(Interview) First Bank: The elephant begins to dance

When IBM’s erstwhile chief executive officer, Louis Gerstner, asked whether elephants could dance he may well have been referring to First Bank of Nigeria Plc, which saw its earnings per share plummet by 83 per cent between 2014 and 2016. For most investors, this was a time to bail out of the stock. But since the beginning of 2017 the financial holding company (Holdco) has seen its share price rise 106 per cent from N3.00 per share in January 2017 to 7.35 per share in June. According to First Bank of Nigeria’s Managing Director Adesola Adeduntan, ‘I can ‘t say much about whether IBM or Big Blue can dance or not, but this elephant called First Bank cannot only dance but it can also run’.

Not many people will doubt this as the banks emerging financial performance in both the first and second quarter of the year show signs of a renascent financial giant. In an exclusive interview with senior reporters of Business Hallmark newspaper the banks chief executive officer lays out the banks future plans and why FBN will reassert its industry dominance in less time than many think.  

Few people envied Dr Adesola Adeduntan when he took control of the helms of affairs at First Bank of Nigeria (FBN) as Managing Director in 2015. He was coming in at a time the bank was rubbing the fiscal authorities the wrong way, as a result of a series of fiscal payment defaults. Added to this, the bank was heavily exposed to the oil and gas sector that had begun to implode, and was dripping in red ink causing the bank to make staggering impairment provisions to keep its books ‘clean’. In this interview with Hallmark’s team of Prince Emeka Obasi, Teslim Shitta-Bey and Okey Onyemweaku, Adedutan expresses his optimism about the future of the Nigerian economy and the bank despite the recent challenges confronting both.  

What is your short-term and long-term projection for the economy and how would this impact the banking industry?

Since the beginning of this year, we have observed (and we are a key part of this whole economic structure) a general positive outlook, there is a general pervasive feeling on the part of all key economic operators in the various markets. In Economics, there is theory of expectation. If you expect something to happen, it usually does (perhaps a self-fulfilling prophesy). So, if people have the expectation that tomorrow will be good, then, they begin to take investment decisions today and that begin to spur interest and confidence in the economy. What was lacking in 2016 was a lack of confidence in the economy.

Are you reading that optimism now?

Yes! We have seen it; we have seen it play out, and every passing day, we have seen the state of economy gradually improving. Two things have happened that have helped. One, In the course of 2016, the price of crude oil dropped significantly to below $30 per barrel from a high of $114 per barrel in 2014. That negatively impacted the foreign currency inflow into the country, and because the economy remained largely import-dependent, it impacted adversely on the economy. Don’t forget oil contributes below 15 percent of the GDP; however, it is over 80 percent responsible for the foreign exchange receipt into the economy.

The fact that oil has stabilized around $50 per barrel has helped. Equally very important is the fact that the current government has worked to ensure relative stability in the Niger-Delta. Two things, determine what comes to you: The price at which you are selling, and the volume you are selling. These are the two things that impact what we get from oil. Both would need recovery. Price has recovered a little bit; it has been hovering between $52 and $57 per barrel.  The volume has also gone up. The government has also articulated the Economic Recovery and Growth Plan, and that has given a sense of the direction the government is moving. Coincidentally, this time yesterday (June 8) I was at the officer of the Minister for Finance, and part of the assurances she gave was that when we faced the kind of tough challenge that we faced towards the end of 2015, and the whole of 2016, one of the areas we have made significant progress as a country has been in terms of feeding ourselves, which is going back to agriculture. So, we made those very difficult decisions, and people went back to tilling the soil, especially in the northern part of the country. There is a major agricultural revolution.

In the North,  First Bank organised an agric expo in the earlier part of the year, because we saw that trend and said we must not reverse no matter how high the prices of crude oil bounce back to. Even it goes back to $100, it is important we don’t reverse the gain. So, today, we are producing rice significantly. In fact, I even read in the dailies that non-oil export proceeds grew by about 82 percent quarter-on-quarter. For the first time, it seems we are exceeding the import bill for food. We are also beginning to export the excess. What is also going on, based on the impact of devaluation, is growing activity by farm people who live around the border. Though devaluation is seen as contributing to inflation, it has encouraged export. For instance, if I produce cassava and the price of cassava internationally is $10, when the exchange is at N200, my $10 comes to N2000, but at N350 or N310, the same $10 is over N3000. So, as a farmer, rather sell it in the local market, I will prefer to sell it abroad.

