Oduoza: There are Enormous Merchant Banking Opportunities in Nigeria

History will be made today when the board and management of Nova Merchant Bank officially open the doors of the financial institution to members of the public. In this interview, the chairman of the bank, Mr. Phillips Oduoza, spoke on the offerings of the financial institution, its strategies and preparedness to face the competition. Obinna Chima presents the excepts:

What informed the name Nova?

Nova is “new” in many languages including Latin, Portuguese amongst others. The reason why we chose the name is because NOVA Merchant Bank Limited has come with new ideas, fresh thinking, cutting edge technology and excellent customer services. Our key focus is wholesale banking and investment banking and we want to bring innovations in these areas. We believe the industry has reached a stage where it needs another quantum leap to move it to the next level. Banking is changing globally with the emergence of new entrants and the infusion of non-traditional business models leveraging advances in technology. We believe Nigeria should not be left behind. Therefore, NOVA is here to bring a new experience in the banking industry. That was why we selected the name, NOVA, which means new. We want to do new things.

Why is Nova Merchant Bank coming out at this period when we know that the economy is still facing challenges?

Historically, you will notice that many organisations which emerged from economic recessions end up doing very well because they are focussed on providing solutions to the myriad of economic and financial challenges arising from such difficult periods. Take Nigeria for instance, where we have gone through a very challenging period which saw oil prices drop significantly impacting negatively on foreign exchange liquidity. We believe the economy has turned the corner and there could not be a better time to come into the industry than now. As the recession is now over, the economy is on an upward trajectory. In NOVA, our products, ideas and knowledge are suited to dealing with the challenges faced by Nigeria businesses. This means as the economy normalises, we scale up with it. That is why we are coming out now. As a new bank we have come with a clean slate and are well positioned to take advantage of emerging opportunities as the economy recovers.

 

There are four Merchant Banks already in Nigeria and Nova Merchant Bank makes it the fifth. What are those attributes that would distinguish Nova from the others?

Nova is fully licenced by the Central Bank of Nigeria to commence banking operations. In the past, we used to have Merchant Banks as well as commercial banks but that boundary was removed because of the onset of the universal banking licence just before the consolidation exercise. The implication was that banks could do both commercial and merchant banking. In 2013, the demarcation was brought back following the review of the Universal Banking license. Therefore, you now have merchant banks and commercial banks with different areas of focus and permissible businesses.

Merchant Banks are very important because they support the economic development of the nation through the provision of long-term funding. In Nigeria, Merchant Banking has not been fully tapped into. Banking penetration in Nigeria is mostly retail banking focussing on retail and corporate clients but we have opted for merchant banking in the strict sense of it with focus on corporate clients and investment banking.

NOVA brings the total number of merchant banks in Nigeria to five, which I believe is still very low in number. There is opportunity for more, considering the key role merchant banks play.

Why am I saying this? Merchant banks focus on wholesale and investment banking where you have advisory services, wealth management, asset management, debt capital markets, equities, project finance etc. These services are still evolving in Nigeria. The major international financial institutions involved in investment banking are doing very well. Today, we do not have any of these banking institutions in Nigeria and this is the space NOVA would occupy not only in Nigeria but across Africa.

Bear in mind that ours is the first green field licence for a merchant bank, therefore from day one, we have been structured to operate as a merchant bank.

What have we done? We have equipped ourselves with talents and cutting-edge technology suited for merchant banking business. We have structured our products and designed our business model around merchant banking.

NOVA is adequately capitalised above the regulatory minimum capital for the roles it has set for itself.

With the competition in the industry, are there strategies you have developed to create a niche?

Yes, there are five merchant banks today in the industry and I mentioned that we are the first greenfield licensed merchant bank. In essence, we are starting fresh from day one with skilled people and technology that are cut for merchant banking. Our products and services have been tailored and are suited for the intermediation roles we are set to play as a merchant bank.

It is very important we remain focussed in the wholesale banking and investment banking niche we selected to operate. I did mention that as far as wholesale banking is concerned, we have prepared ourselves adequately to play in that sector and we believe that we have the capabilities, technology and products to be able to compete strongly. NOVA has been very selective of its roles and will not go into areas we consider not relevant to a merchant bank. We are just going to focus on wholesale and investment banking.

Again, we have a very strong Board that is made up of people that have distinguished themselves in various sectors and have international exposure. This comes with very strong governance that will help shape the Bank.

What are the steps taken to ensure that you don’t encounter the problem of non-performing loans that is a challenge to most banks in Nigeria today and also how sophisticated are the technologies you have deployed to strengthen your risk management?

In terms of risk management and credit profile, you will find that the customer segments we are playing in have a lower risk profile because they are well structured and have very strong balance sheets. Secondly, we have put in place a very strong enterprise risk management framework covering market risk, operational risk, credit risk, etc. It is important to emphasise that the MD/CEO’s last role was as an Executive Director overseeing risk management in a major international bank in Nigeria. So, where you have a CEO that has risk management background, of course you should know risk management will be driven from the top. One of our targets, beyond being one of the most efficient banks in Nigeria, is to be one of the best in terms of credit risk quality. In terms of asset quality, we want to have one of the best in this country and the lowest non-performing loan book. So, in terms of credit, we are building a very strong credit risk culture in the bank which will be institutionalised.

