After spending six years as a regional bank, Wema Bank has stepped up to compete at the national level. What has been the secret of the turnaround project?
In 1945, as the Second World War grounded to a bitter halt and much of the world struggled with momentous human and economic losses, Nigeria’s first indigenous financial institution, Wema Bank, was formed.
The bank became a symbol of ‘Nigerian Renaissance’ in a period of global distraught, which would culminate in economic and political independence of the nation 15 years later. Seventy-one years later, Wema Bank is repeating that feat.
The financial institution is rising again at a time when everything – the Nigerian economy and the global businesses environment – seems to be going the other way. It began last year when, after spending seven years as a regional bank, the bank stepped up to compete at the national level and it has continued this year as the bank steadily grows in balance sheet size and profitability despite the current economic challenges facing the country.
As you may have known, Wema Bank is Nigeria’s oldest indigenous financial institution.It is also widely reputed as the most resilient Nigerian bank, a reputation that was put to test in the early and mid-2000s, as the bank suffered its worst-ever internal crisis. In 2009, Wema began its bounce back.
It started with the reconstitution of its board, which saw a new management, led by me, take over as the Group Managing Director and continued in 2011 with the strategic repositioning of the bank to operate with a regional licence covering South-South Nigeria, South-West Nigeria, Lagos and Abuja.
Last year, the bank consolidated its rebound when it was granted a national licence by the Central Bank of Nigeria. Six years ago, we took a decision to refocus the bank’s operations on its areas of strength and build a sustainable institution.
Following the bank’s receipt of its national licence in 2015, we took advantage of the new licensing regime and applied for a regional authorisation with a pledge to expand in the near future, once the turnaround project was completed.
The bank’s transformation was implemented in three phases-first to stabilise the bank, second, to prepare the building blocks for growth and third, to go for growth. We are now within the third phase of the transformation project.
Thus far, Project Growth seems to be going great. In its 2016 half-year financials, Wema Bank reported an 11 per cent rise in profit and a 15 per cent rise in turnover. It is the best performance by any Nigerian bank this year (among those that have declared their half-year results).
The bank delivered an impressive Interest income of N20.2 billion, a 15.2 per cent increase from N17.5 billion in H1 2015, while its fee and commission income rose by 42.3 per cent, from N2.2 billion in H1 2015 to N3.1 billion in H1 2016. The bank also enjoyed a 13.7 per cent growth in total assets, from N344.64 billion in H1 2015 to N391.76 7690 in H1 2016.
Operating expenses only grew by 2.7 per cent, much lower than year-to-date inflation rate of 13.26 per cent; a testament to the bank’s disciplined and innovative approach towards keeping cost of doing business low.
The 2016 financial year has been characterised by deceleration on a number of economic indicators coupled with increasing energy costs, intensified by rising inflation, all within a tough operating environment.
In spite of these challenges, Wema Bank has been able to deliver a modest improvement in the first half of the year. We commence the second half of the year with a sense of cautious optimism; well aware that the economic fundamentals point to an economy heading for further slowdown, yet hopeful that additional fiscal initiatives will be implemented to stimulate growth.
How has the introduction of Treasury Single Account (TSA) impacted the banking industry?
I think over N2 trillion left the banking system for Central Bank of Nigeria (CBN). Without doubt, TSA has impacted the volume of deposit in the banking system. As you know, deposits are our raw material.
Certainly, if the sector lost N2.1 or N2.2 trillion, it will definitely impact on the sector; you will see the impact the liquidity of every institution. It is going to impact us differently. Wema Bank lost almost N50 billion to TSA, but if you look at our annual report in 2015, we grew deposit despite of the loss.
We recorded between 10 and 15 per cent growth in our deposit compared to 2014. TSA started in September 2015, but we were still able to grow; so, what that means is that we would have grown higher.
Our deposit still grows, if I have the N50 billion or thereabout in the system it would have helped my growth better than it was, but the impacts were not such that we were not able to meet our deposit obligation, neither were we short on the liquidity ratio required of the bank. Certainly, we lost some money to TSA that would have otherwise helped the performance of the bank better than we recorded in 2015.
In your growth plan, did you bid for Keystone Bank?
Yes, we had the plan, we were one of the sets of the bidders that wanted Key Stone Bank, but we reappraised our strategy along the line. Growth comes in two major stages, organic and inorganic; organic for what we are doing today and inorganicic, which is merger and acquisition (M&A) opportunities, so we looked at the M&A opportunities, does it have a fit for what we want to do?
