By JULIUS ALAGBE
As Mr Segun Agbaje, the Group Managing Director and Chief Executive Officer of Guaranty Trust Bank Plc, embark on the final year of the mandatory 10-year tenure for bank chief executives, indications have emerged that he may be moving into a new and higher role in the financial institution. Speculations had been rife over his future as he completes his tour of duty in 2021, by which time he is expected to step down.
Under the reform programme of the Central Bank of Nigeria, CBN in 2010, introduced by the then governor, Mallam Lamido Sanusi, banks’ CEOs were allowed to serve a maximum of 10 years. It was this provision of the reform that led to the exit of people like Mr Jim Ovia, Tony Elumelu, and others. Before the reform bank CEOs enjoyed unlimited tenure, and this according to the CBN, engendered poor corporate governance practices, which endanger banks.
The new role is expected to follow the restructuring of the bank along with a holding company structure or format, which has become the growing fashion in the industry. Already three other banks have Holdco structure; these are First Bank, Stanbic IBTC, and FCMB. Experts say that this may be the new trend for banks to circumvent the regulatory mandate on the tenure of CEOs to enable them to continue to tap the human resources available to them in the emerging environment of fierce competition.
Just 46 year old, many people had wondered about the rationale for such a regulatory provision, which could force such young and promising talents to exit the industry with the attendant impact on capacity. But it seems the board of the financial behemoth has also anticipated this development and unintended consequences on the brand and its future performance.
Mr Agbaje himself gave credence to this view when he addressed a conference of investors and analysts, by insisting that the bank is forward-looking and had anticipated the issues and already planned for them.
“About 10 years ago, we made a decision then looking at the operating environment that we were going to shed all our subsidiaries and become completely bank-focused”, he said, “but if you look at the competitive landscape, what the Fintechs, Telcos, asset management companies, insurance companies are doing in the financial space, we are reconsidering our strategies as an organization and with the approval of the board; it is time to consider a holding company structure”.
With the Holdco, GTBank plans to have an insurance, assets management and Pension Fund Administration companies as subsidiaries. Though the bank’s chief reiterated that this is subject to approvals, he was definite of the new strategies as the way for the future to optimise the human resources and capacities in the bank and consolidate its competitive edge.
“If you look at what’s happening in the PFA space (pension fund administrators), volumes are growing every day, so we have to capitalise on it and leverage on our strength”.
Meanwhile, on the Group succession plan, Agbaje said his answer will never change, because it is the board’s decision but he can only speak on his own role, and not on his successor.
“We have five executive directors. Our belief as a Board and as an organization is that any of those five is capable of doing the job going into the future. From an organizational perspective, if we’re down to five executive directors who can do the job, we actually think we’re in a very comfortable place”, the CEO said.
In his reaction to analysts question about his future plan after schedule tenure expiration in June 2021, Agbaje said he may move up into Holding company role.
“What is in the future for me, maybe part of what will be in the future for me is to move up into our Holdco role. But this is all subject to a lot of approvals”, he added.
With the development in the economy, Agbaje anticipates a tough regulatory environment.
Reacting to a potential devaluation of naira and impacts on the bank capital adequacy, Agbaje said there has to be massive devaluation for GTB’s CAR to be affected.
“We don’t think a devaluation at least where we sit today; there will have to be massive devaluation for our capital to be affected”, he said. if you look at the CBN transition arrangement we’re 25.6% capital adequacy. Now even if you take strict capital adequacy without the CBN transition, we are at 22%”.
Agbaje said GTB is making money every month and every quarter.
“So just like even when there was 50% devaluation, our capital adequacy didn’t suffer even at 50% devaluation, I think, we’ll be fine”, he added.
On the Group’s performance, he said if you look at our pre-tax forecast, we’ve only gone from N231 billion to N235 billion. He said GTBank expects this to be a very challenging year.
“If you look at what we’ve done to our net interest margin (NIM), we dropped from 9.2% to 8%. NIM compressed because we plan to get to 65%. To get to 65%, you’ve had to lower the price of your loans. We brought down asset yields a bit by bringing down our loan pricing “, the CEO explained.
Meanwhile, in 2019, GTBank said it did N29 billion write-offs which settled its non-performing loan book down to N68 billion. At the bank’s level, the lender said it is going to play volume game and it is ready for price war on loans to increase market share.
“We are going to go for market share. We are ready to go into a price war for quality loans, and we have started to do that. So we believe that we will grow our loan book”, the CEO said.
He said GTB’s regional book is trending up nicely as well. So, the management will continue to push that.
“if you look at our subsidiaries, they are doing better, especially Ghana where subsidiaries today added 15% to profit”, he said. “This year, we are going to focus a bit more aggressively on expense and cost containment. I think that if you take the interplay of all that, you’ll see what is driving us this year”, he added.
Agbaje said to gain more volume, GTB will be ready to sacrifice some of the margins but arrive at the same place.
“With the growth, we see on the balance sheet, I think we’ve been at least realistic about what it will translate to in PBT growth. That’s how we intend to drive our balance sheet this year. Obviously, we are focusing, as we’ve always done on low-cost liabilities, which is why we’re at about 85-15 ratio”, the GMD stated.
“To grow the balance sheet, I think the T-bill game has gone. You can probably do a little bit of open market operation (OMO), nothing aggressive, but you can still grow your loan book. For the first half of the year, we’ll look at loan growth. I think the key thing is to be very agile. From a strategy perspective, be ready to change very quickly as opportunities present themselves or headwinds appear”, Agbaje stated.
He said if macroeconomic developments continue, GTB really have to look at its asset quality. On non-performing loan distribution, he said: “If you look at our loan book, we’re about 19% manufacturing, and then the next thing apart from the oil and gas book is then retail at about 11%”.
On government and telecoms at about 5% Agbaje said GTB loan book is quite insulated, about 74% wholesale, which is high-end. He stressed that this doesn’t mean that one high-end loan can’t catch a cold. So in terms of NPLs, GTBank is at a very comfortable place.
He stated that the bank’s NPLs to total loans is about 6.5% because of its quite aggressive classification. While speaking on the retail book, he said the first thing is that the bank doesn’t have real concerns around the retail book because it was built around salary advances.
“One thing to worry about is that people start to lose their jobs, they’ll come under some pressure. But I really don’t see us going above 5%, 6% in terms of NPLs even with people losing their jobs”, Agbaje told analysts.
Assessing the retail performance, Agbaje said they started this thing very aggressively eight years ago.
“It’s like a well-oiled machine now, where the different things we’re doing in terms of the acquisition. We’ve built it into our DNA. So what a lot of banks are just trying to get comfortable within the last two years, we have learned how to do over eight years, and we have a nice momentum”, the CEO said.
Agbaje downplayed agency banking, stating that he doesn’t believe the answer to uptick performance lies there.
“I don’t believe that agency banking is where the answer lies. Agency bank is just a cheaper way of bricks-and-mortar. I think the Fintechs are beating the banks in building platforms that are quicker, faster, and cheaper and are friendlier, he highlighted.