Emeka Onyenacho

Nigeria's banking sector has recently come under scrutiny from investors suspecting that all is not well and that the global economic crisis has not left the industry unscathed. Jaco Maritz talks to Emeka Onyenacho from Fidelity Bank Plc to get a better understanding of what is going on.

How would you describe the current state of Nigeria's banking sector?

The situation in Nigeria is not different from what is obtainable in other parts of the world. Recall that prior to the global economic meltdown, Nigerian banks had set very high and ambitious targets for themselves in terms of balance sheet size, network expansion (local and foreign) and infrastructural financing based on capacity and continued growth of the economy. There have been distortions in implementing these plans due to the meltdown.

The Central Bank of Nigeria (CBN) has however been alive to their responsibility by ensuring (and continuously assuring the public) that the fundamentals of Nigeria's financial system are safe, sound and strong. The CBN as part of its regulatory function has put in place some strategies and policy measures such as the deployment of resident examiners to all banks to monitor their activities and report early warnings, the introduction of the expanded discount window, the reduction in the MPR from 9.75% to 8%, the liquidity ratio from 30% to 25% and the cash reserve ratio from 2% to 1%. In addition, the CBN pegged the lending rates and deposit rates at 22% per annum and 15% p.a. respectively with clear penalties on defaulting banks. There is also the common year-end effective December 2009. All these measures have been taken to restore some stability in the interbank and money markets.

In summary, Nigerian banks are operating in a more complex, competitive and regulated environment than they were used to, owing to the CBN's commitment to maintain a strong, stable and reliable financial system.

According to a recent report by Bloomberg, Nigerian regulators allowed banks to delay booking losses on so-called margin loans. How healthy are Nigeria's banks?

The extent of banks' exposure to margin loans is a critical issue only the CBN and the banks themselves can validate. However, for the CBN to consider a concession on this critical obligation of disclosure, one imagines that the exposure is large. To ensure that the issue does not get out of hand, the CBN has taken steps to calm the market by requesting all banks to disclose and restructure margin loans, in addition to the proposal to set up an asset management company (AMC) to operate as a special purpose vehicle (SPV) for managing these toxic assets. This will require the necessary legal backing of the National Assembly and I am positive about the success because the measure is in the best interest of the financial system. The modalities for the operations are yet to be announced and approved by the National Assembly, but when implemented, the purchase of these toxic assets by the proposed SPV will help boost the liquidity of banks.

However, my view is that Nigerian banks are well capitalised and strong although I suspect most banks will witness marginal growth in performance when compared to previous years as the meltdown persists.

Is there any chance of the government taking over some Nigerian banks?

There is no indication that the government has any plans to acquire any bank directly. Instead the government through the CBN will continue to encourage guided acquisitions and mergers. There is a possibility that the CBN might give incentives for such acquisitions/mergers. Recall post consolidation, the CBN encouraged stronger banks to acquire those that could not meet the consolidation deadline instead of outright liquidation. The government's position was manifested in the CBN governor's recent presentation where he said that in the contingency plans, the apex bank will be providing term loans to banks to beef up their liquidity, closely monitor the banks with target examiners, restructure the balance sheet of ailing banks as well as change their management when that is needed to make them survive. I suspect foreign banks may acquire some but not the government directly.

Nigeria's economy has recently taken a beating largely due to the global financial crisis and the resulting drop in oil prices. In which direction do you think is the economy heading?

For an economy largely dependent on crude exports, a drop in oil prices and/or quantity creates inadvertent distortions. Oil accounts for over 85% of Nigeria's total revenue, thus the direction of the oil price in the international market goes a long way to affect the financing of the government. The decline in the price of oil, as well as the drop in production due to the crisis in the Niger Delta, will affect the funding of infrastructural projects during the year. In view of the declining revenue, a deficit budget was approved for the year to sustain the level of infrastructural development especially in the priority areas of government such as power, road development, etc.

There is every indication however that the economy will slow down in 2009 against the steady growth path we had experienced in the last five years. The Nigerian economy had maintained an average growth rate of 6.3% in the last five years.

According to newspaper reports, Fidelity Bank is planning to increase its support for the agriculture sector. Why has the bank decided to do this?

Fidelity Bank has taken the agricultural funding challenge as an opportunity and has initiated an agricultural finance programme christened "Fidelity Agricultural Products (FAP)". This is a major initiative by the bank to support the growth of agriculture in the country and empower a new generation of Nigerian farmers and entrepreneurs in the business of agriculture.

The major objective of the bank is to create a new generation of farmers and agri business entrepreneurs as well as work with the government in highlighting the opportunities and benefits in the agricultural sector. In this way, the bank will create wealth and contribute to the diversification of the economy and promotion of non-oil exports.

Why are Nigerian banks generally reluctant to fund agriculture projects?

The issue is not Nigerian banks' reluctance to fund agricultural projects but the reluctance of agricultural borrowers to borrow at the rates and terms at which credit is available.

What progress has Nigeria's banking sector made in the area of electronic banking?

Post consolidation, Nigerian banks have successfully deployed various e-banking channels including the globally secure chip and pin technology, point-of-sale (POS) and internet banking services. It is anticipated that over time these channels will improve both in efficiency and security as there have been huge investments by banks in their e-business segments. The e-banking segment has witnessed tremendous growth in all payment channels (internet, mobile banking, ATM and telephone banking) currently in use as is evident in the number of ATMs and POS machines deployed, about 8,000 and 12,400 machines respectively, in the last 3 years.

The usage and acceptance of these channels of payment will continue to increase in major cities across the country. The e-banking platforms have delivered increased profitability, improved customer loyalty, enhanced capacity of existing products and improved visibility to the banks who are investing heavily in them.

Emeka Onyenacho is General Manager/Head, Fidelity Corporate Bank but responded to the questions in his personal capacity. The views expressed are not necessarily that of the bank.