By Omoh Gabriel, Business Editor
When in May 2004 the withholding action clamped on Pacific Bank was lifted it was because the re-engineering process enbarked upon by the bank has started to yield fruits. One of the fruits was the payment of the bank‚Äôs overdrawn account with the CBN and that of the interbank market. Before now the bank was one of the 11 bank for which a life line was put together for by the CBN. The bank then was highly indebted to the CBN and other bank This led to the holding action on the bank by monetary authorities. Pacific Bank was essentially a merchant bank which has been in operation for 12 years, until 2 years ago when it received a universal banking license and the bank has to be remodel in line with the operational requirements of universal banking and also to embrace the new challenges of universal banking.
When the bank was in a state of comatoes it embarked on a re-engineering process. According to the bank Managing nDirector and chief executive officer Mr. Kunle Adeagbo, ‚ÄúWhat has happen has happened in the bank in the last 3 years is a sort of re-engineering process, in all facet of activities and changes, for example the capital base of the bank has been increased to N1 billion as required at the time by the CBN but what we also did was the diversification of the ownership base by bringing in new investors who bought 41 per cent of the shares of the bank.. So this enables for a larger and a much more broader decision making process at the board level. We now have a more diversified and stronger decision making board, a wider board much more experienced than the last time, comprising of people with diverse background who have excel in their various field of endeavour‚Äù.
The bank in its survival bid also, apart from the dilution of the shareholding base reconstituted the board and a new management contracted to pilot the affairs of the bank . That was what brought people like Kunle Adeagbo into the bank‚Äôs management team. The management and the board have been able within a short period of time to re-engineer the bank‚Äôs various areas of operation that led to massive loan recovery, payment of debt owed the CBN and the interbank market. The bank during the re-engineering process invested in information technology which the bank says it very much believes in to assist it provide provide efficient and up to date IT Informattion service delivery to customer. The bank during the period also beefed up its staff strength both in terms of numbers and experience. Pacific bank poach a number of experience people from the industry. According to Adeagbo ‚Äúyou now have a bank with people who have commercial banking and retail banking background. We also strengthen our existing branches, and we also added new branches‚Äù.
The investor who came to the bank‚Äôs recue was a Nigerian who bought forty percent of the bank‚Äôs equity holding. That single investment has recapitalised the bank and brought it out of the doldrums into recornning.
Re-engineering in specifics what are the area?
The bank‚Äôs re-engineering effort was focussed at four major areas. The first one was the recovery of loans that was non performing, secondly the reactivation of businesses, the opening up of new department to service businesses and the infrastructure of bank. Mr. Adeagbo said ‚ÄúWe re-engineered the infrastructure of the bank. As at the time we started the re-engineering process the bank was indebted even in the interbank market, we were owing the CBN. We were part of those 11 banks that a lifeline was arranged for and also in the interbank market we were indebted. So when we came in , we looked at it and we discovered that we were not in very strong position and we had to develop about four approaches toward re-engineering the bank. The first one was to try and rescheduled obligation and in line with this schedule we also have to start the recovering of loan process and apart from the recovering process we also have to do the recapitalisation, which means that we have to increase on paid up share capital to meet the N1 billion and also diversify the shareholding base and also reactivate the existing businesses, maybe, so what we have to do, was first of all employ people who are specialist in the various areas from the industry or outside the industry. Through the instrumentality of the diversification of the capital base also means that the management will be strengthened by the injection of new blood into management. We ran the four cocurrently to the extent thay we were able to pay off the banks we were owing and the CBN to the extent that today we are net placer of funds in the interbank market. We are not owing any bank any more except we are net placer in the interbank market‚Äù.
‚ÄúWe also recovered most of our outstanding loans and the holding action that was imposed on the bank was lifted‚Äù
Thus Pacific Bank became one of the banks that escape the grip of the undertaker. The bank immediately set about refurbishing existing branches of the bank and relocated them in response to the need of retail banking as against the merchant banking orientation. ‚ÄúThe location were Merchant Bank in orientated in term of set up they were converted and restructured to provide universal banking services, infact, some of them were on first or third floor that we had to put in new located that are conducive and well positioned for retail or universal banking territory‚Äù said the Managing Director. The bank he said was also able to open new branches like Akure, Ajekunle, Oregun, Abulegba and Oba Akran and more are to follow.
THe bank has been repositioned and has returned to the path of profitability. Accordint to the MD, ‚ÄúWe also have returned to profit assuming that we have our annual report from the CBN, you will have been able to see what we have done within this short period. The type of balance sheet outlook, though it is much sronger now in terms of ratios, the balance sheet is still relatively small. The numbers are much better now in terms of ratios.
N25 billion base for Pacific
At the moment the bank has a capital base of over N1.5 billion. The new investor injected new capital of N1.2 billion into the bank. The bank has put in motion plans to raise its capital to N5billion in order to pave way for negotiation in merger and acquisition. Mr Adeagbo giving insight into the bank‚Äôs future plan said ‚ÄúWhat we have done to meet the N25 billion capital base challenge is trhat we are talking with similar institution about merger and acquisition but as a prelude to completion of possible merger, we have increased our authorized capital to N5 billion and have also started a programme that will make our paid up capital to be N5 billion, then at N5 billion, we can then be ready to consumate our merger programme because it is better to go to the negotiating table with something good. If we are still on N1 billion, how many institution do you want to merge with. For Pacific Bank to be significant in any consolidation it needs to put something that is reasonable on the table. So that has formed our decision to immediately increase our paid up capital to N5 billion, then look at other option to meet the N25 billion required by CBN before December 2005.‚Äù
Investment in IT
Pacific Bank has been able to invest in Information Technology Infrastructure. As a result the has linked its branches on line real time. ‚ÄúOur branch network are now online. We launched online real time. The bank also has been able to open new branches and have the old branches refurbished to give them better outlook. It has also invested in staff training in order to face the challenges of the banking environment in Nigeria. We have actually adopted a new software basis which is a very modern software that runs on oracle and which is being used by banks like GTB and Magnum Trust Bank in Nigeria today, we also like i said earlier apart from the software were able to link all our branches.
