Jimoh: Competition Good for Merchant Banks
The Managing Director/Chief Executive Officer, Coronation Merchant Bank, Mr. Abubakar Jimoh, in this interview noted that building the corporate bond markets remains challenging and called for the simplification of the process. Obinna Chima provides the e
How will you access the performance of merchant banks in Nigeria? I believe the re-introduction of merchant banking into the Nigerian banking sector has been a very positive and welcomed development. Presently, the number of merchant banks in the country has grown to five, with a total asset size of over N550 billion. This is a significant addition to the capacity of the banking industry to support clients and strengthen the ability of banks to spur economic growth. The emergence of merchant banks has further propelled specialised service delivery in global trade participation by Nigerian entities. In the last 5 years, several landmark transactions have been successfully executed by merchant banks in Nigeria. Of the notable deals executed in 2017, Coronation Merchant Bank closed a total of 16 transactions in the year, with a total transaction value of over N234 Billion, hence, making us a top five investment banking franchise in Nigeria.
As the competitive landscape continues to evolve, the bank will continue to set industry standards with innovation, service excellence and sustainable wealth creation for its clients and other stakeholders.
But with the increasing competition in the sub-sector, what are the strategies your firm has developed to carve a niche in the market? I believe competition is good for all the parties in an industry, most especially the customers as it drives innovation amongst the players. Our own way of managing competition is to always focus on what we are doing right and then try to leverage that to stay ahead in the industry. As a bank, our vision has always been to create an oasis within the industry, renowned for doing things right and getting it right the first time every time. We strive to achieve this by demonstrating innovation in developing solutions to diverse customer problems, differentiating ourselves from competition with creative products and service offerings, and proactively initiating change and improvement measures.
For example, we creatively introduced a credit enhancement mechanism known as Liquidity Back-Stop Facility to the commercial paper offering of a leading real estate company in Nigeria. Our collaboration with the client in providing the backstop facility is the first of its kind in Nigeria and its ingenuity boosted the investment grade of the commercial paper to “A-“, despite the issuer’s “Bb-“Agusto rating – representing a six notch improvement. The significant improvement in the rating made the pricing of the offer attractive to both the issuer and the investors as the issuer was able to lower its cost of borrowing by about 600 basis points invariably reducing its cost of capital. It thereby created immense value for its shareholders.
Our unique value proposition is to deliver world class solutions like this to our esteemed clients in a cost-effective manner whilst leveraging our local extensive knowledge and technology. Our aim of attaining industry distinction is evident in our first-rate service orientation and efficient information technology platform to supports our business operations.
As we look to the future, we believe the merchant banking space will become increasingly driven by technology. Hence, staying relevant simply means that we are constantly refining our systems and processes in a manner that enables our customers transact simpler, faster and safer. This is why we continue to invest significantly in appropriate technologies and human capital development. Do you think the Nigerian banking sector is ripe for another round of recapitalisation? Our banking report published on April 5, split the listed Nigerian banks into three groups: those with plenty of capital and with no problems in expanding loan books this year; those with adequate capital to expand loan books this year; and a few – really three – banks which may well concentrate on capital raising this year. I do not think that this amounts for a round of re-capitalisation for the entire sector. A few banks will be able to raise either tier-I (equity) or tier-II (long-term subordinated debt) this year, when the market conditions are right.
But with banking sector non-performing loans presently at about 16 per cent, what measures do you think should be adopted to reduce it to a below 10 per cent? So far, the Central Bank of Nigeria has taken proactive steps towards managing non-performing loans (NPLs) in the banking sector. One key way they have done this is to ensure that banks comply with the IFRS 9 requirements. Another way is to encourage banks to provide for non-performing loans so that they can put past problems behind them. There are some banks that have spent several years taking a very high level of provisions as they can, to clear the backlog of their non-performing loan portfolio, and they have been rewarded in the market with the share price performance. Other banks have made successful disposals of non-core assets, and doing this has had the effect of shoring up their capital. It is important to note that sometimes, when NPL ratio rises, it is often because the relevant accounting rule has been applied and the percentage rises as a result. But that does not change the fact that the underlying effort to clear the backlog of bad loans is making good progress.
What sector(s) do you see opportunities for potential investors? At this stage in the development of the equity market, I believe investors are going to make money with selected purchases in value stocks. The banking sector presently is very interesting. Declines in interest rates are putting pressure on banks’ margins, but that means that the more skilful lenders, and those with adequate capital, are going to emphasise commercial lending to maintain their margins. Among the food producers and the consumer product manufacturers there are opportunities, too, as some of them were able to increase price points last year and are enjoying volume gains this year. If you look at the Gross Domestic Product (GDP) data for the first quarter of (Q1) 2018, the food sector is one of the few to be doing well consistently – that’s a clue!
But are there opportunities to deepen the corporate bond market in Nigeria? There has always been a long debate as to the reason(s) for the weak participation of Nigerian corporates in utilising the bond market as a vehicle for tapping long term sustainable funding relative to government participation. As at May 2018, the total outstanding bonds in the Nigerian fixed income space was N12.2 trillion; 87 per cent of which was made up of sovereign and relat ed debts, with just 13 per cent attributable to corporate borrowings in the capital market.
