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“When You Come to Nigeria: Think Diamond Bank”

Interview - January 21, 2013
In a recent interview with Worldfolio, MD of Nigeria’s Diamond Bank talks about the bank’s recent performance and the effective changes he has made since he entered the bank in 2011. He also comments on the bank’s recent rebranding, and its first move out of Nigeria, with the likely acquisition of a UK bank

How do you see the banking sector evolving over the next couple of years?

I see more business-induced and not regulator-induced mergers and consolidations. I do not know how long this will take. Banks are currently in dialogue with each other. International banks have expressed an interest in seeking local partners. I believe that the remaining 3 banks owned by AMCON (Assets Management Corporation of Nigeria) will also be bought either by existing banks, or by those looking for a banking license.

When you look at the Nigerian banking landscape, one of the key issues for the Central Bank of Nigeria (CBN) is lending levels to the real economy. What is Diamond Bank’s take on lending to the real economy?

Banking is just like any other business such that if it does not make business sense to lend to a particular sector, it would be difficult to justify to shareholders why you are engaging in riskier lending.

For more than a year, the CBN has been tweaking the macro economy to ensure stability in terms of inflation and foreign exchange (FOREX) rate — two crucial economic fundamentals.
I think they have done very well to achieve what they have. By doing so, they have discouraged banks from speculating in the FOREX market. They have also acquired a war chest of external reserves which, I think, is in the region of USD44 billion. This has made lending to the real sector much easier, which, as you know, is what the economy grows on the back of. This means that real businesses can get financing to generate employment.

In 2011, Diamond Bank's total net operating revenues rose by 11.38%. In 2012, the bank's performance was even better. How did you achieve this?

When I joined the bank in March 2011, I learned that we had a risk management function that was not independent, which meant the employment of people who did not have the right skills to keep a good quality loan book. As you know, poor loan books mean poor returns. I went to the Board of Directors and told them that I needed a highly qualified, independent executive director to run the risk management function. They approved my proposal.

Our executive director was tasked to populate the place with skilled and qualified people — some of whom were from other banks. There were also expatriates. This restructuring process meant we had to remove a lot of people from the bank.

With the help of the new risk management directorate, we had to set clear standards indicate the kind of loans we wanted to do and were able to do. We established sector limits, did score cards, and bought technology to deploy our retail proposition. We did a lot just to make sure that we did not go back to where we were. That is why 2012 was a year for growth. For us, it is about trying to be realistic in terms of where we are in terms of loan losses, providing for them, cleaning up our books, and getting a practical idea of where we want to be, and the kind of business that we want to do.

As a bank, we have become stronger. We have a better handle on our loan loss provision and coverage ratio which, as of September, based on the International Financial Reporting Standards or IFRS is well over 128%.

We understand that you are going through a rebranding exercise. Can you tell us about the new logo and the strategic thinking behind it?

I think that Diamond Bank is a very good brand. Nowadays, we are looking at the more optimistic side of the diamond. That is why we moved from the old logo to what we have now. Today, we are dealing with people who are like you and I — those who are used to technology and a certain lifestyle — people with Blackberries and the likes. We are trying to appeal to these people. We strive to make them understand that we are with them at every step of the way. That is what our brand is all about. Of course, there is also the lemon-green in our logo that reflects what we are doing. We are very interested in the oil and gas market and how it impacts the environment. We are going green, and are convincing people to go green. We do not lend money to those without positive environmental assessments. We are looking at alternative sources of energy, and how to best prevent additional impact to the ozone layer.

There is some rumor that Diamond Bank is looking to buy a European niche market bank. Can you shed some light on this?

Because we have yet to establish a presence in Europe and the US, we depend on a lot of other banks. We have no problem with that. The only issue we see is that we end up giving away what we could have kept in-house. Virtually all of the banks that have a presence outside Nigeria use their own banks as correspondent banks. They keep the money within the family. That is exactly what we are trying to do through this acquisition.

However, it is important to note that we are not interested in competing with high street banks. We are looking to get a niche business that will support our business and our customers. We think it is the right thing to do. It is going to be in the UK, which allows it to support businesses anywhere in the world. 

Can you comment on the new minimum Capital Adequacy Ratio (CAR) announced by CBN? What does it mean to Diamond Bank?

The minimum CAR was 15% as announced by CBN in early 2012. It used to be 10%. There is nothing wrong with having a lot of capital. However, having it at too high a rate makes the bank an easy target for acquisition because it is not deploying its capital properly.
Today, we are talking about Basel III coming in, which requires a minimum (CAR) of 8%. Here in Diamond Bank, we try to keep ourselves within what we think is reasonable. We also do not want to break the law. That is why we are where we are today.

In 2012, we have raised some USD 200 million in capital. We also capitalized our profits for the first part of year. Technically speaking, we are fine. However, we are not resting on our laurels. We will continue to grow the business. We may need additional capital as we continue to deploy our footprint. That is why we believe we will raise an additional USD 300 million in the next 6 to 9 months. We have appointed parties to start work on that, namely, HSBC, Standard Chartered Bank and Renaissance Capital. We just had a road show in the UK. The feedback has been positive; they are positive expressions of interest.

How would you comment about the bank’s existing challenges?

We know we have problems, and we are continually working to resolve them. We know that these things cannot be solved in one day. Anybody who thinks otherwise is living in a fool’s paradise. The bottom line is that we are in a good and stable position to solve these issues.

If all goes well and I believe that it will with the power reform, I am sure that we should be able to generate 20,000 MW in the next couple of years. This should allow us to bring the cost of serving our customers down, and allow us to return money to our customers and stakeholders. That is exactly what we are working on.

What message would you like to leave to the readers?

Diamond Bank is a great institution. For investors looking for a viable place to put their money, I think that this bank presents a good opportunity. When you come to Nigeria, think Diamond Bank.