A number of critical decisions were made that were quite painful, but they were painful decisions that were needed to move the economy forward. It is important that as things are easing up, we don’t go back to the period referred to by like the Minister for Agric when we used to import a ship load of rice every week. The last population figure put us at about 197 million people, so, the business of feeding ourselves is a massive business on its own. If you estimate that the cost of feeding everybody is N100 a day, it means you multiply 200 million people by N100 by 365 days that is humongous! The key thing is that we need to commercialize agric, accelerate the process of commercialization of agric such that we can put more and more people into the sector. But equally very important, is making available to the farmers improved seeds, pest and disease- resistant variety of seeds, storage facilities and a way to buy it off them such that during the period of excess production, which is what usually happens; half of our produce in this country get spoilt between when they are produced and sold. If we sort out feeding ourselves, which I believed 2016 gave us a good platform to review the way we import food. Then, we are on the way to solving our problems.

The big elephant in the shop is still crude oil and there is uncertainty around it. How are you preparing for this uncertainty?

You would probably remember that during the time of President Ibrahim Babaginda, and I think it re-occurred during President Abdulsallam Abubakar’s regime; oil went as low as $11 dollar per barrel. So, historically, we have seen oil go low. The critical issue is that you have to look at the mechanism around global price of crude. Part of the reasons price has relatively stabilized where it is, is because there is cooperation among the major producers, because they have discovered that fighting for market share would end up hurting everybody. So, some form of collaboration is going on there and they renewed their agreement to last another six months. I think everybody received a bloody nose when oil went as low as $27. The current managers of oil resources in the critical countries have all learnt from the 2016 debauchery and they would all do whatever is required to keep oil price where it is.

What is most critical for us as a country is not to go back from diversifying the base of the economy. Over and above feeding ourselves, what commercial agriculture would do for us as a country, is the ability for us to enhance the production of exportable crops. For example, part of the reasons price of gari has gone up is that a lot of industries both locally and abroad now require cassava either for starch or ethanol production. I am also aware that sesame seeds, cotton, cashew nuts are being exported. I know also aware that the Federal Ministry of Agric has ambitious programme around cocoa. They are planning to launch again because if you look at how much Cote d’Ivoire is making from Cocoa then you would understand why we need to re-invent ourselves as a nation around cocoa.

Look at what the Malaysians and Indonesians have also done with the palm tree. They came down to Nigeria to pick the seeds and today, Malaysia is the world’s largest producer of palm produce. I was at a conference at Insead University about four years ago, it was a banking conference around risk management. A significant number of the participants came from Malaysia and Indonesia. As at that time, the GDP of Indonesia was $1 trillion. And this was a conference that was attended mainly by CEOs and CROs of big banks.  The Indonesia delegates told us that palm produce and its ancillary businesses constitute 10 percent of the country’s GDP. What that means is the palm business which they took from us is worth about a $100 billion in their own economy, that also gives you an idea of the kind of capacity you have when you commercialize agric properly. This is just palm produce alone.

We had this conference where the Minister for Agric came to discuss with virtually everybody involved in the agric value-chain. He put his strategies and plans across. So, I am aware that their ambitious plans by the Federal Government around palm tree economy. If a country makes about USD100 billion from just palm and palm- related activities that gives you an idea that if you, get cocoa right and get another one right, then, oil would become insignificant in the scheme of things.

How do we move from being producers of raw commodities to processors of these commodities and what is the place of First Bank in helping us actualize this?

When I spoke on agriculture, I was not looking at primary production alone; I was looking at the entire value-chain. When I gave the example of Indonesia, that $100 billion worth of GDP was being contributed by palm produce according to our colleagues whom I met during that course and when we look at the entire value-chain: Production, converting it to things like butter, margarine, it is also used to make soap etc. They even mentioned that they now generate some electricity from that. And I have used the phrase commercializing agric. If you want to commercialize agric, it goes beyond primary production. It is about primary production, value-addition down the value-chain. Why would you want to export cocoa for example at N10 per tonne, when you know that with some value-addition, it can become N30? And you make more money when you make value-addition. It is very interesting listening to Dr Audu Ogbeh, Minister for Agric on all the things he is working on. But before you go into the upper value-chain, the reality is that we have not invested enough in even the primary production, and that is what usually takes time. You have to first sort out the primary production and that is coming to fruition. They are beginning to put in place processes for storage and processing capacity.

The reality is if you de-risk agric, I just gave example of that conference which was I attended, it was a bankers’ conference made up of bank CEOs, CROs and some CFOs and banks in Indonesia said a big chunk of their loan book was into agriculture and that is because agriculture has been properly de-risked. We are beginning to see a bit of that. You are familiar with Ajanla Farms, the guy that makes ChiVita, Dangote and Flour Mills are also going into agriculture. We are beginning to see big players. Those who are not producing directly have gone into out-growers scheme where they assemble retail farmers and give them seeds and fertilizers and they buy the produce from them.

