By the third quarter of 2020, First Bank of Nigeria had grown profit by 32 percent, and its Non-performing Loans (NPL) ratio was in single digit. Dr. Adesola Kazeem Adeduntan, FBN’S CEO in a response to interview questions by Businessday, highlighted the bank’s effort in delivering values to shareholders in recent years and some outlook for 2021.
What will drive growth in the banking sector this year? This is an important question that several analysts and investors seek answers to.
You are right; the drivers of growth in the banking sector in 2021 is of significant interest to both investors and analysts.
For me, growth in the banking sector in 2021 will be driven by the value realization from the rapid progress that the sector has made in digital innovation transformation as well as the emerging opportunities in the overall economy. In this regard, the banking sector will continue to leverage the digital innovation capabilities to drive improved customer experience as well as improve internal operating efficiency. Additionally, the evolving changes in customer tastes and needs provide opportunities to create new products and channel offerings or entry into new sectors / segments that is not the industry’s traditional play area – that is, areas that have high potentials to deliver new /additional revenue streams and growth in profitability for the banking sector.
Specifically, the following key factors will drive growth in the banking sector in 2021:
– Increased focus on the retail and SME segments given the regulatory push for financial inclusion. This push will impact the sector’s growth by increasing financial access and advisory for SMES, as well as enhance access to consumer credit through various innovative digital platforms.
– Credit portfolio expansion driven by the need to meet the minimum loan to deposit ratio regulatory requirement of banks as well as the necessity to support the funding needs of the various growth sectors of the economy
– Increased focus on domestic manufacturing of goods to reduce importation of finished products into the country represents another area of growth for the economy and the banking sector
– Financing of agriculture and its value chain to improve food security and reduce the importation of food and raw materials
– The implementation of the AFCFTA trade agreement will also provide expansion opportunities for large local corporate entities with implications for banking revenues
What is your outlook for the naira in 2021 and is a full convergence of the country’s multiple exchange rates possible this year?
Based on the recent foreign exchange policy actions of the Central Bank of Nigeria (CBN) and the positive sentiments and expectations around the recovery of the global economy, the naira will likely witness relative stability in 2021.
Recall that towards the end of 2020, the CBN directed that beneficiaries of diaspora remittances will henceforth receive their inflows in dollars. The impact of this policy is expected to be net positive for naira exchange rate stability as it will improve availability of dollars in the retail end of the FX market.
Additionally, the positive sentiment in the recovery of the global economy that is currently driving improved crude oil demand and price will help to enhance the foreign exchange earning capabilities of Nigeria. With improved foreign exchange earning capabilities and supply, the economy will be able to achieve a relative exchange rate stability in 2021.
First Bank grew nine months profit in 2020 by 32 percent to N68.2bn. Beyond the profit trend, how did First Bank perform across key metrics from ROE to ROA compared to the industry last year?
Despite the challenging operating and business environment in 2020, the Bank delivered decent profitability growth in Q3 2020. The growth was driven by both operating efficiency gains and improvement in earning profile of the Bank. Our performance across key metrics witnessed improvements, and when benchmarked against other banks, we are tracking well in the overall industry competitive landscape.
As we continue to execute on our transformation program, our strategic ambition is to deliver accelerated growth in profitability through customer-led innovation and disciplined execution. Our focus is to further enhance our performance across key metrics to achieve a top industry ranking.
Agent banking is growing rapidly and made strides in 2020 with the proliferation of agents particularly in Lagos. The worry however is that the concentration is in urban areas rather than in the rural areas that need the services even more.
What needs to happen for us to see agent networks spread considerably in low profit rural areas?
For us at Firstbank, we have been very deliberate in the articulation and execution of our agent banking value proposition and go-to-market strategy. The execution of our agent banking proposition focuses on areas where the impact is real and significant – financial inclusion where it matters the most!
To demonstrate the above focus, over 50% of Firstmonie’s agents are in the rural areas, contributing significantly to the development of the rural economy. We have achieved this feat by partnering with and enrolling existing MSMES in the rural areas into our agent banking network. In doing this, we have built the most expansive bank-led agent banking network in Africa.
Today, we have over 86,300 agents across 772 out of the 774 local government areas in Nigeria, and over Ngn9.6trillion has been processed through the agent network.
