NIGERIA Time for new expectations LIBERTY BANK PLC We do it all for you Chief Ode S. Obla, Managing Director Contact: BELLO DANGOTE HOUSE #31 Bishop Oluwole street, Victoria Island, Lagos P.O. Box 74608, Victoria Island, Lagos Tel: 234 (1) 2614609 / 234 (1) 2616870 / 234 (1) 2616468 / 234 (1) 2616872 / 234 (1) 2616874 / 234 (1) 2616879 Telex: 28251, 28105 LIBBKNC Fax: 234 (1) 2616873 E-Mail: LMB@infoweb.abs.net Intemet: www.lmbnig.com How would you rate the quality of the banking system in Nigeria? When looking at rating the quality of the banking system in Nigeria, we would have to look at it over a time frame. Maybe ten years ago it was nothing really great, extremely manual in terms of operations, extremely conservative. Then, we begin to look at when we had several new banks coming into being which is during the Babangida era when deregulation started and obviously that created competition. But also with it again certain things came out clearly i.e that capacity in terms of human capacity for managing those institutions did not fully exist. So the rate of growth actually surpassed the level of management capacity that was available. That was also partly instrumental for some of the failures we saw and some of the distress in addition to other abuses. I think that after that time we've seen a little bit more consolidation, we've seen people become a lot more reasonable, we've seen information technology playing a major role in terms of the operations of banks and I think it is becoming clear to people that unless you take a strategic position in terms of your management information systems, connectivity with your other branches, there is no way you are going to be able to compete in this environment. And I think that given that fact, given the facts of distress, given the difficulty in the environment, what has come out clearly to people is that service quality is going to be extremely important in terms of ability to compete and survive in the future. So I am saying it's moving, it's getting better, but there is still some way to go but obviously we're much better than what we had a couple of years ago. Which statement would you agree with: the Nigerian banking system is experiencing a consolidation trend, or the Nigerian banking system is facing a transition process ? I think that we are actually going through the two things in tandem. I think that we are starting to consolidate because people are beginning to recognize the fact that size is important and that you cannot operate as a small unit bank like it used to be. We are also beginning to see people willing to come together and make their institutions much bigger. Historically, Nigerians will never sell their equity. Don't forget that people always relish the fact that I owned this. Being just a part of something was not on for most people. That attitude is changing but at the same time, I believe we are also facing a transition because there are several failed institutions that are also being resurrected, and unless those two come into being fully we cannot also talk about a complete consolidation taking place. So we've seen the two happening together but I guess we would see greater consolidation over the medium term because then, the level of competition will be much greater particularly as foreign banks also come into being, come with greater capital, come with greater resources and therefore local banks as well must begin to understand the fact that they too must also improve on their size in order to compete effectively. It's a competitive environment which has been created Absolutely, and it is going to force people to operate differently and part of that change is the fact that you'd rather be part of a big institution and be able to survive than to try to be a small institution with no chance for survival. In 1999 you posted 19% gross income as compared to the 1998 financial year. You moved from 924 million N to 1.097 billion naira. To what extent are you satisfied with these results and what are your financial expectations for the current year? Definitely not satisfied because on a net income basis, we posted a marginal decline.But again, that is understandable from several perspectives. One we are facing an extremely difficult environment, the operating environment was extremely difficult, purchasing power was extremely low for most people, demand for goods and services were really at their lowest, the infrastructure had almost completely decayed and I think it was not surprising therefore. For us as merchant banks as well our margins were also very thin because we are operating in the tight end of the market. The advantage of the commercial bank is that they have greater access to cheaper funds than we have. Obviously when an environment becomes difficult the people who borrow from you also begin to face strains. Therefore, we also have to make a little bit more provision for possible loan losses. Overall, we've done okay but am I satisfied? No because I expect to do much better all the time,that is my expectation. That's the expectation of the other stake holders in this business. Where do we go from here? We have done a couple of things. We have become a quoted company, we have gone for more capital, we are trying to expand our operations. We have put in additional branches ; we have put in new systems in place and our expectations is to be able to generate a profit before tax of a little over 350 million Naira. That's our expectation, that's what we want to do. So what is today your level of non-performing loans? Our rate of non-performing loans continues to be in the region of about 12 to 14% of our portfolio. But I guess the good thing is the fact that we are also beginning to see several areas of that being turned around. We've seen that some of those companies can indeed become more functional than they were last year because obviously the operating environment has changed a little ; however, we also continue to see some of those