Monday, March 09, 2020/ 09:30 AM / Firstbank / Header Image Credit: Firstbank
I
travel to meet Dr Adesola Adeduntan in Edinburgh, where he has been invited to
give a keynote address at the Edinburgh School of Business about the role of
financial institutions in driving financial inclusion. Fittingly, as you land
in Edinburgh, you are greeted by billboards from different investment funds
advertising their credentials in responsible and sustainable investment and how
environmental, social and governance (ESG) considerations underpin their
activities.
With
economists and politicians questioning capitalism and the Western liberal
model, today the emphasis is very much on a stakeholder-based approach, whereby
growth and prosperity is more equally attributed and takes into consideration
the needs of the wider community. Sustainable investment has become de rigueur
among corporate jargon.
Dr
Adesola Kazeem Adeduntan, CEO of First Bank of Nigeria, is a veteran in the
Nigerian banking and corporate world. His overriding message, clearly expressed
throughout his interview responses, and also at the various talks he gave
during the day (at the Business School and at a law firm), is on the importance
of doing good if you're to do well - financially - in Nigeria and indeed,
Africa.
A telling sign
FirstBank
is actually the oldest bank in Africa. It was established in Lagos in 1894 as
the Bank of British West Africa. Last year it celebrated its 125th anniversary.
It is also the biggest bank in Nigeria in terms of assets and branch network.
For
Adeduntan, a veterinary doctor by training, it becomes clear, once we have
settled down for our discussion, that the institution's longevity is a telling
sign: it not only proves the bank's resilience, it also shows that it has the
right structures in terms of governance and the right business model, with the
country's development at its core. The theme of the anniversary celebrations
was about how the bank has been woven into the fabric of Nigerian society.
The
clear message to the industry is that while it is possible to make a quick
buck, you can only enjoy the sort of longevity it has if you conduct your
business with the interests of the country at heart.
Nonetheless,
it's apparent Adeduntan does not want to dwell too long on past glories. Using
the analogy of a car, he says that there is a reason why the windshield is
large whilst the rear-view mirror is small.
The challenge of fintech
As
in most sectors, traditional ways of doing business have been coming under
increasing disruption from ever-evolving technology. The banking industry is no
exception and seems to be under siege from an expanding fintech onslaught.
I
ask him if he is worried that non-financial companies will be entering the
banking sector, especially given the recent change in regulation by the Central
Bank that allows non-traditional finance institutions, namely mobile operators,
to enter the fray.
He
says he is not worried as his bank has one of the best-defined strategies when
it comes to financial inclusion and that it has the largest digital banking
network in Nigeria.
Much
of this has been developed through the bank's FirstMonie Agents system: 46,000
agents represent the bank across the country. Currently, 9m customers transact
on their USSD platform (by mobile phone, both smart and analogue) in addition
to 3m customers transacting on the FirstMobile platform.
The
agent network, the biggest of its kind in the country, enables the bank to
provide services to the most remote rural communities; and because it doesn't
need to have an extensive branch network, it means that these services can be
supplied at a fraction of the cost of a 'legacy' banking model.
Financial deepening
Adeduntan
prefers to use the phrase 'financial deepening' when talking about the
unbanked. Financial inclusion has increased from the low 20s to approximately
40% in Nigeria over the past seven years and is expected to double to the
mid-80s within the next five years.
He
says 'financial deepening' occurs when financial inclusion starts playing an
important role in economic development. It's about layering additional products
on the current agency banking network - services such as micro-credit,
micro-insurance and micro-pension.
The
aim is to provide value-added services whilst at the same time increasing the
savings rate; this aspect, which is critical in driving investment rates, has
been one factor behind Asia's rapid growth.
It
is in this area, he says, that the bank has a vital role to play and a distinct
advantage over new entrants. Technology, he emphasises, will play a crucial
part in broadening financial inclusion. In addition, it is important to partner
and collaborate with different stakeholders such as NGOs and other
organisations dealing with the bottom of the pyramid, to help them reach out to
different groups and also improve financial literacy.
Last
year saw a boom in venture capital investment into Nigeria. For example, $400m
was invested in a number of fintech start-ups during November alone. Is he not
worried that these fintech players, with their lower cost base and ability to
use technology, AI and big data to overcome traditional hurdles, are going to
take the majority share of the pie when it comes to servicing the unbanked?
