Don't Miss


Home   >   Business   >   Industries   >   Banking   >   Our target is to have 5% of banking industry by 2016 – Sterling Bank MD

Our target is to have 5% of banking industry by 2016 – Sterling Bank MD

By on August 1, 2013

After years of inactivity in the primary segment of the nation’s capital market, particularly after the 2008 meltdown, Sterling Bank recently opened its bid to source N12.5 billion to reposition for the competition ahead. Yemi Adeola, chief executive of the bank recently fielded questions during a media parley, offering reasons for the decision to source funds at this time. Business Editor, Kingsley Ighomwenghian, was there. Excerpts…

What gives you the confidence to come to the market at this time? 

As you know, investors’ confidence took a big hit following the 2008/09 financial crisis. However, recent reforms by the capital market authorities have begun to yield dividends, restoring confidence to the market which has witnessed a resurgence of key indices to pre-crisis levels.

On what gives us the confidence to approach the market at this time. We have never been in doubt about the value of the franchise. Rather, we have been mindful of the need to get a good valuation for the stock in order to preserve shareholders’ value. We believe that stock valuations are closer to their true values than they have been for some years now, and companies with good fundamentals would be rewarded appropriately by the market.

Sterling Bank has a compelling business model that is resilient. The bank continues to post high returns despite its limited capital. In the last three years, the Bank achieved an average RoAE of 18%. We have our shareholders’ backing that this is the appropriate time to raise the additional capital for the franchise’s development plans.

 

Beyond the rights issue, what’s the extent of your capital raising exercise and how are you going to achieve these?

The Rights Issue is part of our overall capital raising programme: $200 million (N30 billion) in tier 1 capital comprising $80 million through Rights Issue and $120 million through Private Placement – by September 2013; and $200 million in tier 2 capital through multicurrency debt issues expected to come through by Q1’ 2014

 

How will the additional capital impact on the performance of the bank?

These funds would be deployed to key areas of our business to deepen our retail penetration and fast track our expansion plans. Specifically, we would be enhancing our technology infrastructure, expanding our branch network and our alternative channels as well as remodeling our existing branches to capture a more retail appeal. The Bank also plans to increase its lending in the corporate banking and Agric space which is currently limited due to capital restraints.

These investments should positively impact our retail footprint and profitability. We are keen to build a franchise that would outlive the current managers.

What are the attractions for shareholders?

With an average Return on Average Equity (RoAE) of 18 per cent over the last three years, we believe that there is a compelling business case for discerning investors to take part in the programme. The current financial year also appears very promising with a RoAE of 23 per cent in Q1, and we are on track to close the year with a RoAE of at least 20 per cent. We expect to sustain this performance in the coming years.

 

What is the assurance that the forecast are reliable?

On the contrary, we believe that the forecasts are conservative, driven by realistic assumptions. Moreover, the Bank has an experienced management team with a proven track record of performance.

 

Can we count on Sterling Bank to survive any major policy changes in future?

We must commend the monetary authorities for the excellent work they have done to stabilise the financial system. The industry has indeed come a long way and we believe that lessons have been learnt by key stakeholders to forestall drastic policy changes that could reverse the positive strides in recent years which have received global acclaim.

However, we understand that factors beyond the immediate industry environment could also impinge on industry fortunes and without sounding immodest, we can say definitively that we are prepared for these as well. We have a resilient business model that is designed to withstand a challenging business environment. You would recall that Sterling Bank was one of the first ten banks adjudged to have passed the CBN’s 2009 stress test at the height of the nation’s financial crisis.

 

Will you consider further acquisition?

Historically, inorganic growth has played a significant role in the emergence of Sterling Bank as a significant player in the industry. We have also built internal capacity to rapidly translate the gains from such exercises into enhanced profitability for shareholders’ benefit. Consequently, while we are on track to achieve our medium and long term objectives without the need for an acquisition, we would remain open to such opportunities in the near to long term.

 

Do you have firm assurances of your core shareholders on this capital issue?

We have no doubts about the willingness of the bank’s shareholders to exercise their rights as they see immense opportunities for enhancing the value of their stakes in the business.

 

What are your strategic goals in the medium to long-term?

We believe that scale plays an important role in the competitive positioning of any player in the Nigerian banking industry. Consequently, we have set for ourselves a target of at least 5 per cent market share (measured by assets) by 2016.

 

Against the changing domestic and global variables, what is the outlook for the Nigerian banking industry?

The global economy is in recovery mood after the 2008/09 global economic crisis and the prolonged economic slump. The US economy has shown slow but consistent growth, while there is a general belief that the Eurozone has hit its floor.

On the domestic front, the economy grew by 6.7 per cent in Q1, 2013 as reforms in key sectors continue to gather momentum. Overall, the outlook for the economy is positive, despite concerns about the impact of developments in the oil industry on government revenue. The twin effects of domestic oil production constraints arising from oil theft and pipeline vandalism, and the emergence of shale gas as a reliable alternative to our key export commodity is a real source of concern. However, the current reforms in the power and agricultural sector should help to diversify the nation’s revenue base if well executed.

Inevitably, developments in the macro-economic environment have an impact on the banking industry. The industry has rebounded coinciding with an upswing in the domestic economy and I believe that the momentum would be sustained through the current financial year.

 

The CBN recently announced initiatives to reduce cost of banking transactions and incentivising savings, which many fear may hurt profits…

On the surface, there may be sufficient justification for such fears. However, the reality is that while near term profitability of banks may be impacted, we also see opportunities. A significant segment of the country’s population is financially excluded and we are not talking about the lower mass market alone. Moreover, a lot of funds still reside outside the formal banking space that could be better deployed. These policies are designed to attract these segments into the formal banking system and present huge opportunities for our business.

Sterling Bank is already positioning itself to profitably grow its footprints in these market segments as we see long term value with the right business model.

 

What is Sterling Bank doing to support SMEs?

We have several success stories in this respect and we are currently strengthening structures to deepen our engagement with SMEs. We have also recently launched products aimed at providing solutions for players in this market segment from the SUPA account to specific product programmes tailor made to the unique funding requirements in specific markets.

 

In five years, where do you see the bank in terms of industry ranking?

Like I stated earlier, our target is to achieve a market share (measured by assets) of 5 per cent by 2016.

 

How sustainable is your corporate governance structure?

Sterling Bank’s board of directors is composed of competent individuals with diverse professional backgrounds and management experience. Indeed, our corporate governance structure is one the strengths of the organization and has been invaluable in building institutional resilience and focus

 

 

 

[Daily Independent]