Zenith Bank Plc has in 28 years grown to become one of the strongest and most profitable banks in Nigeria as well as in the entire Africa. The financial institution which was established in May 1990 and commenced operations in July of same year with N20 million, currently has total assets of N5.256 trillion (as at June 2018). The bank’s management team is made up of seasoned professionals led by its Group Managing Director and Chief Executive Officer, Mr. Peter Amangbo. The cerebral CEO who took over the reins in June 2014, has ensured that Zenith Bank sustains its growth trajectory. He speaks about efforts by the bank to increase its market share in the retail segment of the market, how it has been supporting growth through lending to various sectors in the economy. Amangbo also disagreed with the belief that commercial banks have abandoned their financial intermediation role.
Credit to the private sector has dropped significantly, to the extent that at the last Monetary Policy Committee meeting, the Governor of the Central Bank of Nigeria (CBN) was obviously frustrated, which is why the apex bank announced some measures to increase liquidity in the economy.
Question: Why are banks not lending?
Answer: There are many factors responsible for this. Firstly, if you are talking about the declining trend in credit creation to the private sector, you will have to also look at the declining trend in deposit mobilisation by banks. Actually, deposit customers have more options to invest their funds. You have treasury bills, the federal government’s savings bond and others at attractive rates. So, there is competition for these funds which were hitherto kept in banks, and therefore that creates some challenge on the availability of loanable funds.
Secondly, we have the Cash Reserve Requirement (CRR) of 22.5% of deposits which is kept away at zero earnings to banks. This means that for every N100 deposit taken by a bank, only N77.50 will be available to the bank for credit creation and other forms of investment. Aside the huge cost of the CRR to banks, currently exacerbated by the calculation methodology which ensures only increase in the CRR amount with deposit growth without a corresponding refund to banks when deposits decrease, the fact that it reduces the amount of loanable funds has an impact on the declining trend in credit creation.
Also, remember that the economy is just emerging from recession and is therefore not the time that people would naturally be bullish on credit creation. Even in terms of quality demand for credits, it will be muted for some time. The forex challenges that the country faced in 2015 to 2017 caused by the global crash in crude oil prices also contributed to the muted credit growth in the economy. But, the fact that we are coming out of recession, oil prices are going up, I would expect that the appetite for loan would probably increase overtime.
Question: Can we attribute that to the 10 per cent drop in your loan book in your 2018 half year results as well as the decline in the loans and advances in your 2017 full year results?
Answer: Yes, I will say they contributed, because the issues that affect the financial system and the economy naturally would affect the components of the financial system. But I was impressed that impairment charges in your half year results reduced significantly from N42.4 billion to N9.7 billion… We have been very conservative in our credit management process. Once we see that there is challenge in any credit, even before it gets so bad, we start to take provision for it and commence remedial actions. If you do that, you will find out that you won’t get many surprises, you will just wake up and make one massive provision. That will not happen. So, we try to anticipate and adopt a forward-looking approach to classifying accounts once they are challenged and I think that has actually helped us and we just keep taking these provisions gradually and on time
Question: I am aware you made 30 per cent provision for your 9mobile (formerly Etisalat) loan last year, did you make further provision in the results you just released?
Answer: The 30 per cent provision was for half year 2017. Then for the full year 2017, we increased it to 50 per cent in line with our conservative approach to business and proactive recognition of challenged assets. So as it is now, we have done 50 per cent. The good news however, is that the sale process for the telecoms company would soon be concluded, subject to regulatory approvals from the Nigerian Communication Commission (NCC).
Question: What is the level of Zenith Bank’s commitment to supporting SMEs out of the CBN’s N220 billion, how much has your bank disbursed so far?
Answer: Overtime, we have been very strong in funding commercial customers whom I would say are mid-tier customers, not only the major corporates or multinationals, even though we are very strong in this segment of the market. In the real SME segment, we are increasing our lending activities but there is still a lot of room for improvement.
Question: So how much of the CBN intervention fund has Zenith Bank disbursed?
Answer: We have disbursed over 3 per cent of the CBN N220 billion SME fund.
Question: Let’s go back to your half year results; would you say the bank is on the right track?
