Omodele Adigun

As non-performing loans (NPLs) in the banking sector almost hit the roof, customers seem to have lost appetite for new loans. What could have been responsible for this? “Th customers are just being realistic,” says Mr. Ifie Sekibo, the Managing Director of Heritage Bank.

According to him, the reason for not much borrowing is because the income that will sustain that borrowing is not there. “It doesn’t exist! If a sector is not growing, there is not going to be borrowing. If the sector is not growing and you are lending into that sector, you are destroying capital. And the last thing you want to do in a growing economy is to destroy capital. So when the customers are not borrowing, they are being realistic.”

In this interview, he gave insight into how to reverse the trend and pump up the economy.

The bank

Heritage Bank has been an interesting journey for us because we came when the market was almost turning into depression in the international space where the quantitative ease and co happened. The capital market was going down; but somehow, we were able to find a space in the area of SME Banking and Retail. And we have kept on delivering on that promise to be able to make SMEs bankable, not necessarily by throwing money at them but by being able to educate our entrepreneurs that the need for cooperation, the need for partnership was more important than the need for raising loans to be able to run their businesses. That has paid off over time because we see more and more cooperation among entrepreneurs. They have consolidated their businesses; they have gone into the areas they hitherto could not have gone into. Young lawyers have been able to come together to help nurse these small organisations to keep proper records in terms of their incorporation and records in terms of how they do business. Again, small accounting firms have been able to put together for these organisations how to keep their financial records for tax purposes, etc. We have been able to measure their progress over a period. I think, as a bank, we have lived up to a promise, especially in one of our products, the SME Clinic, of  helping SMEs to grow. We have also taken that a bit further to grooming new entrepreneurs in the Next Titans, which we are on the 5th Season by this year, where we allow young minds come, develop products, businesses, ideas and take them from scratch on to a platform where they are able to express themselves even on national television, what they can possibly do for the country in our development space. And I believe, going forward, we are going to continue in this space of SMEs because it is the bedrock of the development of any country. On the back of that is the challenging issue that most people don’t have financial services products they can latch on to. So there is this full financial inclusion strategy being spearheaded by the Central Bank of Nigeria (CBN). We are all latching on to it. Agency banking is a vehicle by which we are trying to help the financial inclusion strategy for the country. And we believe that we have to increase that space. And if we increase the financial inclusion strategy space, it will pull more people into the economy, thereby development continues to grow.

Innovation in 2019

First and foremost, I am sure you are all aware that our Octopus platform, which is digital banking, is already running. We have gone through the testing phase and we will begin to launch it. This year, you will see a full blown engagement with our Octopus platform. Why that platform is interesting is that it is not just a payment platform, it is a social engagement platform. It is not only a social engagement platform, it is a community. And we always allow our customers on that platform to trade with other, to do e-commerce on that platform; not only are they able to do e-commerce, they can always do citizenship services on the same platform. There is a convergence between technology and financial services and being able to project that into a wider society for the development of the whole economy.

Why sponsoring Vanguard discourse?

If you look at the trend of my thought, it is still that same issue of trying to expand the  piles, expanding the pack, which we all built in terms of our country when we try to expand how much we grow our GDP; how much we grow our economy; how much we reduce people queueing up for no jobs; what do we do? Do we develop human beings or do we develop an economy? They go hand-in-hand. You heard discussants say we  need  inclusive development rather than grow human beings or develop an economy. We want both at the same time. And in that space, if there is no discourse, people tend to get disjointed education. This whole idea of having a focus; a vision of  what we want to do; create proper target of what we want to do are the things we are looking forward to achieve with this. So our sponsoring, partnering with Vanguard to say we understand that this is a veritable vehicle for our country to develop its human capital; grow its economy and make it bigger so that those coming behind, be technology, be agriculture, will have a space of expression of what they really want.

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Loan appetite

Both of these are functions of the economy. If a sector is not growing, there is not going to be borrowing. If the sector is not growing and you are lending into that sector, you are destroying capital. And the last thing you want to do in a growing economy is to destroy capital. So when customers are not borrowing, they are being realistic. I discussed the issue of power during the discourse. I said because we already massed out in the power space, and unless we do something, there is no need to borrow further in the power space. And if you borrow further in the power space, and you are not able to pay because you are not generating enough power, thereby you are not generating enough money to repay what you have borrowed, you are going to destroy that capital. Yes! The reason for not much borrowing in the industry is  because the income that will sustain that borrowing is not there. It doesn’t exist! And we need to create avenue to make those incomes begin to come back to life for us to borrow again.

Policy options

I don’t want to jump into being a government to say what a policy option should be. What we have canvassed is that in dealing with policy options, be it a new government or a continuing government, it should be all inclusive. It shouldn’t be just human capital development or economic growth. It has to be inclusive. Are we planning to pull out an x percentage of people who are below the poverty line above the poverty line?  Then what does it take? Do we need to increase our social investment? What does it take? But in all these, there is a thin line that runs through them. If there is no savings, there can be no investment. And if there is no investment, there can be no development. We need to work through that thread. And until we have a policy that addresses this trend, we would not be able to achieve inclusive development.

Banking sector outlook

I try not be a soothsayer but we all believe that the banking sector this year will still stay stable. We have seen the naira stay stable almost through last year. We had our election campaigns almost ending, and the naira still staying stable without any major fluctuation. So we believe that trend would continue. And we believe the other part that normally takes flight, the portfolio investors, that take flight at the end of the year even if there is no election, they would  still want to take flight at the end of the year to see whether they can consolidate themselves and come back. They stay around the border and then run back in because there is no significant change in the climate. They would come back and then we would see the capital market ramping up back again. Yes! There is a little back of down but that we expect that to ramp up back within the second or third quarter and we still expect good results this year. That is my prediction.

Payment service bank

They are not lending banks. They are essentially going to assist us. For us, it is an enabler for the financial inclusion that we are all talking about. It is not necessarily competition. Yes, it is competition to the extent that we would compete with them in the financial inclusion space. Our agency banking  product would compete with their payment platform. Now, we have a very good payment platform. Most of us, our payment platforms have developed much more than they could be able to even compete with. But for us, it is important that we have such other organisations that help the lower side of our economy. We have people who put money under their bed; leave money in their stores;  fire comes and burns both the store, the money, their investments and they are back to square one. We need to eliminate all that. We need to bring as many people as possible into the formal platform so that we can measure them. Today, we don’t have good measurement for how much money is in circulation in Nigeria because we don’t even know. But if we can get these new institutions to join us to expand the financial inclusion space, we believe it is better for everybody and it is better for the economy.

IFRS 9

IFRS 9 is essentially a risk-based activity where we are trying to make sure that we measure what we have and we are able to report in terms of where our financial strengths are as true and as near reality as it can be. So when you move between the General Accounting Standard methodology and the IFRS, there is always some level of disparity to what constitutes a proper asset deficient. Yes, it can affect us initially when we are taking the heat. But it is zero sum game for me. Down the line three or four years, it times out. Initially, we are all going to feel a jolt. There would be depression in some of our earnings, we are taking more heat, we are taking risks. Risks tend to test the strength of the bank. And that strength of the bank is what customers need to be comfortable about the bank. That after such conversation, you have a bank that is still able to carry your liabilities.