We went some distance in the process and we decided we should get out of it because there was a whole lot of overlap, so to speak, between what we are and what the target is, especially what we looked at was what is the value adds.
You know if you add one plus one, in arithmetic, the answer is two, M&A is null; in M&A, one plus one giving you two has added no value to you, in fact, if for anything, you are taking up more trouble.
So if you take up a target one plus one should give you multiple of twos, it can be three, it can be four but if one plus one is just two, it is not value creative, that transaction is not value creative, an M&A transaction that you sum up and you did not get the expected result is not a good M&A.
That does not mean the target was not good, what I am saying is that the target and my own growth aspiration did not have a desired alignment, though they cannot be 100 per cent in alignment but do they largely align to a level that I will say yes I will drive the value that I am looking for in a target, that was the consideration and at some point in time we decided to opt out of the bid.
What is your take about new bank springing up in the country?
I strongly believe, like they say, that the sky is big enough for all birds to fly without bumping into each other. Taiwan has a population of about 23 million people not more than 30 million. The country has over eighty banks, Nigeria has a population estimated at 180 million, with the coming of the new bank, there are 22 deposit banks.
Are we under-banked? Relative to the size of the economy and the potential that we have, honestly this system can do with more banks. Now, is it in number of linceces that we have or in the number of branches that we have? I will say both.
There are some places we don’t have any trace of financial institutions, especially in the rural setting. So, I think the economy can accommodate more, you know what it does is that it also doesn’t create monopoly.
We have seen what has happened to public institutions, public utility companies where there is monopoly, you don’t get the service. Now, you may not create monopoly but you may create oligopolistic economic environment.
It is almost similar to monopoly, because they can team together and fix prices and fix a whole lot of things if there are just a few of them participating in the industry. So, this industry can live with a dose of more competition.
So, you need to define your own target market. If all of us are playing the same area, then we bump into each other, there are some areas that are not yet developed enough. So, you need your own niche as a bank.
If you define your own niche, you will play quite well and be successful. Some banks will come and say, ‘I am here for agric’. Another will say ‘solid minerals’, other will think of not having branches all over the places and opt for pure digital banking, no offices, it is happening today in some parts of the world, they do not have offices. The branches are on your palms and that’s the way they want to play and that is a niche.
There are still several things we need to do, infrastructure is in short supply in this country, who is going to fix them, they are not foreigners, they are Nigerian system using the financial system to fix them. It is a competitive environment and for those us who are already here, we are bracing up for the competition.
What has been your experience as a primary market dealer?
We are dealers to those who are not. We have the direct interface with CBN, and the apex bank is still the major supplier of foreign exchange into the system. So, it is just like a clearing house. There are only four banks doing clearing system in this country today.
The four banks represent the rest of us who go to clearing house to clear. What we are saying is that we don’t need as many as 22 banks all coming to the clearing house to do clearing. So, if you look at it, four to 22, average of five banks per clearing house, so it limits the number and brings a whole lot of efficiency into the system.
I think what the primary dealership has done is to show that rather than having everybody doing it, there should be primary dealers; you take the funds from CBN, the biggest supplier of foreign exchange, to the market today and other people can come to you.
In any event, it is an open platform, one is dealing on the FMDQ platform today, whether you are primary dealer or secondary dealer, honestly, it doesn’t mean anything as long as everybody has access to foreign exchange. So, it has been some nice examples, we are happy to be a primary dealer also to sell to some others who are not.
What does it do? It puts a whole lot of responsibility in you, it is also a training ground for our dealers and today, we have one of the best dealing rooms in terms of equipment, in terms of layout and our dealers are properly and well-equipped to do the business. We are up to the task and I think we have delivered to the best of our ability to the industry as a primary dealer.
How are you dealing with recession as a bank?
In a situation like this, you need to watch your cost like a hawk. The initiatives we are bringing into the digital space are of necessity in order to bring the cost of operations down.
In a regime where margins are tinning, the level of revenue coming down, you need to find a way to trim your cost. We challenged our staff, to do more with less. We didn’t retrench staff but we use them to take more responsibilities.
We are using technology to drive what we are doing. With technology, physical involvement of individuals is being reduced. We want to maintain our growth strategy even in the face of recession. When you say there is recession, what that means is opening up opportunities.
If we focus strictly on managing problems, that means we did not see opportunities. Much as we say ‘let’s manage cost’ we are also looking at what is the opportunity. Today, we have launched
*945 as a product, which we believe will respond to some challenges. The cost of customer acquisition, if measured well, will be substantial. What we need is to invest in technology to acquire customers a lot cheape r than before.