Answer: If you look at gross earnings, the major factor that affected it was that interest rate dropped generally. As at December last year, treasury bills rate was about 20 per cent, but today we are talking of a maximum of 12 per cent, which is about 800 basis point drop. The drop in interest rates also affected the yield on loans and advances. As our interest income is dropping, if you look at our interest expense, it also dropped drastically. That was one area that helped performance in half year 2018. Secondly, on our own, we decided to work smarter by focusing on low cost deposits. We had to let go of the expensive deposits in the bank. This affected our total deposit base, but our Net interest margin improved. If you look at our deposit mix, the drop is from fixed deposit. But if you look at savings, it actually went up, and it’s still growing. We expect a growth in our total deposit liability by year end 2018.
Question: Can we say Zenith Bank is moving from corporate banking to more a retail banking?
Answer: Let me put it this way, if you look at all the successful global banks as much as they are strong in corporate, they are also strong in retail. So, you need a blend of that. If you look at Zenith Bank today in terms of network of branches, we have close to 400 branches. You do not have those types of large corporate businesses all over the country. Corporates are concentrated in few cities. We have always been in those mid-tier locations, but there is the perception that Zenith is for corporate and the affluent. This is not the case. Zenith Bank is for all corporates and individuals irrespective of class or wealth. It is important to note that 20 per cent of our deposit base is from the retail segment.
Question: what are you doing to ensure you increase your presence in the retail segment of the market?
Answer: The good thing is that if you check the growth of our electronic products and our mobile banking in particular, you will see that between now and the comparative period of last year, we have grown by over 100 percent and that is a massive growth within one year. We expect further growth in this segment. Our retail strategy is very simple; it is anchored on the mobile and cards. Whatever you can come into the bank to do, you should be able to do it on your tablet. That is our strategy – the mobile and the card. You don’t need to even come in here, whether it is to open an account, transfer, and whatever it is that you can do at the bank, you should be able to do on your mobile. That is our simple strategy.
Question: What is your strategy on agency banking?
Answer: We are steadily growing our agency banking network, especially for the unbanked. Ideally, agency banking works well in locations where you don’t have banking presence and where you can use major retailers in villages and others like them to offer financial services. We are developing that gradually and we believe that over time it would enable us to bring in more customers to the bank.
Question: How many agency banking partners does the bank have?
Answer: We have over 1,000 agents across the country and we are still growing the network of agents.
Question: How is Zenith Bank optimising its various digital banking platforms to scale its operations in the retail segment of the market?
Answer: Zenith Bank has always been a technology driven bank that thrives on innovation. Our objective is to provide convenience for our customers to carry out their banking businesses using the latest technology and digital platform. We also provide different options for our customers to afford them a choice that best suit their circumstance. We have invested massively in digital banking and this is still ongoing.
Question: How active is your bank in agriculture financing?
Answer: Zenith Bank is very active in Agricultural financing. We have funded customers in the primary agricultural farming for rice, maize, sugar, soya beans, and many others. Our total loan to agriculture is close to 10 per cent of our total loan portfolio.
But lending to the sector remains low…
Lending to the sector is growing. Compared to what was obtained in the past, we are making significant progress. For example, the volume of rice importation in Nigeria has dropped significantly. Thanks to the various initiatives by the Central Bank and other banks. As at 2015, rice was number two in terms of foreign exchange consumption, but today, it has dropped.
Question: There are concerns that banks have left their intermediation role, how is Zenith Bank balancing loans creation with value creation?
Answer: Banks are still very active in their intermediation roles. Intermediation includes deposit taking, granting loans and advances, investing in treasury bills, selling of BTA, PTA, foreign exchange etc. It is like somebody saying newspaper houses have left their core business of news gathering and are now focused on advertorials and spotlight. It is all part of the business. Whether you like it or not, there is no bank that can survive without lending. It is important for us to note that the funds in the banks do not belong to the banks. They belong to the depositors. So, we must handle it with utmost care and diligence. Banks must partake in the various roles listed above and also maintain some level of liquidity so as to meet customers’ obligations. So, you must still invest in treasury bills and you must still maintain cash.
I actually disagree when people say banks are not lending. Check each of the banks today, what is their loan to deposit ratio? It is above 70 per cent. If you are already lending above 70 per cent of your deposits as loans, net of CRR, that is adequate. So, people need to look at figures and facts and the various regulatory ratios before they conclude that banks are not lending. Check across most of the banks, they have a loan-to-deposit ratio of about 70 per cent. That means that for every deposit you have, 70 per cent of it goes to loans.
