INTERVIEW: How recession, government policies affect Nigerian banks – CEO, Stanbic IBTC

The recent 22nd edition of the Nigerian Economic Summit (NES#22) organized by the Nigerian Economic Summit Group (NESG) on the theme: “Made-In-Nigeria” presented public and private sector players opportunity to interact and share ideas on made in Nigeria solutions to the country’s economic challenges.

The Chief Executive Officer, Stanbic IBTC Holdings PLC, Sola David-Borha, spoke with PREMIUM TIMES’ Bassey Udo on her bank’s perspectives on the challenges and solutions towards Nigeria’s economic recovery. Excerpts:

PT: What does NES #22 theme: “Made in Nigeria” mean to you?

The theme: Made in Nigeria” is particularly important at this time when the economy is in recession. This is not the first time this has been promoted. During crisis, people are more attentive. This is when people have better understanding why it is much better to use local goods and services. This ultimately helps to achieve improvement in productive capacity in the economy.

Essentially, Stanbic IBTC’s message is to tell domestic and foreign investors that Nigeria is still an economy with great opportunities. The current challenges we are facing is primarily driven by the commodity price drop, leading to a foreign exchange scarcity. It is a temporary business circle. Hopefully, if we do the right things, in terms of policy direction, and work together with government to promote an enabling environment to attract investors into the country, and invest in various sectors, it would lead to a private sector-driven growth.

To achieve this, we need to ensure the financial markets are transparent and liquid, while prices of goods and services are at optimal. So, whether we are selling foreign exchange, or money or equity market, it is at market rate. On the back of a properly functioning financial market, one would find capital is attracted to drive the growth we desire.

PT: How comfortable are you with the observed lack of coherence between fiscal and monetary policies in our bid to achieve stability in the economy?

Alignment between fiscal and monetary policies is important, given the country’s inflation rate now, at about 17 per cent. Something must be done to tame it.

That has to be the priority. In the short term, it means interest rate will remain fairly high. But strategically, the longer term target is that when inflation starts coming down, interest rate will come down.

In the meantime, a number of other things could still be done to support the overall objective of stimulating growth in the economy.

Four drivers impact our economy – the global trends, international trade and commodity prices, which we don’t control, and our own policies that we implement. The expectation in the short to medium term is that oil price is not going to rise significantly.

Of the four things, we can only control our policies. Therefore, it is very important we put in place the right policies and remain consistent in implementing them. This is what investors look for. Investors are very nervous when policies change. They can manage the risk of a drop in oil price, but not policy change. So, the priority of our policy response must be what we do essentially to regain the confidence of investors in the market.

PT: The key challenge of this economy remains the high youth unemployment rate. What is your bank doing to help redress the situation? 

Some of the things the bank is doing include capacity building to upscale the young people. Training is very important and we run capacity building workshops for small and medium enterprises (SMEs) for free. It enables younger entrepreneurs to get better understanding of how to manage their businesses, and ultimately, a better chance of surviving and paying back. Also, we found that the big companies help the smaller ones to survive. We need everybody in the value chain.

Everybody has a role to play. We found that as lenders, if a big company is utilizing the goods and services of smaller companies around them, it guarantees the smaller companies’ buyers and support.

They have a working capital circle that is more manageable. So, the whole ecosystem of both the big boys and the smaller players is much easier to lend to, rather than lending to one small person isolated by himself, such that at the slightest problem, he goes under. Those are the kind of things we encourage. We encourage small companies to try and get into an ecosystem of a larger one.

We provide them with capacity building. With the appropriate type of financing, it is very important that when they are looking for loan, depending on what the loan is for, they will get the right type of financing.

If it is a project with long gestation period, one shouldn’t take a short term loan that one would have to pay back in one year. Linking investors to such opportunities is part of the work Stanbic IBTC does as well.

PT: Collateral is a big issue in giving out loans by banks. Is there any special arrangement by your bank different from others to encourage small investors? 

Over the years, we have tried a number of things. We are committed to the SMEs sector. We believe the SMEs sector is the segment that is going to drive growth in this country. The bulk of Nigerians are involved in the sector. At a point, we even had unsecured loans we gave out. But we found out that couldn’t work as well. Beneficiaries did not pay back. It’s best to have a structure that provided support and also held them accountable.

It was not so onerous that they could not provide what was required. The ecosystem principle is very important, or co-operatives. Have a group of people come together. One person just can’t decide we are not doing it again. There is pressure from their peers to behave correctly. You also are able to review the risk, and typically co-operatives have a better bargaining power with larger entities. So, those are some of the ways we try to address the challenges SMES face. It is also good to put them in a model that helps as well, to be accountable and responsible.

PT: What is Stanbic IBTC doing to support manufacturing and real estate sector?

If one looks at over 40 sectors that make up Nigeria’s GDP, manufacturing currently comprises about 15 per cent, and agriculture 22 per cent. We have the services and ICT. Energy accounts for only 10 per cent. So, in terms of the sectors we focus on, it is those sectors we believe will help to improve the productive base of the economy.

They include infrastructure, agriculture, oil and gas and power. We are also very active with the consumer goods, giving the large size of our population. We also provide a whole range of services to them. Financing both short, medium and long term financing. We are also very active in raising capital, whether equity capital or debt capital. We have strong links with both domestic and foreign investors. We have a very strong advisory team that helps in terms of restructuring businesses, or maybe those looking to acquire companies locally, or if companies are coming to merge together. We provide support in that area. We see ourselves to be financial solutions providers. We are not just bankers that come to give you money. We want to understand what you are doing. Strategically, where do you want to take your company to? Then, to make sure we find the right solution to your company’s needs. And we help you to achieve your goals.