Truth is, building corporate bond markets is a challenging process which may take a considerable amount of time. However, a good way to start might be to simplify the issuance process. For instance, many corporates may find the process to be
As a bank, our vision has always been to create an oasis within the industry, renowned for doing things right and getting it right the first time every time. We strive to achieve this by demonstrating innovation in developing solutions to diverse customer problems, differentiating ourselves from competition with creative products and service offerings, and proactively initiating change and improvement measures
daunting as they are subjected to a very tight process which could be quite time consuming. Addressing this burden and cost of issuance will encourage the private sector to access funding from the corporate bond market.
Another way to attract credible corporate bond issuers is for regulators to encourage state-owned enterprises (Nigerian National Petroleum Corporations, Nigeria Sovereign Investment Authority) and large corporates that are not already highly leveraged from bank loans to access the fixed income market. Also, corporates that are highly leveraged can be encouraged to refinance their existing loans in so far as the process of doing so is not overly expensive. Enhancing market infrastructure in terms of trading efficiency as well development of a more efficient market - making system that drives price discovery of instruments in the secondary market could encourage issuers to list on the exchange so it can be accessed by the retail end of the market.
Can you take us through some of the products your bank has developed for its customers? Coronation Merchant Bank focuses on bringing world class advisory and financing capabilities to our wholesale banking and capital market clients. We offer services and products in corporate banking, investment banking, wealth management, asset and fund management, global markets, securities trading and trust services to individuals, corporations, state governments and other financial services organisations. We differentiate ourselves from competition by developing creative products and solutions to address diverse customer problems.
Our investment banking competencies cover capital raising, financial advisory, mergers, divestitures, project and structured finance advisory. As a bank, we pride ourselves in our desire to help our clients achieve scale by offering tailor-made services in all aspects of the investment banking field. More and more, clients are increasingly relying on our expertise in resolving special situation transactions. Our performance on the issuance league table is an attestation to the success of our unique approach to capital raising.
Recently, Coronation Asset Management a subsidiary of the bank successfully launched and listed three mutual funds (i.e. Money Market Fund, Fixed Income Fund and Balanced Fund) on the Nigeria Stock Exchange for trading and accessibility by retail and institutional investors. The Coronation Money Market Fund offers investors the opportunity to maximize return on their liquid savings while the Coronation Fixed Income and Balanced Funds provide the best opportunity to realise medium to long term investment goals. It is important to note that active portfolio management by experienced professionals give investors better returns on their investments, especially in periods of market volatility and economic downturn.
We have also introduced a quasi-fixed deposit instrument which has its interest rate linked to treasury bills and government bonds. This product enables our customers to invest their excess fund in a variant of fixed deposit instrument which does not have fixed interest rate.
Our Trust subsidiary is also an area we have recorded remarkable success. Presently, we offer tailored products and services under three broad categories: Estate Planning, Corporate Trust, and Public Trust. The Estate planning category consists of services rendered for managing, preserving and facilitating the safekeeping and transfer of the assets of stakeholders in wills, private trusts, and philanthropic ventures. The corporate trust segment deals with protecting the assets of stakeholders exposed to corporate bonds, debentures, loan syndications and collective investment schemes. Lastly, the public-trust category is tailored towards ensuring governance structures thereby protecting the assets of government entities that often engage in the issue government bonds, public-private partnerships, and escrow services. We also offer other services that may be applied to the above clientele, such as Nominee services and safe keeping.
Novel products like these, speak to our ability to develop innovative solutions through creative products and customized service offerings for our diverse clients. Our strategic relationships, symbiotic and consistent value-emphasis is consistently delivering competitive advantages to our clients
How is your bank leveraging technology to drive its business? In recent years, we cannot deny the impact technology has had on the Nigerian banking landscape; from payment systems to customer management, innovations in technology has continued to remodel the entire spectrum of service delivery and customer engagement in the financial services industry. These advancements in technology have not only remained a key factor in service delivery but have constantly shaped the way we work and engage with our customers. As a bank, we understand that a key part to staying relevant in the industry depends on our ability to leverage these technologies to deliver seamless banking service to our customers; whether it is through making a payment, buying into an investment option or advisory services. We are continually transforming our business model to a digitally savvy bank.
And so, today we are talking about incorporating digital innovations such as chatbots, machine learning, data science etc. and how we are leveraging these technologies to make banking, simpler, faster and more engaging for our customers. We have pioneered several innovative digital solutions to improve transaction processing time, handle existing and projected transaction volume, and enhance data management & security within the bank and across the subsidiaries businesses
Recently, we launched the Coronation e-trader; an online trading platform which allows users buy and sell equities online through the Nigerian Stock Exchange (NSE) from anywhere in the world. The platform creates a world class experience, bringing the broker to the comfort of investors’ homes and offices. The platform guarantees investors’ convenience as it enables investors open virtual stockbroking accounts. In addition to this, the platform gives real-time notifications on trade executions and provides convenience for the investor to trade the way he/she wants whilst taking full control of their investments always. Another amazing feature of the platform is that it provides users with market data and information on all quoted companies, accompanied with quality research reports that help our customers make safer investment decisions.
What is your outlook for the economy? If you look at the international institutions - the International Monetary Fund and the World Bank, they are forecasting Nigeria’s 2018 GDP growth at 2.1 per cent and 2.5 per cent, respectively. I think that’s about right, especially considering the Q1 2018 GDP data which, in my view, was predictable although the market was looking for a higher growth rate. Without giving too much away about our own commercial strategy, it is important to concentrate one’s efforts on the sectors which are growing well, and sectors which are withstanding disruption despite not growing. Among the growing sectors, I would highlight agriculture, telecoms and food. There is a very exciting technological upgrade in the telecoms sector which gives rise to excellent opportunities.