As many banks are bogged down in non-performing loans (NPLs), the Chairman of the newly launched Nova Merchant Bank, Mr. Phillips Oduoza, says euphoric lending is to blame for NPLs in most cases. According to him,“there is a trend in the market, everybody jumps into it and the risk management practices decline.
And there are huge losses arising from that,” he said. In this interview, he sheds more light on this as well as the vision of his new bank and other sundry issues.
You know today, technology has been changing rapidly and we have some new entrants into the financial services space basically called the FinTech.
They are coming with technology and changing the way banking is done. And we are looking at it from Nova perspective and we feel that it should not be business as usual.
Therefore, we should also make a very strong foray into what the FinTech companies are trying to do. We go ahead of them, we also offer our own traditional banking products. In doing that, we carefully selected the people.
You must have seen the people announced by the CEO today. They come with different skills and different talents.
We also deliberately selected our technology that is likely away from the traditionally banking technology. In effect, it is able to deal with the new trends that are coming out in the market.
Today, we hear about artificial intelligence, we hear about blockchain technology, we hear about all those in digital space. So for us to create that superior value, we need relevant technology to do that.
It can never be the technology of yesterday that will do that. It is the technology of today and tomorrow that will do that.
So, the kind of technology we are adopting is such that will enable us to redefine the way business is being done. Today, you see customers filling forms, hard copy forms to open bank accounts. From Nova perspective, you can do that digitally.
You just stay in your office, you complete the form, you upload it into our system. Automatically, we open account for you, then the account number is generated; you have it; we do the necessary KYC (Know Your Customer) checks and other things.
Again, we are looking at it from the perspective that in Nigeria today, most of the financing that are done are basically short term financing.
We think that the customers need long term funding sources to enable them plan appropriately. So we are intermediating through development financial institutions, both in Nigeria and outside Nigeria, to get long term funds.
We also are nurturing the Small and Medium Enterprises (SMEs), businesses that have not been able to structure themselves properly so as to tap into the capital market, and we will take them to the market. That is what we will be doing from investment banking perspective. So our corporate solution is all embracing. It is just going to handle so much. And it is no longer going to be business as usual.
You’ll be on the go, with your phone, with your watch, you’ll be able to do your transactions and so on. That is going to be the kind of value we are bringing into the market.
To be a top leading bank in Nigeria, that is actually our plan. So when Aliko Dangote was talking about his prayer for the bank, it was like he was revealing what we have in mind.
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And we are working towards a leading position. We are not talking of size; we do not want to be the largest bank. That is not our plan. We want to be the most efficient; we want to be the most customer-focussed bank in terms of service delivery and our technology is suited for that.
And in terms of being lean, we want to be very lean so that our cost income ratio would probably be one of the best we have here.
And that is what we think can propel us into that particular position we are looking at. We have people that have been trained to perform as leading merchant bankers. We do not try to adjust from being a commercial bank.
We are a pure merchant bank from day one. We do not want to adjust from being any other thing and then convert to merchant bank.
We are starting as merchant bank from day one. Therefore, our technology is designed to be a technology of merchant bank.
It depends on what you want to do. What we said is that we want to remain within that focus of merchant banking.
Therefore, we are not deviating; we are not going into so many other areas; we want to remain focused in that. If that is the case, we know what it takes to play in that sector is ability to secure long term funding and being able to make them available to the customers. So, basically, that is what we are going to focus on.
We are going to focus on our investment banking activities. We are not going to focus on any other thing. We are going to focus on our wholesale banking and investment banking.
And in terms of investment banking, it is an ability to secure long term funds for a client. That is what we are going to do.
The funds have been available but it depends on what you want to focus on. I am saying that that is our focus and we will remain focused on that. We are going to remain flexible. We are not going to chase many birds in the air.
The investment banking opportunities we are talking about exist in so many sectors of the economy. I will just mention one of them: infrastructure, which is very key. And we know that today we have infrastructure gap in Nigeria.
And we should be able to play strongly in that particular sector. We are looking at the manufacturing. We also know that it is an area, a sector that is challenged. We should be able to play strongly in that space.
We are looking at agriculture; large scale agriculture. We should be able to play very strongly in that. And that is the area of wholesale banking. In the investment banking space, we are looking at advisory services.
We are looking at project financing; we are looking at capital market operations; we are looking at assets management and we are looking at wealth management.
In terms of focus, we are looking at commercial businesses and corporate businesses. If you go back to our vision and mission, it is about providing solution in the market space: where there are issues; where there are cases in the economy and the way people do businesses and we’ll be trying to resolve it for them.