PT: What do peasant farmers and others in the agricultural and agro-allied sector need to access loans in your bank? 

Agriculture is a sector that has faced lots of challenges, especially in financing. A lot of progress has been made over the past five years. With the introduction of Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), which is a risk sharing model for lending to the agricultural sector, we have found banks are now more prepared to lend.

We are also involved in supporting the agricultural sector. A single subsistence farmer operating on his own is going to find it very difficult to get financing. That farmer has to get into a group, a cluster, cooperative or an out-growers scheme and then, one would find it easier to support the farmers. So, we have lent to out-grower scheme and co-operatives.

It is something we will continue to actively focus on. It cuts across all the main crops, rice, millets, cassava and so on. We believe focusing on the export products as well, in terms of cashew, cocoa and others is very important.

Exports, particularly because of the positive impact on foreign currency generation, is also important. So, agriculture is a growing sector. It grew by 4.5 per cent in the last quarter. We believe the growth is sustainable, and Stanbic IBTC is keen to be part of that growth.

PT: Public-private partnership (PPP) has been with us for quite some time. How comfortable is Stanbic IBTC with the legal framework?

The PPP is right in the middle of what the NESG is about. The public and private sectors coming together to give the billions of dollars required to fund infrastructure products. Government is not capable of doing it alone. There is a semblance of a legal framework in place. It is clear at the states level, some states are yet to pass their PPP laws.

Sometimes, what is even more important is actually the implementation of the law, and what happens across the lives of different governments, because the projects typically are long-term. They can span 12 years plus.

And the risks we see many times is when government that initiated the project is different from the new one that comes in, and the commitment of the new government to keep to the terms agreed with the previous one.

Financiers and investors invested in the project based on those terms. So, once there is any change, it almost triggers an event of default, which then affects whether the project can be completed in some cases, or continued.

So, to help encourage more PPPs, there has to be an education about PPPs in general, both in the public and private sectors, to know what financiers are looking for, and the risks of policy changes that affect PPP projects, so there is just more awareness around it.

If there is political will to ensure PPPs are protected from many of the vagaries of changes in government, one would see more successful PPPs. The Lekki toll road is the first PPP this country has had. It has seen its own challenges as well. We are hoping the model will be replicated in other roads across the country, even bridges as well.

PT: How much involvement is Stanbic IBTC in the development of the power sector, which is one of the ways to create the enabling environment for investors? 

We have been involved in the power sector. We are involved in two of the asset in the distribution space within the past privatization exercise. It is a very challenging sector, given some of the changes in the tariffs in the sector. For instance, a party has taken the government to court whether there should be a tariff increase; and those tariffs were the basis by which investors came in. It is a challenging sector. But despite those challenges, there is still hope that it is a sector very much needed.

Everybody requires power. We believe the fact that those power sectors are now owned by the private sector gives them the capacity to go out and raise capital should they require, bring in new investors, borrow, so they can buy the much needed equipment.

It is a long-term game. But the expectation would be that in 10 to 15 years, if the right investments are done in this sector, we would see that translate into an improved power supply.

We have partnered with General Electric (GE) to run an embedded distributed power solution across the country, where together Stanbic IBTC and GE in Nigeria and Standard bank and GE across Africa would basically help to put up embedded power plants across the country. And we continued to work on that project and we believe that will also support the efforts of our country to improve power supply.

PT: Most banks are struggling with the issue of bad loans. AMCON’s intervention and the likes. How has Stanbic IBTC been able to survive that?

With economic recession, customers and companies find it very difficult to pay loans. Consumers have not been paid salaries and are unable to service loans. It is an outcome of the recession and the non-performing loans across the industry haven’t gone up.

Banks are doing their best to manage the situation. From our perspective, the worst is over. We continue to look for new opportunities, particularly in growing sectors where we can enter.

There are very unique prospects. First, we are not only a bank, we are a financial services organization that runs across asset management, wealth creation, trustees business, stock broking business. We help raise capitals.

We are the largest pension funds administrator in the country. With over a trillion naira in pension asset, that makes us unique. We provide a full range of financial services, including an insurance brokerage business. With this diversified financial services offering, we are able to provide a full range of financial services to our clients.

So, they don’t just come to us to borrow money, we also provide them advice. We help them manage their asset and pensions, even to retirement. We call it almost from cradle to grave, an entire lifetime of financial services.

That essentially differentiates us from the other financial institutions in Nigeria. Our diversified business model also enables us to better withstand the headwinds that are coming through. We are not just focused on banking. We have a much wider remit and that enables us to build a much more sustainable business in the long term.

PT: Are the regulatory agencies doing enough to encourage the financial sector?

Well, I think globally, the regulatory environment has been much more intense. Regulation is important for any industry or sector. But the most important thing is that the regulator should be firm and fair, especially when you have real market operating. The regulator needs to step in when required, but then should not hinder the free flow of business.

There can be improvement in the regulatory environment. There is nothing one can’t improve upon. Given that Nigeria is in recession right now, it is important regulators work with business to ensure we all come out of it faster. If one comes down too heavily, one can actually destroy business. So, the most important thing is to ensure the regulators focus on ensuring business is done properly and not in a way that hinders our business.

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