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How IFRS9 implementation will affect banks’ performance —Heritage Bank MD

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HOW can implementation of IFRS9 affect banks’ performance including your own?

IFRS-9 is essentially a risk-based activity where we are trying to make sure we measure what we have and whatever we report in terms of where our financial strengths are is as true as near reality can be. Between the general accounting standard which is the GAP Methodology and the IFRS methodology, there is always some level of disparity as to what constitutes a proper asset deficiency.

For instance, if today I own this assets and it cost me N2million to buy, is it still N2million ten years after? Or if I lend somebody money, and he is unable to pay after so many years, is it still possible that he can pay that money? What has changed in the economy to make him pay? Have we been able to measure those things?

Essentially IFRS-9 allows banks to measure their assets both risk assets and physical assets in ways that truly reflect their strength, and thinking ahead of the curve, projections that you think can possibly happen, or issues that affect the possibility of anything going wrong; and taking a heat ahead of time, yes.

It will affect us at the initial time when we are taking the heat. But it is a zero-some game for me. Down the line after three to four years, it comes down. Because, if today you believe he is not going to pay and the economy improves and he pays tomorrow, it goes back to your profit. So, initially we are all going to feel a jolt. There will be a depression in some of our earnings because we are taking more heat. But it speaks to the strength of the bank. And that strength of the bank is what the customers need to be comfortable about that. After all, you have a bank that is still able to carry your liabilities.


Yield on government securities especially T-bills will likely fall after the election, and given that returns on such securities form a huge part of banks’ revenue, how are banks including your own going to cope when these yields fall?

I don’t think that very high T-bill yield is very good for the economy. It implies that you will have to borrow at a very high rate. So, if on one hand we are trying to deal with interest rates that are high, one of the things we should advocate for businesses to grow and become much stronger is for interest rates to come down so that we can expand our businesses and make more money. If we project that yield should come down, that means we are hoping that businesses would expand because interest rates would come down and then people will be able to borrow and there will be sufficient savings for them to be able to do more businesses. This implies that the banks will do better. On one hand we are losing from yield but on another hand, we are having a bigger position because our customers are getting advantage which means we will do better.


Payment Service Banks (PSB) are going to take off this year. How are the banks going to handle the competition going to ensue?

According to the guidelines being issued by the CBN, the PSBs are not lending banks. So, essentially they are going to assist us. For us, it is an enabler in the national financial inclusion strategy that we are talking about. It is not necessarily a competition. Yes, it is going to be a competition to the extent that we will compete with them in financial inclusion space, our agency banking products will compete with them. We all have good payment platforms. Our payment platforms have even developed so much more than they won’t be able to compete with.

But for us, it is important that we have such other organizations that help the lower side of our economy where people still put money under their beds, leave money in their stores; fire comes and burn up both their money and investments. And they are back to square one. We need to eliminate all that. We need to bring as more people as possible onto the normal platform so that we can measure them. Today, we don’t have good measurement of how much money is in circulation in Nigeria because we don’t even know. But if we can get these new institutions join us to expand the financial inclusion space; we believe it will be better for everybody. And the economy will be better for it.


Banks are finding it difficult to attract borrowers. In other words, appetite for borrowing has dropped, a development some of your colleagues have confirmed. What do you think is responsible for this?

Both of these are a function of the general economy. If a sector is not growing, there is no need going to borrowing because if your economy is not growing and you are borrowing in that sector, you are destroying capital rather than creating it. And the last thing you will want to do in a growing economy is to destroy capital. So, when you say that customers are not borrowing, customers are just being realistic. I discussed the issue of power during the discourse, and I said: “because we are already marked out in the power space, unless we do something, there is no need to borrow further in the power space. If you borrow further in the power space, you will not be able to pay because you cannot generate enough power thereby not generating enough money to pay what you have borrowed, you are going to destroy that capital.”

The reason for not much borrowing in the industry is that the income that will sustain that borrowing doesn’t exist. We need to create avenues to make those incomes begin to come back to life before we begin to borrow again.


What are the policy options for government?

I don’t want to jump into being government to say this is what the policy options are. What we have canvassed is in dealing with policy options you enunciate, be it a new government or subsisting government, it should be all inclusive. It shouldn’t be all human capital development or economic growth. It has to be inclusive. Are we planning to pull x percentage of people below the poverty line, to above the poverty line? Then what does it take? Do we need to deal infrastructure deficit? What does it take? Do we need to increase our social investment? What does it take? In all these, there is a tail line that runs through them. If there is no savings, there will be no investments. And if there is no investment, there will be no development. So we need to work through that trade. Until we have a policy that addresses this pattern of developmental needs, we will not be able to achieve inclusive development.


When should we expect the listing of Heritage Bank on the Nigerian Stock Exchange?    

It will definitely be listed on the NSE, especially as we are expecting new investors. And one of their core expectations is that we will list on the NSE in the nearest future. So we will list.

As to whether there may be mergers and acquisitions this year, there may be mergers and acquisitions. I will be happy to them happen. Yes, investors are coming and they are happy with the returns we are making. We are one of the economies that return good numbers in the financial sector. Investors are always very happy with the kind of returns that we make. As at yesterday, they came and I expect much more investments. As those investments take place, mergers and acquisitions may take place this year, both local and foreign.


Heritage Bank prides itself as Nigeria’s most innovative bank. What innovation should customers expect from the bank in 2019?

First and foremost, I am sure that you are all aware of our Octopus Platform which is a digital bank platform in itself is currently running. We have been at the testing phase. We are beginning to launch it. This year, we will see full blown engagement with our octopus platform.

Why that platform is interesting is that it is not just a payment platform. It is also a social engagement platform. In fact, it is a community. It is not only community of social activities; it is a community of economic activities. And it can go well beyond the borders of Nigeria. So, these are the kind of innovation we are bring to the table. It also allows our customers on that platform to trade among themselves, to do ecommerce. Not only are they are able to do ecommerce, they are able to do citizenship services on that same platform.

So, there is a convergence of technology and financial services and being able to project that into the wider society for the basis of development of the whole economy.

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