Dozie: Banks’ Business Model No Longer Sustainable

The Chief Executive Officer, Diamond Bank Plc, Mr. Uzoma Dozie, in this interview says banks are likely to be out-innovated and lose their market share if they fail to partner with emerging businesses to deliver superior services to customers.  He stresses the importance of partnership between telcos, fintechs and banks in order to continue to deepen banking penetration. Obinna Chima presents the excerpts:

How did you feel about the recent Central Bank of Nigeria fine on the bank with respect to MTN Nigeria?

When you are in the battlefield, you expect injuries once in a while. And that was the way we saw it. We didn’t quite understand the basis. As an organisation, we always try to do things in line with corporate governance. We are always compliant. Basically, we didn’t understand the basis for the fine. We have responded to our regulator to look at it and look at the information again. The central bank has stated in one of their press releases that they have gathered more information and that they are looking at it. We have to continue moving, you can’t allow that to stop your operation. Fortunately, we have capacity to absorb that it does not affect the day-to-day running of our services to our customers. We would not allow that to distract us.

How did your customers react to the news of the fine?

We have customers that are informed and we also have the ones that are going about trying to make their dreams come true in Nigeria. We have about 15 million customers. Those people don’t have the luxury of reading newspapers. We also have a relationship with MTN in terms of providing services that help transform people’s life. So, the development didn’t impact on the brand. People are now more informed and they can take informed decisions. In my opinion, our customers believe that this is an issue that has to be resolved and that their monies are safe.

The Monetary Policy Committee at its last meeting raised some concern about the economy. What is your take on that and what do you think the government should be doing to avert another slide into recession?

This is talking to all stakeholders in every sector of the economy: private sector, public sector, regulators even foreign investors as well. Of course, Nigeria is no longer isolated from activities in the global economy. Of course, with the increase in interest rate in the United States, it means there is going to be pressure to retain foreign investors in Nigeria, which we depend on. In terms of what we must do, firstly is that we must ensure there is stability – financial stability and stability in our oil production. But then, there is another thing – the rule of law, which is very key. We must ensure there is transparency and reduction in corruption. And that’s one of the reasons why Diamond Bank is really driven on digital. Digital means pure transparency and means audit trail. Imagine if Nigeria has invested in technology, look at Nigeria Interbank Settlement System payment platform, look at the Bank Verification Number, you can even look at the fact that people are using their mobile phones to drive their businesses and so on. You can see the potential. So those are the things we need to do. So, those are fundamentals. If there is transparency, trust, reduction in corruption, despite concerns of elections, people will still bring money in. Of course, people are still going to bring in money during election. So, it is about ensuring that there is stable environment for people to continue to do their business and money will keep coming in.

KPMG’s recent 2018 customer survey rated Diamond Bank as one of the top five SME Customer Banks in Nigeria. Can you speak more on the bank’s focus on SMEs and what are its long-term plans for SMEs in the country?

Yes, you are correct. That space is our major focus area for us in the bank, and we have deployed a lot of resources towards growing that SMEs space. We call it emerging business in Diamond Bank. And that’s because if you look at the economy, 70 per cent of impact in the economy is coming from small and medium scale enterprises (SMEs). So, we deploy a lot services. Now, we are on a growth trajectory. What do they require? Access to finance, access to market, capacity building, networking. And so, we have deliberately tried to ensure we meet those needs. And again, another challenge in that sector is lending which is why our collaboration with Women’s World Banking is what we are using now to make sure we meet the needs of companies and individuals in that sector. So, we are now using the cashflow lending type of proposition to attack that sector. What does this do for us? We are still having collateral, but they are more flexible. We have three focus areas we lend to – agriculture, education and health. So, if I come to your hospital and you don’t have collateral, you have equipment that I can use as collateral. If you are school, there are computers in the school and other things. Normally, the traditional kind of lending you will not use such things because those things you may feel you may not be able to realise. But what the cashflow does for you is we look at the pattern of your business and how your cash actually flows. So, we are deploying a lot of that strategy to make sure we give them financing. Then in terms of capacity building, because what you find out from SMEs is that they need knowledge on how to run their businesses. We have an alliance with Lagos Business School through their Enterprise Development Centre. And over the years, we have continued to train entrepreneurs, supporting them with education on how to run their businesses, giving them skills that we belief they require to run their businesses. Now, beyond that, what we used to do was also to go round and educate our SMEs. That’s part of our non-financial services. We educate them on ow to run their business. We have an SME zone in Diamond Bank where our customers can go and educate themselves on different things – human resources, financial management and all of that. We believe once we can spread the SMEs training all over the country, it would really give us the edge that we require to grow that sector of the economy.

