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Ashade: Banks’ performance reflects events in economy



Ashade: Banks’ performance reflects events in economy

Mr. Peter Ashade assumed duties as Group Chief Executive Officer, United Capital Plc., early this month. At an interactive session with a select group of financial journalists, including Tony Chukwunyem, he speaks on his plans for the company and other topical issues in the Nigerian economy. Excerpts:


United Capital Plc is one of the leading players in its sector. With your recent appointment as Group CEO, what plans do you have for sustaining the company’s leadership position?
I must start by thanking my predecessor who did a lot of work, which brought the Group to where it is today as one of the market leaders in the Nigerian financial services landscape. Going forward, we are not going to rest on these laurels; we will work on continuous improvement of products and processes’ structure. We will innovatively change the narrative of financial services in Africa. We will pursue with clarity our pan-African strategy; we are currently in Nigeria but building a critical mass that will enable us operate in other African countries.
Furthermore, we shall strongly support the initiatives to improve the depth of the capital market in Nigeria and thereafter in Africa by engaging in product development as a means of broadening investment opportunities in our market. We shall equally focus on consistent increase in the wealth for our teeming shareholders while also ensuring that we keep a healthy relationship with other stakeholders. In driving all these, we shall keep in mind our three core values of Excellence, Enterprise and Execution. We shall also place premium on our people. Our people are one of our key assets. Bearing this in mind, we will ensure that our people are motivated, exposed and trained as required to deliver the expected value.

What do you think are the main challenges facing the banking industry and financial sector in the second half of the year and how can they be tackled?
The key challenges facing the banking sector currently include the weaker macroeconomic environment, high level of non-performing loans, asset quality concerns, pressure on capital adequacy ratios and elevated risk outlook, which continue to drag credit growth. Clearly, the performance of the banks reflects what is happening to the overall economy. While gradual recovery in the macro space is supporting performance so far, pre-election activities, which are expected to dominate H2-2018 is a concern for loan growth, hence, resolving the challenges confronted by the banks is rooted in restoring the economy to the pre-2014 era of solid growth.
For the financial services sector, specifically on increasing investor confidence, the concerns are broadly linked to political uncertainties, absence of reforms to drive market activities and the dominance of foreign portfolio investors in our market. For instance, low capital market depth reflects the poor disposition towards the market and this is evident in the absence of operators in the key sectors of the Nigerian economy such as upstream Oil & Gas, Retail Trade and Wholesale, Power, Telecom, and Agriculture in the market.
On the other hand, weak local participation rate, high transaction cost and socio-political/economic concerns also constrain demand for Nigerian equities, lowering market capitalization. To resolve this, we must stabilize the economy, drive reforms in critical sectors and boost investor education.

The CBN has maintained the country’s multiple exchange rate system despite calls by some international experts that it should be scrapped. What is your take on the issue?
The Central Bank of Nigeria (CBN) was able to resolve the protracted crisis in the FX market by opting for a multiple window solution. The other option proposed by the market was an outright devaluation or a more market-friendly flexible exchange rate regime. Clearly, the gains recorded in the currency market over the last 12 to 15 months are a testimonial to the success of the CBN’s strategy. For instance, as at June 2018, the total transaction at the Investors & Exporters (I&E) segment topped $32.6billion since it was introduced in April 2017. Similarly, FX rates across market segments have converged around N360/$ compared to pre-April 2017.
Also, the adoption of the I&E FX window has triggered a massive inflow of FPI funds, at least up until May 2018. And the economy has also witnessed significant improvement in terms of headline inflation. Nigeria’s external reserves added a whopping $9.1billion in the first half of the year to close at $47.8billionn – its highest level since 2013. This dramatic rise in gross external reserves was driven by a number of factors including Eurobonds worth $5.0billion that was issued between Nov-17 and Feb-18; oil export proceeds driven by stability in domestic production; higher oil prices, which rose to $79.4/billion as at the end of H1-18, and Net capital flow, which surged over the last 12 months, thanks to the introduction of the I&E FX window.
Although events in the political space ahead of the 2019 general election and the external environment (in light of the policy normalization in the US) may push the CBN to do more in terms of defending the Naira, we believe the current reserve level would provide succour to any potential volatility that may arise. At $47billion, the CBN can conveniently cover 12 months of Nigeria’s import. This projects a stable outlook for the second half of 2018, given that the continuous improvement in external balances will support sustained stability of the exchange rate.
However, for the private sector to thrive, the government still needs to create that enabling environment. The Vice President’s office is doing a lot in terms of ease of doing business, especially with the creation of the Presidential Enabling Business Environment Council (PEBEC), but more is still required. Overall, what the economy really needs now are bold reforms (in the power, infrastructure, oil & gas, healthcare sectors, among others) to spur mid-to-high single digit growth and boost national productivity.