Through our agent banking proposition, we have created over 260,000 direct and indirect employment (with over 130,000 in the rural areas). On the average, each Firstmonie Agent earns a monthly commission/income of NGN70,000.
We have over 86,300 agents across 772 out of the 774 local government areas in Nigeria, and over Ngn9.6trillion has been processed through the agent network
Are there any real-life examples you can share with us on how your agent banking business is bringing financial services to the unbanked across Nigeria?
Through Firstbank’s agent banking proposition and network, the Bank is creating sustainable socioeconomic value and empowering rural communities in
Specifically, Firstmonie agents supported several government and NGOS’ cash transfers to the poorest of the poor in the rural areas. Additionally, selected Firstmonie agents in the rural communities are equipped with BVN enrolment devices; as such they are able to enroll and open accounts for rural dwellers who hitherto may not have had the opportunity to be included in the formal financial services system.
Returns at Nigeria’s top banks are running at levels that their European counterparts can only dream of, yet the pool of foreign investors willing to invest in the shares of banks is shrinking due to broader economic challenges especially with Fx. Do you expect a rekindling of foreign investor appetite this year?
At the onset of the Covid-19 pandemic, most foreign portfolio investors (FPIS) rebalanced their investment portfolios away from emerging market economies, including Nigeria. This is expected from a portfolio risk management standpoint as safety and capital preservation become more important than returns during a period of general economic uncertainties.
However, we expect to witness gradual rekindling of interest in emerging economies by FPIS as the global economy recovers and concerns around the economic fundamentals of emerging market economies begin to ease.
Overall, as Nigeria continues to address and resolve some of its economic challenges through the various policy actions, the appetite of FPIS for the Nigerian market will gradually be rekindled. I would like to note that Nigeria remains one of the most attractive emerging market investment destinations – Nigeria Stock Exchange closed 2020 with about 50% equity market return.
The impact of the low yield environment is expected to hit profitability in the banking sector harder this year, what is your bank’s strategy to keep your impressive profit trend up and running this year?
At Firstbank, we fully understand the implications of the low yield environment on the profitability levels of the overall banking sector. As such, to achieve our strategic ambition of delivering accelerated growth in profitability, we have deliberately articulated the approach to mitigating the impact of the low yield environment on our profitability. Our approach is anchored on three broad strategies:
• Improve operating efficiency through digital technology innovation
• Drive increased non-funding income through improved transactional velocity
• Expand quality risk asset portfolio
First Bank has done a tremendous job in the past three years to clean up its books and reduce non-performing loans, what target are you setting for yourself this year?
You are right! Over the last three years, we have done a tremendous job in improving the quality of our risk asset portfolio – as at Q3 2020, the NPL ratio was in single digit.
In 2021, we are focusing on building on the progress that we have made over the last three years to further improve the quality of our risk asset portfolio and reduce the NPL ratio within a lower single digit range
Firstbank response to COVID-19 earned it some awards including the BAFI most impactful CSR award. What did you do differently?
Regardless of the impact of COVID-19, as a responsible corporate organization we remain committed to supporting all our stakeholders in the most sustainable manner possible. Our Bank has been woven into the fabric of society for over 126 years, overcoming challenges and has remained a dominant player, partnering and supporting various sustainable activities towards the continued growth of our host communities and the nation at large.
Whilst different organisations rose to the various challenges resulting from COVID-19 crisis and were supporting in areas such as health and welfare, Firstbank chose and developed the e-learning initiative. Firstbank felt strongly that the peculiar needs of children and the youth risked being neglected at a time of unprecedented crises – with schools being closed, parents losing jobs, businesses shutting down, government revenues shrinking, health care resources being over-stretched, economic conditions worsening, etc. The bank therefore kicked off an initiative to move one million students to e-learning, alongside its partners, to minimise the disruption to the their education resulting from the prolonged closure of schools across Nigeria and ensure that they remain fully engaged during the difficult period, so they can continue to learn and compete favourably with their peers across the world. Over 140,000 students have benefitted from the e-learning initiative.
