Home Finance Crash of deposit rates taking money away from banks

Crash of deposit rates taking money away from banks

by Business News Report

By Omoh Gabriel

Mr. Akinsola Akinfemiwa is the outgoing Managing Director of SkyeBank PLC. He has seen many days in the banking industry traversing from IMB, Chartered Bank, Barclays to Skye Bank climaxing as MD/Chief Executive Officer . He is affected by the recent directive of the CBN that bank chief executives who have spent ten consecutive years in office should retire July 1, 2010. In this interview, he spoke on the ongoing reforms, the banking industry generally, implication of the policy directive, concluding that because deposit rates have crashed, depositors are moving their deposit out of the banks which does not augur well for saving culture in Nigeria.
How did you feel getting a directive from the CBN to retire from Skye Bank in July

It is an interesting one but I’m sure that you know in this place, there’s nothing that is confidential; for some of us, we got wind of what was going on maybe even two weeks or so before it happened. So for me, it’s more of a relief. The industry is quite challenging, it’s quite tough, so sometimes you want to take some decisions and you don’t get to do it and things happen and you just move on. In a way, I think despite all that has happened, I know that one would continue to be an active player in the economy and the industry. To me, it’s just an opportunity to do something else basically.
When it was announced, we didn’t have the details, then towards the evening, the details started to come out. I think it was not expected the way it came but like I said, because hey! you have been MD for ten years and you know, I am not a businessman MD; so for me, it is like I have been MD for 20 years because if you look at the story of Sola Akinfemiwa and managing banks; the first time I started banking was in a bank called IMB, it was a small bank and had to take on Standard Bank and Barclays and so it was a race to prove who you are. Then we left IMB and we went to start another new bank; a tiny bank at that time called Chartered Bank.
And just as we finished building our head office and were settling down to build a big bank, I had to move on to pick up another small tiny bank, remember I got there and said it was like a branch of Standard Bank, the bank I inherited. So again, you have to try and build and push and push, and then, the consolidation came and you know, we had to do five banks Рso when you say 10 years, to me it’s been like 20 years’ hard work. One has not been lucky to get one of these big banks and be the MD and all you are doing is restructuring and cutting the files and getting it better. It has been a tough journey but I will say it’s also a very good ride to have had the opportunity of doing this for so long.
Yes, it would have been a little bit nicer if you planned it and did it the way you wanted to do it but then there are very few people in this country that get this kind of opportunity to say six months notice for you to quit. Many times you hear it on the radio and it’s immediate and in this case, you know one has an opportunity to have board meetings and to even appoint those who are going to take over from you. That’s wonderful.

How would you assess your 10 years stay at the bank
On a personal note, I believe that it has been very challenging, it has been very good and like I said, I have had a good run to be involved with these institutions from next to nothing to where we are today – yes, maybe you see the hand of God in some of these things. We have what we call 5-in-5 here: to be number five in five years and today, as a result of some things that are happening in the industry, if you are counting, SkyeBank would feature in the debate of who is number five, to me it is big.

Looking at the exit thing, in normal circumstances, is it policy makers who decide when the MD leaves or the shareholders or the board
Well, that is a debate. I mean that is going into the politics of it. The rules are there: but then, we have got to go and look at the CBN powers, what the CBN can do and not do. Some of these things you have to try and clear. The point I am trying to make here is let us look at it: what he has done or what the CBN has done-is it good for the country and for the industry and I think that’s the way I would like to put it and if you ask me, I would leave out styles and methods and look at the objective. For me, I think it has been generally okay and agreeable for one to try to sanitise the banking industry, to want to ask people to do things properly.
Unless some of the things one has heard are exaggerations, you find out that as banks, we needed to be more careful than what happened but also note that this whole thing is not only Nigeria – if you look at the banking industry worldwide, there has just been a lot of cry of how to be a better banker. Obama
is leading one in America and trying to say ‘we are going to put more rules, more laws to regulate banks. In the city of London, people are crying and saying bonuses or salaries of bankers are too high, etcetera. These things happen from time to time so, it is a good time to say hey! ‘stop and let’s look at what we are doing.’

