WE'VE CLOSED THE TAPS IN UNION BANK â€“ FUNKE OSIBODU, GMD
Barely a year after it was rescued from bankruptcy by the Central Bank of Nigeria (CBN), Union Bank of Nigeria Plc is on its feet again kicking and bouncing and posting healthy financials.
To tell all and sundry that better days are here again, it recently announced a pre-tax profit of N3.55 billion for the first quarter of this year, which ended March 31, representing a huge leap from a negative territory of a loss after tax of N281.2 billion recorded for the nine-month period, which ended last December.
In high spirits, the Managing Director, Mrs Funke Osibodu, recounts how the bank bounced back from the brink, saying it is poised to regain its rightful position in the industry now that its books have been cleaned up.
When she assumed office last August, Osibodu said the focus would specifically be on risk management/control, marketing and business development, adding that the bank would exploit the business opportunities arising from the gradual recovery in the global economy.
Speaking with Business Editors in Lagos, Osibodu bares her mind on the goings on in the bank and the banking industry. Excerpts…
Between the time we joined and end of December last year, we have done what is called 'close the tap.' In other words, clean up the books of the bank and wind down what I would call the 'old things' that took us where we were as of August and then reposition the bank for growth as from January. And in repositioning the bank for growth, there were two strategies. The first one was to turn the bank into profitability within the first quarter by end of March, and the second one is that we commence our medium and strategic renewal plan for sustainable growth from April.
Well, I am happy to say reasonably that both in terms of closing the tap, we were able to do what we wanted to do and reposition in terms of profitability by end of March; you see the numbers. We have turned profits…and so this year we labelled it 'the new Union Bank' or 'Union Bank Reloaded.'
And this area is very important because anything you have that is un-reconciled, you never know what is hidden inside, whether it is fraud or something funny. So it is important to have it as low as possible.
Then you have the income audit team headed by Mr Ade Shonubi. Theirs is to block all leakages, both income and expense side, and also make sure that new transactions are properly done. There is still a lot of work to do on that side. We still receive a lot of letters from customers saying, 'you have not charged us properly. This is wrong, reverse it.' Often, it is because we are not doing things on time and not doing it properly. But we are addressing all of that.
It was because we had to, first of all, classify all our loans properly. Loans that were not on the balance sheet, we brought them back to the balance sheet, and if they were not performing, we made sure that by prudential guidelines, we classified them properly. So it was bringing out all the cobwebs and, indeed, seeing us as we are. That was basically it.
We also went on an aggressive loan recovery drive. We set up a six-tier structure where there is a structure to focus on the loan recovery because as you know, loans go through a life cycle, and they are all at different stages. So we decided to break it into six stages so we can focus specifically and have a key senior personnel drive each aspect.
The first beat is remedial stage where the loans first become pass due, and you need to follow up to ensure that it doesn't get worse. The customer gets notified and you work with the customer to ensure that the necessary repayments are made to keep the loans performing. And then you move to the loan workout recovery stage where basically the loans have been bad for some time. It is either it has entered the first 90-day pass due or it is just at the brink.
At this stage, you engage the customer, find out his plan for repaying and in some instances, you are making a formal demand at this stage, and once that doesn't achieve the desired results, you then engage legal practitioners to do the first stage of demanding for repayment.
And you move beyond that. We have what we call the legal and the EFCC (Economic and Financial Crimes Commission) process. As you are aware, the EFCC has been very supportive of the banks in loan recovery. So at this stage, we pursue the EFCC process to a point where we achieve recovery and where that doesn't happen, then the legal recovery machinery goes full blast in recovering them.
The next stage is the debt collection/police process because basically debtors are in different moulds. When you go beyond that, we go into turnaround and or receiver management stage, which is where basically nothing more can be done except taking over the company for the purpose of doing turnaround management…
For the first quarter, we wanted to turn the bank into profitability. You can see that profit before tax was N3.5 billion for the group and for the bank N2.5 billion. I dare to say it could have been better but we had some of the spill over impact of last January. So if you look at our run rates now, it is much better this.
Having done that turn by March into profitability, the key focus going forward is what we call the medium term renewal and sustainable growth plan, and these were the key things we were doing. We are focusing first on the large customers to sort out their issues. I have called on many customers but not as many as I would have loved to because there were so many things to take care of. But they are beginning to see that across the board, we are all accessible.
