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Bad loans eating into our profits – Unity Bank CEO

By on October 27, 2014

The Chief Executive Officer, Unity Bank Plc, Mr. Henry Semenitari, spoke to some journalists in Abuja on bad loans and other issues affecting the banking industry; EVEREST AMAEFULE was there

Can you share some of your experiences with us since you became the CEO of Unity Bank?

When we came on board in January, 2014, we had three challenges. We had challenges of capital – our capital was below industry standards or below the regulatory limit, so to say. We also had a very strong issue on the customer end of the business. What we mean by this is that we had less people attending to customers in terms of marketing and sales. We had more people sitting down, and that is the challenge of the business model that we were faced with.

And the third challenge was the issue of cost; having a large network of over 250 branches means that we needed a business model that could sustain that level of cost. We had the challenges of cost recovery ratio, liquidity ratio, and of the average cost of funds.

But I am glad to tell you that, in nine months today, all that has been thoroughly addressed. As you may be aware, we went to the market to raise capital, we did the rights issue which was oversubscribed. It has been approved by the Central Bank of Nigeria and also by the Securities and Exchange Commission and we are doing allotment right away. We had a special placement through which the total inflow of fresh capital was achieved with the help of my colleagues and the entire workforce.

So, the bank can proudly say that it is properly and fully capitalised. Our cost structures have also been addressed extensively, and our weighted average cost of funds, which is a huge challenge for any retail bank, has also dropped to half a digit and is now hovering around 4.8 and five per cent, which in itself has improved our margins for businesses. That, we are glad, we have been able to put in place.

Would you say your branches are now running profitably?

On the issue of profitable branches, when we got in on board, less than an average of 50 branches were profitable. But, today, out of the more than 200, over 75 per cent of them are posting profits. Our business model has been redefined such that out of 10 staff members, seven are in market facing and we are always right there in front of the customer.

We have an organised corporate banking team, as well as effective commercial and retail banking units. Of course, we have also come very strongly in the electronic business age; the electronic business; the use of cards or alternative channels of payment systems. Our ATMs are working and our Point of Sales terminals are doing better now.

We were the last in the industry on PoS traffic to be able to move from 25 to about 15 to 14 position on PoS across the industry.

What do you mean by market facing?

It means those who were in marketing. Initially, we had 75 per cent of our staff members sitting down doing operational and back office duties. But, of course, you can only process what the customer brings in. If there are no human beings, everybody here will be playing games on some computer. When you walked into our branches in the past, it was a deserted place.

There is this challenge I am aware you have not got through. I saw an advertisement is the newspapers about huge debts being owed the bank and have not yet been recovered.

How strong have you come on that?

You know, I said there were three challenges. One was capital, one was profitability, and one was cost. Now, when you say profitability, debt is also inside. What erode your profits are bad loans; what erodes your capital is bad loans. What had eroded the capital of the bank when we were coming on board were bad loans.

So, the first thing to do is to raise capital, the next thing to do is to drive your profit because at the end of the day, we will plough it back to retainer ends. Then, the next of course is to address the cost ratio through a detailed analysis of the loan book of the bank.

It is something we would not have begun to do in January or February, but we needed to do what we call data mining and we did the entire mining of the loan book across the entire regions and across all segments.

Historically, it was really bad but we have come up. For the first time in the history of the bank, we have a very dedicated recovery team, headed by someone at the general manager level and spread across regions. That is why you saw an advertisement in the press telling all debtors to come and make good all their accounts in two weeks. The truth is, in two weeks, the failure to show up, with all regards to such debtors, will be resisted. Their names and amount owed the bank will all be published, including workers who were involved, whether former or current employees.

How much is the value of these debts?

The value of the debts I can say is in excess of N40bn, with the interests ‘unserviced’ over the years. So, what we have said is that the official guideline is simple. Some are willing to pay as well. You know how Nigerians relax until you put a threat then they will take it serious. But we will do everything within the law, luckily, 90 per cent of our customers are Nigerians, they are here, they are in this country and we know them, we know where they are.

Because we were not going after them, everybody became complacent. But some are doing businesses in other banks. And the good news for the industry today is that the current management of the CBN is very serious about addressing bad debtors.

If you forward names they confirm, the customers will be blacklisted. So, what we will do after two weeks, beyond recovering our money, whatever legal means, they will also be blacklisted from banking transactions.

When is the sanction going to take effect?

That will be two weeks from the date of publication, which is 14 days.

Apart from blacklisting them, are you planning to take them to the Economic and Financial Crimes Commission?

We have said that we will do everything within the law and I think the EFCC is an acceptable arm of the law to address debt matters; so we will do that. But there will be negotiations, of course. And whenever you negotiate loans, discounts come in, as long as you are not discounting against the expense of the bank. The issue of interest is in the inability of the customer to pay, that is why penal rates come and penal rates are legal. If you don’t service your debts for x period of time, penal rates come in.

Does it mean that you will step down on your lending activity?

Definitely, we have slowed down, I must confess. You know we are deriving our revenue more from the cost lines. As a huge network, one of the strategies we have adopted in the last nine months is to ensure that virtually every branch within our network receives some payment daily that is positive. Within your receipts and payments, if you are posting an excess of one hundred to two hundred thousand, you are funding your clearing, it means you are in positive, your loan velocity is good, you have fees and commissions, what is left in your income statement is basically depreciation and amortisation, which is less than five per cent of the income.

So, the net position of daily closure of branches is our strategy as at today. We have to do many basic things, get people to talk to eight people in a day so that in a week, you talk to 40 people and, definitely, 20 will give you new business.

The good thing is lending has been reduced since it is really not our focus. So, 80 per cent of our revenues are cash profits.

What are you going to do with the 25 per cent of your branch network not profitable yet?

It is a long journey. We started with less than 30 per cent of the branches posting profit, but today, over 75 per cent are profitable. You can’t do all in one year, it is a long distance race and we are making concerted efforts. We are training and re-training our people.

Are you not considering closing any of them?

No, our business strategy is in three fold – Small and Medium Enterprises, agriculture and rural economy. You cannot do agricultural banking without involvement with the rural economy, if you want to be a bank to focus on agriculture in the future. There is a reason why these branches were established by the legacy owners of the bank. The only way you can grow the country’s Gross Domestic Product is to take economic activities to the rural areas, and that is a very strong niche for us.

What is Unity bank’s lending culture?

If you look at it critically, SMEs is a major focus for us. The next end retainer of our customer base is the SMEs, even at the agricultural, oil and gas levels and so on. There was a huge challenge in some of those sectors in the past. One is that you don’t have data and the means of identity. There is the issue of recalcitrant borrowers, and today people borrow in almost ten banks and nobody knows. We also have collateral challenges; but I think they are all being addressed today. With the intervention money the CBN has put in, in the next three years, the issue of lending to SMEs will be a thing of the past, and that is one of the things that will precipitate and catapult the economy to greater heights.

 

[Punch]