The worry is that we have private banks that are not owned by government and you find elsewhere that people have experience- who have been in the industry 15, 20 years…the problem we have in Nigeria is that when people have experience and are supposed to be impacting the system; that’s when they are asked out of the system. Is it the normal thing
That is another argument. There is the question of intervention in what was going on and then there is a 10-year rule limit. I do not think they are the same thing. But you are talking about the 10-year rule. For me, I am involved here, so my comment may be biased. Yes I will continue to do what I know how to do and I do not feel particularly happy that I’m being asked not to. If you are a banker and you are not supposed to be involved with the organisation you helped to build in the next three years or so, that will be disappointing for anybody and I do know that point has been made over and over.
People are looking for how best to use their knowledge and skills to support the industry and the business without contravening what the governor has said. Again, I look at the intention, I think sometimes the environment is such that there’s mistrust, there’s distrust. It is like I do not want you to be MD after you are 10 years, director after 12 years. Now, if people obey that rule but find another way to begin to impact the system, I think that is where the problem is. For me, I think people should be allowed to continue to add value. I mean it’s like someone has been doing cement business for 20 years and you now say since you have stayed too long in this cement business, go away and do not come near cement business forever. I think I am concerned here and I really think the intention is good and maybe there are things that can be dealt with here and there that people who have built up things can continue to add value here and there to the institutions that they built.

Do you see any major changes coming into the economy as a result of the recent installation of Dr. Goodluck Jonathan as president or what do you think will happen
We may need to go back to the most recent past, the most critical period in our economic life has been the regime of General Olusegun Obasanjo-something happened in the economy between 2003 to 2007. It was a good period for us in the industry-major things happened. I think one of the things you saw there was a lot of energy and you know you could be wise, you could be smart, you could be intelligent to be a leader but I also think you need energy to be able to move things.
With all the good intentions that the late president had for the country, he could not execute them due to ill health, so that caused a lot of problems. The seven-point agenda is quite good, however, you need to be able to push these things through: if you do not have the energy to do it then what happens is that you start having warlords or tough lords, people doing things in different areas: this person is in charge of this, this person is in charge of that, the president was not around to coordinate things.
Imagine with the foundation that has been laid, unfortunately we do not have enough time. I think there will be improvement but sometimes perception alone can help the system. In our industry for instance, the biggest thing is confidence, when there is confidence in the system, a lot of things start to happen even without you doing anything. So what we are going to enjoy in the next few months is the fact that there is a new government, a younger person, a dynamic person and hopefully that is how we create the valve that we are looking for; and because of what he has done, calling everybody maybe for reasons of stability, I believe we are going to go back to trying to implement some of the things on that agenda. I do not see him coming with any new agenda, I think he’s going to continue with it and you know he is done something-he said power-and to me, if I am asked to advise, it’s power number one, power, number two and then the third one will be power.
I mean if it is the thing we can fix at this period, why not. For the political arena, one major thing for the life of this country again he mentioned which I like is the ability to run a credible election. In the world everywhere, it has been proven that if a government can deal with such issues of governance, you deal with corruption and also elections, look at Britain, they just finished elections – you know it needs to be something you do in the world with ease. When a country gets to that point that it is able to elect its leaders without corruption, then I think we have it made. Then the economic power that we have in this country is so strong that if we have good governance, we will join Brazil and the rest of them to begin to become one of the strong economies of the world.

