In this interview with GBENRO ADEOYE and TUNDE AJAJA, the MD/CEO, First Bank of Nigeria Limited and Subsidiaries, Dr. Adesola Adeduntan, speaks on developments in the banking industry
How easy or difficult has the job of the CEO of FirstBank been for you?
The task of running an organisation as expansive as FirstBank, which operates in seven countries and has more than 750 branches, cannot be an easy assignment because of the complexity of the job; that is the truth. And I assumed office in January 2016 as the country was going into recession. The job itself is challenging, so taking on the assignment at a time when the economy was in recession, made it more challenging. However, I believe that I was fully equipped to assume office at the right time and we swung into action and the results are beginning to show.
For a long time, the interest rate has remained so high, largely unaffordable by many small businesses. Inasmuch as the Central Bank of Nigeria fixes the rate, what is responsible for keeping it so high?
The reality of the state of our economy is that the commercial banking sector cannot lend at this point in time at single interest rate digit and I will explain why. There is something called the concept of real interest rate. Inflation today is about 15 per cent, so for me to keep my money in a bank in a way that by next year, I won’t have lost money, then the bank must pay me something that is, at least, at par with the inflation rate, if not higher than the inflation rate for me not to have lost the value of my money. In theory, if I buy an item at N100 today and the inflation rate in the country is 10 per cent, for instance. One year from today, all things being equal, the item will sell for N110 because of 10 per cent inflation rate. If I keep my money in a bank and the bank doesn’t pay interest rate that is, at least, at par with inflation rate, that means I have lost money. Let us say the bank pays me 5 per cent, so in a year’s time, it will give me N105 whereas the same goods that I could have bought with N100 the previous year would now be selling for N110, so I would have lost money. That is the whole concept of real interest rate. So for as long as our inflation rate is high, banks have to compensate depositors in that bracket for them to continue to save money. So that is one reason why single digit interest rate on borrowing is not likely at this time. The other part that is very important is the state of our infrastructure. We have a situation whereby virtually all businesses provide everything on their own. You have to generate your own power, provide for your diesel and virtually everything. Those costs have to be passed on to the people who buy your services. However, because we know we need to grow the economy, the CBN, working with BOI (Bank of Industry), have put in place several schemes that enable manufacturers and other key players in the economy to borrow, using funds made available by the CBN at single digit interest rate. I think that is what we should focus on. In reality, money is available to the Small and medium-sized enterprises and manufacturers today at single digit interest rate, though maybe not all the money they require. So if you borrow a sum at single digit interest rate and another from another bank at double digit interest rate, you will have what we call the blended interest rate, which is like a simple or weighted average of your interest rate. At least that way, it reduces your cost of borrowing. And we have seen this model work in other economies, even where they have double digit interest rates like ours. I am of the opinion that we are on the right path; what we need to do is to continue to find a way to get our informal sector, which is a lower end of the SMEs, into the mainstream and continue to find a clever way to bring them into the formal sector of the economy.
But a lot of Nigerians have described high interest rate as a failure on the part of the banking industry and that as long as it remains high, our economy will never grow in spite of the model that you have described. Do you know if there is a long-term plan to bring interest rate down?
That question is probably better directed at the CBN governor (Mr. Godwin Emefiele), but I am also aware that bringing inflation rates down is part of the things it (CBN) is dealing with. Remember that inflation rate went as high as about 18 per cent and it has gone down to 15 per cent and the plan is to continue to bring it down. The first reason I gave is that you need to compensate people at rates very close to inflation rate so if you successfully bring inflation down, then that is one part of the problem solved. Then the other is how do we fix infrastructure because you will then need to fix infrastructure to ensure that the overheads that banks have to pay also come down. For example, everybody makes use of our online banking, digital banking and our ATMs but you and I know that we don’t have constant power supply today, so we have to provide constant power supply on our own, using diesel and that cost has to be borne by someone.
We once had an interview with the Managing Director of the Assets Management Corporation of Nigeria, Mr. Ahmed Kuru, about bad loans and he said there was no way banks could be absolved from being culpable in that regard because most banks violated their internal credit policy. This is happening while we are talking about inaccessibility to loans because of inflation and high interest rates. What do you think about such violations?
I wasn’t privy to what you discussed with Mr. Ahmed Kuru but I can tell you that in the ordinary course of lending money to people, globally, there will be one or two loans that will not go exactly as you designed it. It is part of our work and it is global. And that is why it is difficult for you to see any bank in the world with zero non-performing loans. This means that inherent in the business that we do is the fact that we will have one or two loans that will not go as planned. However, in FirstBank where I’m the CEO, which is the one I can talk about, under my watch from January 1, 2016, I can tell you categorically that we do comply fully with our credit policy.
