Charles Kie is the Managing Director of Ecobank Nigeria, which has over 400 branches nationwide. He told a select group of journalists that the pan-Africa bank was focused on being a market leader, especially as the banking industry transits to the digital space, described as the future. He also spoke on other industry-related issues. Clara Nwachukwu was there. Excerpts:
What has changed since the last time you spoke to the press?
During my first interaction with the press, I made it clear that what Ecobank Nigeria is trying to achieve in this market clearly in the next five years is to reposition itself and become a market header. Being a market leader means having leadership economics that is clearly from a profitability perspective and ensuring that we not only become the most profitable bank in the market, but also achieve a competitive and better customer service and also create an environment where our people feel really motivated and feel to work with us.
To support that we designed the strategy last year, and one of the key aims of that strategy is also to ensure that we bring innovation into this market, and our innovation in the market proceeds into ensuring that the digital journey that we have embarked on will proceed into making ease of access to financial services and cost of access to financial services the lowest possible. To demonstrate how serious we were about this agenda, some of you may have noticed that last year, we hocked up to the market a mobile app that had features that almost no other bank in this market had. We have consistently been improving the services and features that mobile app has been delivering to our customers.
One of them is the fact that the first time in the Nigerian market, we are offering the possibility of making payments with QR Codes with MasterPass. It was a partnership that we had with MasterCard to allow payments to be made using the phones as opposed to using cards and POS. Today, I can that we are one of the banks if not the only bank that through its app can make instant transfer from Nigeria to almost all of the other countries where ECobank is present, more than 30 countries in the continent.
These innovations that are key digital innovations is where the bank is going, and as a group, we yearly set ourselves a target to try and achieve not less than 100 million customers by 2020, of which all we see for Nigeria will transform into not less than 40 million customers. Also, we have designed a clear agenda to achieve that and all these postulate into ensuring that our service to our customers is efficient, and also ensure that our people are up to the task and we are working on that. I am going to give you some of the things we are doing to achieve that.
Most importantly, we also place values on our shareholders by ensuring that our cost of operating in this country also has significance. Indeed, in less than 18 months, if you look at our financials by the end of June 2017, we have been able to increase our cost to income ratio from more than 60 per cent to 145 per cent now. It is obviously one of the best in the market. But even in terms of the quantum of our expense, we can claim that we are probably one of the lowest among the 16 important banks in the industry today, and this has been achieved by taking a strategic important view of our management expense, and make sure that we achieved operational excellence.
Some few measures that we have taken, one of which is that we have to reduce the number of our branches, but it’s important for our customers to understand that reducing the number of branches was precisely designed to improve our services to them. It is to ensure that instead of going to branches for transacting, they could actually use all of our digital channels as a mean of making their transacting easy and thereby reducing their cost of transacting in the industry. The other thing that we are doing is to ensure that we have a team that is actually in line with the prospect of growth that we have clearly set for ourselves, and if you look at some of the newspapers today, you will notice that we put there an advert to call for new graduates because we are recruiting.
We will be recruiting several hundreds of young Nigerians in the next few years, and we will train them to be the next generation of leaders in the industry, but more importantly, in Ecobank Nigeria. As we also move into the digital space, which you know is a millennial conversation, the team that will have to face our customers also have to reflect the kind of that we are effectively looking for. Therefore, by bringing the new generation of leaders into the organisation, we will be able to create a completely different rapport with our customers that is also on their way.
To support that, at the end of this month September, after a formal review of our organisation, we will also be promoting not less than 1,000 people. If you go into the industry today, you won’t find in this recessional period those who have been that bold to go out and promote so many people at once, but what we are trying to achieve is also to ensure that our staff are motivated. They are put into positions that reflect the works that they do; and they are given the opportunity to also grow within Ecobank Nigeria, because we have a future in this country, because we are here to stay, and we are here to support the Nigerian economy.
It’s important that as a pan-African bank, we also make it clear that one of our key roles is to support the development of the countries where we operate. Being in Nigeria, it will be the right thing to do to have platforms that support the key industries of the country, and we also have a platform that effectively brings the cost of operating in this country at the lowest level.
Let me start with your digitisation process, you talked of closing up of branches, and that got me wondering: if you shut down as many as 74 branches in order to enhance services, how do you convince me as a customer of Ecobank that you are enhancing services if I have to contend with all manner of network issues, which inhibit my transactions like for those in the villages, who have limited access to the Internet?