You talked so much about power yet there’s this cliché that if you dis-empower people and you build infrastructure, the dis-empowered people will turn round to destroy the infrastructure. We have a pile up of unemployed youths and we have diminishing opportunities within the system. Do you really think we are not sidetracking this issue
Let me tell you something: if you have electricity, there’ll be more industries, there’ll be more production Рagric companies would run better and they’ll employ people. Today, lack of power is killing these industries. If you start any business, more than 40-50 per cent cost will be in buying diesel. My view is that if we have production, look at Lagos State, we almost forget now that we used to have what we called Area boys. What they did in Lagos was to get more productive-these guys are now making blocks, they are the ones who now plant a lot of these trees we see, and it created some jobs.
My point is that if we have many more of our industries running, I am talking about micro-industries not even big ones, you know, hair dressers etc, if you can take that cost away so that the barber can have some profit, meaning that he’ll make some money and buy from the man that is selling bread Рthe economy would turn around. Electricity is taking a lot away from this economy and then tell me somewhere else in the world where a nation has done well without this energy thing. If you don’t have it, you’ll be in trouble, it will be the beginning of creating opportunities for people who are leaving school to work. If Lagos State can solve power problem, this economy will double. I am saying that if you look at the institutions today, where we are making noise about 6,000 megawatts when we should be talking about 100,000 Mw, for Christ’s sake, this is a disaster! I am not sure there’s anything that is as bad in the country.

Banks used to provide a lot of opportunities for the youths because of the growth within the sector; since the CBN reform under Sanusi came, there’s been diminishing opportunities in the banks and it appears the idea of consolidation has become a waste Рare you comfortable with this
If you studied the history of civilization, many times you see a boom and everybody is enjoying and growing, and all that, and then there’s a burst. Many times people in the nations of the world do well and they forget the basics of life or of what they are doing. If you study the Roman Empire, the Yoruba Kingdom etc., people at a point started to do crazy things at the peak of success and then they fail. So it’s like that in our industry.
I have stayed a long time in this industry and I have seen the business change from being core bankers, financial projections into deposit mobilisation, depending almost entirely on government funds to do business Рand so things ballooned. And I believe that just like anywhere in the world, a check became necessary Рwhich is what we are getting. And we’ve seen the extent of what happened. Don’t also forget, it’s not because these guys were always bad people, things also happen in the global economy which we initially said won’t affect us here but you know it’s like a cyclone, after a while it gets to everywhere.
So it hit us: oil and gas, stock market, real estate, all of those things. And believe me, the intervention, if it did not come at the time it did, it would have come later. Something would have happened. Do not forget that those banks were already on a list for quite a while – and in fact, the things that people should understand were that the first visitation to these banks came from the Soludo CBN leadership. What is happening in these banks was that the discount window that was opened, they went in there and they stayed in there for quite a while.
There were things that we did that just could not continue especially when the driver, which was the economy-and a lot of us benefited largely from the growth in the economy. The economy was doing very well, the expatriates were coming, foreigners were investing in these banks and things were happening. When that stopped, and you know these foreign investors, the first thing that they did was to take all of their money out. And there was a shock and a couple of these banks just could not get out of that shock.
Now, what the governor of the Central Bank did again, maybe it is the right way, maybe it’s not the right way, to me is a question. You know I joke with and say you know when people have heart attacks sometimes and you are desperate to wake the guy up, what do you do? You pump a lot of electricity-I see them on television jerk it…maybe that shock treatment was needed for our industry to sit up. I think we can begin to debate style but again, I will say what was the objective? Do we have bad loans or not? Do we have corporate governance issues or not? To me, that’s what I will debate.

If you were Sanusi, would you have taken that approach given that confidence constitutes a vital issue in this industry
Well that is a very hypothetical question and I am not Sanusi because you see, if Sanusi creates a problem because he’s Sanusi; he may know how to solve the implications of his approach. So I cannot begin to debate his approach. My approach may be different, it may be the same thing: but the fact remains that what is the objective? I say to people, you can succeed in various ways-there are very calm and quite leaders who don’t talk at all but there are those who believe that they’ve got to talk, they’ve got to show-off, they got to lead in the front, they’ve got to be seen and not be quite-and if you study history, you’ll see that there is no laws that says this kind of leadership is better than this leadership. I think the most important thing we should be looking at is what has happened after then. For me, maybe because I am a beneficiary of this, I think banks are a little more realistic, nobody is shouting am the biggest bank in
Africa, in West Africa and the world anymore; nobody is competing on the basis of I have the largest capital: you know it was a very ridiculous thing we went into. I’m saying let us see the objective of what he wanted to do and what he achieved. If I look at things from that point of view, in see success. And I think it’s better to act than not acting at all-it’s better to risk than just sitting down there and hoping that things will get better.