difficulties because, don't forget that in this economy government action and inaction is very keen. What happens is, if government has a cold in this country we all catch cold. It is important that they reflate the economy a little because otherwise nothing is going to happen. We have seen confidence building, we have seen people being willing to spend because they believe that there is a future for them now. But again, that has to be backed up with a bit more purchasing power. I believe we would see some improvement but I overall it will only be a marginal change in terms of our level of non-performing loans. So what you are saying is that for the moment your are awaiting for some sense of direction from government ? The point I am trying to make is if you look at certain policy measures that were enunciated by the government, we were hoping that lot of action would have occurred by now. We've seen a lot of talk about privatisation, we've seen some element of commitment towards it but effective action has still not occurred. Government acknowledges the fact that all the infrastructure has decayed, but we still have not seen any government spending in terms of addressing that. We have seen a lot of talk about liberalising certain areas of the economy but that still hasn't happened. Yes, government accepts that interest rates are high but government action has also not been properly targeted at that because even though they said parastatals and government agencies can maintain accounts with the commercial banks, every time the agencies give the banks money the central bank comes round and debits them for special treasury bills. We've seen the Central Bank increase liquidity ratios from 30 to 40%. Obviously these put a strain on a business. Unless we begin to see some consistency in terms of direction, the overall picture will not be fully clear to us. I think that's the point I am making. As you mentioned earlier, 1999 has been a crucial year for the bank. Could you elaborate on the major strategic changes which took place in 1999, and how significantly they have impacted on the bank's efficiency and infrastructure ? We moved in three directions. We converted the bank from a private bank to a publicly quoted bank because we believe that, it not only offers transparency, because it puts us in the public eye , it also offers us access to capital. In the process, for example, even though the minimum paid up capital for banks is 500 million naira, we raised additional funds up to 800 million right now. We have share holders' funds of 1.5 billion at this point in time. Two, we are also increasing our spread. We've moved from three branches to five within the next two months or so, we will have two additional offices. We have already acquired the premises, another in Lagos and in Onitsha. We are planning now for six additional offices. We are in the process of converting to a commercial bank. We have got in principle approval to do so. This is because we think that the retail market provides greater access to the middle tier which is where the future of this country lies. We must begin to position ourselves to take advantage of that and also to take the cheaper funds that come with it. Obviously there are also other changes. We've also tried to change our structure to be able to cope with the demands that all these new changes will make on us. We have put on two additional executive directors so we can spread the load a bit from the managing director. We've also tried to change our information system and today each of our offices is on a local area network basis connected real time online to our head office ; we can now process all our information online real time. We are doing that for every single office we open so we are spending a lot of money trying to put all of this together and I believe that in the short term it will put a strain on us but in the medium to long term, that's where to go and that's what to do. You mentioned the fact that you opened two branches in Abuja, Ikeja and that you are going to expand to reach the middle tier . What is presently your share of this market and what are you aiming at? I think that in this country it is very difficult to tell you what the share of any body's market is because, firstly, there is a dearth of statistics and there is a dearth of data. What people have tried to do is to measure their share of the market in terms of what the overall volumes in the banking industry is. I guess we are pretty strong in that market but I think that I would rate our share of the market at anything up to 3 or 4% because really we are a small bank on a relative basis now. We must transform ourselves into a much larger institution and access a lot more people. The reason we're getting into our branch spread is that people want to be able to do business across board. The greater your spread the easier it is for them because if somebody who has a business in Lagos wants to move money, he would rather go through a bank that has got that spread. We didn't. True, we can still do the business but we would also have to go through some other correspondent bank locally. That predisposes you in terms of your competitive ability. If there is a mistake, they'll mess you up and there is very little you can do about it. So it is a bit difficult for me to tell you what our numbers would be in all honesty. But I would say we can't be more that 3% because everybody else is also targeting that market. Looking at your investment policy, one of the areas you have targeted is the foreign exchange market. How significant is this market for the bank ? At this present stage, if you look at our balance sheet, about 80% of our income is made out of our lending business which means that all our other incomes play a very minor role. But obviously we want to move away from that because I think that the fee based area is where we should be. And I think the reason we are looking at the foreign exchange market as