Government borrowing Government’s money, so Government is trying to ensure that she is not borrowing her money and that she can account for all the monies accrued to her. So, TSA on itself from a Banker’s position is a good thing as to when you are pulling it out given the length of time those funds have been with the Banks and the fact that no money just sit in the bank’s vault forever. It would have gone into the public sector; so Bank’s naturally are a bit reluctant in pulling it back because they need to unwind some of the transactions that are wrapped around them. The implication would be that the Banks need to do a lot of thinking to grow their deposit base and to be able to send back those funds and yet stay afloat. Banks thought would always be to say if they return the money, the CRR tied to the money will be to bring it back so that they can conveniently serve their customers.
In effect when naturally such an amount of money is pulled out of a system, the systems have some shocks; but the financial system also has a way of balancing itself out, we believe the balancing out will happen in a short while and whatever effect that is negative the government is surely mindful that the system doesn’t collapse and the Central Bank Governor said so recently. So, I guess we align with him that they are mindful and we are also watching.
When do you have the intention of coming to the Market and thereafter would you list Heritage on the Nigerian Stock Exchange?
Naturally Bankslike to come to the market, butwhen the conditions are right, I’m sure the directorswould look at the conditions and once they are right would advice for us to proceed to the market. Raising of capital especially economic capital is something that every Bank keep an eye on and would want to be sure that we are in tune with what capital is needed as we operate in the market.
What is Heritage Bank?
At Heritage we pride ourselves with a couple of things; one of which is that we would want to be innovative; we can’t be like any other Bank. My Chairman alluded to the fact that you can’t come in by the time we came in and still behave like any other Bank. We have been creative, innovative and would continue on that threshold. We pride ourselves in being the service Bank and we are not apologetic about it. We are a service company that is the way we see ourselves, a service company in the business of offering financial services. We know that’s the part we need to play and I guess we already had some nominations from some independent organisations that we are going to be the service Bank to watch for; but we would rather want to be a Bank that would be known for helping SMEs; opening up the banking space in terms of retail and above all helping people to transfer their wealth after they have created and preserved it for the next generation.
How are you trying to see Heritage Bank get to where it hopes to be in terms of branch expansion, particularly in the South East and other parts of the country?
With what we have done we are virtually in every part of this country, I’m sure the number of branches we have today in the South East we are generally thinking of how we cope. It’s not fashionable to have branches everywhere; that’s why we are innovative in terms of the channels we have deployed. The branches as it stands are actually platform for distribution channel for us, they would enable us push our agency banking, retail banking and financial inclusion strategies. So, there are indeed things that we have looked forward to and we have a lot of presence in the South East and North.
Did you buy units (subsidiaries) of Enterprise Bank on acquisition and if so would you want to sell them and become a single Bank or retain them and become a HOLDco, what structure are you looking at henceforth?
Yes all the subsidiaries that were not sold by AMCON, I don’t know the ones they have sold, I know of the ones that I saw when we came and all are part of the things we bought. Yes, by the Central Bank’s regulation, if we are not going to be HOLDCo, we need to spin them out; there is a given time to which to spin them out. We will keep within the guidelines and spin them out as at when due.
CHAIRMAN: The first one which is for all of us the TSA, in my view which is personal is that the CBN needs to do something. Of course we have the CRR, we put in some of these indicators when we have public sector funds, now that it’s not there, I think it’s a very good time to rework things. For me no matter how much we are scared of naira-dollar rate or inflation, we need an economy that is working and stimulated to do things, the oil price is gone down, revenue is at a level it has never been before. So, it’s a very good time to organise ourselves to push things into the system that would make the economy to work; manufacturing, the power generation all of these must work for Banks to continue to be Bank’s. It’s an economy that is driven by Government whether we like it or not. The biggest contracts come from government, revenue and so on. So, the Banks depending on Government money is not something that is so unusual in this environment. We should try and see what we can do to gather our private funds; but if these funds are now locked up in the Central Bank, that would be double; government takes its money and the ones we have the same government takes again. So my view is that as quickly as possible and I’m glad that the CBN Governor is already saying something about that, in my view, it’s a very good time, very quickly for Banks to be assisted based on the fact that a lot of money has been pulled out of the system.
What’s the size of your loan book and what percentage of the loan book is dedicated to SMEs, I want you know what you are doing with the Agric sector and Heritage Bank’s projection concerning lending to SMEs and the Agric sector?