So, we are gradually getting there. We are seeing people setting up tomato paste factories and the rest. Don’t forget that the money that we lend does not belong to us; the money belongs to the banking public. We must lend it in a responsible manner. De-risking agriculture, which I know the current administration, is working very hard on, makes it easier for the banking sector to put its money there. We want to put our money where we have a very clear visibility of how the money we have lent out would be repaid. That is how banks would get involved. In the fullest of time, you would see that today, banks are more involved in the value-addition level. If you have set up a rice mill, it is easier for me to look at it, because you are not taking production risk at that point. You are taking risk of milling. You bought from people growing paddy rice, you are just processing. For those who are heavily involved, if you buy X tonnes of paddy rice, you know the tonnes of processed rice that you would get. So, you can spread your risk properly.  If you de-risk commercial agriculture, you are making it easier for commercial banks to get involved. What we are doing as a sector is that we have this Small and Medium Enterprises Scheme that we have brought back and the focus of this scheme which started off this year is actually agriculture. We discovered that that seed capital that enables people to take that early stage risk is not there. And that is what the banking sector is doing.

At First Bank, we have a full fledged agric department. We have been involved. This is one institution that has financed agriculture.

When you came in, people said you are to be pitied instead of envied, because of the challenges you would meet. You have been here for 18 months, what has it been like?

On assuming office, the current leadership of the bank was very clear on what we needed to do. We knew we needed to transform the institution; we needed to make the elephant to be able to run, but the elephant must run in a protective manner. We have embarked on an ambitious transformation project, spanning almost the entire things we do in this bank. How we deal with customers, our technology, risk management and the culture of our people.

One thing about First Bank is that this is the only bank that is fully entrenched in the entire economy of the country. If you go to the nooks and crannies of this country, you will see First Bank.  Secondly, this is one bank that has lent its weight to all the critical sector of the economy. When First Bank is not lending, then the whole economy feels the impact. So, if you are fully entrenched in an economy and that economy is challenged, realistically, you would feel the impact of this challenge. And that is exactly what has happened to First Bank. If this bank is a bank that engages in Treasury bills, government instrument and it is not involved in the real sector, then, your books would be clean. It is very important that we put this in the right context. It is also important that banks finance the real sector. Eventually, it is the real sector that would spur growth and development of the economy.

When the current leadership of the bank assumed office, we took a very critical look at the resources available to us internally, and we do have people with very capabilities. We realized that we had to inject new blood. If you look at our management team you would notice that we, have strengthened the process of risk management by bringing in a new Chief Risk Officer, because this is a very large bank, and we get involved in big ticket corporate transactions. Part of what we have done is that we have also recruited a new executive in charge of corporate banking as an integral part of transforming our risk management function. Over and above that, the governance process has also been strengthened. We have also strengthened our risk acceptance criterion, which means there is better clarity, more granularities around the risk we are ready to take, the risk we are ready to manage and the risk we are not going to avoid completely. Equally important was that we lowered the risk appetite of the bank.

As a bank, there is a way we measure the risk appetite of an institution. What we basically did was to reset our risk appetite which are transactions that we would have accepted about three years ago, if you bring them today, because we have tightened, we say don’t have appetite for A,B,C,D, so, we won’t take these. The combinations of all I have mentioned and things I couldn’t mention because of time, we believe is already seeing the portfolio changing quickly.  Our expectation is that if we pursue the kind of policies we are pursuing it is going to take us to Eldorado. Part of what is also very important for me to highlight is that we are moving the bank away from a credit-led institution to a transaction-led one, where we lend to make transaction rather than just lending for the sake of money. Our focus under this leadership is slightly different. We are focusing a lot on growing the customers’ base. We are focusing a lot on digital banking. Today, we have over 14 million customers accounts. A significant number of them are active.

I will be three years old in First Bank by the end of this month. When I joined First Bank I used to have the same impression that the bank had more aged customers. When people say First Bank is an old institution, do you know 80 percent of our staff are less than 45 years old? And indeed, 97 percent are less than 50 years old. So, from the staffing demography, I was given back when I assumed office as an executive director on July 1, 2014 when I saw the statistics. In fact, 72 percent of our staff are less than 40 years old. When you look at customer demography, 25 percent of our customers are actually less than 25. More than 50 percent of our customers are actually less than 45 years old. If you look at either from customers or staff perspective, we have a very young team. Let me also give you another very interesting statistics. Our *894# was relaunched in September 2016, at the end of April we were clearly number two. And this is what is being used by youths. Indeed, we are short of being number one by barely 200,000 accounts. When we projected by our growth rate, we know by end of June or July, we will be clear number one. This is what we have achieved a very short period of time. This gives you the ideal of what we are dealing with. This is a very youthful bank and the leadership is relative young. I was 46 years old at the time I assumed office.