Hence the banks are not lending to the economy?
Let’s be careful about that because banks will lend to the economy and if you see some of the decisions that have been taken recently, N 200 billion is available for agriculture, we are looking at aviation and we are looking at power. You know you needed to have being with us in Enugu, I’m talking about my own company now; there is no time in the last five years that this bank has been as serious in terms of lending to the real sector as we have now. In any event, you have fund available to do those projects. It has assisted us to have rules of banking that now allow us to do term projects. Before now you started to do a housing thing before Fashola gives you approval, your loans are classified as non-performing. The new things coming today are urging banks to go into serious business of transportation, of agriculture, of power and aviation. Look at the aviation industry, it is collapsing. He is coming out to say let’s create special funds that can make the economy to grow. Again, I am saying, let’s look at the intentions.
And I am very serious here. We sat down and looked at the transportation system, we had meetings with Lagos state government for instance to be able to do rail roads. Skye Bank is involved in Mono-rail in Port-Harcourt. We have done real estate, we have financed factories, we are going back to the old good days of doing serious banking, way beyond I have the biggest this and that we were doing before, where everybody was training people to mobilise funds and because the structure did not allow you to do serious banking, you know intermediating allows you to place money and you move on and you declare profits: so what is changing that I see is that it looks like we are creating structures that will allow banks to do things over five years, ten years and nobody is sitting on your head to say where is the result.
Some of the things that we want to go into-you need time. We are probably the largest investor in cocoa processing business in this country. We have three plants in the country and they are doing very well. You need time to set up the factory, you need seasons to buy cocoa to process, to export. How can you do that within a 12-month period. These are some of the things that are beginning to evolve. The fact that we are even talking about banks getting involved with Lagos State, they want to do this and that banks for the first time sat together and they were looking at developmental things for the country. And he has gone ahead to say, this fund is available for agric and this one is available for this business and I think we should give it a chance.

Currently the deposit rate is about 1 to 2 per cent while the lending rate is about 22 per cent- as a banker and entrepreneur, are you comfortable with this or is it good for the economy given that there will be no incentives?
First of all we must not discourage savings: when the rate of savings is lower than the rate of inflation, that is a problem, people will move their money away. Do not also forget in solving some problems, people are moving from interbank to the capital market. So they look at the banks and say there is no money there. From the point of view of economics, I see what you are saying that we can not have a nation that does not save because if you do not save there will be problem for our people: they are going to be living from hand to mouth.
Maybe this will adjust itself after a while, in any event, the money that we have today, if we use it well, it should go into production so that it will not be floating around the banks in a way that we just keep money we do not know what to do with it. When we go into serious business, and that will take some time to invest the funds, they will no longer be available and then we will now be looking for savings money to continue to do development projects. I think we would have this problem for a while. The other side is lending: I also think our rates would come down and it’s coming down. In this bank today we are doing a lot less than the figure you quote especially where you see good transaction. You are not gambling. You know sometimes, customers come to you and say let’s gamble together and then if you are the kind of bank that wants to gamble, you price to high stakes. But I see your point-it should not be at zero, that is not good but I believe that with time, when the funds that have been released today go into where they are supposed to go to and are no longer floating around additional requirements for funds will make deposit rate to go up.

