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 The Nigerian Banking Sector has, over the years evolved, and today has grown to become one of Africa’s most capitalised and highly regulated. Some of the banks have been ranked tops among major financial institutions around the world. However, the sector recently experienced some headwinds as some operators have come under the hammer of the country’s apex bank, while some others have been forced to downsize based on the prevailing economic realities in the country.  The public, amidst these fears, have sought answers to nagging questions, including the security of funds in some of the country’s deposit money banks.

In an exclusive interview with African Leadership Magazine’s Kingsley Okeke, the Chairman, Ecobank Nigeria Mr. John Oche Aboh, took a look at the Banking Industry in Africa, with emphasis on Ecobank’s Pan-African strides. Excerpt:

Ecobank has a presence in about 36 Countries, which reflects that it is truly a Pan-African brand. How would you say the bank has fared in terms of contributing to the continent’s economic growth and development since inception?

It goes back to the vision of the founding Fathers of the bank, which is to build a world class Pan-African Banking Group that is able to assist in the economic development of African countries. The Bank was founded on the spirit of regional cooperation and economic integration of African countries through private sector development.

The bank, to a large extent, has played that role in a commendable way although there were some challenges in the course of execution of this core mandate by the Bank.  However, most of those challenges were externally induced like the recent collapse in the price of primary commodities that has resulted in the current externally induced shocks in most of the emerging markets in Africa. The bank has proved to be resilient against all odds by adhering to its core values of fairness, transparency, accountability and responsibility to all Stakeholders.  The Ecobank Group has operations in 33 Countries in Africa despite the harsh economic headwinds being experienced in most of these countries.  At Ecobank, we believe that one of our main contributions is in the area of human capital development across the African continent. A good number of Africans in the diaspora have left very high paying jobs to join Ecobank, with the spirit of assisting in developing what they refer to as a truly African brand. This is an area we are truly proud of.

We also find that across the African continent where only very few banks exist, Ecobank is prominent amongst these banks. This is also in line with the aspirations of the founding fathers. We can confidently say that the bank is fulfilling its mandate. It is true that in every human endeavor there is room for improvement so we can say we could have done more despite challenges that have to do with diverse cultures across African countries, political issues, judicial systems, and so on. By and large, the bank has been able to surmount the challenges thus far, and has grown tremendously especially when looking at the balance sheet growth.

Financial Inclusion is a major challenge faced in Nigeria. This is because, with over 160 million citizens, only about 21 million people have active bank accounts. We also understand that Ecobank recently signed an MoU with the Bank of industry to accommodate Small and medium scale enterprise. How will this move help in addressing this challenge?

In the last eight years, it is an obvious fact that the focus and policies of the Banking Regulatory authority have been towards financial inclusion and part of the element was the cashless policy. When they said cashless it does not necessarily mean the elimination of cash rather it means the use of less cash.    This policy was made as an avenue to fast track financial inclusion especially with the advent of mobile technology and greater access to Internet services amongst the population. One of the objectives of our MoU with the Bank of Industry to ensure that greater access to credit is available to small-scale enterprises. We realized that this will fast track the recovery process of the economy as these businesses constitute avenues for job creation amidst the current high level of unemployment and underemployment. For instance, if we are to give a certain small amount to a million people, the multiplier effect will be significant.  If we can reduce unemployment it will go a long way in removing miscreants from the streets and improve general security in the cities. This is something the bank is committed to and is in line with our vision of developing the economy of Africa, In this case, Nigeria.

There is obviously the need to create a lot of jobs for the growth of the economy. How feasible do you see this quest in the next 10 years giving the current economic situation?

I am an optimist when it comes to this topic. Clearly, it is feasible although there are a number of steps that have to be taken. Some of these steps are strategic while others are tactical. A lot of entrepreneurs often believe that access to credit is their problem but in reality, it is the business idea and entrepreneurship skills that might be lacking. If you throw credit at a poorly prepared business proposal, the credit will become bad.

Another critical issue is that there is the need to strengthen the legal framework for enforcing contracts across the continent. For instance in Nigeria, there are a number of high profile people whose names were published in the newspapers as owing Banks and the Asset Management Corporation of Nigeria (AMCON). When dragged to court by AMCON (or other financial institutions), they deny or contest the amount of the debt being owed. Establishing the quantum of debt owed and the process of adjudication and conflict resolution takes the judicial system inordinate amount. Customers are aware of this and most debtors deliberately initiate frivolous legal action in courts to stall for time.

The banking institutions would have been more than willing to expand credit if there was an efficient system of resolving contractual issues. One of the threats to banking institutions today is the rising non-performing loan and this can be tied to the inability of the legal framework to decisively resolve the contractual issue.  This has hampered access to credit. If for instance, you take a mortgage loan in the US and most other parts of the Western World, the legal system allows the Lender to foreclose on your property in the event of your inability to meet your loan repayment obligations. This is not the case in many African countries as the borrower can initiate litigation that that can last several years in court.

Surprisingly, many people think the banks make a lot of money. This is because the profit of banks is looked at in absolute amount without relating it to the Equity or Assets employed (ROE or ROA) respectively.  In reality most banks earn an average ROE of about 15% per annum with the top performers going as high as 25% per annum. Banks must meet their obligations to Depositors, Staff, Suppliers, Contractors and the Government in terms of tax, etc. So, if the loans the bank has extended cannot be recovered then access to credit will remain limited in Africa.

Will you say the banks in Nigeria are facing serious challenges giving the fact that there has been a lot of downsizing in recent times in the banking sector? Also are depositors’ funds safe?

I will say yes there are headwinds due the unfavorable macroeconomic environment but it is not peculiar to Nigeria, it is global. This is largely because of the collapse in commodity prices and some policies that have been put in place to stabilize the Economy. Essentially, the government is a dominant player in the economy of most African countries, in a situation where government revenue has dropped significantly as a result of the collapse of commodity prices this will naturally lead to downturn in economic activities and growth. However, depositors’ funds remain safe because the banking industry is a highly regulated industry. The Banking industry is periodically (twice yearly) subjected to Stress Tests with varying degrees of financial shocks to determine its resilience. Identified risks in specific institutions are dealt with decisively by the CBN to ensure safety and soundness of the whole banking system. A bank is one business where the depositors (Customers)’interests rank higher than that of the owners (equity holders) in regulatory actions. This is the reason for regulatory sanctions or intervention in cases where the regulators feel the owners have not exercised their powers appropriately, to appoint competent management to run the bank in a safe and sound manner. I believe that the Nigerian Banking regulators are quite strong and competent in discharging their statutory responsibilities to all Stakeholders.