In order to be clear on how we are making progress, there are actually two ends we are focusing on in the short term – the corporate customers and the retail. The reasons the individuals and SMEs are not in the immediate focus is that through the corporate, you will capture them because in the corporate, we follow the value chain. So whoever is dealing with a particular large customer will try and follow that chain so as to capture them. We are not looking for new customers but to make the ones that are with us happy. Yet, if any new customer strays in, we capture them. But first of all, we would want the ones that are there to be better served and I'm glad we are beginning to see some results.
There is also the human resource management system, which makes the life of the HR manager easier. But more importantly even a person in remote places can send information online. That way you are closer to the centre and information that is captured on everybody is more correct.
We have mentioned how we were attacking our bad loans but you also have to make sure you are handling the good ones properly. The risk management enterprise framework is what everybody is using and we have gone far in implementing that. One area we discovered is that a lot of the subsidiaries were as good as standing – we have about 15 subsidiaries and they were not talking to each other. So we are not even trying to save cost using a good scale. You had a situation where we at the head office were buying computers cheaper but in the subsidiary they were buying it more expensive.
There were two main issues that the protest has raised – those who were protesting were made up of a group of people who left the bank dating back to 2000. One of the major contentions was that they claim that the bank didn't pay them the right rates; that they were underpaid.
The other key issue was the one that had to do with the share ownership scheme, that is the productivity scheme the bank introduced. In those key issues, some interested parties have gone to court and our position still remains that the issues are before the court and we will wait till the court resolves them.
There were other issues that were raised by the protesters.
One had to do with the transfer of the pensions contributions to their PFAs. You know with the Pensions Reform Act of 2004, they brought about the issue of contributory pensions scheme and there were some people who retired from January 2006 to date, which was when we commenced the transfer of remittance of contributions. We had actually communicated with the pensioners association to let their members know that those whose contributions have not been transferred should let us know their selected PFAs because we cannot transfer contributions until you know the PFA of the individuals.
Before and after the protests, we again contacted the pensions association and we are of course remitting as we get the information. I think it is an ongoing dialogue.
Categorisation of banks
I think it is good because the capital requirement for a small bank is different from the capital requirement from a large bank. If you decide that you want to be a regional bank and not a national bank, or just want to operate in a particular area, I have the freedom to do so.
There are various initiatives like what is called 'shared services.' That is, you can go to a location and you will find ten banks occupying a premises (in a hall). The essence is to share the facilities in that building, which reduces the cost that you pass to the customer. You probably will get more business through that process than assuming that until I have my own big office.
It is true that the rates are not going down as fast but they have gone down a lot. Before the reduction, you had loan rates ranging from maybe 17 to 28 per cent, depending on the type of customer. Today, you have loan rates ranging from eight-and-a-half and the highest I have seen so far is about 21 per cent. So everything has moved down by about seven and eight per cent. People generally look at the high one but there will always be a difference, and the difference represents the risk involved.
You find out that the ones you are not comfortable with or you find out that there are more risks, they are higher. But it is true that it can go down even further and it will. Normally what happens is that as you know that there is stability in the deposit rates at a lower rate, you move the lending rate down to match it. So it is an ongoing process. Sometimes it is the customers that do not demand for it. Sometimes, it requires you demanding for it, depending on the bank. Some banks will go ahead and advise you that they have revised your rates down. Some will do it selectively, but it is going down.
A disincentive to savings?
I don't think savings rate has changed. Deposit rates have changed but we have all kept savings rate where it is while deposit rate is lower. It might be in the short run because you look at it and say if I am earning five per cent, let me just use the money for something else. But the truth is also that if we want to grow this economy, there must be a conducive environment for interest rates where anybody that is in business can make profit. Interest cost is a large component of it and what is more important is having real interest rates. You will see that inflation has also been coming down.
Let us start from a general perspective. The banks are not lending generally because, first of all, banks need to be sure of the kind of risk they are taking. Over time, we have seen that banks have to make a lot of provision, a lot of write-ups because of the quality of loans they have written before. Because of that, banks have to be very careful about the kind of loans they will be booking going forward. They now say let us restrain ourselves, let re-examine the kind of loans we are booking. But by and large, banks are still lending money. I do know that banks are still lending money but maybe they are careful or prudent in this manner and very organized.
Union Bank is lending; we never stopped lending. But once beaten… We are still the leaders in agriculture; in fact we have been increasing our agric loan. What we approved this year in small scale agric was N10 billion and that is increasing. Remember I said we are concentrating on two sectors: Retail and the chain of the corporate.
When it comes to corporate lending, we are careful about the sectors. Part of the reasons we landed where we found ourselves in Union Bank is that loans to oil trading business was very large and so when things changed course, we just had a huge amount of bad loans in our books. So, to that sector, we are very selective in lending. It is because you want to reduce your risk factor and spread out more in those areas.