There are even accusations in some quarters that banks now prefer to lend money to players in the oil sector rather than those in other sectors of the economy. Is that a policy handed down by the CBN?
Again, I will speak for FirstBank. As an integral part of our planning process, we design our business plan or business strategy and from it we develop the business unit strategy for each of the businesses. That also sits on top of our credit portfolio strategy. Our credit portfolio basically describes which sector to lend to, what type of customer to lend to and how we are going to lend to them. But because we operate in this economy, we cannot act outside of what is available in this economy. You and I know that the oil and gas sector is a key segment within the Nigerian economy. So what you will see is that the portfolio of banks and again I can speak for FirstBank, also mirrors the relative distribution of the economic activities in the country. So oil and gas, manufacturing, transportation and real estate are the types of sectors you are going to find in our portfolio.
Speaking of lending, Nigeria has problem of herdsmen-farmers’ crisis and ranching has been identified as a solution to that problem. Will your bank be willing to provide funds to people interested in establishing ranches and so on?
Agriculture is a major economic activity in the country. FirstBank traditionally has always been active in the agricultural space. Indeed, in 2017, we organised an Agric Expo and various players across the value chain in the sector were there. We were honoured to have the Minister of Agriculture, Chief Audu Ogbeh, who delivered the keynote address there. It was a very successful event and we are planning to have another one in 2018. We told ourselves that given the success of the one we had in 2017, we would make it an annual event because we felt it was a rare opportunity for all the key players in the value chain to sit with policymakers, bankers and so on. So we are active in the agricultural space and everywhere there is value to be realised for the economy, FirstBank will play in that sector.
Many bank customers complain bitterly about wrong and illegal deductions, and despite outcries, it has yet to abate. Customers already see the act as deliberate. Are the banks helpless on this or they don’t just care? Why do we have this issue still?
A number of charges that banks apply on their customers are usually regulated by the Bankers’ Tariff. It is usually issued by the CBN in consultation with the banks. But sometimes when people are not familiar with the charges that they are meant to pay, they call them illegal deductions. Several times, I’m aware that even banks make refunds and some of them are actually made in order for them to continue to have good relationship with customers, and not because they are wrong but to keep their customers as happy as possible. But I’m not aware of any bank in Nigeria today that will deliberately set out to violate the Bankers’ Tariff. Certainly at FirstBank, we work fully in compliance with what the regulation allows us to charge, also there are areas where what you charge is left to mutual consent and agreement between you and the customer. It is continuously being revised and the CBN shares it with us and takes comments from all of us before it becomes a binding document.
Now that we have established that most customers are not aware of these charges, why not educate them and spell out all the charges to them when they transact business with you?
Customer education is an ongoing process. In fact, we have done a lot in that regard and we are continuously doing that. We have pushed out a lot of communications on email, SMS, e-flyers and other communication channels. You will be amazed by the kind of things that we see. And that leads me to another issue. With digital banking, you will be amazed to hear the kind of mistakes that people make. In the newspapers and on radio and television every day, banks announce that they will never call customers to ask for their passwords. But people get cajoled and share their passwords with scammers and their money is gone. Then they will say oh, I got defrauded, but they won’t admit publicly that they also compromised their security credentials. Whenever there are issues like that, my team investigates and I review the reports, sometimes, you make some refunds because the person involved is a retiree or something like that but not because the bank is actually liable, so it goes back to education. It is a process and you can’t educate enough, but that is what we are doing – keep educating the people.
There appears to have been an increase in the way customers lose their money to hackers who clone ATM cards and steal people’s money through the cell phone. Are Nigerian banks so vulnerable in terms of security?
The issue of cyber crime is a global phenomenon, whether you operate your account in the US or Nigeria. The CBN has a minimum standard that it expects all banks to comply with. For example, there was a time that it mandated all banks to set up security operation centre, and it is meant to be a 24/7 centre where online banking activities are monitored. At FirstBank, we have taken security seriously. A key part of our strategy is to go digital, which means that we want our customers to do more and more of their transactions using our alternative channels, ATMs, online banking, FirstMobile and USSD, without going to our branches. Indeed, we have been quite successful with that. Today, about 80 per cent of our customer-initiated transactions are carried out without going to our branches and that is significant, especially given the volume of transactions that we process as a bank. Recently, we released a media communication on the success of our digital banking initiatives that over a period of one year, on our USSD platform, we had processed over a trillion naira transactions. So because of our strategic focus, the implication is that we need to ensure, at least at our end, that the entire digital space is made as secure as possible. We have actually invested a lot in our information security function, so today, we have 24/7 protection and we have staff running duty shifts. We have people running through transactions, monitoring access that hackers could potentially have into our system. Indeed, at the last CBN Awards for banks that had instituted the right measures, FirstBank went away with a number of the awards that were available given how much we have deployed and invested in information and banking security. And it is not just about technology, it is also about people because even if you have the latest technology and you don’t have the people with the right attitude and knowledge to use the tools that you bought, it won’t work. So it involves the right people, right technology, right process and right governance. So we have made good progress but the reality also is that as your security system gets tighter, the fraudsters also get wiser. So it is an endless journey as both parties will keep on improving themselves. I have said that so that you can realise that there won’t come a time when we will say we have made it. It is a marathon, it is about who will outlive or outrun the other.
