Market Date: 22-05-2013
Banks Require Good Treasury Mgt to Build Consumers’ Confidence’ -
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Mr. Tom Achoda is the Chief Executive Officer of Treasure Capital & Trusts, a business intelligence firm with bias for global financial market, niche operations, and capital market management. In this interview with Raheem Akingbolu, he insists that unhealthy competition among banks is one of the major reasons behind the recent crisis in the banking sector
What should be the limit of marketing communications in the banking industry?
As much as banking is good, the most important thing is doing the business the right way; integrity should be our watchword, every other thing follow. What of if you finish advertising your products and somebody checks inside your bank and discover you are not what you claim to be.
You can pay an advertisement firm to do anything and it will render the service to you. But if it comes to service delivery you cannot, so what is the need. A good product advertises itself. So focus on the business; when you focus on the business, customers will take you to places.
There are some places you do not need signpost but you know that things are happening there, because people who have benefited from the service of these institutions would go out and advertise it.
First and foremost, what kind of institution are we talking about, financial institution. It is a noble job that should be done with utmost integrity. If we do it with high level of integrity and with all sense responsibility, the rest is history.
What I am saying in essence is that advertising or any marketing communications tool, come after a strong foundation has been laid to give values to customers. It is this that would build the confidence of the regulators and consumers.
So, in your view, what would you say caused the latest problem in the sector?
The unhealthy competition and rivalry amongst banks contributed a lot to this whole mess. Most of the banks in question were banks that claim to have over 1 trillion naira balance sheet and they didn’t have it.
When you live a false life, you will do unethical things to meet up and impress people. The reality is, no matter how tall your father is, you must grow your own height. If you climb on a platform and claim that’s your height, it’s a question of time, you either climb down or you are brought down to your true level.
If universal banking is creating or increasing incompetence, then let different banks have their own chosen market and products and consolidate in their area of specialties.
So far so good, how will you describe the state of the financial sector today?
To me, we cannot describe the problem in isolation without referring to the bastardisation of all the sectors of the economy. As a nation we are faced with serious challenges and they are many, it ranges from private to our public sector, where integrity that ought to be our watchword is thrown to the wind.
It has shown clearly that the private sector filled with technocrats and expected to give direction based on ethics and tenets of professionalism is not doing any better by the recent development in the banking industry.
What is most disturbing today is the gap between the magnitude of our challenges and the smallness of our politics; the ease with which we are distracted by petty and trivial issues, our chronic avoidance of tough decisions, and our seeming inability to build a working consensus to tackle any big problem is of serious concern.
The recent criticism of the CBN Governor, Sanusi Lamido Sanusi, by some critics calls for concern; if all regulators and heads of parastatals replicate the same in their various areas of responsibilities, we would make serious progress as a country.
Are you saying the CBN boss has done nothing wrong in handling the case at hand?
If we look at what the CBN governor has done, he has done everything well. I mean it is well intended so far. And we have no reason to doubt or accuse him of having other objectives because everything he has done, he has facts and figures to support his action.
Having said this, what I think should bother us now is that which area of the banking business that should be strengthened in order to avoid a repeat of the past? So that he does not finish the exercise and tomorrow we are back to where we came from or even get worse than before.
Soludo thought that when a bank is big and it is consolidated, it would help them to handle big-ticket transactions. Little did he know that it would empower the bankers to be more reckless in fund management.
So we have to fix some areas and one of the areas that should be looked into is treasury management, risk management and control. This is because the objective of treasury is to manage the banks assets and liabilities, profit and security. But if you look at the overview of credit management, you will know that treasury coordinates the role of a bank as a financial intermediary.
The balance of assets and liabilities and management of gap when it does exist, it is done by treasury; time of cash flow is done by treasury; net exposure of fixed currency is done by treasury, liquidity risk is managed by treasury, liquidity management itself, which is part of liquidity risk management is done by treasury.
Then CBN direct contact with each of this bank, in terms of use of monetary policy tool is treasury. Treasury is in direct contact to the CBN. When it wants the CBN to monitor policy tool instruments in managing liquidity and money supply, treasury is the interface.
The outlet for funding all clearing instruments is treasury. That is why treasury management must be taken seriously and that is why I said there should be a robust and sound treasury management in each and every bank, because treasury is the centre of every activity in the bank.
What other measures do you think can be put in place to reposition Nigerian banks?
To start with, the strategic business unit needs to be re-enforced in every bank in order to achieve the desired result. Enriching the knowledge base of the staff of this business unit by training and re-training staff can do this.
