A number of merchant banks have actually moved into commercial banking. How significantly would you say merchant banks have engaged in the process?
Well, less than 20% have engaged in the process of conversion but I cannot say clearly right now whether the rest of them have applied because there is some criteria known to CBN that has to be met before they can approve the conversion for you. I know that part of it is the profitability over time, say in three years, four years and so on, utility ratios, capitalization etc. So, if a bank does not meet some of those requirements, then obviously CBN will stall the conversion process. So, I cannot say clearly whether all of those that have applied for conversion have managed to convert. So, it may have to be an ongoing process. I know a few banks that definitely do not want to convert. IBTC is one of them, NAL is one of them, FCMB is one of them.
What are the reasons for these banks to remain in merchant banking sector when there are already too many merchant banks and while commercial banking is perceived as a growing market ?
I can only guess. I wish they were here to speak for themselves. It is difficult to understand. What I know is that it creates a whole lot of opportunities for you even as a merchant bank to do so. Then, you can get into some other arrangements to be able to do investment banking. I guess they have cornered a substantial part of the market and have decided to remain in there. But, probably they have also made some projections and they have come to the conclusion that very soon universal banking will come on stream because if that happens that removes all the barriers. And they do not want to lose their merchant banking licenses in the interim because they have a substantial market share in investment banking.
You mentioned the fact that 20% of the merchant banks are moving into commercial banking, what impact do you foresee this process will have on the commercial banking sector?
Of course, there will be increased competition especially at the retail end of the market. Every merchant bank that has gone commercial is increasing its branch network and the rest of them and therefore that will put pressure on the retail end of the market. But the market is still very large. The impact is not going to significantly affect the commercial banks that are doing well. Because the market is still very large. I don't know how much you understand of this economy but there are still a lot of things that should be handled by the banks but are handled outside the banking system. And therefore there is a lot of room. How else do you explain the kind of return on investments that banks are making here. Sometimes 100%, sometimes more on investments. On annual basis Standard Trust Bank in which we have some interest made about 1.2 billion naira, share capital, about 1.25, that's a one year profit. How else do you explain it? The only way to look at it is that there is a lot of room.
What were the reasons and expectations for MBCOM moving into commercial banking ?
I have to try to summarize this. We are more into corporate banking than investment banking as a merchant bank. And commercial banks are not precluded from doing corporate banking so what we have been doing in a sense is not really merchant banking but whole sale banking. Just like we do not have the retail end of the commercial banking business. If that is the case it makes sense for us to add on the retail banking end to give us the flexibility and to give us the access to the level of efficiency that is required to deliver our corporate banking services effectively. That's one of the reasons we can see there.
Retail banking?
Yes. We are not from day one strictly speaking about an investment bank even as a merchant bank. That was not one of our areas. One of our major areas is corporate banking which commercial banks also do. So, we lose out a lot of business at the market place because we are not playing in the retail market. So, you lose business from the public sector, from some corporate sector and so forth for the mere reason that you do not have the branch network to support the kind of activities that you meet out there in the market place. So, this is just an opportunity to increase our network and therefore improve our services.
What is presently your market share in terms of wholesale banking and what market are you targeting as far as retail banking is concerned ?
What's our present market share in wholesale banking business in terms of percentage ? The data may not be accurate because of a lack of dependable data bank in this environment; and again the comparison will be with other banks, not necessarily merchant banks because every bank in this country is involved, where we have about a hundred banks, I believe it is not more than 5%.
What market share are you aiming at in the retail banking ?
We are targeting a market share of between 5 and 10%. We will be targeting that market share because we intend to grow very fast. You know the four or three big banks control a huge chunk of this market, so we plan to make an in road into their own market share and we know we will do it. We are starting with 14 branches which is a large number and we capital out the rest of it. And we plan to grow that network very fast and go into areas where hitherto we had only UBA or First Bank or Union Bank or Afribank. Of course, we will be online on a real time basis. We are going to start from day one with some of those new technologies and we are going to a make significant impact into their market.
What is your investment policy in terms of upgrading your present infrastructure, developing new products and services ?
Clearly, in naira terms, we have already spent 315 million in upgrading our IT, communications, that is networking and in fact a change of software to be able to take care of the efficiency with which we do work. That's one of it. We have also in terms of our recruitment attracted quite a number of real experienced and skilled hands to join. They have been on training for the past one or two months. And that training will continue till January. These are experienced bankers and we also have about 120 fresh graduates that we are training to take on some responsibility also because in our policy we don't employ anybody less than a college graduate. We are getting ready from different angles to be able to face the challenge. So, our staff strength is actually growing. But what we are trying to do right now is to meet, to ensure the growth culture, a culture at MBCOM which has guided us and actually helped to grow the bank from where it was to this stage. So, that's what we are really trying to put together.
By September '99, two branches had to be set up, one in Port Harcourt, one in Abuja. Has this process been completed ?
Yes. In fact the Port Harcourt and Abuja branches are ready and those are also going to be regional offices and we have six other branches as I said. We have in Warri, Aba, Onitsha and Port Harcourt. Those are the branches that we have in the east. And then we have in Kaduna, Kano and Abuja in the north. We are going to open one in Jos, another one in Benin city and then Lagos of course. So, about 50% of them are ready.
Your profit before tax increased from 265 million in 1998 to 326 million naira in 1999. Considering your investment policy and your recent move into commercial banking what are your financial expectations for the coming year?
We should be able to do at least 20 to 30% over and above what we had in the past financial year. And that I think is a modest increase. We would obviously be able to do more in terms of proportion over time when we settle down as a commercial bank. We should be able to increase our profitability by 20%. | What is presently your involvement with the privatization process?