What policy change will you advise the authorities to take the country on a firm, recovery and sustainable growth path?
Current concerns for Nigeria in our view are long-term structural challenges – not much of policy issues, but implementation issues. The business environment remains tough, continued focus on politics seems to be affecting the implementation of meaningful structural reforms.
For instance, the oil & gas sector remains at the mercy of badly needed policy reforms that could boost more investments into the sector. The delayed passage of the Petroleum Industry Bill (PIB) is the ever-present risk creating uncertainty to the long-term investment in the sector. The PIB was broken down into four separate units governing regulation (PIGB), administration (PIAB), fiscal terms (PIFB) and a host community bill (PHCB). The idea is that a clearer breakdown of the bill will enable at least certain parts of it to progress through the House of Representatives, Senate and President, unimpeded. As we speak, only the PIGB has reached the President’s desk. These bills have the capacity to add momentum to new investments given the potential improvements to fiscal terms, and clarity around local content costs that could be addressed. The downstream oil and gas sector remains crippled by policy inertia, as the regulatory bodies are resistant towards deregulating the pump price of fuel. As such, fuel prices in Nigeria do not reflect the landing cost.
On the agricultural sector, while initiatives such as the Commercial Agriculture Credit Scheme (CACS); Presidential Fertilizer Initiative (PFI); CBN’s Agribusiness Small & Medium Enterprises Investment Scheme (AGSMEIS) and the Anchor Borrowers’ Program (ABP), have aided the sectors’ growth, there are issues yet to be addressed. For instance, storage, distribution and processing are hampered by poor transportation network, access to finance, poor local processing facilities and low investment in technology. In addition, the recent crisis between herders and famers is a major downside risk, which is already weakening the Agric sector Gross Domestic (GDP) as at Q1-18, while pushing food inflation northwards. The onslaught of the Boko Haram insurgents remains a concern in the northeast with economic activities in the region still considerably low.
Other areas include heath care, education and the issue of brain drain, which is negative for manpower development. We need to invest in education, technology, healthcare and correct the decadence in our social system.

With crude oil prices soaring in recent times, how do we best manage the proceeds, do you support calls for a revisit of the Excess Crude Account (ECA)?
The ECA is still in use; hence, proceeds from excess crude will continue to be remitted in the ECA. However, Nigeria can learn from economies such as the United Arab Emirates (UAE), where proceeds from oil were deployed into investment in Tourism, Real Estate and so on.
Oil revenues should be integrated and managed with a view of mitigating the overall impact of oil market volatility on the broader economy. Nigeria is rich in agriculture, human capital, mineral resources and immensely blessed with historical and cultural features that can boost tourism. Accordingly, Nigeria can focus on deploying the excess from oil into investments in these sectors.

Can you tell us a bit more about yourself?
I started my career in the capital market 29 years ago at Union Bank of Nigeria Plc – Registrar, the capital market unit of the bank. Since then, I have been involved in various capital market offers and other key capital market activities at different levels. I have worked with various operators on different capital market transactions and projects.
Before now, I was the MD/CEO at Africa Prudential Plc, a leading share registration and investor services firm where I spent 12 years of my career. During the period, the company experienced significant growth and transformation in its operations. We pioneered the disruption in the Registrars business landscape in Nigeria by mid-whiffing and the launch of several innovative products
Personally, I see opportunities in every challenge or threat; where others are complaining about the challenges, I find opportunities in those challenges. This mindset aided the significant strides in my previous roles and I intend to replicate it at United Capital as well. Once I set my mind to do something, I ensure that I do it and I do it well. I thrive so much on self-determination. I believe that our limiting factor is not external, but internal; our biggest competition is self and once you are able to conquer the limiting factors that lie in you, the opportunities are endless. These theories have proven true throughout the course of my career. From early on in my career, my determination always stood me out and opened the doors for career progression at different points in time.

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