You don’t lend 100 per cent of your deposits. You don’t do that. And moreover and as I mentioned earlier a minimum of 22.5 per cent is already kept out of reach of banks by way of CRR. In terms of whether we are giving sufficient loans, I will say the banks have done well. Anybody can argue that maybe there is a concentration of the beneficiaries – that is a different matter entirely. But, over time, you will find out that once the top end is saturated, banks will be forced to come down market. You can see that before, individuals would always find it difficult to access credit, but now, it is available especially with the advent of the Credit Bureau and BVN. So, I think it is an evolution. We need to be patient and I believe the banks are doing well in terms of their primary role of intervention.
Question: What progressive steps have you taken to enhance the bank’s ethical practices?
Answer: Having been on the board for more than a decade, I understand that to achieve the standard ethical practice we seek, there is need for clear and consistent communication across the board. We will continue to improve and strengthen our Corporate Governance practices and maintain the highest ethical standards in line with regulatory requirements and Code of Corporate Governance. We have a governance frame work that guides the board and management and this we strictly adhere to.
Question: Corporate governance codes are going through a transition period in Nigeria, how difficult has it been to adapt to international best practice standards?
Answer: The dynamics of financial business operations is converging globally. We operate in the UK and other countries; hence we must adhere to global practices of governance at the highest level. The conferment of the Ethical Boardroom Best Corporate Governance Award on the bank is a clear testament to our adherence to global standards. This, no doubt, is borne out of our commitment to quality in all our dealings with various stakeholders.
Question: Are you worried that your bank’s share is under priced?
Honestly, my mandate is to ensure that we deliver value to our various stakeholders. We will continue to run the bank diligently, keep depositors money safe, look at all our stakeholders – investors, depositors etc – and try as much as possible to deliver superior performance. That is really our mandate. The market will always take care of itself. We look at our business from a very long-term perspective.
Question: Do you think the political uncertainty is responsible for the downturn observed in the stock market?
Answer: There is no doubt that business thrive in a peaceful and predictable environment. However, it is important to note that we have had elections since 1999, and this should not define the business environment or economy. Economic activities and businesses must continue irrespective of elections. Foreign investors do not panic because of elections after all Nigeria have witnessed several changes in our democracy. I believe we have gone beyond elections being a major factor in our economic and business activities and we have all learnt to move on whether there is an election or not. We are not going to pack our bags and say we are leaving because there is an election.
Elections would be there, and the noise would be there, just like in any environment. The frenzy might be different, but elections would always come and go. Look at the United States elections and what it generated. The elections would come, and it would be peaceful and we would move on. So, we must learn to move on with our business. Just like in those days, I remember when we started our career in the 80s, once it is November; businesses start to wind down because they are waiting for the government to release the budget. Today, nobody bothers about that. You do your business up to a day to Christmas, come back after Christmas and continue. So, it is part of the evolution and that the economy is growing beyond the public sector. Private sector is becoming much stronger and over time the private sector will become the dominant player and the driver of the economy.
Question: In your opinion, what is responsible for the depreciation of shares on the Nigerian Stock Exchange?
Answer: You know for now, foreign investors still dominate the market and the way they will look at the environment is different from how the domestic investors will look at it even though their investment objectives are aligned. If you are an investor in the stock market, you will definitely not be thinking about how to exit. It is different from when you have a lot of foreign investors in the market, which is part of the danger if you don’t have a very good mix of both local and foreign. What you will see is that once there is any uncertainty in the economy or in the global economy, most time they fly. Unlike when you have predominantly the locals, no matter what it is, they are here, and are less mobile. During the Asian crisis, that was part of the problem. There was a flight to safety from Asia and the whole market basically collapsed. But again, we have to look at the fact that from an economic principle, Nigeria is just coming out of recession and the economy is still recovering. The increase in rates by the Federal Reserve Bank is also a major reason why investors in the market are exiting and hence the drop in the stock market.
Question: what is your outlook for the economy for the remaining part of the year?
Answer: For the remaining part of the year, (less than 4 months) growth would likely be slow. Maybe by the end of the year, at best, we would achieve something close to 2 per cent Gross Domestic Product growth, which for a country that is developing and wants to grow, is no good news.
If you look at even the United States that has a massive economy with a large base, they are still projecting GDP growth of five per cent and even want to do more. Look at India, the country is projecting GDP growth of above 8 per cent. For Nigeria to develop, we must target double digit in terms of GDP growth.