Let me be very clear on this, the app is just one channel out of many that we are using to support the financial institution. When we are talking about enhancing the digitisation of our platforms, what exactly do we have in mind? What do typically customers go to branches to do? They either go to deposit money or they either go to withdraw money. Today, frankly, why would someone go into a branch – to withdraw money or to transfer money This is why ATMs were put together in most places to allow customers to just withdraw without having to go into the branches, this is one step and this is common in the whole of the industry…
Not when your ATMs can only dispense just N10,000 per transaction. If you want to withdraw N100,000, you will have to do that 10 times.
There was probably a time when this was done but I’m telling you that today, if you go into any of our branches, you will be able to withdraw up to N20,000. Why am I saying this? You know when you go and withdraw cash on any ATM where ever it is, and that doesn’t have to be an Ecobank ATM by the way because this is not a specific conversation about Ecobank, it’s an industry thing. I can tell you that some banks in this market have limited their access to other customers to be doing N5,000 and N10,000, and it’s a fact that has nothing to do with Ecobank and you know that. Lower amount of withdrawal from our ATMs was because we were doing some maintenance on the system. Just last week, we were probably if not the only bank that was allowing customers to withdraw N20,000. This is why the volume of withdrawals on our ATMs by non-Ecobank customers is by far the highest, and the numbers are there to support it and that is one.
The second thing is digitisation is not just about the app that I spoke about; today, you don’t need to have access to the Internet to transact on your mobile, this is why you have USSD technology that is available and you don’t need to download it, you can use that to have access to all the features. We are going even the extra mile because at the moment, we are working to make sure that our customers experience the same level of excitement that they have on the app when they use the normal phones, and that is something that is coming. It’s a key innovation and its coming. I think it’s important that in this journey while we sometimes only look at what doesn’t work that we also look at the real innovations and the real improvements that are being brought into the industry. How many banks can claim that with your phone today that you can go to a merchant and pay with just taking a picture of a QR Code? Until recently, I think we were about the only one. Is that innovation? Yes. Does that make the lives of our customers easy? Yes, it does.
So, these are part of the things that we want but obviously, like in any innovation, there is a learning gap, and there is an adjustment, and we want to make sure that while that adjustment takes place, the customers continue to enjoy the platforms that we have. We will see in next two weeks because we are working so hard on that, that the branches that we have kept obviously customers will see something completely different when they go into those branches. We have also decided that we are going to significantly improve the kind of fulfilment that they have when they go into our branches, so that even if the digital channel is not available they can also have ease of transacting with us through the branches.
But you should know that for sure branches are not the future of banking, because today you will also notice that the banks that were seen to be among the most profitable in the country do not even have 300 branches, but today we have 404 branches after we have closed 75. We still have a network, which is one of the most important in the country, and it’s important to state that, as we create value for our customers, we also make sure for our shareholders get some value. We also make sure that our customers enjoy the platforms that are made available to them both the physical ones and the digital ones.
How do you allay fears that the digitally-focused FinTechs are most likely to damage the operational module of traditional banks by making the customers turn away from the mainstream banking?
This is where partnerships come into play. Today, you will notice that the banking industry is actually partnering with most of these FinTech companies in order to make sure that they come together with a solution. It’s not competition. It’s obviously disruptive, but it’s about building such partnerships in such a way that the end user finally enjoys the outcome of what is made available to the market, and this is exactly what we are doing as an organisation.
Has your credit creation appetite changed? What should we expect in terms of credit creation going forward?
We will continue to support the economy in the sense that you know today that some of the industries require the support of the banking sector. It may not seem to be popular but I think it’s important to state that agriculture is a sector that needs support, manufacturing is a sector that needs support because the implication of supporting those industries is the significant improvement in the country’s foreign exchange (FX) reserves that comes with. Obviously, and as you know, capital is scares, and allocating capital to specific industries has to go with the right assessment of the risk that we are taking, and the returns that will be generated out of those assets.
It is a fact that today, the level of non-performing loans (NPLs) in the industry is very high. This is because suddenly some of the industries which some of those assets were allocated to in the past suffered some down turns, and today, this is impacting the whole of the banking industry and the country as a whole. So it’s not about just saying that the credit appetite will reduce, but it’s about making sure that there is proper allocation that is made of the capital to the right industries, and applying the best economic return assessments to ensure that we are also creating value while we are doing that.
In your investor’s presentation, you talked about Nigeria being a challenging country, so in what areas are you being challenged?
