BY OKEY ONYENWEAKU
Obviously, this is not the best of times to find yourself atop any financial institution. And your problems would definitely be compounded if your location is in Nigeria where there is a clear lack of structured economic direction. This is also because of the devastating effects of the head and tail winds orchestrated by the COVID-19 pandemic. And as the days go by, it is clear that it is not only humans that are catching cold this period. Banks are also struggling. But these turbulent times also seem to coincide with Mr. Emeka Okonkwo’s turn to steer the leadership wheels of the century-old Union Bank of Nigeria.
In fact, it appears as if the Union Bank board seems to know how and where to go for its leadership at any point in time. For strategic reasons best known to the bank, its board has now, for two consecutive times, picked its helmsmen from the pool of former staffers at Citi bank, an international bank in every respect.
Of course, that inclination may have paid off very well in the past. After all, the immediate past Managing Director of the Mr. Emeka Emuwa left remarkable achievements behind as he took his exit, including a viable, strong, reliable and profitable financial institution which paid dividends at least once to its previously harangued shareholders.
After a half century dominating the local banking system up until the mid-1980’s, the bank had fallen on inchoate times and gradually seen its relative market perch disappear. Nevertheless, in the last few years, the institution regained lost vigour and begun to sprint at an impressive pace with gross earnings and operating margins growing aggressively.
In an era of recession where it has been difficult for businesses to continue to exist as going concerns, UBN has bucked common boardroom trends by showing a capacity to take on the vigours of turning in strong quarterly performances. This has been despite a national GDP that has plunged into recession and recorded a -3.1 per cent showing in the third quarter of 2020.
Nevertheless, despite the persistent plunge in the economy, the bank has been able to gallop through the tides with a strong third quarter showing in profit. The bank under the leadership of Emeka Emuwa, grew its profit before tax by 174.2 per cent from N9.060billion in 2012 to N24.844billion in 2019. Its profit after tax also grew by 230 per cent from N7.375billion in 2012 to N24.366billion in 2019. In the same period, Total Assets grew 81 per cent from N1.033trillion in 2012 to N1872trillion in 2019.
In addition to these, Union Bank improved its profit before tax by ₦15.9billion in the first nine months of the year, compared with ₦15.5billion it made in the corresponding period in 2019. However, its post-tax profit dipped marginally 0.81% to ₦15.07 in Q3 2020.
The bank equally grew its gross earnings by 6% to ₦118.8bn (from ₦111.9bn in 9M 2019), driven by an increase in earning assets, while interest income went up marginally 1% to ₦85.4billion (from ₦84.9bn in 9M 2019).
Also, non-interest income rose 23% to ₦33.4bn instead of ₦27.1bn made in Q3 2019), supported by increased trading income and asset revaluation gains as net operating income increased 1% to ₦69.3bn (from ₦68.7bn in 9M 2019).
Meanwhile, operating expenses were flat at ₦53.4bn (from ₦53.2bn in 9M 2019), despite currency depreciation, inflationary pressures and unplanned Covid-19 related expenses.
The bank’s gross loans increased by 14% to ₦678.0billion (from ₦595.3bn in Dec 2019), while customer deposits went up 28% to ₦1.1trillion (from ₦886.3bn in Dec 2019).
Its Cost to Income Ratio (CIR) weakened by 1.2% to 77.1%, while Return on Average Equity (RoAE) and Return on Assets (ROA) stood at 8.6% and 1.1% during this period.
Indeed, Union Bank improved its profit before tax by ₦15.9billion in the first nine months of the year, compared with ₦15.5billion it made in the corresponding period in 2019, due its post-tax profit dipped marginally 0.81% to ₦15.07 in Q3 2020.
It grew gross earnings by 6% to ₦118.8bn (from ₦111.9bn in 9M 2019), driven by an increase in earning assets, while interest income went up marginally 1% to ₦85.4billion (from ₦84.9bn in 9M 2019).
Also, non-interest income rose 23% to ₦33.4bn instead of ₦27.1bn made in Q3 2019), supported by increased trading income and asset revaluation gains as net operating income increased 1% to ₦69.3bn (from ₦68.7bn in 9M 2019).
Meanwhile, operating expenses were flat at ₦53.4bn (from ₦53.2bn in 9M 2019), despite currency depreciation, inflationary pressures and unplanned Covid-19 related expenses.
The bank’s gross loans increased by 14% to ₦678.0billion (from ₦595.3bn in Dec 2019), while customer deposits went up 28% to ₦1.1trillion (from ₦886.3bn in Dec 2019).
Its Cost to Income Ratio (CIR) weakened by 1.2% to 77.1%, while Return on Average Equity (RoAE) and Return on Assets (ROA) stood at 8.6% and 1.1% during this period.