Why are we focusing on digital banking? It is the future. I mentioned that we want to grow accounts from 14.5 million to 30 million. We are going into agency banking. If you look at financial inclusion statistics, a significant chunk of our countrymen do not have access to banking services. We think this branch network that we have and agency banking that we are about to launch,  is a hub and  arrangement that would give us a comparative advantage that is second to none. That is why we see it as a strength and not weakness. We are targeting 30 million accounts, using digital platform. That way my cost today, which is ready in my book, is a sunk cost. If I am able to leverage those existing infrastructure to almost double my customers accounts, the unit increase cost is really negligible, then, it would fill the bottom-line.

What is the situation of loan recovery and remediation, which are among major challenges the bank is grappling with?

We have strengthened the team in Risk management. We have brought in new executive director in Corporate Banking and what that does is that going forward the new portfolio that we are creating we are comfortable with. In terms of the portfolio which we inherited, the reality is that you operate within an ecosystem, which is the economy. You cannot operate outside the cycle of the economy. The rise in the price of crude oil will definitely have positive impact on our oil and gas portfolio, which is a large chunk of our exposure. That has given us the opportunity to remediate appropriately. There are also instances that we have had to focus on recovery of the underlining collaterals. For us it is remediation, recovery as the challenged portfolio is concerned. And we are making good progress. If you look at the way the market has responded to our recently result, we have actually been at N3 for about nine months, the last I checked we were at N7. When we were about to release our released result we explained in granular detail that this is where we are, and this is where we are heading to. And if you look at the size of our challenged portfolio, we have very bold 2015 audited account, we took about N120billion of provision, this last one, we took about N220 billion.

What is your projection for provisions for bad loans this financial year?

It would not be anywhere near what we did in 2016. And if you also look at our top line, our top line, it is growing significantly. There is a very important index that informed investors focus on, it is called pre-provision index i.e. your profit before you charge provision. By far, we are the largest in the market, which means once we go over this cycle of tidying up our loan book; we would resume our dominant position. If there is anything that the present leadership of the institution has demonstrated, is courage to take the bull by the horn and do whatever we need to do whether on NPL or restructuring and refocus our business going forward. And that is actually what is spurring that confidence.

Our share price moved from N3 to N7.07 that is over 100 percent appreciation. So, if you collect  N1 billion from a bank and put in our shares in the last two months, you would have made at least N1 billion mark up. We are very clear on the strategy we are pursuing. We have strengthened the institution not just at management level, but even at board level. At the board level, we have made critical changes. We have someone like Mrs. Sola Oworu, who for a long time was the Vice President at… and former commissioner in Lagos State, she has joined us. You have somebody like Mr. Lateef Bakare, who retired as a partner at Deloitte he has also joined us. And there is proper accountability.

Are you saying shareholders should start salivating for better dividend?

They are already benefiting from the positive developments at the bank. You make your returns from equity investment through dividend payment, which is actually the smaller part of the return; the bigger return comes from capital appreciation. We are saying some people have already recorded more than 100 percent capital appreciation.

You have a background in Veterinary Medicine, does it give you  a fresh perspective on decision- making as a banker?    

I studied Veterinary Medicine as my first degree, but I am also a chartered accountant. But more importantly, I took a whole year off to go to Cranfield Business School. I was in Arthur Anderson that later became KPMG Professional Services. I voluntarily resigned and went for a full time MBA at Cranfield Business School. Cranfield Business School is one of the oldest business schools in the world. Most importantly, when I was there it was ranked number seven in the world. So, it was a top notch business school. I also attended as a Chevening Scholar. So, it was a deliberate decision on my part to hone my skills and prepare myself for what I believe would be a more transformational career and it has turned out to be exactly that. That kind of background and training provides you with the right breadth and depth of knowledge. You have to also look at my background. I started off as an accountant. When I was in Anderson and KPMG Professional services, I started as an auditor and I graduated to become a risk consultant. I did an MBA where my focus was on finance and strategy. I left MBA and joined Zenith Bank as Chief Financial Officer. I am one of the founding directors of African Finance Corporation, where I was responsible for Finance, Technology and Operations. At a point, I was even responsible for Admin and HR.  All these built up to having the right breath of knowledge and experience and capability to be able to handle this kind of complexity.

What is your view on the way the public perceives the bank, many believe that it has backtracked; what are you doing about it?

If there is any ranking of CEOs of top Nigerian banks that is active on social media, I would be among the top three. To suggest that the bank has backtracked from a previous perception of superior performance is not correct. What we have done is that our messaging has deliberate and strategic. We have never pulled back on advertisement. There is no day that I open newspaper that I won’t see our advert in one newspaper or the other. Don’t forget that advertisement is going beyond the print media. Online media has become very important. The way you communicate on social media is also important and we are very active there. So, we have not scaled back. We have never been as a healthy as we are today. First Bank is one of the most liquid banks in the country today. Over the last one year, our liquidity ratio has never fallen below 50 percent. Our capital adequacy ratio is about 18 percent.