It’s no secret that this country has been in a recession, and even if we start to say that we slightly got out of recession in the last quarter, it is still quite fragile, and you know that the expectation from the market was above one per cent, while we finally came up with 0.755 per cent. FX was an issue for a long time in this market, and its availability has also put a lot of pressure on banks. As I just mentioned, the NPL in the industry has risen. Well from the group perspective, when a country like Nigeria with its Naira depreciated, while the group reports in dollars, there is obviously a frustration impact that it’s coming up with. It means that for us to come up with the same level of returns to our shareholders, we as Nigeria, actually needs to do much more from normally a revenue generation perspective, and also from a profitability perspective. So let’s put this conversation into two pockets – one is the country, and the micro dynamics. As I mentioned, the environment in which we operate today as a bank because of the FX challenges, because of the industries that have suffered from the non-availability of FX, which also impact on their ability to produce, which also impact on their ability to meet their obligations is also transcending to high NPLs. The cost structure that we have as you can imagine can only go up. When you are running on diesel generator for the whole day to support your branches being in operation, and knowing where the oil price is, you can imagine the kind of impact that can have on your business. As I mentioned earlier, we managed to bring down our cost to income ratio to 45 per cent from 62 per cent early this year, which is a tremendous achievement. This is from the macro side.
On the Ecobank Nigeria side, what we are trying to do is to also now restore the fundamentals of sustainable profitability as we move forward. That is why part of the measures that were taken last year, there was a resolution makeup that was created at the end of last year. That resolution allowed us to move some of our assets to the Group, and as a consequence, we got some injections of liquidity into the bank that has supported our ability to operate, and also improve profitability. We will also continue on that part to ensure that as we close 2017, we will be able to also deliver the expectations that the Group has put. As you already know, Ecobank Nigeria, we decide between 35 to 40 per cent of the whole Ecobank Group, and we will be able to deliver our share or contribution to the overall improvement of the Group.
You keep talking about the NPLs and the pressure on the banks, so how is Ecobank Nigeria able to manage its loan portfolios?
Again, when it comes to NPLs, it’s a combination of two things. It’s a combination of your total loan goal, and loan that has been accessed that has been challenged, and therefore your ability to recover some of these loans is critical in ensuring that you bring the NPLs down. A lot of efforts have been put in actually ensuring that our customers who had been in that position can effectively go back to the bank to have the right conversation, as to how they are going to reinvest some of their loans.
It’s important that we keep that conversation going, because there is no way a bank not particularly Ecobank, can actually survive without ensuring that they can effectively recover some of the loans that they have given irrespective of whether we are in recession or not. A recession cannot be used as an excuse not meet up an obligation, let me just state that, and then obviously, because we continue to support the economy, we will make sure that our loan recall progresses, also new loans will be expanding to those sectors that I have mentioned.
Retail banking is one area a lot of peers have moved in to aggressively. What is Ecobank Nigeria doing to withstand competition in that segment of the market?
When you say retail, sometimes retail means consumers, and sometimes retail means SMEs. When it comes to consumers I have made it clear that our target is to have on board 40 million customers, we have set the objective and the target. Knowing that today we have approximately seven million customers, and that gives you an idea of where we want to go. It now becomes for us a key for anything we are planning to do, particularly when it comes to the channels of transacting for those 40 million customers is actually made available for them, and this is where digitisation comes into play. We will not be moving away from that for this is where the industry is going. People more and more will be transacting on their phones without any doubt.
Today, you can be sitting here and make transfers. Just two years ago, think of the processes you have to go through just to make a single transfer. That is completely changed. In a fraction of seconds you can make a transfer from your phone, and not only in Nigeria but also abroad. So this is where things are going. The more you make such channels available to consumers, the more obviously you deepen your penetration into the consumer space thereby achieving the levels that we have in mind. Obviously that doesn’t mean we have to do it alone, they as well will be building partnerships, and this is where agency banking now comes into play because it’s not like we are going to do it on our own, we have to build partnership with some agents; those who are closer to some of these customers, and make sure that they can effectively distribute some of our products. We need to make sure that we have the platforms to support it, and we need to make sure that all of these transfer markets is stuck to each other in order to facilitate that transaction base, and this is clearly where we are going.
According to what you said, your CIR came down to 45 from about 62 per cent last year, which is very interesting, but my concern is, is it not cutting very close to the bone considering the challenges you experience in Nigeria?
