Onyeagwu: Why SMEs Find it Difficult to Secure Bank Lending

The Group Managing Director of Zenith Bank Plc, Mr. Ebenezer Onyeagwu, in this interview on Arise Television said the bank will continue to accelerate its retail and digital banking initiatives in order to sustain the positive performance it recorded in 2020. He also urged operators of small and medium scale enterprises in the country to take advantage of the various single-digit long-term funds in the market to grow their businesses, while stressing the need for such businesses to ensure that they meet the eligibility criteria. Excerpts:

Zenith Bank posted about 33 per cent asset growth in 2020 and we saw an 89 per cent increase in your cash balance, was that a strategic decision motivated by the pandemic to increase your cash holdings?

You need to recognise the fact that Zenith is the biggest bank in the country and given our share size, it is important for us to maintain certain optimal level of cash balances to meet the transactions and the needs of our customers. Again, you need to understand that the cash balances are a point in time balance. The balance you see today is not what you will see tomorrow. You may end with N55 billion at the reporting time, that is, end of the year and you move in the next day, that balance may come down to N20 billion or even N10 billion, depending on the transaction flow. So, essentially, as a big bank, with our asset size and huge liquidity position, we need to keep a level of cash holding to meet our daily needs.

Customer deposit increased by 24 per cent in 2020, how were you able to mobilise deposits in a pandemic year and what is your retail banking strategy for 2021?

The growth we achieved was powered by the acceleration of our retail and digital banking initiatives. If you dimension it further, you are going to see that our retail deposit moved from N1.1 trillion to N1.7 trillion. When you cascade that downward again, you will see that savings moved from N600 billion to N1.1 trillion, accounting for 88 per cent increase in deposits. So, what we see driving that growth in deposit, is the acceleration of our digital and retail banking initiatives.

In terms of your operating expenses, you more than doubled your information technology spending to N20.4 billion in 2020, from N9.8 billion in 2019, was that related to having more staff work from home or cyber security protection?

It is a combination of so many things. Firstly, because we are now expanding and accelerating our digital initiatives, we need to acquire lots more licences and new software. And these items are foreign currency denominated. By the time you convert it to naira, it comes to so much. That is the primary reason. Of course, we are scaling up in terms of our cyber-security initiative because as we continue to grow in our digital expansion programme, it is also important that we make adequate provision to deal with the downside effect of implementing a digital banking regime, which has also seen a rising case of cybercrime. So, we are also up scaling our investment in terms of what we have, to contend with the ever-increasing risks we see in the environment. That in a nutshell explains the rise in our digital banking initiative.
A lot has been said about high cost of doing business in Nigeria, even for banks in the country and how it filters through to high interest rates on loan. What is your take on that?

Out cost profile depicts the operating environment. Within the year we saw upward review in fuel price, which accounted for the increase in our fuel cost. Again, when you are looking at cost of doing business, you also need to look in total, how businesses are being conducted. If I set up a branch today, I would need to provide my infrastructure, I need to provide power, water and in some cases we even construct road to provide access to the branch location. So, as a result of the poor state of infrastructure, you see that businesses would now have to contend with providing these resources to get their operations running. So, if we have a more available and cheaper utilities services and infrastructure to support businesses, of course, cost would go down.

Then, looking at cost of doing business in banking, it goes beyond those operational costs. We also have things like regulatory cost. A bank like Zenith, given our size, the burden of regulatory cost on us is heavy. By regulatory cost here, I am referring to the Nigeria Deposit Insurance Corporation premium and the Asset Management Corporation of Nigeria fee. So, because of our size, if you look at the numbers, you will see that these regulatory costs account for a whopping 28 per cent of our overhead. So, all of them come together to add to the cost of doing business for us as a banking institution in the country.

So, how can we get interest rates on loans down to single-digit?

First of all, if you are looking at interest rate, you have to look at it in terms of the theoretical framework and issues around money supply, demand for money, issues around government borrowing and the fiscal deficits. So, when you put all that together, you will see that you cannot have a situation where you decree interest rate by fiat. Interest rates would always be set by the dynamics and realities in the market. In this case, if you are looking at interest rate in Nigeria, you have to index it to the risk-free rate. One-year risk-free rate in Nigeria is like 10 per cent. So, it will be difficult to have single-digit rate in Nigeria. However, the Central Bank of Nigeria has come up with a number of laudable initiatives to support single-digit lending.

We have intervention funds such as the Creative Industry Financing Initiative, where banks in the country provide long-term single-digit funding for entrepreneurs who are in cinema, movie, ICT and fashion designing. We also have what is called the Agri-Business/Small and Medium Enterprise Investment Scheme. It is also a pool of fund available for businesses in that space. You can as well access these loans. Apart from these ones, the CBN also have different intervention schemes such as the Anchor Borrowers Scheme, the Commercial Agricultural Credit Scheme and others, and all these loans are single-digit and they provide long-term financing. The big problem we have is that when you see an SME approaching you for loan, the SME may not have a track record; he walks up to you and tells you that he needs a single-digit loan and needs N20 million.

But I can’t give you N20 million without looking where you are coming from. So, we cannot decree interest rate by fiat. But the regulators have done a good work by providing funding schemes and whoever is eligible would get such single-digit long term loans once they meet the criteria. So, the funding is there, but the SMEs when they approach the banks don’t often meet the eligibility criteria.

In March 2020, there was a rumour in the market that Zenith was to acquire a tier 2 bank, with your growth in asset, is there an acquisition plan for your bank this year?
You called it rumour and that was what it was. First is to say that Zenith Bank has grown organically, we are disciplined, we are focused and we look for where to extract value. However, we would not do a deal or a corporate action just for the sake of doing it. If we find a deal that fits into our profile, of course we would do a deal. It has to be something that fits into our profile. Until we find such, we would continue to grow organically, depending on the opportunities we find in the market.

What about outside Nigeria or any other African country, any expansion plans?
We are looking at everything, our eyes are open, if we find any location that we think makes sense and is able to create value, why not. Bear in mind that we are already in Ghana, we are in Sierra Leone, Gambia, UK and by no means that is not to say that we cannot expand beyond this location. It depends on what we see as events continue to unfold and emerge.

What is your outlook for 2021?
We would continue to reinforce our identity, we are Zenith, we are a market leader, we are creative, we are dynamic and we have the capability to respond to adversity as they come. As long as we are able to reinforce that, we would ensure that we are able to drive resilience within the team, we would drive doggedness, and we would also diligence to navigate the landscape. If you look at the bigger economy, it was an interesting news that the country escaped recession in the fourth quarter of 2020. That was positive for the country. Even when we haven’t seen the Covid-19 vaccine in the country, the news that the country would soon get the vaccine is positive and the government is making efforts to ensure that we have our own share of the vaccine. Oil price is now about $65 price.

And even though we still have to contend with OPEC quota, that is good news. Our payment system is expanding dramatically and that is promoting consumer spending. The CBN is also making effort to improve the availability of forex in the market. So, with these, one can say with a bit of cautious optimism that this year will be better than last year. However, at Zenith, we would be interrogating these scenarios and see the opportunities therein. We would be expanding our digital and retail banking initiatives because we can see the progress and impact it has had on our activities. We would also ensure that we key into emerging opportunities in the country as they continue to unfold. Two key areas are agric and ICT. So, we would reinforce our identity as Zenith, we would retain our market leadership. The important thing for me is that I have a brilliant and excellent team.