Mr Timothy Oguntayo, Group Managing Director/ CEO of Skye Bank Plc, responded to questions raised at the Pre-AGM interactive session with Business Editors and Finance Correspondents held in Lagos recently. Sam Diala attended the event. Excerpts
Proposed capital raising and bonus shares
We intend to go for capital raising before the end of the year. We plan to raise about N30 billion from the capital market to increase our shareholders’ fund. It will be open to both foreign and local investors and adequate transparency is guaranteed because the Nigerian Stock Exchange will be involved. We opted for bonus shares as against cash dividend this year since we are going for capital raising. It makes no meaning giving cash dividend today only to ask the shareholder to bring it back tomorrow. The decision was not unilaterally taken; it was taken in consultation with the shareholders.
Areas of profitability challenge
We have three areas we said we are going to take very aggressive decision on. One of them is in the downstream sector of oil and gas. You know the challenge the marketers have been having as to whether fuel subsidy would remain or not. We don’t know how long that is going to last so we thought it was safe for us to take a provision and when the debts are collected, we write back. I think this is a very conservative approach. The other area was real estate. Mortgage funding has not been as forthcoming as expected, Sales have been slow but the assets are still there. So, we have really not lost money. However, in keeping with existing prudential guidelines, we have adopted a conservative approach to risk management by making provisions for some of the loans in that sector. The last one is maritime. There is the Cabotage Law which I am sure some of you are familiar with. The Cabotage Law was meant to restrict foreign vessels to international waters while the local operators are able to operate within Nigerian waters. There were no requirements for Nigerian vessels to be double- bunk. But sometime last year NIMASA (Nigerian Maritime Administration and Safety Agency) said Nigerian vessels must have double bunk. That means that those vessels that were not double bunk could not get contract. This created cash flow challenge for the affected operators. The vessels are still there. They are working. there is ongoing discussion between ISAN (Individual Shipowners Association of Nigeria) and NIMSA and the Federal Ministry of Transport has waded into the matter. has waded in. We believe that this will be resolved soonest. The cashflows are not commensurate with the quantum of facilities. We thought we could make the provisions as we can always write them back to the books when the issues are resolved. These are the areas that affected provisions. It was a more conservative approach on our side, which we think will reverse itself in the coming year.Branch turnaround time and IT Platform There is no discrimination against any branch; every branch operates on the same platform. You will know, however, that communication challenge differs with locations, even within Lagos. I acknowledge that the links will not be as effective as expected at times. What we have done is to have some redundancies. So, we have now installed double lines. For instance, if you are taking link facility from carrier A, we sign a redundancy agreement carrier B. The arrangement has started showing positive results. It is a continuous improvement. We welcome feedback from friends like you. Feel free to notify us of any branch that is not operating effectively, we will take remedial actions immediately.
Effect of new Cash Reserve Requirement (CRR) harmonization.
The effect was positive. We were not debited as was the case with other banks. This may provide answer to the question as to whether we are a private or public-sector driven bank. I would say Skye Bank is a private sector deposit people bank. The public sector deposit in our bank is about 13 per cent out of total deposits; that is 87-13. That means we are private sector deposit driven.
Corporate governance practice
We pride ourselves that we uphold the highest standard of corporate governance. However, we acknowledge that there will always be infractions. With 400 branches and 4,000 staff you cannot totally rule out infractions either out of ignorance or some other reasons there will be infractions. The important point here is what we do as management. Do we condone it? We don’t. The CBN now has a Consumer Protection unit that handles such cases when brought to its attention. So it is not something you can sweep under the carpet. The Chartered Institute of Bankers, also, has a committee that looks into disputes between banks and customers. I will say that, compared with what obtains in the industry, we have the least of issues of unresolved customer complaints. We maintain a very high standard of corporate governance which is audited by independent parties like KMPG. The CBN audits us on a quarterly basis.
Branches to be rationalized
We have just taken over Mainstreet Bank, and we do not want to be in a haste to rationalize branches except where it is obvious that we have to. For instance, if Skye Bank is located within a vicinity that has Mainstreet Bank, one has to be collapsed into the other, unless the two branches can justify their continued. If we have two branches in the same vicinity and one is operating in a rented building while the other is in our own building, it makes sense to collapse them into our property. The process is ongoing; we will determine all that before the end of the third quarter.
Penalty for misclassification of public sector fund
When the circular was introduced, there was no clarity. What we know as public sector fund is one from government Ministries, Departments and Agencies (MDAs). But when you begin to stretch it to OAU (Organisation of African Unity) and some other entities that do not rely wholly on government funding, it becomes another matter. That was what happened and it cut across the banking industry. So all the banks suffered it.
What to do with Mainstreet Bank subsidiaries
We took over Mainstreet Bank in December 2014. We have engaged consultants to examine the subsidiaries: What is the value in them? Should we sell them or retain them? By the end of third quarter we would have taken a decision on them. We must conclude that before June next year. Non-Performing Loans and the debtors There is deadline for banks to publish the non-performing loans, according to the CBN directive. Of course, you would like that all debtors pay; but you know that cannot happen. We have to be realistic. If by end of July the debtors do not pay or make reasonable repayment programme with the bank, we will publish their names and go after them, with available legal means.
Power sector exposure
Our total exposure to the power sector is about N5 billion, and it is not being serviced from the DISCO revenues. This is because we knew it was going to take some time for the DISCOs to begin to generate robust cash flow to service the loan. The Facility is being serviced from other operating cash flows of the promoters of the business. Skye Bank alone did not finance the acquisition. We financed it in conjunction with four other banks; so it is a syndication and it is going on well.
Low loan growth target
We all know that from the first half of this year, up till now, there has been less economic activities in this country because everything was at a stand-still as a result of the elections. You cannot push your loan without knowing the direction the new government is going. The oil marketers are complaining that banks are not supporting them. Of course, you cannot support petroleum product marketers if you do not know the direction the government is going – whether it will go for partial or total deregulation of the downstream sector of the oil industry. These is among the major sectors of the economy that consume loans. If it there is no clear cut policy on those sectors, then the banks have to be cautious in loan growth and that is what we are doing in Skye Bank.
Price of Mainstreet acquisition
Valuation is not about size. From our estimation of the valuation of Mainstreet bank, I think we paid the right price and the benefit of it will unfold. Acquisitions are not-short term transactions – something you plant today and you begin to reap the reward tomorrow. It is a long-term venture. Unfolding events will vindicate the reasonableness of the price.