The 2016 and first quarter 2017 operating results of FirstBank Limited affirmed the bank’s number one position in terms of earnings. But the results also show that the bank is lagging in other performance indices like profitability and non-performing loans. Managing Director/Chief Executive, First Bank Limited, Dr. Adesola Adedutan, in this interview discusses efforts to reposition the bank through digital banking and other measures that will ultimately reduce impairments and boost profitability.
FIRST Bank despite improved topline performance seems to be underperforming its peers especially in terms having lower valuation, higher cost and market capitalization. What are your plans to change this story?
When I resumed duty on the 1st of January 2016, during my first set of interviews with journalists, I mentioned that we will be embarking on ambitious transformation projects. We need to understand that this is a 124 year old institution and the age of the institution is an asset, but if not properly managed, could be a liability. Our focus is on mining this Iconic brand positively to work for us, while making necessary changes that enhance the profitability and the agility of the institution.
Looking at the result that came out 31st December 2016, it is in line with our expectation in terms of our transformation.
We are fully committed to building the business, which is why the top line continues to grow. Firstbank recorded the industry highest topline in 2016. Given the background of the current leadership of the institution, part of our commitment is to be proactive in dealing with the challenged asset portfolio.
We would not shy away from taking the right decisions in terms of remediation, recovery and impairment (RRI). What that means is that, whenever we need to take provision, we would take provision in line with accounting standards and CBN requirements, but we will chase the debtors in terms of recovery, or if we think we can still remediate, we would do so.
That is why our performance metrics over the next couple of years is pre-provision operating profit. And as you can see from our 2016 audited account which shows the profitability of our franchise. For our current set of leaders, we want to be measured based on profit before we charge provision on bad loan. That is important because it describes your continued business. That is what measures the ability of the business to generate internal capital and cash flow for the business.
The impairment that was seen in 2015, 2016 and may probably be seen in one or two years to come- depending on how successful we are with the remediation and recovery initiatives- are a product of past business decisions and we are committed to achieve remediation and reposition the Institution for growth and performance.
We are walking towards a situation where, when we complete our current strategic cycle which is 2017-2019, we would have brought the NPL within the CBN’s approved threshold.
Enhancing risk management
To cap it, we have our strategy which we are executing conscientiously, which is focused on delivering significant value to stakeholders, significantly enhancing our risk management and control capabilities, which is credit, operational and other type of risk.
The strategy is focused on significantly growing our customer base. We plan on having minimum of 30 million customer accounts over the next 3 years. We are currently at about 14 million customer accounts. Our commitment is that, given the number of branches that we already have, which is slightly below 750, we don’t intend to make additional significant investments in building new branches.
So, we are left with aggressive digital marketing initiatives, which means, migrating our existing and new customers to alternative channels. Internet banking with Firstonline, mobile banking with our FirstMobile app, the USSD banking *894 and through our over 2700 ATM platforms.
That is the way forward for us and we are making significant progress already. Based on the figures of the last quarter of 2016, 47% of the transaction volumes carried out by our customers was done via alternative channels. We aim at increasing this figure to 70% by 31st of December 2019. This will be very significant because that’s when we plan on achieving the 30million customer accounts. This is where we are going to unlock value, grow customer base and offer customers the right products. Even within the digital space we have products that are being targeted at the different income level. People who transfer in millions, thousands and hundreds will use FirstOnline, FirstMobile and USSD codes respectively.
One other critical thing that we are working on in terms of running the business is on Agency banking, and that for us speaks volume about who we are. We are FirstBank. We have been here. We have seen it all. And we have been able to play not just for profitability, but also more about economic growth and human development. Of course, profitability is very important to us and for our stakeholders, but economic growth and development is also as much important in line with our heritage as the national icon and an institution that is embedded in economic growth and national development.. So financial inclusion is very paramount to us and agency banking is one platform that we feel can enhance that. We think, our current geographical spread affords us significant platform to build a successful agency banking business.
Speaking specifically to your question, we have the required strategy and we are doing what we need to do. To correct that impression that we are underperforming compared with peers, we have the second best Cost-to -Income ratio in the market. The number you have on your mind belongs to the FirstBank of old.