Commenting on the results, the then CEO, Emeka Emuwa said: “We reached a major milestone as our customer deposits crossed the ₦1 trillion mark this quarter, growing by 28% to ₦1.1 trillion compared to ₦886.3 billion at the end of 2019. This reflects increasing customer loyalty and our intense retail drive. Our customer acquisition strategy has been reinforced by the versatility of our digital platforms and channels which continue to drive customer satisfaction.
“The civil unrest which erupted in October and led to a significant destruction of property and small businesses across the country will have a real impact on business and the operating environment; and even as restrictions have eased, Covid-19 also remains a present threat in our day to day operations.
“Heading into the final stretch in 2020, our overarching commitment is to the health and wellbeing of our employees and the safety of our customers. Showing up for our communities is also at the core of who we are and therefore we will work with our partners and through our corporate citizenship initiatives to support individuals, businesses and our communities where we operate as we begin to rebuild and heal as a country.”
Chief Financial Officer, Joe Mbulu said: “Our operating expenses were relatively flat year-on-year at ₦53.4 billion, compared to ₦53.2 billion in 9M 2019 despite inflationary pressures on cost and higher regulatory costs. This reflects continuing to focus on cost management.
“Our asset quality continues to improve with Non-Performing Loans (NPLs) down to 3.6% from 5.8% as at December 2019, supported by ongoing efforts to diversify our loan book to include viable businesses and households. Our Capital Adequacy Ratio remains robust at 19.5%, well above the regulatory threshold.
“With the $40 million (USD) financing secured from the International Finance Corporation for on-lending to trade finance customers, we are continuing to expand our funding engagements with DFIs to support our strategic business initiatives.
“For the rest of the year, we remain focused on our business priorities in the face of the Covid-19 challenge and will continue to leverage increasing customer loyalty, stronger digital platforms and channels as well as solid risk management structure to deliver on our objectives.”
Commenting on the future prospects ahead of the financial institution, which was also coinciding with his exit from the bank, Mr Emuwa also noted:
“I have enjoyed the significant challenge of leading Union Bank over the last eight years. I am extremely proud of the management team and what we have been able to accomplish during my time as CEO.
“Today, we have a strong bank that is well positioned to compete and deliver on its vision to be ‘Nigeria’s most trusted and reliable partner.’
” With a clear strategic direction, a growing and loyal customer base and a strong brand, this is now the natural time for the next generation of leadership to take Union Bank forward and deliver further value.”
Affirming this position, the chairman of Union Bank, Beatrice Hamza Bassey, said:
“On behalf of the Board, I would like to thank Emeka Emuwa for leading Union Bank during the last eight years. His exceptional contribution to the transformation of then business produced excellent results and set a solid platform for growth.
“The focus over the last eight years on technology transformation, digital innovation, and development of diverse markets for our world class range of products, has seen Union Bank well positioned to continue growing from its current position as a market disruptor.
“Amid a tough macroeconomic environment, Union Bank maintained steady operational momentum under Emeka’s leadership which in 2020 culminated in the first dividend payment to investors and shareholders in over ten years.
“His many significant achievements, including providing steady stewardship during the unprecedented challenges wrought by the COVID-19 pandemic, lays a solid springboard for the future.
“We wish him the very best and are grateful for his support and commitment to ensure a successful transition over the next few months.”
What now can Okonkwo, the new helmsman do to enhance the bank further and add fresh value in terms of building on where Mr. Emuwa had left off?
These are very tough times for most businesses all over the world including banks. This notwithstanding, Mr. Okonkwo is expected to perform near magic at a time the economy is not able to support businesses adequately. Banks currently are operating under very challenging times because of economic wide dislocations caused by Covid -19. There have been shut downs, which is still strictly on in the western countries like Uk, Europe and the Americas thereby disrupting the flow of businesses, funds, supplies, logistics among other related items like UK. That has also been responsible for the weak economy, challenges of rampant inflation and dwindling access to foreign exchange, loans are becoming delinquent, profits are shrinking and there are threats of insolvency hovering in the winds. The CBN’s low interest rate regime is also not healthy for the banks as reduced income and low profitability have followed. The Country is now experiencing stagflation as a result. Banks are facing serious of crisis which includes insecurity which has forced them not only to close some of their branches in the far Northern Nigeria, movement are now restricted as both bank staffers and customers fear for their lives. Remittances have dropped, the price of crude, though a little up now keeps fluctuating, shrinking incomes, high unemployment and biting poverty have all conspired to keep the economy down and by extension the banks. The government in indebted to the tune of N32trillion while still planning to borrow about N6trillion to make up for the budget short fall in 2021.
The above scenario is really scary for a new Managing Director of a bank which is still on a recovery trajectory. However, analysts have expressed confidence in Mr. Emeka Okonkwo who also played a huge role in supporting Mr. Emuwa’s successes.
Notably, Okonkwo is a seasoned banker with 30 years of experience.