MD: Indeed we came in and we did discuss robustly the need for SMEs to be our focus and the reasons are not farfetched. We believe that the SME is the actual point for development for the economy as it were at large and having a conversation that makes everybody believe and begin to look towards that sector as important. Our loan books before I put certain numbers out, I will actually need some clarifications from our regulators; but I can give you the percentages. Yes our SME loan book is about 18 percent in value and in number is about 43 percent of our lending. For our Agric, is about eight percent in value and in number we can say that’s about four percent?
Your thoughts on most of the Banks returning to universal banking and where do you have the greatest niche in the banking industry in terms of the areas you want the banking public to know you are heading to?
MD: When you look at what our next thoughts, we are looking forward; because this is our core focus and we have only run for about two years plus, we intend to grow that number, we have about 60 percent of portfolio in that market; but can you run 60 percent on day one or two, it’s a gradual process. We believe by next year given the board support, because we would have to go to the board to say this is our focus and we need you to approve a certain amount of money for us to be able to do certain things and that amount they would need to increase and we need to go back to them to convince them and if they do agree with us, essentially we might be hitting about 25 percent in value and nearly 70 percent in that space in terms of number; probably also grow our Agric desk for which we are very well focused. We have had sessions with quite a number of partners giving us assistance to be able to achieve a 12 percent in our portfolio. And this is essential, we started a loan book at zero, so if today our loan book is over a N100 billion, it gives you a sense of where that could be and if our loan book is about N50 billion it will also give you a sense of where that number would be.
CHAIRMAN: We do want to address growing a loan book at this time in the market, we have to be a bit cautious because SMEs cuts across the whole economy; in oil and gas, the numbers are much different from when you come to those in the service sector, where a N5 million or N3 million will be enough; but an SME in the oil and gas will tell you of a N50 million or a N100 million; of cause the Central Bank is also helping us to push those numbers.
MD: Your thoughts on universal banking, have we gone back? We have not, no Bank has actually gone back to universal banking. If you want to do universal banking then you are HoldCo; you are not a Bank. A Bank is one of the companies within the HoldCo. So, essentially we still remain a commercial Bank with different authorizations; regional, national and international authorizations. Also, your regulatory capital will decide where you operate. For some of us that are in developmental phase, where you are either transiting from one organisation alone or a merged arrangement; no doubt there are some legacy issues whereby the organisations’ you are taking over had a few of these subsidiaries’, it takes awhile to split them. You are not allowed to invest further capital into them. So, you can’t say you don’t need them essentially, you are managing them into transition and during that transition period, you can call yourself a universal Bank to be or not, you won’t be seen as actively running a universal Bank. My personal thought on universal banking, would it be that we should go back to it? Competence is important, let commercial Bankers stay within the commercial banking space. There are Merchant Banks that are technically fit to be able to carry on Merchant Banking activities and those that want to do capital market activities should stay in that space.
FACTS CHECK:
In October 2014, Heritage Banking Company Ltd successfully met the requirements of the Asset Management Corporation of Nigeria (AMCON) and the Central Bank of Nigeria (CBN) toward owning 100% shares in Enterprise Bank Ltd.
On 27th of January 2015, AMCON officially transfered ownership of Enterprise Bank Ltd to Heritage Bank.
Tell us how much your bank has disbursed to SMEs in the last two years or thereabout you started in order to assess you with the other Banks that are claiming to be doing SMEs
One of you asked if our niche is actually in SMEs, I think for us as a Bank we don’t want to be seen to say this is our niche. Whenever people box you to a niche mentality, it makes you believe that anything you do outside the niche, you are not doing anything. We are essentially a commercial bank and inter-mediators for the financial system; that’s what we are; but do we want to support more than anything else, we want to be seen supporting robustly the SME market. We want to be seen supporting robustly the retail sector, these we would support because that is what we want to be. We want people to know that the innovations we bring to the table will enhance development of those two markets, we don’t call it niche, but we would support those two markets vigorously like I said earlier.
What is the status update of your customer base compared to the 11,000 reported in 2013? Clarify the statement made by Mrs. Mary Akpobome one of your Executive Directors in 2014 that Heritage Bank will list on the Nigerian Stock Exchange and now the MD is saying the coast is not still clear.
MD: On our customer base, Enterprise Bank when it came on the platform, it was a public knowledge as to the number of accounts they had. We have slightly lower than what they have got. I could confidently say that we have over one million customer base as at today compared to what we started with and I think that’s a good performance by all indicators.
On the issue of the Initial Public Offering (IPO), no bank forecloses an IPO, we need to offer something before we list, and you can’t just walk in and say I’m listed. We will list; but listing is a function of certain other conditions put together by the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) for which we must adhere to. We must operate for certain number of years before we can come and until we satisfy these conditions we can’t.
