Okonkwo: No Bank Should Toy with Cyber Security

The Managing Director/CEO, Fidelity Bank Plc, Mr. Nnamdi Okonkwo, in this interview speaks about efforts being taken by the bank to ensure that it actualises its five-year strategic plan, through which it aims to break into the league of tier one banks by 2022. Okonkwo also advises banks to take cyber security measures very serious. Obinna Chima brings the excerpts:

What is your take on cyber security in the industry and what is your bank doing to remain ahead of such fraudsters?

When it comes to cybersecurity, the entire banking industry is as strong as a bank with the weakest security measures. Therefore, no bank should toy with cyber security measures because there is a contagion effect. If fraudsters can penetrate one bank, what it means is that they can also affect other banks. Assuming a big fraud happens in a bank, that bank’s ability to repay my interbank placement becomes jeopardised. That is why it is a combined effort, Indeed, the central bank is very serious about cybersecurity. At the Bankers’ Committee, we have discussed this several times. Therefore, even at regulatory level, there are certain measures you are compelled to take. For instance, building a Security Operating Centre and appointing people with certain qualifications and executive level personnel as Heads of IT Security. This centre helps you monitor on real time basis threats and other things regarding cyber fraud. So, banks are investing heavily to combat that. The central bank has even made it compulsory that Chief Information Security Officers have to be persons at Executive levels. They have also made it compulsory that an Executive Director should be named the Chief Compliance Officer and every bank has compulsorily implemented that. What they are trying to do is to take compliance to the board level.

What is your take on the planned introduction of payment service banks in the industry?

You know it has been a prolonged push by the telcos to come into the banking space. We don’t have a problem with that. Let them be subjected to the same regulatory conditions that we have, because you are talking about depositors’ money. So, once all of us are subjected to regulatory control, we will all do banking together. I think the sky is big enough and as banks, we are not sleeping, that is why you see some of us deepening our digital platforms. 

The performance of the Nigerian stock market has not been impressive and the level of sell-offs have remained high. What is your opinion on this?

We just got back from London on a no-deal roadshow and the outlook on Nigeria is quite positive. Indeed, based on some of the sentiments, we were being advised to raise Eurobonds because they want to increase their emerging markets investments especially the fixed income managers.

On the performance of the stock market, you know European Central Bank raised rates. So, with the increase in rates, capital will always follow where margins have just increased. People generally move money to those areas just the same way when we had our treasury bills going for about 20 per cent, everybody rushed in. So, that is the constant dynamics of inflows and outflows.

How has the journey been for Fidelity Bank Plc?