a strategy is because one we are looking at the middle tier where we are looking at being able to sell them several products at the same time and not only do they buy the foreign exchange but they are going to open letters of credit as well. So if we lend them the money, they buy foreign exchange, we open letters of credit, we are going to be doing multiple businesses with them which is the reason trade finance particularly is our core area of focus as well. The CBN has set new restrictions regarding foreign exchange remittances. What does it mean for banks such as yours? I think it will become more meaningful when a lot of foreign investors come in. But basically it is more the documentation aspect that is a bit changed. As new people come in, those are the kind of things that would create greater encouragement for people. What makes Liberty Merchant Bank a reliable and attractive partner for a potential foreign investor? One, I think that you will get the personalised service that you need ; two, you get people who have an understanding of what the local environment and regulatory framework are ; and three, we have a focus. I think that it is important for the business that we are in ; we have a clear focus and a clear understanding as to what makes people succeed, what the success factors are, what the pitfalls are and I think that the investor just coming into a new environment will need to know those facts. They are the key to success and the kind of advice you can get as to how to do your business is going to be also critical. And we also believe we offer good quality service. We started a quality initiative about a year and half/two years ago. Our objective is to offer world class service because it has gone beyond the point of offering service just relative to the local environment. We cannot and we should not benchmark ourselves with the local environment. We should benchmark ourselves with the international environment and that's where we are heading. We've spent a lot of money trying to do that, we've sent a lot of people to quality initiative courses outside this country. We've worked with a couple of other people, Philips Consulting and others. We try to do a customer survey every six months and see whether the changes we are making are making any impact and whether our customers are satisfied or not. We try and measure every activity we do by setting standard quality indicators for them. Obviously now it is a little bit confusing because we are changing from a merchant to a commercial bank which means that we have to review all those quality indicators again and set new parameters for them, measure them on a weekly basis and take action accordingly. Philips Consulting is . Well they did in the set up process. Where we use them more often than not now is when we do the customer survey. This is because we do the customer survey on an independent basis. We believe that if we go out and ask our customers how they feel they probably wont tell us the truth. They are not going to look you in the eye and say I am not happy with you. An independent person who goes and says how do you feel about them, they would tell them. I think we want it to be as independent as possible and as factual as possible. That's the only way that we can address the problem. What would you say is your level of co-operation with foreign financial institutions ? Right now my level of co-operation with financial institutions is not a lot and it is not a lot because this is a small bank that was more focused on local lending. Obviously, the environment at that time too did not create for focus with a lot of foreign financial institutions. We have very wonderful relationship with our correspondent bank, Citibank and we have dealt with them for a long time. We have some relations with a few others. But I think that now that the situation is changing we are also looking at our investment banking area, being able to work with several others particularly as government begins to deregulate, as the private sector begins to take root and begins to command the economy. What is your most rewarding and challenging experience as Managing Director of Liberty Merchant Bank? What I will regard as the most challenging and rewarding at the same time is being able to convince the people who started this institution to let go and make this a publicly quoted company. I think it takes a lot of effort, a lot of patience and a lot of guts for them to have been willing to. Probably five or six years ago nobody would ever have thought that they would have been willing to. Personally, I think that it is important for people to recognise that. One, if you have done well you should be willing to share that with people. It is better to be a small part of a good thing than to be a big part of nothing. I fill fulfilled in that respect because we have opened this institution to greater transparency. What final message would you address to our readers ? The message for your readers is for investors wanting to break into a country like Nigeria, not to look necessarily at institutions that have been here for 20-50 years. I think that is a misnomer. I think that it is wrong to think that those are the people necessarily to go with. I think that a lot of the new institutions are strongly focused, organised and obviously have people who know the market very well. I think they need to look at those institutions but more than anything this a huge market. The returns available in this market are not available in several markets and people don't look at it. I think that this is the time. People don't have to wait a long time. This country will survive no matter what the other pitfalls are but this market has money to be made out of it. Thank you very much Chief Obla for your comments.   Read on   © World INvestment NEws, 2000. This is the electronic edition of the special country report on Nigeria published in Forbes Global. June 12th 2000 Issue. Developed by AgenciaE.Tv