The FirstBank that we have now is where we push the revenue envelope upwards even as the cost and NPL envelope are pushed downwards. We achieve the equations, the value/ net earnings that accrue to all the stakeholders including government because at the PBT level, that is when the allocation of value generated to stakeholders come in. i.e. government through tax, shareholders through dividend. A profitable institution not only works in the interest of shareholders but also government.
There have been series of projections that the economy will recover from recession this year. What are your business interactions telling you about the state of the economy?
More importantly, this general optimism is underpinned on the positive recovery in the price of crude oil. If you recall, that was what triggered the recession in the first place. The price of crude in 2015 went as low as $27 per barrel. Since the commencement of this year it has fluctuated somewhere around $55 per barrel. That is double the price it was in 2016.
Equally, the government has been able to restore peace in the Niger Delta region, thus, the volume of production has increased. This general sense of optimism is created because the country rose stoutly in 2015 to face a number of challenges and though, there are still a number of economic issues we have todeal with today. However, the kind of progress that was made in agriculture in 2015-2016 is precedent. Today, more that 50% of the rice consumed in Nigeria are grown locally.
There are various ongoing initiatives around agriculture. Our bank, FirstBank, held an agricultural fair earlier on in the year that was well attended. The Minister of Agriculture was there and he shared with the audience, the government plan around re -vitalisation of agriculture. So when we say there is optimism, it is based on a number of positive things, such as the oil price rebound, relative peace in Niger Delta Region and the significant push in Agriculture.
When you cannot feed yourself as a country, it is a problem. A significant chunk of our income bill relays to the importation of food items. Hence, once we can grow our own food (even if not 100%). Two things happen; the Minister of Agriculture asserted that for every shipload of rice that the country imports, we put about 15,000 jobs at risk.
State of the economy.
This gives us an idea of how much value has moved out of our economy. That is why for me, there is this sense that we are finally doing what needs to be done. We must be able to feed ourselves as a nation. We have arable land, manpower, just imagine the number of people that studied agricultural related subjects; animal science, crop science, soil science etc. We need to make these things work together. A number of agricultural scheme are set up by the CBN, Bank of Industry, Bank of Agriculture and commercial banks. So the necessary capital is there. When we focus our attention on things like these, it would save us foreign exchange, create jobs, and ensure food security.
The banking sector is a sub-set of the economy, thus if the economy is challenged, the sector faces challenges, if the economy is growing, the banking sector grows. As I said, there is a general sense of optimism, thus, we expect the sector. Overall, I expect the sector to mirror the state of the economy. If the economy grows, the sector will grow as well, and vice versa.
From where I sit today, what we see is a general optimism across various segments. Also, if you notice what the CBN has done over the last five months, it has injected a significant amount of forex (foreign exchange) liquidity into the market to support the economic growth. So, when we say there is a general optimism that is where it is coming from.
Is the recent positive performance of the stock driven by this optimism or the good Q1 results posted by listed companies? Also is the positive performance sustainable over the rest of the year?
You have to situate the performance of the stock market with the overall economy. The stock market is a good barometer to measure the outlook. If the economy does well, it would. If the positive economic trend remains, thus, the subsequent quarter results remains positive, then it should impact positively on the stock market.
Don’t forget that what drives a stock market is not just the performance of the individual companies that are listed. There are other externalities that affect the performance. If you hold those externalities constant, then you will have a positive correlation.
The Vice president recently called on banks to support its economic recovery and growth plan, the ERGP. What roles can banks play in the implementation of the plan?
Banking sector is a significant part of the economy. With this kind of plan by the government, it is the responsibility of the banks to look at it and say, where can I function? I will give you a good example, Two to four years ago, the government decided to increase the level of participation of Nigerians in the oil sector, the banks stepped forward.
Banks like FirstBank step forward with our balance sheet to provide finance to emerging Nigeria oil and gas companies. Today, we have the likes of Seplat, Sahara Energy, Aiteo. That was a specific government initiative that the banks supported.
Also, years ago, when the government decided to privatize the power asset, the bulk of the finance was provided by Nigerian banks. So, Nigerian banks have actually never shied away from providing financial support for government initiatives once there is proper clarity.
It is our country. The bigger the GDP, the bigger the opportunities available for banks to grow. That is where the alignments are between what the government is doing and the opportunities available for us.
Credit: All Africa