Lagos — When Alex Otti was appointed Group Managing Director/CEO of Diamond Bank in March 2011, he had spent more than two decades in the Nigerian banking sector, most recently as a senior executive and director at First Bank. As he took the helm, Diamond Bank was one of the financial institutions facing serious liquidity problems. (For more on the banking crisis, see the AllAfrica interview with Central Bank Deputy Governor Kingsley Moghalu.]
Interviewed in his Lagos office by Reed Kramer, Otti offered his perspective on the transition banking has undergone in Nigeria and the role his bank is playing. Excerpts:
What are the main changes you have witnessed in banking in this country?
The sector has experienced a whole lot of challenges, and these challenges date back to 2004 or even before that. But I will talk about 2004 specifically, because that was when the banking consolidation move was made by the then Central Bank of Nigeria governor, Professor Charles Soludo, who insisted that banks re-capitalize.
It was a good move. Some banks were forced to merge, because they required capital. We saw the number of banks dropping from an all-time high of about 89 to 25, and that helped in ensuring that a lot of banks did not disappear given the global economic crisis that hit home between 2007 and early 2009.
And the industry itself cannot be divorced from the economy generally. Oil prices came down from an all-time high of about $147 per barrel to less than $40 per barrel, and this happened within eight months. We had the stock market losing about 70% of its value, the oil share index dropped drastically, and the real estate market did not fare any better.
These were areas where the banking industry was very strong, and so it was natural that - in a very serious crisis - the banks were not going to get away unscathed.
In June 2009, a new Central Bank Governor was appointed, Mallam Sanusi Lamido Sanusi, who was a practitioner himself, having been appointed from his position as the Managing Director of First Bank PLC. The first thing he did was to commission a special audit of the banks. What they saw, which was no surprise to some of us who were also practitioners, was mind-boggling.
Eight banks were literally taken over, because the Central Bank didn't want any bank to fail. The Asset Management Company of Nigeria (AMCON) was set up to resolve the banking crisis. Some of the banks have been sold, some have merged, and one of them, they recapitalized - that's Union Bank. Three more are still under some selling process.
So what is the state of the industry today?
The global economic crisis affected us in a very difficult way, but we have been able to come out of it. Today you have stronger banks; today you have banks returning back to profitability and showing stronger returns, and growth rates of double digits in some of the banks.
For the first time we are hitting the 100-billion-naira mark in terms of profitability. Two banks did that in the last financial year, and one or two others were around 90 billion.
I would say the banking industry has recovered. There is still some way to go, and we cannot rest on our laurels because the global economy is not yet out of the woods. We are all familiar with what's happening in Europe and elsewhere, where we have negative growth rates, so we need to also be vigilant so that we don't go back to where we are coming from.
What did you find on arrival at Diamond Bank?
Diamond Bank was not spared. We had our own fair share of challenged assets. The bank was grappling with a lot of the assets to see if they could turn around.
When I joined March 1, 2011, we had to restructure the bank. There were advantages joining from outside, but it was also a major challenge convincing my new colleagues who had sold accounts to close them. But we did, and that's how we got to where we are today. We have done the cleanup, and we have turned around.
The bank had had its highs and lows, and subsequent to the global economic prices the bank had its own fair share of challenged risk assets. I took a decision to look at our risk assets portfolio and clean it up. It was a very difficult process, but we were determined to do that.
The first thing we did was to upgrade the risk manager function. We brought in a new executive director to head that area, and we were able to clean the books of the bank. But we took a beating. We had to write off 45 billion naira in terms of provisions for impaired risk assets, plus, another 20 odd billion naira that we sold to AMCON. That was over 60 billion naira that we had to write off. And that resulted in posting a loss in financial year 2011.
But from the first quarter of 2012, we returned to profitability, and by the end of the financial year in 2012 we posted a profit-before-tax of close to 28 billion naira and profit-after-tax of 22 billion naira. The market has been quite rewarding in terms of the appreciation of the work that has gone into this.