Two years ago, we set out at Fidelity Bank, to drive a five-year strategic plan, beginning from last year, that would see us migrating to a tier 1 bank in the country by 2022. What we actually did was to take the growth rate of the banks that we know are bigger than us that are in tier 1, and measured it against our growth rate, to determine how much we needed to grow for us to break into the league of Tier 1 banks. But remember that as you are growing, those banks already in the tier 1 category are also growing. So, the whole was that on every lane, we determine how much we needed to progress, come 2022, so that we would for instance, be the number six tier 1 bank. But it would be foolhardy to assume that as you are growing, others are retarding. So, that basically is what drives everything we do. This is my sixth year here as the chief executive officer of the bank and by God’s grace have had very interesting times and we have largely been able to drive our strategy to the point where the numbers are actually making us feel like we are doing something right, even though we are not yet where we are aiming at. Year-on-year, both balance sheet size, deposit and profitability, we have been growing. When doing this, we keep our eyes on the safety of the bank. So, we are keeping our eyes on capital adequacy ratio, the quality of our loans, and our capital base. It was for this reason that when the Central Bank of Nigeria implemented the IFRS 9, they knew it would hit banks if you had to take the impact once. In Europe, they gave them five years to write off the effect of implementing IFRS 9. In Nigeria, the central bank recently approved four years for banks. But because of our prudence in building up capital buffers, the impact of the IFRS 9 implementation for us was N28 billion. Luckily, we had non-distributable reserves we had built up. So, we debited capital straight on. So, instead of waiting for four years, we took the N28 billion. So, whatever you see today as our capital adequacy is post-IFRS 9 implementation. So, that means that if we didn’t do that, our capital base would be N228 billion, higher than the N200 billion it is presently, which is even a higher increase from where it was five years ago. Those are some of the things we have deliberately been doing. In terms of deposits, last year,  we grew by 26 percent last year. In fact, in one year alone, we grew deposits by about N200 billion. That means our market share is increasing. In the industry, our market share was about 5.4 per cent, but now we are about six per cent. Two years ago, our desire was to make sure that low-cost deposit constitutes a larger percentage of the total deposit. Today, we have largely achieved that as low-cost deposits now constitute about 82 per cent of total deposits. That means that current and savings accounts are major components of our deposits. On governance, you would have noticed how our board has been strengthened. We brought on board some seasoned professionals. For instance, the Chairman of the Board is a former Chief Executive of a bank and a former Deputy Governor of the CBN for 10 years. We also have with us the former Managing Director of Guinness Nigeria and another former MD of a bank. As a deliberate strategy, each time a Director retires, we replace with yet another very experienced one. We also ensure diversity. Every CEO dreams of a board that is competent and independent. We are also very serious about succession. That was why recently, you can see that we appointed three in-house people as Executive Directors at a go, subject to CBN’s approval. That is an outcome of planned succession. Part of what I promised them during my interview to become the CEO of the bank was that one of the things I want to achieve is that each time we have executive vacancies, let us fill it from inside. Not just by quota or anything, it means if we are going to achieve that, we have to groom internal resources. Don’t get me wrong, whenever we have skills gap, we go out and recruit. But deliberate action is that our succession should begin to come from inside. I was very happy that we recently appointed about three persons internally at same time. The good news is that when I was making presentation to the Board Governance Committee on the recommendation for the Executive Directors, most of them knew the performance and leadership qualities of these people. You might be a first class brain, you might be the most competent banker, if your leadership attributes are weak, we can’t give you executive position because you may sink the bank. And if you are not professional, you cannot be elevated to that level.

We are also driving our retail banking business with digital. About 81.5 per cent of our transactions are now done through digital channels. That is why you will see us building just one or two new branches in a year. In the past, we used to do like 15 to 20 branches. I can’t remember the last time I went to commission a new branch or even wrote a cheque. Digitisation has made things more efficient. Still on digitisation, we have also taken into cognisance, customers who may not have data to do their transactions, so we introduced our USSD *770#, which does not require you to have smartphone or data to carry out some banking transactions. This category of customers do not need android phones to operate their accounts, just basic phones. This has made our cost-to-income ratio to improve significantly. Ultimately, our cost-to-income ratio is likely to drop by about 50 per cent by 2022. Digitisation will play a key role in achieving this. Having said this, IT comes with a lot of risks. Any bank that does not pay attention to cyber risks is living dangerously and I doubt if any bank will even try that. 

Today, Nigeria, in terms of electronic banking is far ahead of most of the European countries and I dare say, even the United States. If you travel abroad, you will see that some of the things you are doing here, you can’t do them here. I am not saying that because I am a Nigeria, but it is a fact. You know, when you have peculiar problems and infrastructural challenges, you use the mobile phone. Statistics has even shown us that in some of the areas of the north with security challenges, we have very high adoption of electronic banking, like in Borno state. That is because since people cannot move around, they send and receive money using their phones. That is why in such places you have savings accounts growing. At a point I was wondering why electronic transactions in those areas are high, until we discovered that it was because of security challenges.

You were a leading investment bank before the consolidation in the banking industry several years ago, it appears you are de-emphasising corporate banking and paying more attention to the retail arm of your business?

