Adesola Adeduntan, CEO of one of sub-Saharan Africa’s oldest and largest private sector banking groups, reviews the dominant trends of the sector in Nigeria and the wider West African region and discusses the relationship between the banking industry and the increasing number of telcos which are providing alternative financial services. Interview by Rafiq Raji.
What is your view on the recent stimulus initiatives by the CBN?
I believe that the Central Bank of Nigeria intends to achieve economic growth and development through its recent stimulus initiatives. The Nigerian economy is on the pathway to economic recovery, as such, one of the Central Bank of Nigeria’s main objectives is to sustain the economic growth to a level where the economy is strong enough to compete globally. The Central Bank of Nigeria has been deliberate in ensuring appropriate balance between supporting economic growth and managing inflationary pressure.
The CBN has employed two broad approaches in the way these initiatives are being implemented. The first of the two approaches include de-risking bank lending to the private sector through a wide-range of credit guarantee schemes. The aim of this approach is to ensure that risk assets are created with the main purpose of boosting economic development. The second approach involves direct intervention initiatives in key high impact sectors including agriculture, MSMEs, manufacturing, power, etc. Both approaches, which effectively reflect public private partnerships in financing economic growth are designed to ensure that there is constant flow of credit to vital sectors of the Nigerian economy.
What do you think about the recent bank failures in Ghana?
Bank failures have occurred in different continents and environments, and the causes are typically systemic weaknesses and/or macro issues ranging from adverse macroeconomic factors, poor regulatory supervisory oversight, weak risk management practices, poor corporate governance, to non-compliance. As with most countries, the Bank of Ghana (the Ghanaian banking regulator) is responsible for ensuring adequate confidence, credibility and integrity of the Ghanaian banking sector. As such, the withdrawal of the banking licenses of some banks who contravened regulatory requirement is a step in the right direction as well as equitable. It is also worthy of note that the approach that the Bank of Ghana has adopted in managing and resolving the failed bank issues is commendable. The set-up and migration of the failed banks assets and liabilities into the Consolidated Bank of Ghana has helped to maintain the integrity and credibility of the Ghanaian banking system. Also the current banking industry recapitalization initiative of Bank of Ghana is geared towards strengthening the capital base of Ghanaian banks.
Is there any reason why First Bank is not in Ivory Coast? What do you think about that country’s banking industry?
FirstBank aspires to become the dominant banking services group across Sub-Saharan Africa (SSA), leveraging its rich heritage and strength, and having established itself over a 124-year history as the largest bank in Nigeria and already as one of the largest private sector banking group in SSA. We adopted a structured regional expansion strategy with the main objective of effectively maximizing shareholder value while harnessing the benefits of diversification.
Some of the considerations guiding our expansion are: market growth potential (large addressable market) and reduced earnings volatility; enhanced attractiveness to partners and investors; improved value proposition to customers (e.g., traders and importers); cross-border synergies and country risk hedging (diversified investment across countries; reduced country-specific risk).
Given that Ivory Coast is part of the West African Economic and Monetary Union (WAEMU) where, with a single banking license in one country, a bank is allowed to open branches and operate in other member countries; and FirstBank already has a presence in Senegal (another member of WAEMU), we intend to explore strategic expansion into Ivory Coast in the medium to long term. However, our immediate focus is to reposition and grow our Senegalese subsidiary business which we acquired in 2014.
On my view about the banking industry in Ivory Coast, I would start by noting that Ivory Coast is the world’s top cocoa producer and francophone Africa’s largest economy. The economy recorded 7.6 percent GDP growth in 2017 supported by the stability in the commodity market. This macro-economic trend supported the healthy banking growth recorded in 2017.
The Ivorian banking system is one of the most profitable in the West African Economic Monetary Union, and the banking industry continues to grow – Ivory Coast’s banking assets reached 9.51 trillion CFA francs ($17 billion) in 2017, up approximately 11 percent over the same period in 2016 driven by the strong economic growth.
In my view, there is still significant opportunity for growth in the Ivorian banking industry given that only 16% of its adult population has access to banking services. This low banking penetration and inadequate credit information has skewed the focus of the incumbent banks on high quality borrowers which are often large private conglomerates or entities in which the state holds a significant share. To convert the potential growth opportunities in the industry, there is need for the apex body to strengthen the financial system.
For players in the industry, there is need to leverage technology to innovate and meet the customers’ needs, and also to build partnerships with the mobile operators who have registered more accounts in its first five years of operation in the country. Interestingly, the percentage of adults with a mobile money account in Ivory Coast is the fifth highest in the world, after Kenya: 58%, Somalia: 37%, Uganda:35%, and Tanzania: 32%. This holds strong digital financial services (DFS) opportunity for the banking industry in Ivory Coast.
- Interview was first published in the first quarter 2019 issue of African Banker magazine