We also took a close look at the people we have to determine who stayed and who did not. Last year, we let go a lot of people who we thought were not in sync with the new vision that has been defined by the bank. And we have also brought in a lot of people from the market here and from abroad that we think will help us in delivering our vision for the bank.
What is the basic profile of the bank now?
Diamond Bank, which will be 22 years old this year, was set up in 1991 and has transitioned from being a private bank to a publicly listed bank, quoted on the Nigerian Stock Exchange and also listed with the Global Depository Receipts program on the Professional Securities Market at the London Stock Exchange.
Our shareholders include many Nigerians and Actis, a London-based private equity firm, which owns 15% of the shares and have two seats on the Board.
We have over 232 branches and are still growing. In the past few months, we have opened an additional 20 branches and more are opening this month. We expect that by early next year, we will have between 260 and 300 branches across Nigeria.
We are also present in four west African countries - Benin Republic - where we are the third largest bank, with over 20 branches - Senegal, Togo, Cote d'Ivoire. We also have a presence in the UK, Diamond Bank UK PLC.
Did the expansion outside Nigeria start before you took charge?
Yes, when I came we were in Benin Republic. So under my watch we have opened Togo, Senegal, Cote d'Ivoire, and of course London.
Why Francophone Africa?
Good question! That's an area where we have a lot of advantages.
The easiest place to go is Anglophone Africa, because the language barrier is not there. But we want to do things differently. There is a lot of trade that happens between Nigeria and Francophone African countries, and those areas have limited banking facilities. So we went to where we think the opportunities are greatest. And the success story that we have recorded going to Francophone Africa justified that decision.
That does not rule out Anglophone Africa. We believe that we will be looking at that in due course.
There's an advantage that most people don't know, and that is the regulatory environment. They have a unitary kind of system, operated by BCEAO [the Central Bank of West African States].
It makes life easier, because you comply with the regulation in one country, then you have complied with the regulation everywhere else. With the license we acquired when we entered Benin Republic, we were able to get into all the other Francophone African countries without difficulties.
What role does technology play in that innovative approach?
We have always been an innovative bank; innovative in terms of technology, in terms of service, and in terms of the kind of things we do, and we have not relented in leading the way.
We are one of the leading Banks in micro, small and medium scale enterprises markets. In the last couple of years, we have disbursed over 71 billion naira to our customers within this segment. We have also been recognized with several awards. This is an area where a lot of banks were not playing in the past, but we have shown that you can do business in that segment of the market.
In 1992, Diamond Bank launched the Diamond Integrated Banking System which offered online real-time Banking. At that time, it was a big deal that a trader could have his account in the North and then go to a branch in the South with his checkbook and withdraw cash, do his business and go back, without going through the risk of carrying cash. This was a big deal in the 90s.
Today, online real time banking is a commodity but Diamond has remained a market leader and has continued with the innovative trend. Our systems are such that we continue to ensure that we are ahead of the requests of our customers. We are always engaging with them and finding out where the next technology is headed.
The cashless society is something that has come to stay in Nigeria. It is a difficult one and a lot of people are resisting it, because we have a culture of carrying cash. That's what we are used to, but when you look at the numbers, you find that it's being embraced by a lot of people, maybe because they don't have a choice.
Today you cannot draw more than 150,000 naira in cash; otherwise you have to pay a penalty fee on the excess amount. There are problems, and of course one of them is infrastructure. Broadband technology has not been very efficient here, but at we are getting there.
And people also have come to terms with the risk of carrying cash around, the cost of carrying cash, and all the other negatives that go with it, so it's being accepted. By July, five more states, I believe, will join the cashless society. Irrespective of the challenges, I think it will be embraced and over time we will get there.