You talked about lending to that critical sector of the economy, but most SMEs have complained about accessing loans from banks as well as the high interest rate. How is Diamond Bank mitigating pains for the SMEs?

They complain about collecting money from banks is because of security. Indeed, you have to be sure that whoever you giving money to would pay you back the money. Of course, if they don’t pay you back, your final way out is the security and many of them don’t have. This is why I explained what we are doing with Women World Banking to ease that challenge. So, we are lending based on your cashflow. The only challenge with that is that because we need to see the cash flows, it’s not available to new businesses. So, because I don’t know your pattern of payment. I don’t know how your customers pay you and how long it takes you to convert whatever products or services into cash. But if you are an SME and you are in a business, all I need is to take your cash register, look at your pattern of payment and lend you based on how your money comes to you. That challenge is being addressed by our cash flow lending.

Can speak about your half year 2018 financial results that was released few weeks ago and what expansion plans the bank has for the future?

We have started transformation. What it means is that we are diversifying our portfolios. If you look at our portfolio today, you will find out that our assets are actually skewed towards oil and gas. With the slide in oil prices few years ago, it meant we had to reclassify and restructure some loans out there. One of things we’ve done even before I got here, was that we have started lending into retail space and focus more on corporate clients that had a value chain and  are actually into retail business, like telecoms, manufacturing, like the Dangotes of this world. What that meant was that you will see that our asset portfolio has been dropping because we are not lending billions into that space anymore. We are now focusing on driving retail business, the SMEs. Up to June this year, we have done more lending to small businesses than we have done in the last three years together. That is the focus of the bank. If lending is small and the duration is much shorter, it means that every month people are paying back. Until we build that critical part which is what we are trying to build. How you judge us is the transaction income coming out of that and the people we are beginning to lend to and even the platform we are building so that we can have access to more people. So, we are trying to build a more sustainable business that is bullet proof to shocks in the macro-economy. If we have another shock to the country again, if the economy is shocked by one per cent, ours should be 0.2 per cent because we have diversified our business base. That is what we are trying to do. And we know that it’s workable because what you see is the final number which is oil and gas, non-performing loans. What you don’t see is the engine. In terms of liquidity, we have ovef N800 billion of retail deposits that is driving the lending portfolio. We want to diversify that so that we can actually access more people. We’ve also come out of West Africa. We don’t think there is enough opportunity there, we were just deploying capital that were not giving returns like we have in Nigeria. We have also sold our United Kingdom office. Because of the drop in foreign currency, trade businesses have dropped, so we’ve diversify from that. Those incomes we’ve made from trade business; we’ve now replaced it with retail type business. We can see that that is working. Our lending to retail space is not only growing, but NPLs from that segments are actually much lower because we have learnt from previous lending as well. And that is the whole idea. These have enabled us to manage our capital and we are pursuing a national licence, which will mean oour capital adequacy ratio will be much lower and we can now focus on improved profitability and leveraging on technology that we have invested in.

You talked about transformation and my worry is you seem to be signing a lot partnership with foreign organisations. You made mention of MTN. How would shareholders benefit from majority of these?