The sovereign bonds recently introduced to oil and petroleum marketers and traders is very good because part of their problems was getting the differential on time and sometimes it used to take more than six months and so on, and their business is very low margin. By introducing that process and sovereign bonds being paid on time, so far the feeling I get is that if it is being paid on time, it assists in improving that sector. One of the things introduced by the Central Bank that is useful also even though we are supposed to comply over a certain period is that for each sector, they have given us guidelines to say look, for any sector, don't lend by more than X to that sector. I think it is 20 or 25. If you do, you are over-exposing yourself because if anything happens to that sector, you are in trouble.
So, go and look at your portfolio. Where you have more than that, go and find a way of reducing on that side and increasing on other side so that your risk management process is better balanced. Several banks are going through that phase now where we are re-adjusting.
Part of why the banks shied away from lending was also because of the inadequacy of capital because MPLs affected the banks' ability to lend. So once the banks are freed of that burden, you will see lending increase. But Union Bank as well as the other strong banks have continued to lend. In all the key sectors that support the economy, Union Bank has remained and continued to lend. In addition, we are also lending to individuals, civil servants, and very low-income people.
There are two things I have noticed. First, I think their emphasis has been on power (electricity) and, coincidentally, I think they are serious in doing something about power. I hope Nigeria assists in getting something done because that power issue has been on for too long. Second is that I believe that his (Jonathan's) era should also assist on the Niger Delta side because he knows the terrain.
The third thing, talking about both of them; the Vice President, who was former governor of Kaduna State, had made a presentation to the Bankers Committee sometime in the last two months on what was happening in Kaduna and the various things he was doing, and I was quite impressed. One thing that came out clear was that he believes it had to be a private sector-led process and he even came with various private sector parties. You could see that maybe having worked in the private sector, he was serious and very passionate about housing, having being an architect in that area.
I am expecting that translates into what he wants to do in government as VP and I know that he has set up various committees relating to industry-related issues. The little I saw of his style was that look, I want this by this time…and it is like he is hands-on. It is too early, but it looks like for both of them and the little I have seen of their chemistry, it is good. For both of them, they want to take action. The time is short but I believe we will see some results.
I think there are many things this government is currently doing which affect employment. The simple one is refinancing through the Bank of Industry (BOI) that the CBN Governor, Sanusi Lamido, initiated for loans that are non-performing. Not because the business cannot survive but because you gave a two-year loan to somebody that needed a 10-year loan and it is at high interest rate. Lots of companies will be revived and this will generate employment. What ideally somebody should be doing is saying, even in the process of we all applying and getting it done, how many people exist in those companies. It is true that key statistics don't exist. When you don't have statistics, you don't know whether you are progressing.
But, if we can solve our power problem, cost will go down so much. If you look at the impact these mobile phones have made on us and the employment it has created, it (power/electricity) will create a lot more.
On our part as a bank, we have recruited about 50 senior people in different places. We have recruited 700 graduates. We are about to finish a process of recruiting 150 accountants and the first batch would probably start their training by end of July. We try to recruit in batches of 150 and it is an ongoing process so that between when we started at end of last year and end of this year, we can say that we have recruited at least 1000 persons.
In recruiting also, we are making sure those who are not doing things properly know that there is a price you pay. So far, up to 500 people have faced the disciplinary committee just as when we discovered that some people have done things properly we also commend them, which was never the case. We have issued 21 commendation letters.
This aspect of re-aligning is a major thrust. Most people are what we call the back office people. They sit and don't attend to customers. But we are changing it to more people in the front office and less in back office. The intention is to achieve 70 per cent front office and 30 per cent back office. You will be seeing more senior people attending to you and attempting to solve your problems. Hopefully through that way, we would be able to improve on the quality of output in the branches.
There is also the performance management software that we have started using and the essence is that everybody knows what is expected of him. You are able to see it at a glance how you are performing in terms of what is expected of you. What it does is that it introduces transparency and ensures that people can know how they are doing. Through this process you will know who is worthwhile to be promoted and who is not worthwhile to be promoted, and it is an objective process.
Another key thing we have introduced, which is going live within two weeks, is the e-learning process. Massive training is required and to do that you must have a process that is fast. Some people will be doing continuous training online in various areas so that we can hopefully improve our skills faster.
There has been a lot of redeployment. We even did a major one recently where senior people were moved from here so as to be closer to people. A lot of people will move out from the head office because the head office is not producing. It is the branches that are the productive organ and they are very important in that whole process.