In terms of technology, we deliberately selected technologies that are suited for merchant banking, both on the digital front, and effective customer service delivery. In addition, we have deployed very strong firewalls among other security measures to ensure our IT security architecture is fool-proof. So, for technology we do not see much risk.

In terms of long-term funding, we are going beyond the Nigerian market. We are tapping into the development finance institutions outside the country that provide long-term on-lending facilities for customers given the fact that we have a very good customer profile. So, as far as we are concerned, we do not see any issue with that. We also believe that the Nigerian economy is moving in the right direction and that the economy will continue to expand. We have seen some diversification in the economy today and I believe the decline in oil price may have accelerated this process. We have seen what the Central Bank of Nigeria has done with respect to the Anchor Borrowers Programme as the country is almost self-sufficient in rice production. So, you can see that the economy is moving in the right direction and we believe NOVA is going to benefit from the expanding economy. For instance, the fact that we have a brand-new licence implies that we get it right from beginning. Efficiency is very key to us, we are not investing in huge technology infrastructure but leveraging modern technology to optimise our resources.

What is your assessment of the banking sector?

Having been around for a very long time, I ran the operations of a very large bank in Nigeria with footprints in so many countries all over the world. So, I see it from the Nigerian perspective as well as from the global perspective. I think there are significant opportunities for banking in Nigeria. The country is still underbanked. I believe that banking penetration has not gotten to the level that we would be very comfortable. We still have a lot of liquidity outside the banking system and I believe it is an opportunity for us to tap into this liquidity. In terms of merchant banking, the opportunities are enormous. We have not done so much in terms of infrastructure which offers tremendous opportunities for merchant banks. We have not done so much in capital market where we also have tremendous opportunities. More businesses need to tap into long term funds from the capital market.

The banking industry needs to do more in wealth management. About 1% of Nigerians benefit from this and most of these assets are managed offshore. We would like those assets to be managed in-country. With technology, you can have access to products from all over the world and you don’t need to physically move cash out of Nigeria to manage such assets. I think that asset management has a lot of upside and we have sufficient elbow room. We also think that private equity has a lot of opportunities. If you look around, there are so many opportunities we have not tapped into and I believe that as banks continue to strengthen their risk management, strengthen their personnel, we would start going deep into all these areas. Today, we see the foreign banks come into Nigeria without footprints, collect investment banking mandates and go ahead to execute them offshore. We would like to be the face of investment banking in Nigeria.

As you are aware, governance is very important for the survival of any business, so we would like to know the composition of the board of the bank?

Governance stands out very well in our philosophy, our activities and business principles. Our core value is encapsulated in the acronym UPLIFT. Here, U- stands for uniqueness that is we want to be unique in the way we do our things; P- stands for passion. That is, we want to be passionate in the way we serve our customers and relate with our community. L – stands for leadership because we want to lead in the niche we are playing. I- stand for integrity; while F- stands for fairness and T- teamwork.

As far as we are concerned, governance is at a high level in NOVA. There are three executive directors and six non-executive directors. So, we have twice the number of executive directors as non-executive directors. Out of those six directors, we have four independent directors. These are very strong and accomplished personalities with diverse backgrounds. We have on the board, a former President of ICAN and the Institute of Directors as an independent director, a retired CBN executive also as an independent director. This implies strong governance and compliance oversight. Other directors on the Board have all distinguished themselves in their various fields. So, for us governance is key. We had a strategy session sometime ago where the focus was on governance. No matter how strong you are, you must have governance to back it up. With governance, you will have sustainability and without governance it is just a question of time and you go down.

Can you take us through some of the products your bank has developed for its customers?

On the wholesale banking, we offer trade services, financing, cash management, corporate solutions, advisory etc. On the investment banking side, we are looking at mergers and acquisition, advisory services, securities and trading, wealth and asset management, project finance etc

We also seek to intermediate capital flows coming into the country looking for where to invest. What we have in Nigeria today is a lot of companies that have been challenged by the past downturn. Out there in the developed economies, there are various funds and investors who are somewhat apprehensive about Africa. They have funds they want to invest in this market because yields in their countries are low. So, we look to intermediate these flows and bring them into this market.

So, what future are you projecting for the Bank?

We want to be the leading merchant bank in this country across the spectrum of our business. Our vision is to be Africa’s preferred financial solution provider which goes beyond this market. We are dealing with corporate type of client which you do not need to build brick and mortar branches to serve, but they need you to be connected. We would have physical locations in some places in Nigeria because of certain factors. For example, we want to be active in the infrastructure and multi-lateral space, so it will be helpful for us to have presence in Abuja. We want to be active in the oil and gas sector, not in terms of the way it’s been done in recent past, but in bringing new ideas to that space. That means we should have a presence in the oil and gas zone.

The other thing to highlight is that we are open to partnerships. We will be having partnerships with various institutions that share the same aspiration and culture as we do in getting to markets where we can add value. So, in the next five years, we want to be the leading merchant bank in this country.  We are not saying we want to be the biggest bank in the country, but we would be a very efficient institution providing creative financial solutions in markets we serve.