We have just appointed a new Executive Director, Corporate Banking and that tells you how seriously we take corporate banking. Fidelity Bank used to be Fidelity Union Merchant Bank and that was why most multinational companies in the country have continued to bank with us. Supporting business in this niche segment comes at is at huge costs. Therefore, building up low cost deposits from the lower end of the market helps support lending to the corporate segment at rates lower that higher risk segments. We have grown our savings deposit account in double-digits for five years now. From N75 billion in January 2014, today it is N226 billion. Now, current accounts, savings and domiciliary accounts, which are all low-cost deposits, currently account for 81.5 per cent of our total deposit base. Therefore, having built up low-cost deposits at the lower end of the market, your being able to serve the upper end becomes easier. So, what are you doing? You are supporting the manufacturers, encouraging more employment and reducing poverty ultimately by supporting those industries. Of course you are helping people earn and disposable income would increase, which they would now spend on the downside of the market. That way, savings would come in, idle and investible funds would come in. You then draw from that again and support the top end of the market. So, it is a combined strategy and we cannot de-emphasise corporate banking at all. This is because that is where you have the real sector playing.

Is inorganic growth part of your strategy or do you intend to grow organically?

A company’s strategic initiative for growth might be driven by either organic growth or inorganic growth. Our five-year plan was crafted to be based on organic growth, based on the projections we made. We also purposefully decided that we will not expand outside Nigeria until after 2022. So, our plans are based on organic growth. We also left a window that allows us to take advantage of emergent opportunities though. When these happens, we will sit down and look at them and go back to our Board to see if we need to alter anything to take advantage of such opportunities or to continue with on the organic growth path. 

Fidelity Bank recorded about 28 per cent growth in deposit in 2018, what were the key drivers of this?

 The deposits came from a combination of growth in savings, growth in current and domiciliary accounts. We have a new product where you can transfer foreign exchange with your mobile phone up to the regulatory limit. It means that we have also seen growth in our domiciliary accounts because people built up funds so that when they want to transfer they can easily use it. We also have corporates that are in foreign currencies earning businesses. The increase in oil prices also impacted on our deposit growth as it favoured our oil and gas upstream customers.

What are you doing to sustain loans and advances above 10 percent?

The environment is so challenging such that growing loans double digit as we have done have prompted some people to ask us: How come we grew double digit. In 2018, we took advantage of opportunities in some sectors to grow loans. For this year we are guiding for between 7.5 to nine per cent. Still talking about last year, a lot of those were to the real sector of the economy which encourages growth and creates employment.

What measures have you put in place to ensure that your balance sheet is not threatened in your quest to join the tier 1 league?

We are keeping our eyes on our capital, on risk management, on governance and sustained profitability. This explains why, for instance we had enough buffers to absorb the impact of implementation of IFRS9.

Do you plan to raise Eurobond to support capital?

 We do not plan an immediate increase in Eurobond. We are not doing any Eurobond this year but we may consider local bond issue if necessary as part of Tier 11 capital but no size yet.

How is Fidelity Bank leveraging fintechs to grow its franchise?

Under our five-year plan which was crafted in 2017 and commenced on January 1, 2018, we got one of the big four consulting firms to do a full global analysis of Fintechs and how we can collaborate with them.  Part of our engagement strategy is partnership. This partnership has been on several fronts including the deployment of a solution for a major customer of ours; an airline.  We are bankers to an airline that controls about 40 percent of the industry. Initially, they had challenges with ticketing on the electronic system they were using, and they came to us. Through collaborating with a Fintech, we migrated their entire transactions to the cloud. This has worked so efficiently well in the last one and half years without fail. Aside from partnering with fintechs, we then decided that there was need for us to develop our internal capacities as well. We decided to build a digital lab as part of the outcomes of the strategic studies we had done with the consulting firm in the last six years. Today we have several millennials that are IT savvy, working at solving problems with innovative solutions, under flexible hours and work environment, at our digital lab.