And there are a lot of financial market consultants around, who were ex-bankers and major in this business area of the bank. They can blend a niche of both the international and local environments in order to achieve regulator and operator objectives.
They can be engaged in such assignment and most of them, their fees are just a token compared to the foreign companies. So the consultants who have worked in banks before, who were ex-bankers and treasury managers, they understand the knowledge internationally and that of the local market.
So for us to compete well we must be able to have a blend of it and we now grow into what the global standard requires of us. Even though there are some basic criteria we must meet like the tier one and two capital, the capital adequacy ratio, all those things, they should be able to blend.
And if they do not meet some of these things, some international institutions will not want to do business with them. So if we look at that and like the Financial Service Authority (FSA) in the UK and some of the things done to pass the test as a bank or financial institution, for them to be able to do business, or operate as a financial institution in the UK, the stress testing and scenario analysis of portfolio.
These are some of the key regulatory requirements that have to be met and those can be introduced here and if a scenario analysis of stress testing could be done well ahead of time, not that when there is situation like this.
Is it that the chief executives have free hands to give out loans without the approval of the risk managers?
When I said treasury is the centre of activities, because treasury manage asset and liabilities; treasury manage the bank current account to CBN, treasury manage cash flow, in and out of the bank. This is because the responsibility of checking what money goes out is not treasury function. It is control.
However if everybody feels sense of responsibility and treasury have the responsibility of managing liquidity, it should know that what is going out is more than what is coming in. Then how do we manage that gap and how was that gap created, what created that gap?
You then do your due diligence, take responsibility and take a step further to assume somebody else responsibility. If the cheque of N500m or N1billion is leaving your bank, check the customer’s account, does the customer have the money in his account?
If he does have this money in his account, why is he moving the money out? You check because some customers will be highly geared to some other institutions. They move money from one institution, take facility here and pay that facility in another institution.
If the customer is funding project, and some of them will have taken money from bank A, they go to bank B and take another money to fund another project and use the same collateral. Meanwhile, the banks too should have gone extra mile to be sure in getting the documentation right.
So it is sometime dereliction of duties of these banking officers may be because of personal relationship with some customers. But if a portfolio is being stress test, there is stress testing and scenario analysis, it will go a long way to help..
First, what is this statistic made of? What is the composition of these facilities? Can it be repaid as at when due? Is it performing? If you do this test, you begin to even know before the true maturity the probability of the negative outcome, or positive outcome as the case may be.
What is scenario analysis? It is a process of analysis, possible future event by considering possible outcome. A financial institution might attempt to forecast several possible scenarios for the economy; it might further determine correlation and at times probability to the scenario.
What happens in a situation where the customer insists that he or she must move the fund?
Then you look for the relationship officer that knows the customer, escalate it to a higher level, that this person is moving this amount of money, this is the impact on our balance sheet. Another area I would want the regulators to look at is that banks examiner should conduct a stress test well ahead of time and force any troubling bank to raise capital within a stipulated time frame.
Failure to meet such timing, then such institution could then be sanctioned. Then regulators– CBN, SEC, NSE, NAICOM should come up with a policy whereby some percentage of the risk asset book or portfolio of these key financial market operators (money and market operators) should be insured.
The insurance company that will undertake this area of business should have a re-insurance company so that whenever they undertake a big ticket transaction, they can as well retrocede the proceeds of this transaction thereby transferring the risk to a re-insurance company.
However such insurance company should be made to re-capitalised in order to have enough capacity to handle such transaction.
Does the cost of fund at the disposal of banks have any link to the present crisis?
You know the major problem we have in managing cost of fund is not even from the fund itself. The underlining situation is this, when banks declare over 1 trillion balance sheet, remember that they still report to CBN that they are making there 25 per cent liquidity ratio, and if you meet 25 per cent liquidity ratio, you are telling CBN that there is a particular amount of funds in the system.
So if the ratio that you are reporting to CBN is far above what you have in real life, because that is the measurement mechanism that CBN will use to determine how much will be injected in the system. So the CBN inject money based on that and there is a data intensity problem from what you reported, if you report above what you actually have.
By the time CBN tries to meet you based on what you report, it will not address the problem because the increase in money supply will not meet the actual demand for funds in the system. So rather than interest rate to drop, interest rate will keep going high because the real situation on ground is this same bank that reported 25 per cent liquidity ratio may be have less than 10 per cent in real life.
(Source:Thisday)
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