But there is flaw with the banks’ move towards digital banking. For instance, there was a time when FirstBank was charging N100 for over-the-counter withdrawals and there were cases when customers would be forced to make over-the-counter withdrawals and their money was deducted because the ATMs had problems. Should customers pay for banks’ inefficiencies?
I can tell you that at FirstBank, we don’t apply N100 charge for over-the-counter withdrawal.
Again, if you remember my earlier comment, we don’t charge anything that is not covered by the Bankers’ Tariff. What have we done regarding our ATMs? Don’t forget that we are one of the first banks that deployed ATMs in this market. We realised very early in 2016 that some of our ATMs had become a bit obsolete so we embarked on massive replacement of our ATMs. Today, FirstBank owns about 20 per cent of the ATMs across the country and we have replaced a good number of them. The part where you spoke about ATMs not working, I can confidently tell you that that must be FirstBank of two years ago; not FirstBank of today and not even FirstBank of 18 months ago. Beyond replacing the machines, we now have a system in place that enables us to monitor all the ATMs across the entire network from the head office here and we can tell at any point in time which particular location is having problem. We have a team that can easily see to the problem. Again, maintenance and repairs have been decentralised in a way that those guys are nearest to where they are required.
On digital banking, there are reservations with the USSD. The product has been activated by default on every account and some people don’t like it because it could mean that when their phones get stolen, their accounts are not safe. Shouldn’t it be optional?
This is where the popular saying that different strokes for different folks comes in. We did a survey where a significant number of respondents believed that the product should be made available on default because they believed that it was easier to opt out than to sign on. I’m certain that there will be one or two per cent of our customers who will rather want to sign on themselves. What we do is periodic surveys on our products to know what is going on well and areas where we may need to improve on. On the USSD, we thought we had done very well by making it available to customers as a bundle product but like I said, that is why it is difficult to stereotype human beings.
But now that it is challenge for some people and some people are losing money through the product, should it not be reviewed?
We typically do things based on empirical facts at our disposal. Like I said, we do periodic surveys to gauge the mood of our customers. The last survey suggested that we should have this. We will review this and in our next survey gauge the perception of our customers again as we wouldn’t want to change the default model without empirical feedbacks from our customers. It is something we will keep monitoring and if we think that the balance of opinion is shifting towards a particular direction or contrary to where we are, we will definitely act. Don’t forget that we are here to serve the customers and without them, we do not exist. One thing that is certain is that everything that we have done, it is to delight our customers and enhance the quality of their experience anytime they do business with us.
It was revealed recently that banks were borrowing heavily from the CBN for their daily transactions, which somehow sent a signal that banks had liquidity challenges. What is the way out of this crisis?
I’m not aware that any bank has liquidity issue. In the ordinary course of business, what you have just described is part of the statutory responsibility of the CBN. You overshoot your position and you take money from your deposit with CBN. We also have treasury bills and treasury bonds with them so I won’t lose sleep over anything because as far as I know, all those things happen in the course of business. Sometimes when people get information and are not privy to the way institutions or a particular industry are meant to run in their ordinary course of business, the tendency to take that information and give it a different interpretation will always be there. But in the ordinary course of doing business, banks do go to the CBN. You take money, replace it and typically, we do have treasury bills and bonds with the CBN. Given where I sit and I do have a very broad view of the state of the economy and the banking sector, I’m not aware that any bank has liquidity problem.
Till date, the queues in most banks’ branches are alarming. Why do banks find it difficult to recruit more hands or is there no better way to handle this?
