The Managing Director/Chief Executive Officer, Coronation Merchant Bank, Banjo Adegbohungbe, speaks on developments in merchant banks in this interview with NIKE POPOOLA
How can the diversification of the economy be enhanced to reduce dependence on oil revenue?
When you look at the country’s Gross Domestic Product, the economy appears well-diversified, however, the problem is where we are not diversified, which is in terms of sources of foreign exchange. There is an overdependence on the oil and gas sector for foreign exchange, which stands at about 90 per cent of foreign exchange earnings today. It is therefore crucial that we diversify our forex sources and reduce the dependence on oil for our foreign exchange earnings by the promotion of non-oil exports, as well as encouraging other export activities in agriculture, manufacturing and even in the services sector.
The diversification would save the country from the disbursement of scarce foreign exchange for imports especially when these can be produced locally and it will reduce the pressure on foreign exchange demand, thereby creating more stability in the naira exchange rate. There are various structural issues that also need to be addressed to improve on this diversification.
Nigeria is yet to meet its financial inclusion target, according to figures by the CBN. How can the country achieve this target?
There are statistics that point to the fact that financial inclusion has been improving in the last five years or so. This is especially because of several measures that have been taken by the banking industry in conjunction with the regulators. For instance, the regulator has granted a wide range of licences for the provision of financial services; PSB licences, PSSP licenses, IMTO licenses, MMO licences and others. Also on the part of the banking industry, we have invested in electronic banking, digital products, agency banking, and so on. All these measures put together have really improved financial inclusion.
The other aspect is also the fintechs and the telecom industry. In partnership with the banks, they have also made significant investments that have improved financial inclusion.
In terms of what can be improved further, CBN recently inaugurated the eNaira which has the potential to improve on what has been done so far. With the investments that have been put in place by these sectors and the regulatory framework, I am certain the country will meet the financial inclusion target.
The merchant banks offer major services to large enterprises. Do they have major contributions to SMEs?
Merchant banks by the nature of their banking licence typically do not bank SMEs. However, a lot of the support they provide for the large enterprises indirectly supports the SMEs who are in their value chain. A typical large enterprise has suppliers, distributors, partners, the majority of which are SMEs that cut across all sectors of the economy.
If these big players don’t grow then the businesses they are providing for these SMEs will be hampered as well and the spectrum of opportunities available to them will not expand. But by funding and supporting these companies with loans, financial advisory, mergers and acquisitions, debt and capital raising, and others, they are indirectly supporting these SMEs.
Coronation Merchant Bank, for example, provides services to a lot of large entreprises that cut across various sectors, and through that we support thousands of SMEs in their value chain.
How would you describe the level of non-performing loans in the merchant banking sector during COVID-19? Many businesses were shut down when they had loans to pay. What’s the impact on the business?
The level of non-performing loans in the banking industry has not deteriorated significantly. There are a number of reasons for that, one being that the CBN provided support to the industry during the difficult period. For example, they gave an opportunity for loans that were adversely affected by COVID-19 to be restructured, which many banks, including merchant banks, took advantage of. However, Coronation Merchant Bank did not restructure loans in that regulatory window.
For merchant banks generally, most of our clients were impacted by COVID-19 but business picked up once the lockdown eased and some sectors recovered like certain aspects of manufacturing and others. This recovery meant their activity level with the banks also gained traction and the earning capacity of the bank through those partnerships also recovered.
We didn’t shut down businesses to recover our loans. In actuality, we supported these clients by providing lines of credit that helped businesses weather the pandemic-induced economic downturn.
Did borrowers get palliatives from merchant banks when COVID-19 was still biting hard on businesses?
It depends on what you mean by palliatives. If you mean providing them with financial support and market insights to navigate the difficult period, then the answer is yes. Like I mentioned earlier, we provided significant financial support that enabled our clients to recover, but there were certain other things that financial support could not address; supply chain shocks, escalating freight costs, challenges with infrastructure, and others. So we made sure to also support them through financial advisory, debt and capital raising, and so on. Through it all, our goal was simple. To strengthen our partnerships with our customers by being there for them when they truly needed us.
What are the major benefits business enterprises enjoy in using merchant banks?
Merchant banks can do everything commercial banks can do and more. Just like commercial banks, we can provide loans, take deposits, and so on. However, in addition, we also provide investment banking services, financial advisory, debt/capital raising, and others, which a commercial bank cannot do unless they have a holding company licence.