We are still investing though and that’s the fact. If you’ve been able to actually achieve that you have to be mindful that some banks in this market have cost to income ratio (CIR) below 30 per cent, but they are still operating, and they are operating profitably. If we want to be a leader in this market in the next five years as is the plan, we have to make sure that sector of our management is also taken into account, but be mindful that a cost income is two things – it’s cost and it’s also income. If we keep the same cost base but increase our revenue substantially in the next few years, that cost income will go down. So it’s not just about cutting cost, it’s also about increasing the revenue in all we are doing. The digital solutions that we are bringing in and by ensuring that we support the right sectors of the industry, we also make sure that we effectively grow our revenue base, and therefore increasing the profitability and the cost income ratio.
What really are you doing in Agriculture, since you say it’s your focal point and to what extent?
Obviously as you can imagine, it won’t be appropriate for me to mention the names of my customers, but what I can tell you is that this is the sector that we are looking at very closely because there is always a lot of conversation around whether commercial banks are the most appropriate to support agriculture. But we have to mindful that agriculture is a value chain and there are several steps from growing to selling, and finding the right space in which you can support the value chain is what really matters so that each of the stakeholders in that value chain plays his role. The government will play its own role by ensuring that the environment is good enough for agriculture to strive. They will create conditions for consumption and export to also be made as easy as possible, and then we ensure that the logistics around moving products from one point to the other is also made easy. So we have to look into all that value chain so that we don’t only look at agriculture as just growing goods and thinking that because you have to deal with farmers, it becomes something nobody wants to touch.
And what are you doing with SMEs?
For SMEs, it’s exactly the same story; you know it should take a country like Nigeria with almost 200 or 250 million customer population. There is no way large cooperates can be the only ones that can support the economy of this country, and the backbone of this country is really the SMEs. The mistake not to make is to think that SMEs should be looked into exactly the same way large cooperates should be look into because obviously, it’s quite a specific segment. When you talk about SMEs, the mistake not to make is to bundle them into one segment, and think that they all look the same. But what we are doing today is actually to go back and look into the segmentation of those SMEs, and ensure that we also talk to the right people at the right level. The reason why I’m saying this is because there is a lot difference between a single man SME that will be trading by going to China, or by getting other people to get goods from China and trading in the market, and the SME that is part of the value chain supporting large cooperates. There is a wide range of constituencies between that value chain, and you cannot look at them the same way.
Do the identity verification platforms put in place by government like BVN, NIMC, and SIM registration help you identify the collateral register of the SMEs and relate better with their smaller groups? If yes, how does it?
It does. One of the things we are doing in some other countries, and we are thinking here as very important is that in the consumer space, why do we keep talking about Kenya’s success story when it has come to consumer space? You may think it’s because a telecom company just managed to hook up with some banks to get MPESA enquiry and others out, no. It’s because the identification process was strengthened. Today, when you go into these countries and you transact, anything that you do can relate to you specifically because your credentials are available, you can be found, your track record can be clearly displayed, and your credit story can clearly be identified. So without a clear identification process in place, it’s going to be extremely difficult to win into the retail space. I think this has to be clear. BVN is a good step, but we need to go an extra mile to ensure that particularly in the SME space the proper identification of all the stakeholders become quite easy, because you know who you are transacting with, and you know how to relate to him whatever happens. The reason why giving people loans even on phone, was made easy was because of the track records they also had with the telecom companies, it has nothing to do with whether or not they have been faulty with banks. They could tell the credit scoring based on how they recharge, their frequency of recharging, and the number of times they have been taking these small loans to recharge their phones etc that bears their track record, so identification is key when it comes to tracking records. It’s important that is also made very clear.
On Monday, the MPC meeting calls for interest rate reduction. What is the position of this bank? Are you in support that this bank should lower the interest rate?
Let me tell you this, there is no company that can invest sustainably with rate at 25 per cent. I hope that answers your question. What that means clearly is that you need to create an environment where investments will be critical to the growth of the GDP is made easy otherwise who pays for that? You and myself, because if the cost of production of any good in the country is so high, how do you expect inflation to come down? There is a need for effectively macroeconomic environment to ensure that first, inflation goes down. Secondly is that the rates now reflect to the level where it can create sustainable investments and high returns to the country, but it’s not all about setting the rate, it’s about creating an environment that allows the rate to come down.
You mentioned in your challenges, the FX challenges and now we’ve seen relative stability in the market. How does the improved liquidity in foreign exchange affect your operations?
