'Real Sector 'll Reap from Consolidation'
The N25 billion new capital base for all banks in Nigeria to be achieved by end 2005 has raised a lot of dust. Initially there were pockets of protest in the industry and beyond until lately when banks willy-nilly accepted the policy. In this interview with Ayodele Aminu one of the directors of Diamond Bank, a surgeon gastroenterologist proctologist, Dr. Theo Ogunbiyi who spoke on a wide range of issues, from the banking industry to the economy maintains that capital adequacy and not capital ought to have been the criteria used for the on-going reforms in the banking industry.
In view of the recent developments in the industry - the N25 billion new capital base, what is your personal opinion on the way forward for banks?
The N25 billion capital base was put to banks virtually as a fait accompli. Suddenly, the governor of the Central Bank announced that every bank should have a minimum capital of N25 billion before the end of next year. Now, there are two questions - why N25 billion? And why 18 months? Why not two or three years? Two billion naira had actually been the minimum capital for banks and quite a few have not achieved date. So suddenly, to wake and raise the minimum capital to N25 billion is quite a tall order. But be it as it may, banks have agreed to shore up their capital base and Diamond Bank is certainly going to achieve the N25 billion benchmark. Strategies have been put in place to raise these funds. The view is that the bigger the capital the deeper the pockets of the banks, the stronger they would be, and they will then be able to finance bigger projects. They would also be able lend for a longer term and be able to assist the real sector. But at the same time, that should not be the criteria, the criteria should be capital adequacy. It is not the capital per se but the capital adequacy of banks. The Basle Accord says a bank's capital adequacy should be 48 per cent, most of Nigerian banks have got more than this. But of course, there are some weak banks, which cannot make the N25 billion. They would have to either merge or consolidate.
Would you say the Nigerian banking terrain is saturated?
There are several aspects to this. I remember when I was in teaching hospital, we use to go to Barclays Bank now Union Bank, we queue for hours before we could be attended to. At that time the banking system in the country was nothing to write home about. Now we have a total of 89 banks in the country comprising second and third generation banks. Some banks have been doing pretty well, some have not and some have been doing things they should not be doing, some are also weak and have not met their capital adequacy ratio. If such weak banks are left behind the whole system will probably collapse. I have heard it mentioned several times that United States of America has about 12,000 banks, we (Nigeria) have 89 banks, are we over saturated with our population? The US population is about 252 million, while we have between 130 - 150 million, are we over saturated?
The other point is not a question of being over saturated at all, is the question of whether the economy can sustain the number of banks we have. So is our economy strong and deep enough to sustain the 89 banks? So, on one hand I have told you that the increase in the number of banks has brought enormous advantages to the citizenry. On the other hand, we have weak banks in the system in which if you put in your money you may not be able to get it back. Over saturation, I don't think is the problem, if all these banks are consolidated into 10 banks would the economy be better for off? Well we've been told by the Central Bank that the economy would be better off.
How do you think good corporate governance would increase the capacity of banks to support the real sector? What is your opinion as an investor?
I'll give you an instance of a story which has been told and which emphasizes the role of good corporate governance. An example is the case of Vodacome, which was an obvious lack of transparency. Some investors wanted to bring their money in and they discovered that something was wrong and they pulled out. No investor is obviously going to come in if the corporate governance is not more than pass mark. You must have very good corporate governance, you must be transparent, you must be honest and you must have structures that people can look at. If I think my money is not going to be safe I will not put it in such organization. But in the case of Diamond Bank we have a board, which is composed of people with very high integrity. We take critical look at things and try to do it the way it should be done. So, at Diamond Bank we have a good corporate governance structure in place. Good corporate governance would therefore attract investment and if we get the investment our pockets would be much deeper to be able to fund big projects and also to be able to lend long which is what the real sector wants. The real sector does not want all these 90-day rollover funds.
After the on-going consolidation do you think banks would really be able to finance the real sector?
Well, you see, as of now they have not, they have been trying their best as much as they could even Diamond Bank. Fifty per cent of our loan portfolio goes in to the real sector and oil sector. Sometimes we give these loans out directly and it may also be in consortium with other banks. If other banks are able to beef up their capital to the likes of Union Bank and First Bank, they should be able to finance the real sector. They would all be competing to go to the real sector. Now the competition is a bit unequal, only the big banks can do things for the real sector, the small ones would have to come together since they cant do it on their own. After the consolidation, there would be more competition for the real sector.
There is the impression that Diamond Bank is more or less an eastern bank both in terms of its board and general outlook. How far is this true?
Such view or impression is erroneous. It is not correct. Diamond Bank is not an eastern bank. The shareholder composition may be more of people from the east because Mr. Pascal Dozie pioneered the bank with a few of his eastern friends. But having set out the bank it was established in Lagos. Fifty per cent of the loan portfolio of the bank is from Lagos, 30 from Abuja, while the rest is from the oil companies in the east (Port Harcourt). So, the outlook of the bank certainly is east.
Would Diamond Bank consider merging with banks of like minds if its shareholders are not able to raise the entire N25 billion?
As of now no. Diamond Bank has got a very robust balance sheet and the shareholders' fund is quite large. Right from the very beginning, the directors of Diamond Bank were prudent. We were not distributing a very large dividend and a lot of our money was used to build up the shareholders' fund so that we would be able to lend more.
