Omoh Gabriel
30 June 2008
interview
Lagos — Recently, Yomi Adeola, Managing Director Sterling Bank PLC had an interactive session with journalists in his office in Lagos and spoke on a wide range of issues in the banking industry in Nigeria.
Excerpts
Is Sterling Bank coming to raise more funds from the capital market, how much are you targeting and when should we expect this to happen?
We are looking at the September/October timing for going to the market. On the issue of how much capital we need, I am not a believer in too much capital, I imagine we would go for between N50 and N75 billion in capital for the kind of bank we want to run, I do not need N250 billion in capital, I do not need N300 billion in capital. Experience has also shown that those people who have raised huge capital have been unable to deliver the return on the capital. I will not mention names but we know banks that have raised N300 billion in capital and all they made today in profit before tax is N30 billion, that's 10 per cent return, it's not good, it's not exciting. So why beat the drum and deceive the whole public to come and invest and at the end of the day, the return on equity is nothing to write home about? I know another one with about N180-200 billion capital, same thing.
If Sterling Bank at N25 billion capital is able to deliver between 30 and 40 per cent return, that's better for investors than the one that is raising N300 billion and delivering 10 per cent. So you see, there's this bandwagon effect in Nigeria and I think it's madness, so if Bank A has raised N200 billion, I must go for N250 billion, Bank B has raised N50 billion, let me go for N300 billion; they are not looking at ratios anymore. This is capital in absolute terms or just air capital, capital is just in the air, it's not working for you. Of what use is that kind of capital? So, by the time I am raising N50 to N75 billion, I should be able to predict the kind of return I can give on that capital and it will not be far away from the kind of return I am giving on the capital that I have today so that doing 20-25 per cent profit on my N25 billion, by the time I get to N100 billion, let it not be less than the same 20-25 per cent, otherwise I'm not being fair to my investors and I won't be fair to the people I have taken money from. That's my attitude to the issue of capital; it won't be too high, raise what you truly need and also when you have too much capital, the tendency is for you to see waste. Look at the cost income ratio of Nigerian banks today, it's just too high - they spend too much money buying all sorts of things that are not needed, I won't name them, you know some of the things they buy. I don't think I want to run that kind of bank.
Going to the market can't just be for fun, what would you do with this capital you intend to raise?
First and foremost, we would like to get our technology right or should I say, improve on our technology; that is key. We want to do consumer banking big time. We really want to reach out to the consumers, the masses, the middle income earners. The way to do consumer banking is to deploy technology appropriately so we would be spending a lot on technology. Number two is to expand our branch network. Today, we have 100 branches, the level of sophistication in Nigeria is such that you still need brick and mortar, you still need to put branches all over. You don't need to build branches that are too elaborate but you must have the branches so we would build the branches.
Don't forget we have a major shareholder and this happens to be the largest bank in India-, the State Bank of India (SBI), we would partner with them, identify other locations outside Nigeria where we believe between Asia and Nigeria, we would be able to derive some synergy in partnering with SBI and having pockets of locations outside Nigeria so this is also a game plan and above all, our single obligor limit will go up because this is usually the percentage of your shareholders' fund so these are the key areas we would be focusing on. We have about six subsidiaries that are profitable, doing good business; we would capitalise some of these subsidiaries that can do more. We have the Sterling Asset Management, they need more capital and we'll give them more capital. We have Sterling Capital, we have a few subsidiaries that require more capital. We would also set up some additional subsidiaries for specialisation and we would also use part of this new capital for some of these initiatives.
With the mutual agreement between Sterling and ECOBANK to discontinue the merger, a lot of investors particularly people that bought your shares as well as your shareholders, would be worried that there were no indications in terms of the direction the bank is headed. Could you throw more light on this?
If a merger does not work or does not go through, it's not because management does not want it, it's because shareholders don't believe they are getting value. At a time a merger is called off, shareholders don't believe they are getting value. And that is what happened in this case. For the shareholders - what was on the table was not giving them enough value and they called it off, not management. Now, when you are calling off a merger, it means you are looking at the opportunity cost of moving on as Sterling than pursuing a merger. There must be something positive they see in Sterling moving on for them to have called the merger off. And for me, that thing is very clear, they see a bank with great potential; they see a bank that is beginning to put legacy issues behind and is beginning to do well.
They see the numbers, at least the quarterly numbers improving and they are telling themselves, 'why should we go and play second fiddle? Why should we be bought cheap when the bank is doing well?' So in terms of direction, there's no other pointer to a positive direction than the numbers. Immediately the merger was called off, we published our half year results, much better than the half year result of the prior year. Management believes the third quarter result will further confirm and corroborate this. And by the time we get to the year end, we'll be posting the kind of return on equity that would be among the top three in the banking industry. What other direction could be better than that?
What typically happens in most Nigerian banks is that people make so much noise and that has permeated the system that if you are not a noise-maker, it now appears as if you don't know what you are doing. Whereas in many economies, it is not noise-making that determines success, it is numbers, it is customer satisfaction, it is employee satisfaction, it is shareholders' satisfaction and I don't have a doubt that we are on course in all these three areas.
In what particular area of business do you think Sterling Bank has an edge given the fact that former NAL Bank, of the five legacy institutions used to be an authority in investment banking?
Several things are happening in Sterling Bank at any given time, let's start with capital market. You know we set out to focus on three areas in addition to several other areas: capital market activities, consumer finance and trade finance, these are the three primary areas. We have several other areas that we would talk about. Let me start with capital market activities. Several peer reviews have been done in the market and it's been established that Sterling Capital is one of the three leading investment banking outfits in Nigeria today. In the past fifteen months, we've taken more than 23 companies to the market including at least six banks out of the 17 banks that have gone to the capital market to raise capital and this hasn't stopped. We have in the pipeline, another five or six companies we are about to take to the market. So this is one area we set out to be a leading player and we've established beyond doubt that we are a leading player as far as capital market activities are concerned in Nigeria.
If I go into the area of consumer finance, we are making waves quietly. We are very dominant in the acquisition and sale of most of the flats in 1004 (Housing Estate). Today, there are many projects on the Lekki-Epe axis and we are giving mortgages to deserving Nigerians thereby changing the face of this economy, allowing the middle class to evolve once more. From mortgage finance, to asset base finance, cars, refrigerator name it. We did a promo on laptops that was a huge success. We are doing one now on generators and you would not believe the number of customers we have acquired through this generator promo. On a daily basis, they troop in because they are interested in financing. You see, developed economies survive on credits and we must introduce that here and that is what we are doing.
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