I think the step that has been taken in that frames are positive, because I guess nobody wants to come back to a situation where a lot off of credit cannot be repaid because that has an impact on the credibility of any financial institution. The good thing is that making FX available, creating a window where the price of the currency can be determined by supply and demand is positive for the economy, because that will also allow some flows to come in. When the Naira finds its right price in the market, there is no way investment flows will not come, and if the more investment flows come in, obviously that will have an impact on the rate of the naira to the dollar, and all of that will transcend into bringing it down over time. We’ve seen some improvements. I believe that things can further improve and I’m sure that if on the one hand the economy is properly diversified, and the sources of FX are improved, that will definitely allow rebalancing of the economy as a whole, and thereby improving the foreign currency liquidity of the bank as well.
Is the current intervention sustainable?
Well I guess there is a need to create an environment. The more important thing is that they need to create an environment where the right price of the Naira can be determined.
And what do you think is the right price?
It is the market that sets it. It’s not for me to say. It is the ease of bringing in Dollars into the market, the ease of taking dollars out, the supply of such dollars, and the demand for such dollars. When we create an environment where there is no subsidy in that process, and there is free access to the market, things will normalise and come down. What we should never do is to create the perception that the currency is subsidised because that obviously creates fervent depreciation.
With CBN’s efforts to achieve a convergence of FX at interbank and the BDC, do you see that as visible?
Yes it’s improving.
What’s your outlook for the remaining quarter of the year?
What I have said clearly is that we will continue on our journey, to improve the profitability of Ecobank, which is our key objective, showing that we effectively strike the right balance between repositioning the bank for growth, and ensuring that we will achieve high returns for our shareholders. If the economy Improves, this would be obviously further supported because as you can imagine the pace at which something can be done in a recessional economy is carrying out the same as whether or not it can be carried out in a growth. As the country comes back to growth, we hope that we can also write on the upside that can be created. You know that the potential GDP of Nigeria is high is the excess of 10 per cent. Today, we are not living at 10 per cent, and that gives you the margin for progression. So it’s just about making sure that on the macro side things are put in place to continue to support them. We as a bank, we want to take a very strong position in this country to support that.
You have been talking of rising NsPL in the banking sector, do you support this call for private AMCOM to take over?
What I can tell you is that there are clearly some benefits. We can spend time talking about this in details but then it is not the news; who spends time talking that AMCOM took over Arik? No one. It almost seems like normal and by the way, it was not an asset that was sold as part of the challenged assets of the bank at a time. I’m just saying that yes, we can look up for the sensational part of things but I think we should look more sustainably at what really drives what we are doing. Some of our customers may actually have issues, and we may have back and forth with AMCOM but is that what Ecobank Nigeria is? No. is that where we want to be? Certainly no. What we think is important is to make sure that at least, some of the assets that we are having today may be part of the NPLs that we are talking about. We will manage to recover them one way or another. I’m sure we are going to, I’m sure we would have probably made more noise if we had gone and sealed all of these assets that were part of these NPLs and instead of AMCOM, it would have been that Ecobank is closing Best Western and so and so forth and that would have probably make more noise. I guess that could happen because for a bank like ours, you know where regularity ratio is? Its five per cent and you know where the average industry is? Almost 15 per cent. This is an industry issue, and we can’t move away from there and say that there is nothing happening in this market. It is serious for all the banks to make sure that they also recover all the loans that they had given out.
What then is your position on AMCON 2, a private sector led entity?
This is a very interesting question and a very important one. Last year, we actually put together as a group a resolution to actually take some of our assets that were challenged. Maybe you didn’t follow up but this is something that is major because the equivalent of $263million of assets were moved into a resolution vehicle, which if you want, it’s almost like an AMCOM scheme but a private AMCOM scheme. So if one bank has been able to do that, you may ask yourself whether there is a need in the whole of the industry to think about a scheme that will effectively allow them to take out of their balance sheet some of these loans, which are effectively negatively impacting their profitability, and also hampering the ability to support the economy. As you know, if you have certain level of MPLs there is no way you can now be aggressive in extending loans. Creating what we typically call a jogger or a bad bang or an AMCOM, that now can take those loans and pursue the recovery in a non-regulated vehicle when banks are left with portfolios that then allow them to continue to trade more sustainably is a fundamental question that as a country we need to ask ourselves. It’s not to say because AMCOM won, had its own issues and still some loans out of it, reinvest and there are still some obligational matters to be met it doesn’t take away the fact that yes, for the industry to be relieved of the weight of the burden of NPL todays, there is a need to find a solution. If it’s left in the hands of each bank, it may have its own limitations, but it comes as a fitting, something that might obviously change the totally the pictures of the bank and then we position them for future growth. And that conversation is timely.