Banking business received a major boost last week as Nova Merchant Bank commenced operations with the mission to expand the frontiers of banking on the African continent. In this interview, Chairman of the Nova Merchant Bank, Mr. Phillips Oduoza speaks on the uniqueness of the bank and how it will add value to Nigerian businesses and the economy in general.
By Babajide Komolafe
THERE are four Merchant Banks already in Nigeria and Nova Merchant Bank makes it the fifth. What are those attributes that would distinguish Nova from the others?
Nova has been fully licenced by the Central Bank of Nigeria to commence banking operations. In the past, we used to have merchant banks as well as commercial banks and just before the consolidation, that boundary was dismantled because of the universal banking licence then.
The implication was that you can do both commercial and merchant banking. Now, in 2013, the demarcation was brought back. So, you have merchant banks and commercial banks. For us, Merchant Banks are very good because they assist in the economic development of the nation and they provide long-term funding.
Unfortunately for us in Nigeria, merchant banking has not been fully tapped into. The most common is retail banking where every person is establishing branches and acquiring a lot of retail customers. So, we have decided that we are going to do merchant banking and do it the way it ought to be. Four merchant banks plus Nova, that is five, we believe is still very little for Nigeria.
There is opportunity for more. Why I am saying this is because basically, the merchant banks focus on wholesale banking, that is corporates and investment banking where you have advisory services, wealth management, assets management, debt capital, equity capital, etc, and this particular area is still very rudimental.
If you look at the major international financial institutions involved in investment banking, they are doing very well. We do not have any of them in Nigeria today and we believe we should occupy that space. Bear in mind that ours is the first original licence for a merchant bank.
We didn’t convert from being a representative office or from being a discount house. So, from day one, we have been licenced to operate as a merchant bank. What have we done? We have equipped ourselves with people with the people to operate, we have equipped ourselves with the technology to enable us deliver as a merchant bank and we have structured our products around merchant banking. So, we are not converting any legacy product or service into merchant banking. Therefore, we have carved a niche for ourselves and we believe strongly we can deliver in this area and that is our promise to the customers.
You know, for a new bank, there is a minimum capital that is required before the central bank will approve the banking licence and I want to state that we went above that minimum capital for merchant banks and it is fresh and encumbered capital.
With the competition in the industry, are there strategies you have developed to create a niche for the firm?
Yes, there are five of us today in the industry and I mentioned that we are the first merchant bank that does not have any legacy history associated with us. We came as a fresh merchant bank. The implication is that we didn’t have staff that were carried over from the legacy operator, we didn’t have technology that was carried over from the legacy operator.
We started fresh from day one to hire people that are cut for merchant banking. We started with a technology that is suited for merchant banking as well as products that are suited for merchant banking. Now for us, it is very important that we play in that niche that we have selected to play in and that is wholesale banking and investment banking.
I did mention that as far as investment banking is concerned, we have prepared ourselves adequately to play in that sector and we believe that we have the capabilities, technology and products to be able to compete strongly. We are not going to go into so many things. We are just going to stay in that area that we have agreed to focus, which is the wholesale and investment banking.
Again, we have a very strong board that is made up of people that have distinguished themselves in various sectors. We have board members that have international exposure. Our managing director/chief executive officer was a director outside Nigeria in major financial institutions in the world. So, he comes with enormous experience. We have a board member that was the Managing Director of a bank that was focused on investment banking, he is British, and he comes with a lot of experience. So, we are adequately prepared to compete in that segment.
What are the steps taken to ensure that you don’t encounter the problem of non performing loans that is a challenge to banks today and also how sophisticated are the technologies you have deployed?
In terms of risk management and credit profile, you will find out that the segment we are playing in, the customers in that segment have lower risks compared to other segments, because they are well structured. They have very strong balance sheets and systems in place an their risk profile is so low compared with other segments. Secondly, we have put in place, very strong risk management framework. I forgot to mention that the last call of our CEO, he oversaw risk management at Citibank before he joined us.
So, where you have a CEO that has risk management background, of course you should know that it will be difficult for you not to get it right. Again, the risk management framework we have put in place is very strong. Both from market risk, operations risk and credit risk. So, as far as we are concerned, one of our targets is that beyond being one of the most efficient banks in Nigeria, we also want to be one of the best in terms of credit risk quality. In terms of asset quality, we want to have one of the best in this country and the lowest non-performing loans.