Well, not much really. I am sure you know the relationship between us and BDL. BDL is an investment company; well maybe that also explains why we are not so much into investment banking because we support them, we don't compete with them. So BDL is heavily involved in this and we are all involved in retail activities. BDL has some mandate to execute. We are just like sitting on the fence. If we have a mandate, fine, if we don't, it is also fine because we partake in the activities of BDL. BDL is one of the foremost investment companies we have around here. They are also at the forefront of bank re-capitalization, restructuring, and so on and other financial advisory services.
How would you rate your level of co-operation with overseas banking institutions, and what makes CTB a reliable partner for potential investors?
Right now, apart from correspondence banking relationships, our relationships have not gone beyond that. We plan to package ourselves for the purpose of getting into partnership arrangements, some form of combination with foreign investors, banks abroad. Before now we thought it was a bit early to go into it because we took over this bank from a state of distress and we wanted to get to some point before it can get attractive to any bank abroad. We believe we have to come to that stage now. We want to wait till we tidy up this process of going commercial and as soon as we stand on two legs we will be reopening the mater. At some point I did some peeps at what I would like to discuss with some foreign banks. We have since suspended action on all of that. So as soon as we are through with this process of change, it will give us more time to reopen this discussion. It is one thing that I would like to do. I always say it that it would be better to have 5% of something than 90% of nothing. So you see, partnering with these guys creates some sign that ultimately will benefit to you.
What would be the profile of the ideal partner?
My fist choice and I am sure the first choice of the bank would be a strong bank abroad. It will cost them next to nothing to make this investment because of the exchange rate in the country right now. The catch there is that once that is done, you have this relationship, you can now see yourselves as one. You can benefit technically, you can benefit from some transactions and so on. My first choice would be towards a strong bank. You can have a situation where it is a non-bank institution and it is still better than nothing. First, it must be a bank, second, they have substantial shareholding.
Which percentage ?
Whatever it will be discussed and agreed. Up to 50%, yes. Then the third is that they are represented in the management and board of the bank. That way, everybody will understand what is going on. Communication will be easier, they will be able to have a full knowledge of the business environment here. That sometimes what appears to be excessive risk but there are opportunities that are lost because some foreign banks think of the country's risks but we believe we can take advantage. There is a huge gap right now. Some of the opportunities you can take as a bank are just lost.
Return on investments here will be unimaginable. It will not be like anything that anybody will get out there.
Will this bank be from a European culture or American ?
It will be better if it is either European or American because of trade links. Most of trade transactions are done in that direction. And if you look at foreign demands, they tell you things like it has to be a first class bank, so you don't do things that will not give you the desired benefits.
You mentioned the fact the process is almost finalized. When will this process be completely finalized?
We hope by January 2 we will open our doors to commercial banking. There is a lot of paper work to be done. We are engaged in doing that almost on a daily basis, signing one paper to CBN or Corporate Affairs Commission. Everyday we sign a lot of papers. We are still engaged in doing the paper work and ensuring that these things are organized. We are relating also with other banks locally and offshore for communicating, change of name plus change of activity from merchant to commercial banking.
Since you have taken the management in July '95, what has been the most challenging and rewarding experience ?
Maybe I will simply have to rephrase the question so that you can capture exactly what I want to say there. If I am asked what I think is the most significant contribution we have made in process of change here, I think I will point to the organization, culture that we have here. It is this culture to me that makes the difference between us and other banks that are in our position that have made as much as we had. One year into our operation, '96, I hosted two chief executives of merchant banks who really did not have a clue on how to reestablish because it was much more difficult then to operate as a merchant bank. Merchant banking is a very difficult business. And they came talking to me and I said "look there is no secret to it. These are the things we do". They tried it, of course they didn't get quite the same result and I looked again to find out what was responsible for that and I could only point to the culture of the place. I cannot describe it in exactly one word but I can say in a few words that it is a bottom up kind of thing, everything comes bottom up, not top down which is typical of most Nigerian organizations. Right here, if the suggestion or anything that will move the bank forward is coming from the driver, so be it as long as the logic is there.
So, it is a highly democratic environment, very flat organization. Everybody says as long as it makes sense. No matter how close and individual is to me, they still have to go through the process which is not a very common experience in this environment. It is amazing how this works but if I get into the crowd you would probably not know who is CEO and who is not in a typical meeting. Just put logic on the table, brainstorm and whichever sounds logical takes the day. I am happy with the experiment. And again authority is so decentralized, people are allowed to take initiative and defend it. People walk in here and tell me that in their former place of work they saw the MD only once or twice. So it is something that was not by chance. It was deliberately done. The first time we came here we all had to go into a classroom and decide what type of bank we were to run, what's our mission, what's our philosophy and what our corporate goals were, generally what we want to be. So, we all understood what this whole thing was about and everybody was ready to go to work. You really need to know what the bank was when we took it over. It was less than a finance house. I attribute all of these to the culture. It is almost like a family out there and everybody is committed. It is not about them and us. There is no such thing, you are part of the system you have a role to play. You must play it.
The other inadequacies we have here and there relate to lapses that will naturally occur but otherwise. And the skill levels are reasonably high. But you see when we started we did not recruit people at the senior level. We recruited people at intermediate levels only and then everybody saw there was room to grow. We did that deliberately so that you don't come from places saying this is how we used to do it there and we must do it here.
Apart from the skills and strategies that I tried to put in place, I always look at the corporate culture as the most important factor. The rest, you can always manage. |