He
says that will only be the case if the banks do not manage to reinvent
themselves. In Edinburgh, he actually spent a large part of his day visiting
tech hubs around the university in the city and speaking to fintech companies.
FirstBank, he adds, has a number of partnerships with fintechs as well as its
own Digital Laboratory developing new solutions for the bank.
Nevertheless,
he firmly believes that the 'legacy banks' will still continue to play a very
central role, especially "in this part of the world where banks are quite
dominant and they have significant buying power".
In
terms of settlements and deposits, he sees many of these new players as partners
they can work with, even if in some areas they will be competitors.
Scope for growth
Despite
the impressive strides made by the banking sector in Nigeria, Adeduntan
believes there is still a massive scope for growth for the sector. He points
out that none of the country's top banks have made the Top 10 Banks in Africa
list, despite Nigeria being the continent's largest economy.
He
thinks that with the signing of the African Continental Free Trade Agreement, "we are entering a very interesting period for the banking sector, not only in
Nigeria but Africa in general".
On
the domestic front, does he expect further consolidation? "Within certain
thresholds," he answers. "Anything that would allow the strengthening of the
entire banking sector, I am sure the Governor of the Central Bank would be
positive about."
He
also points to demographics and the high rate of the unbanked as great
opportunities for the growth of the sector continentally. "According to UNICEF,
two billion babies will be born in Africa in the next 30 years," he says. "And
in places like DRC [where FirstBank has a presence] financial penetration is as
low as 5%." Put the two sets of figures together and, in theory at least, you
get vast opportunity. But he adds the all-important caveat that demographics
are only good if managed properly.
Supporting national champions
It
hasn't all been plain sailing for the bank, however. Adeduntan inherited a bank
with several large exposures in the oil & gas and energy sectors, at a time
when the oil & gas prices fell considerably, resulting in the devaluation
of the naira against the dollar.
He
says his management weathered the storm, reduced NPL levels to under double
digits, and has strengthened the risk infrastructure, thus enabling the bank to
better deal with cyclical downturns in future.
Discussing
the role of large companies in the commercial landscape, Adeduntan says it is
essential to have big banks like FirstBank, just as it is vital to have
national champion companies that have the scale and wherewithal to make
transformative investment. Such companies require financial institutions of
similar scale to support them. The Dangote Group's investment into what will
become the continent's largest oil refinery is a case in point, he adds.
Role of the Central Bank
We
move on to the regulator and the role of the Central Bank. Does he think that
it is too interventionist, dictating how much banks should lend, where they
should place their assets?
Adeduntan
refused to be drawn into criticism of the regulator, with whom he says he, and
other bank CEOs, have a strong relationship. But he did say that the role of a
central bank in the development of an emerging economy is clearly different
from the role of a central bank in a developed economy.
"It
is not unusual that the Central Bank intervenes in critical sectors allied to
the loan to deposit ratio. It's about economic growth; it's about
development; it's about channelling credit in sectors that are very important
for the national economy.
"Let
us take agriculture - again, we are one of the biggest lenders into that
sector. We found the Central Bank intervention in some of those critical
sectors extremely useful and not just for us as a bank, but for the country as
a whole. When you look at intervention in agriculture, you have to put it in
the context of the size of the population. Nigeria is a country of 200m people
today. The business of feeding 200m people is a strategic business. Everything
that is being done to ensure that at least we are self-sufficient in food
production is strategically important. We find the Central Bank intervention in
those areas quite useful and of national importance."
He
reflected the positive attitude of many Nigerian entrepreneurs to the country's
future. He says he has a lot of time for the Economic Advisory Council - composed of credible business leaders and economists - that has been put
together by President Muhammadu Buhari. And despite reports that the government
is not economy-minded, he thinks that it is a pro-business government.
Ethical banking
It
is nearly 10.00 in the evening when we finish our talk, his day having started
at 07.30am. We go back to sustainability and the role of financial services to
make sure they are lending to institutions that are ethical about their
business and operating in a sustainable manner.
He
says that the journey has started even if it is still early days. "But
ultimately," he says, "this is where we are headed. The Nigerian Sustainable
Banking Principle speaks to this particular question. I think it's evident from
the points that I've made today, you can say that FirstBank is a bank that is
happy to forego a few basis points in terms of its net margins, if that means
it is contributing to development in a more ethical and sustainable way.
"We've
always made a point that profitability is very important for us at FirstBank,
but economic growth and national development is equally very important and
speaks to the sustainability question."
Culled from
African Banker
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