When Mr. Nnamdi John Okonkwo was appointed Managing Director/Chief Executive of Fidelity Bank Plc on January 2, 2014, from his former role as the Executive Director of South Directorate of the bank, those who knew his pedigree had no doubt he would soon improve on what he met on ground.
However, despite taking over the leadership of Fidelity Bank at a most turbulent period of the industry, Okonkwo has within the last three years moved the bank higher on profitability, going by its 2017 audited financials recently made public by the board. Having pulled the bank through Nigeria’s worst recession in a quarter of a century he believes its now time to set it on the part of sustained growth.
Speaking at a recent interactive session to showcase its 2017 financials, Okonkwo predicted better days awaited banks that are ready to focus on their core mandate, particularly in key areas of the economy, like SMEs, Consumer Finance and Infrastructure financing.
Bank’s roadmap for the next five years
Let me give you some historical background. If you look at where Fidelity Bank was as at end of 2013 and where we are today, you would have noticed some marked improvements. The bank has had a stable leadership in our 30 years of operations. I am the third CEO of the bank. The first CEO served for 15 years and the second was there for
10 years. Both of them laid solid foundations for the bank before I took over the mantle of leadership.
From day one, the watchword is to keep the bank safe and that was the same gospel that was transferred to me to ensure that the bank’s capital adequacy is strong and also make sure that liquidity is also strong. At some point, people thought Fidelity Bank was too conservative but it was for good reason. That conservative posturing has enabled us to survive three or four cycles of crisis in the banking industry and helped us acquire two banks in the process. When I came on board, it was clear to me that we needed to be mindful of these and management also agreed to retain these posture when we had our strategic retreat to refocus for the next growth phase.
We said to ourselves at the retreat that we want to be the clear leader among tier-two banks. So we crafted the medium-term strategic initiatives built around balance sheet optimisation, cost reduction, and increased digitisation. We were sure that if we remained focused on the implementation of these initiatives, we would achieve success. Four years down the line, we are quite happy with the results we have achieved even though we also realise that we are not yet where we intend to go ultimately.
Specifically, in answer to your question, in the next five years, we plan to break into the league of top five-six banks in the country. This has implications for market share, number of customers, balance sheet size and all other variables. We had a board retreat late last year to strategise and agree on the imperatives for achieving this goal and by God’s grace and the disciplined approach to the execution of the outlined initiatives, we will realise this goal.
Strategies for goals attainment
While I am not at liberty to completely divulge in details, our plans for the next five years, let me speak of some of the quiet changes and internal realignments we have made in preparation for the future.
Starting with governance, we ensured that as Directors retired, both at the executive and non-executive board, we maintained our quality by replacing them with equally very strong professionals from diverse backgrounds. If you look at our board, you will see high profile representation by people who have been in regulatory roles. From our Chairman, Mr. Ernest Ebi, who was former Deputy Governor of the Central Bank of Nigeria (CBN), to Seni Adetu, a former CEO of a multi-national corporation, former CEO of a bank, legal practitioners, former Chief Risk Officer of a bank, accountants and accomplished businessmen. On the executive side, the professional background of our
Directors also speak for themselves.
We also started our mid-year audit last year. Nobody compelled us to do it. We are required to audit our account, once every year but we did it on our own because of our future aspiration. We decided to adopt international best practices.
Organic growth, or capital raising
We plan to grow organically but that does not mean if we see a brownfield transaction, we will not do it. Getting to the top five-six league of banking is more important than just doing a combination today to become such, which means you did not get there by deliberate efforts. But if we see an opportunity in the market that aligns with our goals, we will evaluate it although that’s not our primary plan. On capital raising, as a bank, we have a policy set out by the board, which ensures that we remain above regulatory benchmarks.
Lull in big transactions
Apart from our reputation as an SME-friendly bank, Fidelity has core competence in corporate banking, and we are still financing the big corporates. On agriculture, we funded one of the biggest rice mills in Nigeria located in Kano, supported cocoa value chain in Ondo State, to name a few. We are also very active in food and beverage industries, construction, oil and gas, FMCGs, iron and steel, among others.
Key drivers of Nigerian banking going forward
It will depend on strategic focus of each bank. At some point it was easy to make 20 per cent returns from treasury bills, we knew that was not sustainable and so expectedly, it has come down. Those who stay focused in their core business at a time like this will remain profitable. For instance, if you look at our income distribution in 2017, you will see that we made about 25 per cent of our revenue from non-interest income, which was as a result of our investment in digital technology. We used digitisation to drive a lot of non-funded income. We also took advantage of our balance sheet optimisation to increase yield in short term instruments. We have cautiously resumed extending credits to customers in the consumer/retail segments, following improvements in salary payments by various tiers of government and the private sector.
Lending to SMEs while driving down NPL to 5 per cent
The NPLs (Non Performing Loans) you see in the banking industry are not even predominantly from SMEs. Fidelity approaches SMEs lending from a different strategy completely. When we started supporting SMEs, we did not want to use risk asset penetration strategy. Businesses fail either because owners borrow for the wrong reasons or they don’t know proper book keeping and there is nothing tying them together and preventing them from behaving otherwise. When a significant percentage of businesses go bad, there will be a spike in bad loans.
Because of this, about eight years ago Fidelity Bank set up a division to understand SMEs and train people in that area. The division was headed by a General Manager. We divided SMEs into general SMES and managed SMEs. We use the cluster approach to manage people that have similar needs. You can have 500 people who have similar needs and talk to them as an association. Those that do not have proper book keeping, you make it clear to them that we need to see your business through your record keeping and we train them to imbibe and inculcate these habits.
Recently, our people spent two weeks in Aba, in the shoe and leather segment of the market. Today, we have a thriving branch there, with the Bank of Industry (BoI) approaching us to do a collaboration. What they want from us is to use our office to provide money to support people in that market because our model is working. Now, if any member of the cluster defaults, the other members will come against him or her in mutually re-enforcing manner. Our products are specifically designed and if everybody in a particular cluster is facing bad time, we will know but in a situation where only one person is not repaying, we know that person is doing something wrong. So that’s the way we approach the cluster SMEs.
For the stand alone SMEs, we have developed templates. For instance, if we check transactions across industry over a period of time, we can tell what kind of SME a business is, using account statements. That way, we can query inflows and outflows and ask questions where there are gaps – we will ask why you are not selling or are you deliberately stocking up, where we see stocks growing higher than demand. Yes, we are that detailed! So the awards we keep winning on SME banking is an outcome of a deliberate strategy.