It is unproductive to borrow money for a troubled sector - Sekibo, Heritage MD

The MD/CEO of Heritage Bank, Ifie Sekibo, recently spoke to Daily Trust on the sideline of the Vanguard Economic Summit, on the difficulties in securing lending and the challenge of how to grow the economy. Excerpt:

How do we as a country address the difficult question of economic development? If you look at my trend of talks, it’s till that same issue of explaining the plan of how we want to build our country in terms of how much we grow our GDP; how much we grow our economy and how much we reduce the people we have queuing around because of no job. What do we do? Do you develop the human being or develop the economy? They go hand in hand. You hear the discussants say we need inclusive development rather than grow human or developing the economy separately. We want both at the same time and if there is no discourse, people do seem to have the jointed execution. This whole idea of having a vision of what we want to do, create proper target of what we want to do are the things that we are looking forward to achieve.

So, our sponsoring and partnering The Vanguard Economic Summit is to say that we understand that this is a veritable vehicle for our country to develop our human capital and grow our economy so that those coming behind, based on technology, based on agriculture, would have a space of expression of what they really want.

One trend observed in the banking industry is that banks are finding it difficult to attract borrowers, what’s responsible for this?

Both of these are functions of the general economy. If a sector is not growing, there is no need going to borrow because if you’re borrowing into that sector, you’re destroying capital; and the last thing you want to do is to destroy capital. So, when you say customers are not borrowing, customers are being realistic because if you borrow money into a troubled sector, it’s unproductive.

I earlier discussed the power sector and said: Unless we do something, there is no need to borrow further in the power space. And if you borrow further in the power space and you’re not able pay because you are not generating enough power, thereby, you’re not generating enough money to repay what you have borrowed, you are going to destroy that capital. The reason for not much borrowing in the industry is because the income that will sustain that borrowing doesn’t exist. So, we need to create avenues to make those incomes begin to come back to life, for us to begin to borrow again.

You talked about human

development as critical to the economic growth and general development, what are the policy options really for government at this time?

Policy options are a lot. But I don’t want to jump into being a government and say this is what the policy options should be. We have canvassed this. In dealing with policy options, you should, be it a new government or a continuing government, be all-inclusive. It shouldn’t be just human capital development or economic growth. It has to be all-inclusive. We have to take a view. Are we planning to pull out certain percentage of people below the poverty line to above the poverty line? Do we need to deal with infrastructural deficit? What does it take? Do we need to increase our social investment - what does it take? There is a thin line that runs through them.

So, if there is no savings, there cannot be investment and if there is no investment there can never be development. So, we need to work through that trend and, until we have a policy that addresses this trend, we will not be able to achieve inclusive development as we have said it today.

Despite economic windstorm in the last two years, most banks still were able to pull through. What is

the outlook for this New Year?

I will try not to be a soothsayer but we all believe that the industry will remain stable. We have seen the naira still stable almost all year last year; we had our national campaign ending and the naira still remained stable without fluctuation. So, we believe that trend would continue. And we also believe that with a new government, the other part that normally takes flight, which is the portfolio investment which takes flight at the end of the year, even if there were no elections (the foreign investors always take flight at the end of the year, to see if they can consolidate themselves) they run back in. They stay around the borders and then they run back in.

So if there is no any critical change in the climate, they’ll come back. They’ll come back and then you’ll see the capital market rebounding again. Yes! There is a little bit of down but we expect that to round back up within the second, third quarters and, we are still expecting good results this year.

The payment service banks are expected to take off this year, how are banks preparing to handle the likely competition that may come with it?

I am sure you will find time to read the guidelines that have been issued. They are not lending banks; they essentially are going to assist us. For us, it’s an enabler for the financial inclusion that we are all talking about. It is not necessarily a competition. Yes, it’s competition to the extent that we would compete with them in the financial inclusion space. Our agency banking products will compete with their payment platforms, but we (banks) all have very good payment platforms. Most of our payment platforms have developed much more than they could even be able to compete with. But for us, it is important that we have such other organisations that help the lower side of our economy where people put money under their beds, leave money in their stores, fire comes in and burns both the monies, the stores and the investments and they’re back to square one.

“We need to eliminate all that. We need to bring more money unto the formal platform so that we can measure them. Today, we don’t have good measurement for how much money is in circulation in Nigeria because we don’t even know. But if we can get these new institutions join us to expand the financial inclusion space, we believe it’s better for everybody and it is better for the economy.

Heritage Bank prides itself as Nigeria’s most innovative bank. What innovations should your customers expect from the bank in 2019?

First and foremost, I’m sure we are all aware that our OCTOPUS platform, which is a digital banking platform, is already running. We have gone through the testing phase and are beginning to launch. This year, we will see full-blown engagement with our Octopus platform. Why that platform is interesting is that it’s not just payment platform, it’s a social engagement platform. It’s also not just a social engagement platform, it is a community. It’s not just a community of social activities; it’s a community for economic activities. It can go way beyond the borders of Nigeria. So, these are the kind of innovations we bring to the table. And we also allow customers on that platform to trade among themselves, to do e-commerce on that platform and not only this, they also are able to do citizenship services on that same platform.

So, there is a convergence of technology and financial services and being able to project that into the wider society for development of the whole economy.

How can you assess banks in Nigeria, including Heritage Bank in the adoption of IFRS-9?

IFRS-9 is essentially a riskbased activity where we are trying to make sure that we measure what we have and whatever we report in terms of where our financial strength is, are as true and near reality as they can be. So, when you move between the generally accepted accounting standards which is the gap methodology and the IFRS, there is always some level of disparity as to what constitutes a proper asset deficiency. For example, if today, I say I own this asset and it cost N10 to buy, is it still N10 ten years after? Or if I lend somebody money and he is unable to pay after a particular number of years, is it still possible that he can pay that money. What has changed in the economy to make him pay? Have you been able to measure those things, especially gone back to measure their assets; both risk assets and physical assets as truly reflecting their strength, and taking ahead of time, ahead of the calls projections that you think could possibly happen or issues that could have affected the possibility of anything going wrong and taking a hit ahead of time.

Yes, it will affect us at the initial point, but it’s a zero sum game for me. Down the time, over three to four year, it plays out because if today you take a hit because you believe it will pay later and the economy improves and pays tomorrow, it goes back to your as profit and so it is the other way. Initially, yes, we are all going to feel a jolt. There will be depression in some of our earnings because you are taking more hit but again it speaks to the strength of the bank. And that strength of the bank is what the customers need to be comfortable about that during such conversation, you have a bank that is still able to carry your liabilities.

About two years ago, you disclosed the plan of Heritage Bank to list on the Nigerian Stock Exchange, when actually is that going to happen?

I want to predict, and a good prediction for that matter; it will not be this year. But it will definitely be listed on the nation’s bourse especially as we are expecting new investors, one of their core expectations is that we would list. So we would list.