Focusing on key elements that resonated with its brand, such as dynamism, innovation and nation building, Firstbank’s e-learning initiative is an innovative and dynamic approach to learning which is not only a suitable and resourceful solution at this time, but also one that is intertwined with perhaps the next century’s likely digital approach to learning. This is especially with the addition of courses such as coding and robotics, which can usher students into the era of the Fourth Industrial Revolution and prepare them for jobs of the future. The e-learning initiative also aligns with the bank’s key focus area in its CR&S framework – education. Education remains the single largest beneficiary of Firstbank’s enormous investments in CR&S. It has thus enhanced partnerships in education. Firstbank is a member of the Global Education Coalition led by UNESCO, which is a platform for collaboration and exchange to protect the right of education during this unprecedented disruption and beyond.
Firstbank’s partnership with IBM on the e-learning initiative is making available to students the Digital-nation Africa (DNA) program, an online youth-focused learning programme that enables innovation and skills development on emerging technologies The IBM Digital- Nation Africa aims to provide African youth with effective digital literacy. The Platform seeks to enable African citizens, entrepreneurs and communities with the knowledge, tools, and skills to innovate, design, develop and launch their own digital skills. It also helps African citizens enhance their digital skills to best meet the needs of the job market.
DNA provides a broad range of courses for various levels of digital literacy, from providing an introduction to the key emerging technologies beneficial for all, through an integrated innovator section to a focused skills enablement section where users can understand the skills and demands of the market and gain proven skills to enhance their job prospects. In addition, it provides free access to practical exercises and to allow for new ideas to be brought to life through focus areas such as Artificial Intelligence, Coding, Cloud, Internet of Things, Blockchain, Data Science and Analytics, and Cyber Security.
As Nigeria continues to address and resolve some of its economic challenges through the various policy actions, the appetite of FPIS for the Nigerian market will gradually be rekindled
How is the bank opening up financial opportunities and supporting the growth of SME customers at this time?
Our Bank is passionate about the Small and Medium Enterprises because of their potential to impact the economy. We have value adding solutions with which we have created a functional ecosystem for SMES to thrive. The ecosystem includes propositions such as connection of the SMES to talents and resources/cutting edge tools, access to business finance and market, capacity building opportunities and policy advocacy. These are all aggregated on our Smeconnect platform as value adding products & services for easy access and at rates (prices) that are competitive and mostly discounted. The SMEConnect is a digital platform that allows the SMES to connect to our offerings from the comfort of their locations anywhere in the world. This has been well received by the SME community as we engage across the country.
During this period, we remain very close to our business owners to provide the much-needed support to navigate the challenges. We hold regular and free webinars to equip them with needed skills to effectively leverage digital platforms in the new normal. As earlier mentioned, we gave concessions on loans, which were mostly enjoyed by SMES.
Why is Education key pillar of your corporate responsibility & sustainability agenda?
I would like to reiterate that Education remains the single largest beneficiary of Firstbank’s enormous investments in CR&S. Apart from the E-learning initiative, currently, 10 universities and three secondary schools enjoy Firstbank’s infrastructure projects. 10 universities are endowed with professorial chairs by the bank; and over 80,000 students in over 80 secondary schools in Nigeria have benefitted from financial literacy, and entrepreneurial and career counselling provided through Firstbank-sponsored programmes.
Education consistently attracts the Bank’s keenest attention from year to year. This is because FirstBank believes that education – quality and relevant education – remains the bedrock of any society and that when children are properly educated, the nation is enabled and global citizens who provide ground-breaking solutions for the continent and the world at large, are produced.
The significance of education to the Bank is also reflected in its project funding efforts. For instance, the partnership between Firstbank and Lagos State Employment Trust Fund (LSETF) and The Lagos State Health Management Agency (LASHMA) means a lot for the Bank’s customers and other stakeholders.
The partnership with LSETF means that low-cost private schools in Lagos State can access funding for educational infrastructure upgrade at a single-digit interest rate of 9%. We target to support over 2,000 schools in the first tranche. This will enable schools, who were badly hit by the pandemic, to bounce back. We are glad to support Lagos State Government in improving the POST-COVID-19 economic recovery efforts for players in the education sector, which boosts learning, and create more jobs. We are going further to work with the health sector as well to offer highly competitive concessionary interest rates to key players like the Pharmacy associations nationwide, to support the national and indeed global efforts to flatten the Covid-19 curve.