He joined Union Bank in 2013 as an Executive Director to lead the Corporate Banking and Treasury business. As the bank embarked on its transformation, he was responsible for rebuilding the business and strategically positioning Union Bank for success in the Corporate Banking space.
Okonkwo began his career at Citibank Nigeria where he rose from officer level to become Executive Director in charge of Commercial Banking and Global Subsidiaries in 2009. At Citibank, he worked across various disciplines including Corporate Finance, Credit Risk Management, Marketing, Treasury and Strategic Management in Nigeria and London.
Prior to joining Union Bank, he was the Head of the Corporate and Investment Banking Division in Citibank Bangladesh.
Emeka Okonkwo has a bachelor’s degree in Civil Engineering from the University of Nigeria, Nsukka; an MSc in Construction Management from the University of Lagos and an MBA from Warwick Business School, UK.
In her comment, Union Bank’s Chair, Beatrice Hamza Bassey, said the Board was pleased to have Okonkwo as incoming CEO, noting that having been a key contributor to the achievements of the bank over the past seven years as an Executive Director, Okonkwo was well suited to lead Union Bank’s next phase of growth.
“The Board and I look forward to working with him to execute our strategy and deliver value to all stakeholders in the years ahead.” She said.
This is a serious testimony that Okonkwo has got not only the paper qualification but also the experience to take Union Bank to a higher pedestal as well as regain its lost market share.
Market analysts have opined that Mr. Okonkwo should consider doing a sustainable campaign (could be a road show) to regain the confidence of investors, depositors and other customers.
Many also believe there is room for him to retool his processes, lead the organization to embrace technology much faster, do aggressive marketing and enhance in-house capacity. Union Bank was in stiff competition with First Bank in the years gone by and indeed, sometimes surpassed First Bank in some measurement indicators. After the set back it suffered during the global melt down and financial crisis which followed, Union Bank has barely survived. The bank had posted losses as well as experienced turbulence which forced the change of management and ownership. But that is over now and the bank is now on a strong recovery trajectory and has become more competitive. Emeka Okonkwo as helmsman is expected to consolidate on what Emeka Emuwa has built and continue to reposition the bank in the industry.
To do this, industry watchers say that he is expected to consider the following among other factors:
A.Research shows that even the government is at this time very interested in the growth of SME’s. There is a consensus that any bank that wants to succeed must play strong in SME’s but must remain effective in developing, supporting, nurturing SME’s. The lender should sustain its vigour in SME’s and seek ways to deepen its activities in that sector.
B.Many analysts believe that Union Bank should diversify further and stronger into Oil and Gas, infrastructure development and real estate in order to increase areas of income stream. Spreading its tentacles will help the bank evade the unstable policies of the government and the weak economy which is threatening many businesses. Also think of diversifying out of the most volatile areas.
C. Creating risk assets is one of the major planks through which banks make most of their profit. Union bank is on good track here having grown its loan book. However, the new team is expected to sustain the tempo while seeking better and more viable sectors to expand and extend credit facilities to.
D. There should more aggression on the part of the bank to fit in the league of the first top three or four banks in Nigeria. Being number six as it is today is not bad but the new management’s target should be to edge up.
E. Union Bank must try to play strong in its digital strategy that had already enabled it to achieve a high per cent of its total transactions with it. The new management should insist on improving on this to also help save on cost of operations.
F. Experts say the leading banks in the world today are Holding Companies. This is because the holding company structures help firms not only to protect their assets, cut cost but also reduce risks. The holding company structure also creates room for banking organisations to compete with neo-emergent and nimbler fintechs and explore other new opportunities. Union Bank needs to consider the holdco opportunity to avoid operating within a narrow scope and have what may look like a one stop shop solution. In addition, the holdco structure will enable the bank diversify into areas like fintech, assurance and capital market operations.
G. Union Bank’s new management team must be ready to continue to build the capacity of its work force and train them to recognize the advantages in the new normal.
H. Union Bank should expand to African Countries to part take in the market and opportunities that abound given Africa’s population. This will also help the bank to take advantage of the AFCFTA scheme which has already kicked off.
I. Keeping its staff safe to be able to deliver better on services to its teeming customers.
The bank’s momentum is strongly up beat again after the setback it experienced when it almost became distressed a few years back.
After the 2009 CBN intervention, the bank emerged from the burden of toxic assets, poor governance as well as weak leadership etc. and began to chart a new and straight path to profitability devoid of funfair. The bank’s new brand exudes energy which reflects the ability of some of the individuals’ skills sets working with Mr. Emuwa.
In every respect, the bank’s strategic direction has been refined, and the brand revitalized but it has to contend with harsh economic environment and the tough rivalry in the industry.
“Union Bank’s restructuring, rebranding and reconnecting to the market has started yielding result. Good result for that matter! The bank’s leadership effort to re-focus was done professionally, no noise but the statement is clear to stakeholders”; analysts told Business Hallmark. The stallion has become lighter, and it could fly as well as run.