Loan recovery – how much have you recovered?
Pacific bank had non performing loans totalling N1.5 billion which eroded the share holders fund before now. With the restructuring exercise in which debt recovery was a major plank the bank recovered close to N1.100 billion leaving a balance of about N300 million outstanding. Most of the loans were insider related credit and because of the small size of the bank it was relatively easy to recover a substantial part of the loans. According to the MD ‚Äúwhat really happened was that the last management shied away from asking for repayment because those affected were close to the chairman. They probably felt if they asked the chairman would be annoyed. To be fair most of these outstanding loans were paid on first request, on first demand some of them came up and were able to pay. In some other ones we have to be creative in terms of the arrangement that we we work out to enable recovery‚Äù especially as the bank is a small one. Even at the time the bank seems to be distressed because of the relative small number of customer there was no much noise around. So essentially before the current management of the bank some of the outstanding loans the recovery were not just pursued the way they were supposed to.
Deposit base, how the public responding in taking the bank into confidence
Public confidence in the bank is growing. this the bank management said has really increased in the real sense of it. Pacific bank coming from a small merchant bank base into universal banking base has been able to grow its deposit and it has a lot of potentials because going by the growth in the bank‚Äôs branch network,operating with just about seven branches then all of a sudden risen to about fifteen branches now then the rate of expansion can better be imagined. So the deposit base has actually increased astronomically.
In terms of number
In actual figures the deposit base was about N500 million at the beginning of the restructuring exercise but today, the deposit base is N4 billion. The structure of the deposit however is skewed in favour of fixed deposit, this is being adressed through the instrumentality of branches network. The mere fact that the bank started operation as a merchant bank, resulted in the fixed deposit to other kinds of deposit being very high and bank management has been able to narrow it down now to 50, 50 as opposed to what it used to be about 80, 20 in favour of fixed deposit.
high cost of operation
The bank‚Äôs cost of operation is high though this not perculiar to Pacific bank. Cost is a serious challenge to the economy as well as the banking industry. So it is an industry problem and everybody is trying to work at it.
Now looking at the industry what is the nitch that Pacific bank want to carve for itself. what level level of the market are you looking at? Middle, upper level or lower level of the market?
For now our focus is on the retail banking because that is where banking because that is where banking service is a lot of service short fall in terms of service provision in the retail end of the market. We want to go to places where most banks will not go to and that is why we are targeting Ekiti State and Ondo State. We want provide services to where existing banks are not providing banking services . So we are looking at the retail end of the market for now.
That is a good thing. Is being actual thing. But when you look at the industry generally that is the area existing banks run away from because they are not profitable. How do you intend to go about this?
We have a very young and creative set of management such that what you need to do is to bring down your cost of operation think and make such location‚Äôs cost of operation to go down through the deployment of appropriate IT, we are talking of appropriate IT support. and we also look at the appropriate staff support. We are talking of appropriate so you discover that when you bring down your cost of operation, are quite comfortable if you work on your cost of operation.
Now one thing that worries me one time I was talking to a banker like you the impression he gave was that the guideline for setting up a branch, among the requirement is that you must have a minimum of N100 million before you can open a branch. How realistic is that?
That is what we are talking about. for us most of the branches that we newly open I Can tell you that there is none that we spent up toN 20million, that is why we are talking about appropriate cost structure.
You don‚Äôt have to do monument, all over the place, what it closed to that, you have an attractive building and when people enter ito the building it is not the easthetics but the service they get that matters. It is just like somebody who is in the car, it is the people outside the care that appreciate the shape and the colour of the car because once you enter the car if the car messes you up that is it. So, you have something that is reasonable, matters most to customers is services. From our own imagination, and the model that we have built, which we are going to implement some of these location will just be like not more than the size of you know what operates abroad when you enter a shopping moor or Super market look you see a kiosk kind of bank they are service outlet really. The service outlets once they are link with information technology , appropriate I.T. you discover that services is being provided all over the place. So really for some people it is really a matter of setting standard if you set appropriate standaed and cost it you discover that you don‚Äôt have to have N50 million to set up a branch.
What specialise service is Pacific Bank offering the Nigerian public?
As it is now, because of where our focus is we play mostly in retail oil and gas providing credit for the retail end because one of the challenges that the gradual deregulation has brought on the Nigerian economy is the support for the retail end of the market. It is the retail people that actually deliver fuel to the consumers. With deregulation you discover that credit that used to hitherto exist for the oil marketers are being gradually withdrawn and people are being called upon to provide in times credit services. We are also providing advisory services for some of these retail and small business so that is the area where we are, at this point in time when you build up certain trends. You may not particularly focus on particular area, but the services provision like A.R. that is the area we are emphasising, convenience banking.
What special effort is Pacific Bank putting up to ensure that fives from now the bank will continue to provide these services to Nigerians ?
The part of it is what I have told you earlier, that first strategically we have moved up our capital to N5 billion that is the immediate challenge that guarantee the existence of any bank in the country today. In addition to that we also set up a medium time programme which is to create sort of very agile and creative banking system investing in appropriate information technology and also we are starting a programme that will study the real banking requirement of the the retail end of the market because we know that no matter what the retail end will always be there and small scale because we know that no matter what, the retail act will always be there, so to the extent that we are focused on the market that will always be there irrespective what ever we believe we will always be there.
August 12, 2004