As a Diamond Bank customer, if you have a smartphone you can do virtually all your banking from the comfort of your home or from where you are seated. We have developed tokens that are not physical, so you get into your BlackBerry or your iPhone and you can generate your token and use it to do your transactions. You can move money around from Diamond Bank to other financial institutions. Our cards are reputed to be one of the best in the industry, and for the third time we are winning an award as the bank with the best credit card and best co-branded card program at Card and e-Payment Africa Awards 2013 held in South Africa.
We have done quite well with electronic banking technology. We are upgrading our platform. We run on Flexcube, and we are upgrading to the latest version.
This is very important given the growth that we have witnessed in terms of deposits. In the last one year we grew by 51%. In terms of risk assets we also grew by 51%. As a bank growing in this kind of magnitude, it is important we keep up with modern technology trends to ensure we can satisfy all the needs of our new and existing customers.
To what extent is Diamond Bank still trade-finance focused and how consumer-oriented are you?
Our history has to do with a lot of trade, and we tried not to run away from that history. We still have a lot of trade happening, even though today they are more measured. We are more careful with the kind of trade we do. We have also focused on the next area of growth, and that is in the retail segment of the market, because, when you do the trade, you find that it ends up with individuals.
When you capture the trade, you capture the consumers, you capture the vendors, you capture suppliers, you capture distributors. It is all in the value chain.
Explain a little more about the short-term financing business, how it works.
Nigeria is first and foremost an oil-producing country. We are one of the strongest banks in the oil and gas segment of the market, dealing with the upstream and the services end.
We are very careful when it comes to downstream. In fact, we are not very strong in the downstream segment, for obvious reasons: losses that we incurred between 2007 and 2009 during the economic meltdown, plus the issue of subsidy, which has not been resolved. There are a lot of risks in that area.
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What we did was to assemble experts in the area of upstream and services. Today the head of the division is a chemical engineer. We have geophysicists and geologists in the team. We have also people who have experience working in different lending institutions.
There are no major transactions that happen without Diamond being called. Very often when international banks are working on some reserve-based lending, we are called to participate. We have won the Best Oil and Gas investment bank in Africa. We were part of the Deal of the Year award for 2012 which involved a consortium of banks.
You really cannot operate in the Nigerian financial services market without getting involved in those kind of trade-related transactions. So we are very strong in that.
What about trade financing for imports?
Yes, we do transactions in that segment. We do a lot of them. With fast-moving consumer goods like clothes, you are importing a consumable and you get the LCs [letters of credit] open, get the goods in, pay all the duties, declare the goods, sell them in the market, and then the process starts again. A lot of that is happening out of the UK, the U.S., Asia - China particularly.
Of course the other segment that we are pushing, like I said, is the micro, small, and medium scale enterprises. To build the critical mass in that wide retail segment of the market, it takes quite some time. So while we are pushing the frontiers in the retail segment of the market, we still do corporate and commercial businesses that we have been strong over time. As the bank grows, we believe that we would be winding down exposures in the large segments of the market and increasing exposure in the retail segment of the market.
What is your strategy for attracting more depositors?
There have been these very aggressive stunts by a few banks in Nigeria chasing deposits all over the place. We are not averse to chasing deposits, but we are more interested in a relationship. A person that does a transaction will leave money with you generally.
That is why - if you look at our numbers today - you will find that we are one of the banks with the healthiest net interest margins, NIMs. We are somewhere between 8 and 9%. Some banks are struggling with 5%.
Before the very fast growth, about 50% of our deposits came from the retail segment of the market. I think that number has dropped today to about 35%, but it is still very healthy. Those deposits are stable, and they are relatively cheap.
Tell me about your 'Brand Refresh Project'.
We found that the Diamond Bank brand was speaking to a niche segment of the market. Since we are now a strong retail bank, we thought we should refresh the brand. We kept the diamond - we felt it represented the bank well. But we added colors - carefully chosen colors - to the logo. We tweaked it, and this has received approval from customers, from depositors, from shareholders, from even the regulatory authorities.