Before the N25 billion minimum capital came up we had already started thinking of how to deepen our pockets. We have been having talks with external financial institutions, we've been putting our money together and we have put in place strategies we believe should raise the N25 billion. The strategy, which was unveiled few weeks ago, I believe, should work because some of the internally generated funds would be capitalized. Besides, we would have some private placements and from all accounts, people are prepared to come into (invest in) Diamond Bank because it is a unique financial institution. And thereafter, we believe that we would have enough to really speak to these financial institutions that have been wooing Diamond Bank for quite a while. Some of these institutions have been talking with us for the past three years, I don't have to mention names. By the time all these are done, we believe we would be able to acquire any of these not so robust banks or go for an Initial Public Offer (IPO). So the strategy is there and I believe we would be able to make it (achieve the N25 billion minimum capital).
The bank recently announced a remarkable growth in all its performance indicators for the year 2004, given the fact that the previous years' result was nothing to write home about following the suspension of the bank form the foreign exchange market, does it mean that most of the profit comes from the foreign exchange market?
No. The question can be answered in several ways. When accusations of foreign exchange malpractices were leveled against us, I, personally as a director actually made enquires on how much money the bank makes from foreign exchange so as to be able to explain to people. Calculations were made from foreign exchange deals and the amount that was arrived at was less that N1 per dollar at that time. Of course, most of our customers are in the real sector, the oil sector and traders in the commercial sector import virtually all their inputs and we have to open letters of credit for them. So, obviously, if we were out of the foreign exchange market we cannot render these services for them and they would have to move to banks that can meet their needs. Although, a lot of them stayed with us but their business diminished during the period we were out of the foreign exchange market. But of course, during that year we were able to clean out our portfolio, most of all the bad loans were provided for and written off. At the end of the day we had a very small profit but during this period we were able to increase our fee-based income enormously because we had time to look at various other options. So the fee-based income to the bank increased a lot. We also used our liquidity very wisely and during this past year we recovered a lot of bad loans, which we wrote off according to the prudential guidelines. That is why we've done so well, not because of foreign exchange earnings.
The chairman talked about inviting new investors into the bank, can you give us an insight into who these investors are?
I have talked about private placements, which are obviously going to be new investors. We have also being in active discussions with few external people, which I believe will be inappropriate for me to mention now for obvious reasons. Some of them are international financial organisations that have been wooing Diamond Bank over the years. Most of them have stuck with us even when we were out of the foreign exchange market. So like I said earlier it would be inappropriate to let you know their names.
The chairman talked about a new structure for the bank, can we have an insight into this as a member of the board?
We had a structure, which was very top-heavy. We had the chief executive officer, the deputy-managing director, four executive directors, general managers and the likes. We now have a simple structure, which consist of the board, the CEO who is the chairman - he directly looks after certain aspects of the bank like strategy planning, human capital corporate affairs. The inspectorate division, internal control and the chief financial officer also report to the chairman. But the day to day running of the bank is under the deputy-managing director who reports to the chairman. He overlooks the commercial, retail and corporate banking, the information technology, the risk lending as well as the operations.
So, it is much flatter than it used to be. Obviously, if you have a flat system like that you have a quicker turnover.
Diamond Bank has a reputation for innovativeness and ingenuity, how best will you want me to know the bank. I mean the Unique Selling Preposition (USP) of the bank?
The name itself is a very unique. The people who work in Diamond Bank, we call them diamonds. The bank is unique because there is a lot of professionalism and top quality personnel. We've always been known to attract that. As a matter of fact, if you look at all the banks in the system you discover that a lot of the people who are now MD's of other banks were from Diamond Bank. A lot of DMD's, GMs and the likes are from Diamond Bank because we believe in training our people properly and that was the very best thing that actually impressed me about Diamond Bank. 'Am saying this as an insider, we are training our people, sending them abroad for training, we have a big training school here, where we bring people in and train them. So, professionalism is number one. Also, we are on the forefront in terms of technology. The Valucard scheme used our technology. We had Diamond Bank Paycard before the advent of Valucard. We also got all the technology in for the settlement system before our year of depression and we still have them. The bank's excellent customer service and customer relations are also very superb. We have this slogan called CARE - which means Customers Are Really Everything and we try to have symposia and teach all our people about that.
We also have innovative management. We started off with a group of very bright young men, quite a few of them are still with us. They were innovative and had innovative blending techniques and one of the things that is Diamond Bank has going for it is customer loyalty, without that, the bank would have collapsed. A lot of them stayed with us during our year of depression because of the good banking services that they got. Those are the things that are quite striking about our bank.
As an investor you will expect your organization to give back to its operating environment. How has Diamond Bank lived up to its social responsibility function?
We have done quite a lot in charities all over the country. We have donated money the eye foundation, to teaching hospitals, we have given free glasses out to people and people have had free cataract operations in about four different regions of the country and that's a continuous exercise. Besides, we have also run various scholarships programmes for people, so we are not lacking in our social responsibility.
Can you give us an insight into where you think the bank will be in five years time?
Diamond Bank will continue to be a dominant player in the banking industry. It would be a force to reckon with in the sub region. By then, we would have opened offices in all the major financial centers of the world and this would no doubt, help to promote Nigerian businesses. I don't think I should say more than what we have as our mission which we started with and still hold very strongly. Our mission states that: "We intend to be a strong financial institution with effective presence in Nigeria, Africa and all the key financial centers of the world."
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