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We lend to sectors that keep the country functioning

Over the years there has been wide spread public opinion that banks make so much money at the expense of real sector growth. But the Executive Director, Sterling Bank Plc, Abubakar Suleiman, gave a contrary view when he spoke to Vanguard’s Emeka Anaeto and Moses Nosike. Excerpts:

How true is that banks have abandoned the real sector and are now making so much money from fix income market?

Abubakar Suleiman, ED, CFO, Sterling Bank
Abubakar Suleiman, ED, CFO, Sterling Bank

To the best of my knowledge that is not correct. Yes, banks would make money when the yield on CBN instruments goes up and bank customers also move funds to invest in the instruments, creating liquidity tightening. If you check the website of FMDQ you will see that the volume of trade in the fix income market has flattened and now the volatility has flattened.

In the absence of the volatility you cannot make such money. Maybe some banks make more money than others obviously because some are at different phases of evolution and they have more cash to play with. But I don’t think it is so for the entire sector. The sector is actually struggling because of the liquidity management policy. So, I don’t think banks are making a lot of money from trading in fixed income securities, but exception to the rule can be noticed.

So you are making money from somewhere else…

I don’t know if anybody is making money from anywhere else other than banking. I think people maybe fooling themselves that banks are in money. I think people tend to make a mistake of always talking in absolute amounts without relating it to amount invested in the business. For instance you can have two companies, one of them could invest N10 million Naira and then make N5 million, that is 50% return.

Another company could invest N100 million Naira and make N15 million Naira and that is 15%. So when you see bank like First Bank or GT Bank investing, lets say, N500 billion and they make profit of N50 billion, it is not so much money. If they invested that kind of money in any other sector they would be making far more than that.

I think the general public has undue expectation from the sector. My concern is that if people create misguided conception that the sector is making so much money it will lead to a pressure on the sector. If the sector is making so much money why are people not investing in the sector?

I think people maybe fooling themselves that banks are making much money.

But in recession, it means that you are not growing, operations are shrinking. They have implemented the Single Treasury Account which means that the size of the sector has reduced, the budget was not released on time which means that businesses didn’t grow in the first half of the year.

The size of FAAC is much lower which means that even the states had less money to play with. And instances of salaries not being paid in so many states which means that even at retail level some of these workers don’t have money in savings. Those who have borrowed money may not be paying back timely. Check the rate of inflation. So, it doesn’t add up that banks are making huge money.

The banks are managing those money on behalf of the public and therefore the health of the sector is in the interest of every single one of us. But more importantly, it is the single largest provider debt capital today for companies.

But some banks are already below capital adequacy. Are we heading towards recapitalisation

I think there must be two things that would be in place before capital raising can happen. The first one is the confidence level in the country and in the sector must improve. People must feel comfortable about reforms. But the good thing is that it is improving on a regular basis.

When you speak to potential investors there are signs that many of them are optimistic about Nigeria. But they are not at that point where they will start writing cheques to start investing. We must continue to do the right thing until they feel very comfortable with us. The second one is that we must stop short-selling the sector. This is a sector that is going through a country in recession, somehow managing to keep its head up.

In some places they would be proud that despite the problems they are managing to keep employees at work, managing to still show some small profit, managing our risk. On the contrary what I see is that people don’t seem to see why the sector should do well. They don’t understand that the sector doing well is a requirement, a catalyst for all other sectors to do well.

If banking sector doesn’t do well today, they will start to pull credit from all the people that they lent money to, they will definitely stop advancing new credits and if we are not advancing credit to the industrial sector, real estate, manufacturing, agricultural sectors, how are they going to grow and hire labour, how are they going to grow productivity? So, let’s understand the role of financial intermediation in nation building.

If we don’t understand that role, we are likely to use our own hands to derail the progress that we are making. When I hear something like banks don’t lend to the real sector I usually get chuckle. There are ample evidence that we are actually lending to the real sector.

The latest one was when there was need for power sector to be privatised and nobody else was able to put money down, it was still the banking sector. Let’s take away this ongoing allegation they don’t lend to the real sector. People who say these things usually don’t look at the numbers, if they do they wouldn’t say that.

I can pick our last annual report and show you what we have done – sector by sector. I’m really happy that you are asking this question, but others are just going around saying things and before you know it starts sounding like the truth. But that is not the truth.

In Sterling Bank, what is the proportion…

I have the breakdown of what we have done in all the sectors. There is need to understand this, we lend to sectors that require to keep the country functioning. This is the breakdown for Sterling Bank. I have here credit to agriculture N12 billion, credit to communication N28 billion. Is communication real sector? Without communication can we function? Just to name a few, I have credit to mortgage N11 billion, Oil & Gas N134 billion.

This is an interesting one, this country can’t function without Oil & Gas. When the Oil & Gas need credit so that they can continue to export and import, if we don’t give them, who will give them. If we don’t give them and they stop the business what would happen to the country.

A huge percentage of them are Nigeria owned so that we are no longer passengers in our own car. So many of them are now in the sector and they produce, export and bring the money into Nigeria unlike the international oil companies.

For transportation we have N15 billion; we have funded almost 500 buses for mass transit in Lagos, air-conditioned. Who would fund it? I wish we would be a lot more intelligent in our criticism of each other. There is no sector in Nigeria that is perfect.


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