Skye Bank has been involved in infrastructural development projects in the country; can you elaborate on this?
Before all of these, for some reasons we have always thought that as a bank, you need to be in those sectors and it is been quite successful for us, it is been quite useful: that is why I am saying let us be careful because I know my own bank is lending because the sectors that we are involved in has continued to grow. For instance, in oil and gas and I do not mean selling diesel, tank farms and all that. I am talking about people who are doing oil fields. We have three, four of them and they are doing very well. So they are there and you must continue to support those businesses; you can not say because there are these problems in the market therefore you would not do that. But there is money and money is cheaper for us to get, so we continue to work in that area. You mentioned real estate, we have always been in real estate, at least two of the banks that came together, we have always been in real estate, we have never left real estate: in fact, two of our products are in the market today, we are doing something on Lekki, we are doing something in Abuja and they have all done very well across the country.
We will continue to be involved in such things. I told you earlier that we are one of the biggest in cocoa processing in this country. There’s a big company along the expressway going to Ibadan we have one in Ileloji, we have one in Akure and they are all doing well, processing things. We think it is the future. We think if we grow these companies, we would not be looking all over the place for business as we go forward. We are growing with these companies, creating a Nigerian enterprise and it is done quite well for us.

There is a transition to micro and niche banking-is this phase of banking in the interest of Nigeria compared to what is happening in South Africa, Ghana and other part of the world?
Again, I will say, let’s be careful because if you go to America and where you mentioned, they have these kinds of banks. What happened during the disasters in America was that the smaller banks survived more than the bigger banks. Now, what we need to watch will be the rules of engagement of these banks that are being created. My view is that supervision is not strong enough. Always this mistake that a micro-finance bank that is supposed to be micro-finance starts and the first thing they want to do is to be like a commercial bank.
They are buying air-conditioners; they are buying fancy cars, opening branches everywhere. If you study Brazil to Mexico to India to Pakistan they are people’s bank, they are there even in Afghanistan-they do banking in small locations and there are successful micro-finance institutions in this country that are supported by The World Bank and all of that stuff. Doing this thing the right way they are not over paying their staff, they ride bicycles, they bring down the cost of operation-and it has been shown that in that sector, default rate can be very low because it’s community based. They know each other and they borrow small amount of money, they trade with it and they bring it back. But it is a concept that must be understood and be managed properly by those who are involved in it. You cannot run a micro-finance bank like you run a commercial bank because it is not the same business. I would not know what to do with a micro-finance company. I am not trained to do micro-finance. There are rules of engagement; you must understand the people. If I am doing micro-finance and the cost of booking the loan is higher than the loan you want to give out: the officer sitting down, the computer you are using because you want to be like Citibank or Skyebank from day one, you will fail. I saw that as they were setting up. They wanted to have their own ATM. I think failed bankers-people who had problems with commercial banks went into it. I hope people will see leading examples in the world and try to implement it but the way many of these people operate the license that they get for micro-finance is what is causing their problem.

What in a situation where big banks have micro-finance banks as part of their operations?
It is a big problem because they will never have time for those companies, that is what is happening. Very few of the banks have the energy and power to supervise this micro-finance outfits because the kind of thing we had in the past, it was more fun to do the big things: why would you be spending your time talking to someone who will come to borrow N 100,000? If you are posted to that kind of department you start feeling they want to kill me. It is more important to be talking to Shell and talking to the big boys and talk about billions just the psychology. So it is better to remove it completely and put it somewhere else. those who want to do that kind of job, I am talking from my own experience, I don’t know about the bigger and older banks but it can be quite difficult sitting here and trying to supervise these subsidiaries that do not fit into your everyday kind of work.

What is your post service plan?
I will continue to be in the sector that I know I’ve been forever. There are so many things to do. We talked about infrastructure financing, power, we talked about energy, we talked about things that need to happen in our economy and just like you said, given the experience that one has gotten over time, I am just going to find ways of deploying that and ensure this industry continue to do better and this economy continues to grow and I think we are beginning to approach an interesting period in the life of this country.
I think the next few months will be quite exciting for the country there is going to be confidence, there will be international confidence coming back. And if you look at the capital market things are beginning to shape up again. Peace in the Niger Delta, that is important; we need the oil price to be stable, we need the volume to make money. Politics should be reasonably fair and good so it does not disrupt things. We need world confidence in this economy. SkyeBank will continue to do well anyway. I am a shareholder and stakeholder and will continue to have my support.

What do you want to be remembered for?
…Like I said, I was made MD and I gave it my best shot and I am happy with the result.

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