So inevitably, we will be looking at traditional areas where investment banking play, whether it is power; whether it is oil and gas; whether it is agriculture. But our approach is, we are trying to help business succeed.
When you are trying to enable business succeed, it is not always a particular product. I think, sometimes, what you see in the market is that some banks may become specialised in offering a particular product or service and they sell it to everybody.
Whether there is a need for it or not. One of the skills in some of these areas is just the structuring of a solution; a solution that will meet a long term need.
So, it is not like you do a financing you see sometimes in the market, a financing today and two years down the line, it becomes a distressed financing.
That is part of what affects the appetite in the system, you are asking about why this is not happening as often. When you jump into something or when you go into something and then it goes wrong, then you tend to stop.
And it will take you a long time, maybe, to reinitiate. So part of the new thinking we are bringing into that is that we will be looking to engage the customers in a way that is sustainable for them; that will enable them to grow steadily and successfully over a long term, and enables our capacity to continue to grow that business. So it is not that we do it for two years and suddenly we can’t do it again; maybe our balance sheet is challenged or the structure has failed.
The non-performing loans (NPLs) revolve around risk management and the kind of risk management framework you have in place.
You need to strengthen and empower risk management for you to have an effective long time bank. What you tend to see sometimes is that there is what I may call ‘euphoric lending’.
There is a trend in the market, everybody jumps into it and the risk management practices decline.
Usually, it takes about 18 to 24 months before that trend comes to a stop. And there are huge losses arising from that.
When you engage a customer, you engage a customer in a way to ensure their continuous success. A client may tell you, ‘I want this’.
But it is up to you to study the client’s circumstances; to understand the global mechanics; understand the national economic scenario; understand the customer’s industry; understand the customer’s management and skills, and be able to share with him and say: By the way, this direction you are going will not serve you. I will give you an example: In my younger days, I was a risk manager for a company that was dealing in paper.
If you know paper business, the margin is very thin. And this person was very successful. Then he decided to out-compete another paper company by throwing a lot of money into importing paper.
He brought so much paper, he couldn’t store the paper in his warehouse. He was storing paper outside. You can imagine paper outside in the rain! That became damaged.
All driven by his ambition to dominate. In that kind of situation, your job as a banker is not to provide financing for more paper and more paper. It is to tell him, my good friend this is the scope of your business; this is the scope of your abilities.
If you stay like this, you can grow to this size in three years, not tomorrow. I think part of the job of risk management is to, in some ways, guide the customer. And that is what we will do in Nova Merchant Bank.
We are hiring best in class and have in place best in class risk managers. And that is important in term of managing successfully.
Guiding clients in the pathway they need to follow; understand the business you are doing; what are the risks in that business? For example, lending a customer foreign currency because you see that the rates are steady now.
What if the rate is N500 to the dollar tomorrow, can he pay? If he can’t pay, what do you do? Do you have exit? Those questions you must ask, buying decisions on credit are made in good times. It is when the times are good that you have to watch yourselves.
So you don’t have to follow bandwagons or do things that will lead to crisis for you in due course.
We don’t intend to serve every customer. We are trying to be a niche player. And our target market or focus will be top notch clients who have good structures in place, good management team complemented by our own support in terms of advice.
The name, Nova
For some time, people have been asking, how did you come about the name Nova? Why did you select the name, Nova? And what is the meaning?
Nova means new in so many languages. In Latin, in Portuguese, in Spanish, in Italian and so on. It came as a result of our major deliberations that we had and it was an outcome of our strategisation.
The session took place first, we decided what we wanted to do. And then the name Nova came in, which is new idea, new thinking and assisting the clients to tap into new opportunities.
So, the business model came first, and then the name follows. So that is how we got about the name.
The whole idea is to use new ideas to leverage the technology, skills and talents assembled at Nova to change the way business is done in Nigeria.
Also, we have been asked the question why do you come out at the point in time when Nigeria has been going through challenges.
Our response is that this is the best time to come out as a new institution because if you are able to operate at the time of difficulty, it means you can only flourish when the economy starts booming.
And that is why we decided to open at this time. The economy is now emerging from recession and for us, we believe that only new ideas coupled with breakthrough thinking can propel an organisation. That is the reason we chose this moment to launch Nova.
Basically, we want to be Africa’ preferred financial solution provider. We are not talking of financial services, but financial solution, which is all embracing.