So, in terms of credit, we believe that we would have a very strong credit risk culture in the bank. In terms of technology, we deliberately selected technologies that are suited for merchant banking and not only the digital front, but also being able to serve the customers effectively. In addition to that, we are also putting very strong firewalls just to make sure the security is very strong. For technology we do not see much risk.
Now, in terms of long-term funding, what we are doing is that beyond the Nigerian market, we are tapping into the development finance institutions outside the country that provide long-term on-lending facilities for the customers we are lending to, given the fact that we have very good customer profile.
As far as we are concerned, we do not see any issue with that. We also believe that the Nigerian economy is moving in the right direction. We believe that the economy will continue to expand. We have seen some diversification in the economy today as against prior to the recession when we were focused only on oil.
I guess the decline in oil price may have been a blessing in disguise. We have seen what the Central Bank of Nigeria has done with respect to the Anchor Borrowers Programme and we are told that we are almost self-sufficient in terms of rice. So, you can see that the economy is moving in the right direction and we believe Nova is going to tap into the expanding economy. So, we don’t see any problem with risk management and we would ensure that we put all required. For instance, the fact that we have a brand-new licence implies that we start getting it right from beginning.
If you go around our office, you will notice that we do not have a data centre. So, we have put our servers and information technology equipment in various locations outside the bank, where we have first class data centres where we signed Service Level Agreement with them.
What is your assessment of the banking sector?
Having been around for a very long time, I ran the operations of a very large bank in Nigeria with footprints in so many countries all over the world. So, I see it from the Nigerian perspective as well as from the global perspective. I think there are significant opportunities for banking in Nigeria. The country as it is now is still underbanked.
We believe that banking penetration has not gotten to the level that we would be very comfortable. We still have a lot of liquidity outside the banking system and I believe it is an opportunity for us to tap into the liquidity outside the system. Now, in terms of merchant banking, I think the opportunities are enormous.
We have not done so much in terms of infrastructure which offers tremendous opportunities for merchant banks. We have not done so much in terms of our capital market and we also have tremendous opportunities there. We need to do more in terms of management. I believe that the top one per cent or 0.1 per cent of Nigerians still have accounts and have their assets managed offshore.
We would like those assets to be managed in Nigeria. With technology, you can have access to products all over the world and you don’t need to physically move cash out of Nigeria in order to manage your assets. We think that assets management has a lot of upside and we haven’t done much there. We also think that private equity has a lot of opportunities.
If you look around, there are so many opportunities we have not tapped into and I believe that as banks continue strengthen their risk management, strengthen their personnel, we would start going deep into all these opportunities.
Today, we see the foreign banks come into Nigeria without footprints here, they collect investment mandate and go ahead to execute them offshore. For instance, there is a major telecommunication company that is to be sold today and it is a foreign bank that is an adviser. We have seen the banks that the central bank intervened and when they were sold, it was the foreign institutions that acted as advisers.
These are the roles that we in Nova would like to play. We would like to be the face of investment banking in Nigeria.
As you are aware governance is very important for the survival of any business, so we would like to know the composition of the board of the bank?
Governance stands out very well in our philosophy, our activities and business principles. Our core value is called UPLIFT. Here, U stands for uniqueness, that is we want to be unique in the way we do our things; P stands for passion. That is, we want to be passionate in the way we serve our customers and relate with our community. L stands for leadership because want to lead in the league we are playing. I stand for integrity; while F stands for fairness and T- teamwork.
As far as we are concerned, governance is almost at its best at Nova. We have four independent directors out of nine of the directors on the board. There are three executive directors and six non-executive directors. So, we have twice the number of executive directors as non-executive directors. Out of those six directors, we have four independent directors.
These people are capable of independent opinion. We have somebody on that board that is the president of the Institute of Chartered Accountants of Nigeria (ICAN) on the board and he was also the president of the Institute of Directors in Nigeria. He is an independent director which means that he is not interested in anything other than the governance and good of the bank.
We have a director on the board that distinguished himself at the central bank and retired recently as a deputy director about two years ago. For us to put such a person on the board, it was just to make sure we get regulations right.
And other directors we have on the board have all distinguished themselves in their various fields. So, for us governance is key. We had a strategy session sometimes ago where the focus was on governance. No matter how strong you are, you must have governance to back it up. With governance you will have sustainability and without governance you cannot make it.