Secondly, we also need to look at our projections in terms of business focus and whether internally generated we can deal with our economic capital, if we can, we shouldn’t rush through this. These are the things we need to consider.
Is there any form of baggage that came from the past that is still with you as you move forward?
MD: I will not call it baggage, we call it a legacy that is interesting if all of you would cast your mind back, Societe General Bank (SGBN) was the very first bank that pushed out innovative services into the financial sector; including ATMs, and how we break our financials and other things to customers. That is a wonderful legacy we think we should adopt, we are 10 years ahead of most of the Banks in the industry. That’s a legacy we are proud of and it’s not a baggage for us; it’s a plus, we want to deliver and stay on that innovative platform and we believe that it’s an important thing to showcase. We are not ashamed of it, Heritage came out of the ashes of SGBN, it was there for 10 years no Bank had ever in this world come to life after 10 years of being moribund; SGBN did and it became Heritage Bank. It didn’t stop there, with the leadership we have got; our Chairman and all the Directors, we have acquired the second nearly to die Bank and today, it’s going to be one of the strongest Banks in the country. So, we don’t see them as baggage, we see them as doing things right and those staff that would have ordinarily lost their job are today working happily in a new generation Bank you call it.
EDITOR’s NOTE:
In 2012 Heritage Bank against all odds, acquired the license of Societe Generale Bank of Nigeria (SGBN) from the Central Bank of Nigeria (CBN).
FACTS CHECK:
Staying true to our values of Integrity and Excellence, we offered to return 100% of existing SGBN account holders’ funds. However, more than 70% of those preferred to continue with the service under the leadership of Heritage Banking Company Ltd. We successfully returned 100% of existing SGBN account holders’ funds to their owners as promised, while at the same time meeting, fulfilling and exceeding all required criteria for operations.
Source: Heritage Bank’s website
Can you assess Heritage Bank and your projection for the future?
MD: There are different indicators to which you would want to measure a Bank, if I stay to lay all of them out, we will not go away from here. But let me just put it that one, we think we have optimal branch size, you are not going to see us trying to come up with another 20, 30 or 50 branches. What should be the indicator for which you assess us is that within the next three to five years, how many SMEs are we able to bring to the table and we believe that working with our partners, we believe that within the next three to five years, we should be able to successfully list three companies on the Stock Exchange; that for me should be an indicator that you should look forward to. In terms of whether we will be the biggest in deposit raising, we try not to focus on that because there are changes in business every day. If we return back the TSA monies, all of our deposits will go up, if you take it out, it comes down; so it’s almost an indicator that we can’t use. Let’s look at the tangible which is if you are an SME Bank or you want to support the SMEs, how many would you support to go to the capital market? We want to promise between the next three to five years, we should be able to put about three on the capital market. That should be sometime that we should look forward to.
CHAIRMAN: The very important one for me is for the person who wants to know what Heritage Bank is, I think we have tried to push that and I will state frankly that one of the things that we are trying to do here is to use technology as much as possible to support those areas that we have listed and those are our businesses; but essentially we are going to be a service organisation, so when you see our nice colour know you can go in there and do your transactions as nicely as possible, that is the way I want you to remember us, we are a different Bank and would be doing all sorts of things to outshine competition. Let me also mention this for the person that mentioned baggage, if you take the story of SGBN and Heritage Bank its one and Enterprise bank we are said to have acquired one Bank, but if you look behind Enterprise Bank, how many Banks do you have there? Six Banks, six noble and big Banks. So, we are taking on a whole lot of legacies, tradition, power; especially power of retail banking supporting entrepreneurship. Look at the Banks, maybe it’s a little too early for us to be jumping out and saying this is what we have done and so on. We are just two years, but that’s the direction we want to go, to be known as that Bank that uses high tech to deliver the banking business. Banking is a very boring job, you take money and you give money out; that’s it, but it’s the way you deliver it that creates the fun there. However, that does not mean we are not going to be doing corporate banking or large corporate, oil and gas or even real estate. What we are saying here is that we are going to be a player not all about money, you will come to our Bank and we know what to do to assist you in your business or who wants to start up his own little business. Its not all about cash like I said earlier, sometimes is the fact that we are in this business of supporting SMEs that we know that we can assist you to begin to audit your books. We are going to assist you to begin to do branding, using the press for publicity and so on. Not only about the loan that we give out; but we would want to become an expert in-house in the industry on how to push up the businesses of the SMEs. An SME does not mean rural banking or people selling on the street, it doesn’t mean that, it may include that as well, why they say small to medium enterprise, it actually includes a lot of the companies that we have in the country.
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