It’s a combination of several things. We have done extensive work around reducing queues at our branches and we have been relatively successful but occasionally we have what we call episodic queues. This means that around certain times and seasons and because of certain events, there will be queues. For instance, if tomorrow is Good Friday, which means there will be public holiday on Friday and next Monday, people will need to take money to stockpile food items and other necessary things over the weekend, so there is not much one could do. In the course of the interview, I did mention that today at FirstBank, over 80 per cent of our customer-induced transactions are conducted through the alternative channels, so part of the reason we have embarked on that and will continue to push towards 90 to 95 per cent, is to ensure that our customers’ experience is more positive so that the more people realise that they can pay for goods and services by either using their cards or doing online transactions or several other alternative channels, the better the ability to manage the queues so that fewer people go into the branches to transact business. The more transactions that people can do online, the less the queues and that is the direction that we at FirstBank are taking as a matter of strategy.
From various ratings that we get, no Nigerian bank has made it to the top 100 banks in the world and even Brazil and Qatar have banks that feature there. Some experts have suggested that banks in Nigeria will be stronger when the big ones come together to form a bigger bank. Do you share that view?
If there is one area of economic activity where I believe that the country has made significant progress, it is in the banking space. I’ll give you some examples, look at the feat we have achieved in digital banking in this country; we have done extremely well. So the banking industry is one sector of the economy where we have actually made giant strides. In terms of being top 100, top 50, and so on, I think it will come in the fullness of time. The size of our banking sector is a reflection of the size of the economy. Have you also looked at the Gross Domestic Product of Brazil and compared it to that of Nigeria? I can tell you that it is in multiples. But for me, I’m quite pleased with the kind of progress that the country has made in the banking sector and to me, that should be the focus. If you see some of the things we have done successfully in this country, we are even way ahead of some developed countries in terms of innovation in our banking sector, so I’m pretty comfortable with the progress that has been made and I think that we are on the right path. All we just need to do is to continue to innovate, work on financial inclusion so that we can bring more and more Nigerians into the banking space and that is the major focus of the CBN governor and we are all working with him to achieve more financial inclusion so I’m not losing any sleep in that regard.
For long, banking job was the dream job of many, given its benefits and remuneration, but now people run away from it, due to the work load, poor remuneration and the idea of contract staff. How did things get this bad?
I would say the banking job hasn’t lost its attractiveness, what has however happened is that other lucrative sectors of the economy are also opening up. About 20 years ago, other than people working with the Nigerian Telecommunications Limited, the entire telecoms space as it is called today was nonexistent, so that is a new sector that has grown significantly in the last 20 years. The oil sector has also done very well. Don’t also forget that in the last 10 years or thereabout, because of the local content policy of the government, more and more of some sections of the oil sector are now doing things locally, so that is also another segment doing very well. So if we push the power sector privatisation, in the fullness of time as it also matures, that is another industry that will be attracting more and more people. What happened is that the economy has grown and people now have more options.
You studied veterinary medicine but today you are running a big bank like the FirstBank. How did it happen? Did your parents push you to read medicine and you had to return to your first love?
I think it is a combination of several factors. I went to school at a period when parents wanted their kids to be doctors or lawyers or engineers. But as fate would have it, because I had an enlightened father who had shares in virtually all the listed entities, very early in life, I used to read annual reports. And as I grew older, I got more fascinated by people like Dr. Michael Omolayole and Dr. Felix Ohiwerei, just reading about them in the annual reports. So I started thinking that maybe I was more of a boardroom person than a hospital person. By the time that thought was fully formed in my mind, I had gone very far in my university education so it made a logical sense for me to complete my degree. I completed my degree but I knew that I wasn’t going to practise after my youth service. So I have never touched a syringe or anything related to vet medicine after my youth service. My first job was with Afribank and I searched for it deliberately. I found jobs that were related to vet medicine but I was calm. It took me two or three months to find a job that would take me away from that so I started my job career with Afribank and spent about 18 months there. Then I moved to the firm of Arthur Andersen, which then was the premier accounting firm in the world. Arthur Andersen collapsed on the back of the Enron crisis so Arthur Andersen in Nigeria became the firm of KPMG, so I stayed on. I rose to become a senior manager and then I went to Cranfield Business School in the UK to do my MBA. After my MBA, I joined Citibank and after Citibank, I joined Africa Finance Corporation and now I am here, so basically that was it.
We rarely see you at social functions, is that deliberate or does the banking job not allow you to relax?
I do socialise, for example, I was in Kano recently to attend the wedding of Governor Abiola Ajimobi and Governor Abdullahi Ganduje’s children. Both of them happen to be my very important customers and I will be in Ibadan to attend the second leg of the wedding. So I do socialise but like everything, I do my things in moderation.
How do you relax then?
I hang out with my friends. I read. And I love history. For example, I have the History of Yorubas by Rev. Samuel Johnson before but someone gave me a copy of the one that was just republished and I have started reading it all over again. I also love to read autobiographies. What that does is to get me excited on what to do and what not to do and how to work towards building a lasting legacy. I enjoy that.