If you look at what is going on in the world today, you will find out that banks are under attack. This happens every day. People are beginning to either do those things themselves or people are coming into your space. If it is transferring dollars to Nigeria or lending, many people are doing it. The point is, what are you going to do as a bank? There is a capability that banks have that other people don’t have. For instance, Flour Mills said the other day that the want to issue their own commercial paper to raise N70 billion to refinance their loans. It means that your current business model may no longer be sustainable in the nearest future.  We have this philosophy that says beyond banking, we have to do more for our customers. Now am I going to lend to all kind of persons or how can we partner to deliver the outcomes. That is because people don’t care about banking but outcome. They want to go to the movies, they want to make phones calls, they want to buy a house. So, if you want to talk to someone, you need to buy airtime. So, we decided to partner the telcos. So, the future for any business is the platform and you must do things to drive people to your platform. So for collaboration for a people business, you look at platform capable of delivering services. You look at the quality of your collaboration, number of people on the platform and the quality of partnership. So, we are in that business of partnering with people to ensure our platform is robust and we are able to do more for our customers. We belief that Nigeria has a huge population of men and women. We partner with the Women World Banking with a vision to get sizeable number of women globally financially included, we partner together Nigeria is a big market. To reach more people, we need technology to do that. There are many financial and non-financial partnerships that we are beginning to establish because we know that the future businesses is sharing and collaboration. But to do that will have a platform that technology driven and robust. So, no man is an island. If you are in business that is connected to the world, not connected for others to benefit maximally from, you cannot be a one stop shop for people. I want people to know that either through my mobile phone or myself they have a gateway, they don’t have to go to too many places. That is why we are on this journey. It is just like small businesses, nobody is going to give you money if you have not gotten yourself in a position to attract advisory services and how to position yourself in the market. People won’t give you money because they would say you won’t know how to deal with it because there is no market. For us, if we don’t build a platform people can connect wherever they are in the world.  That is what we are building because that is what our customers demand. We are in mobile-driven economy.

You talked about mobile economy. If you look at a country like Kenya, the Telcos are the ones driving mobile money. In Nigeria, you discover that it is mostly the banks that do that. What is Diamond Bank doing in respect of financial inclusion? Do you think the banks or telcos should drive financial inclusion in the country or partnership would be the best one?

It is definitely partnership and not about capability. You should also look at how telcos became the dominant financial player in the case of Kenya you sighted in terms of transfer payment. At a time, the banking industry was backward then in Kenya, and so the only people that could do anything then were the telcos. People also forget that government was also a major shareholder in Safaricom. So, they had the regulation that allowed it to happen. But in Nigeria, things are completely different. Our payment platform is more advanced than even Kenya. Ours has been real time online a long time ago. It meant that there was no place for mobile money. Mobile money is a glorified transfer system. S, financial inclusion won’t work with bank alone because we are not going to go to many places. Telcos can never provide the sophistication. Banking is about trust, managing risk, convenience. So, the only way to be competitive is partnership. So, beyond the telcos, you need other people who have developed other business solutions in the world to be on the platform.

Telcos cannot provide full digital services without banks. It is that partnership that will allow you to achieve what you have set out to achieve in that sector. So, the fintechs are very important. If you look at Diamond Bank, all our foray into financial inclusion has been through collaboration with fintechs. Telcos cannot provide full digital financial services without a bank. On our Beta proposition for example, what we found is that it is not about opening bank accounts, but about giving people incentives to save. As a bank, we are not going to open branches everywhere, MTN has branches everywhere. So, today, on our Diamond Y’ello, we have almost three million customers which we would not have ever had. We would have waited for when we open those branches to get to those places. But if you have an MTN line, you can open an account on your phone.  What has also helped that Beta customers is the fact that MTN has agents as well that can go to the customers and pay them when they need. So, what you need to drive financial inclusion is technology. The telcos have it, while the banks have the expertise. So, what is needed is that collaboration.

But if we are all moving into technology, we also need to look at the vulnerabilities, which is the question of cyber-attacks. What are the defense mechanism to ensure that customers are protected?

You put your defenses round where your transactions are. Twenty years ago, if you go to a branch, you will see armored vehicles and lots of policemen, in order to protect the money. Today, a lot of those things are not necessary because people are doing their transactions electronically. So, cyber-security is very important to us at Diamond Bank. Not only do we have in-house security, we also outsource security as well because security involves experts. We have experts that keep checking our systems against vulnerabilities. Technology also gives security. For example, BVN is more secured than my signature. Anybody can forge my signature, but nobody can forge my BVN. So, we are making sure that we are building that trust on all our channels. We have even gone one step further by using robotics to ensure that the back office is moving at the same pace. So, working with Deliotte, we have automated one of the most complicated automated systems and our customers are enjoying successful transactions.