Banking challenges rooted on economic issues, says Ashade
Mr. Peter Oladele Ashade is the Group Chief Executive Officer of an integrated financial services group- United Capital Plc. The consummate banker at ease with numbers, has a bachelor’s degree in Banking and Finance; MBA in Marketing; and MSc in Finance. He is a Fellow of the Chartered Institute of Bankers; Institute of Chartered Accountants of Nigeria; and Institute of Capital Market Registrars, as well as Associate of the Chartered Institute of Taxation of Nigeria and the Institute of Directors. In this interview with journalists, he said that while the economy holds opportunities, care must be taken in the build-up to the elections, noting that no business can be better than the economy. Assistant Editor, Finance and Economy, CHIJIOKE NELSON, was there.
Policy issues continue to assail foreign investments’ inflow despite falling inflation. How do you see the private sector in the mix?
Actually, a lot has changed in the macroeconomic space over the last 12 months. Although FDI flows have remained lean, the adoption of the I&E FX window has triggered a massive inflow of FPI funds, at least up until May 2018. And the economy has also witnessed significant improvement in terms of headline inflation, currently at 11.4 per cent compared to the number quoted in your question. However, for the private sector to thrive, the government still needs to create that enabling environment. The Vice president’s office is doing a lot in terms of ease of doing business (PEBEC) but more is still required.Overall, what the economy really needs now are bold reforms (in the power, infrastructure, oil & gas, healthcare sectors, among others) to spur mid-to-high single digit growth and boost national productivity.
What policy options would you suggest to the authorities for a firm recovery and sustainable growth?
Current concerns for Nigeria in our view are long-term structural challenges and implementation, not much of policy issues. The business environment remains tough, continued focus on politics seems to be dissuading the implementation of meaningful structural reforms. For instance, the Oil & Gas sector remains at the mercy of badly needed policy reforms that could boost more investments into the sector. The delayed passage of the Petroleum Industry Bill (PIB) is the ever-present risk creating uncertainty to the long-term investment in the sector. The PIB was broken down into four separate units governing regulation (PIGB), administration (PIAB), fiscal terms (PIFB) and a host community bill (PHCB).
The idea is that a clearer breakdown of the bill will enable at least certain parts of it to progress through the House of Representatives, Senate and President, unimpeded. As we speak, only the PIGB has reached the President’s desk. These bills have the capacity to add momentum to new investments given the potential improvements to fiscal terms, and clarity around local content costs that could be addressed. The downstream oil and gas sector remains crippled by policy inertia as the regulatory bodies are resistant towards deregulating the pump price of fuel. As such, fuel prices in Nigeria do not reflect the landing cost.
On the Agriculture Sector, while policy directives such as the Commercial Agriculture Credit Scheme (CACS); Presidential Fertilizer Initiative (PFI); CBN’s Agribusiness Small & Medium Enterprises Investment Scheme (AGSMEIS) and the Anchor Borrowers Program (ABP), have aided the sectors’ growth in the space, there are issues yet to be addressed. For instance, storage, distribution and processing is hampered by poor transportation network, access to finance, poor local processing facilities and low investment in technology. In addition, the recent crisis between Herders and Famers is a major downside risk which is already weakening the Agric sector GDP as at Q1-18 while pushing food inflation northwards. The onslaught of the Boko Haram insurgents remains a concern in the northeast with economic activities in the region still considerably low.
Other areas include heath care, education and the issue of brain drain, which is negative for manpower development. We need to invest in education, technology, healthcare and correct the decadence in our social system.
What was your journey like to get where you are?
I started my career in the capital market 29 years ago at Union Bank of Nigeria Plc – Registrar, the capital market unit of the Bank. Since then, I have been involved in various capital market offers and other key capital market activities at different levels. I have worked with various operators on different capital market transactions and projects. Before now, I was the MD/CEO at Africa Prudential Plc, a leading share registration and investor services firm where I spent 12 years of my career. During the period, the company experienced significant growth and transformation in its operations. We pioneered the disruption in the Registrars business landscape in Nigeria by initiating and launching of several innovative products.
Personally, I see opportunities in every challenge or threat; where others are complaining about the challenges, I find opportunities in those challenges. This mindset aided the significant strides in my previous roles and I intend to replicate it at United Capital as well. I am currently the 1st Vice Chairman of the Chartered Institute of Bankers, Lagos State Branch where I also serve as the Vice Chairman of the Membership Development and Services Committee and a member of the Grants and Funds Committee. I am a Trustee of the Investors Protection Fund of the Nigerian Stock Exchange; the Treasurer of the Institute of Capital Market Registrars. I’m also a member of various capital market reform committees of the Securities and Exchange Commission.
How do you intend to build your own legacy at United Capital?
I must start by thanking my predecessor who did a lot of work, which brought the Group to where it is today as one of the market leaders in the Nigerian financial services landscape. Going forward, we are not going to rest on these laurels; we will work on continuous improvement of products and processes structure.We will innovatively change the narrative of financial services in Africa. We will pursue with clarity our pan-African strategy; we are currently in Nigeria but building a critical mass that will enable us operate in other African countries.
Furthermore, we shall strongly support the initiatives to improve the depth of the capital market in Nigeria and thereafter in Africa by engaging in product development as a means of broadening investment opportunities in our market. We shall equally focus on consistent increase in the wealth for our teeming shareholders while also ensuring that we keep a healthy relationship with other stakeholders. In driving all these, we shall keep in mind our three core values of Excellence, Enterprise and Execution. We shall also place premium on our people. Our people are one of our key assets. Bearing this in mind, we will ensure that our people are motivated, exposed and trained as required to deliver the expected value.
How do you see financial services sector in the second half of the year?
The key challenges facing the banking sector currently include the weaker macroeconomic environment, high level of non-performing loans, asset quality concerns, pressure on capital adequacy ratios and elevated risk outlook, which continue to drag credit growth. Clearly, the performance of the banks reflects what is happening to the overall economy. While gradual recovery in the macro space is supporting performance so far, pre-election activities, which are expected to dominate second half of 2018 is a concern for loan growth, hence, resolving the challenges confronted by the banks is rooted in restoring the economy to the pre-2014 era of solid growth.
For the financial services sector, specifically on increasing investor confidence, the concerns are broadly linked to political uncertainties, absence of reforms to drive market activities and the dominance of foreign portfolio investors in our market. For instance, low capital market depth reflects the poor disposition towards the market and this is evident in the absence of operators in the key sectors of the Nigerian economy such as upstream oil and gas, retail trade and wholesale, power, telecommunications and agriculture in the market. On the other hand, weak local participation rate, high transaction cost and socio-political/economic concerns also constrain demand for Nigerian equities, lowering market capitalisation. To resolve this, we must stabilise the economy, drive reforms in critical sectors and boost investor education.
What does the increased level of external reserves portend to the economy?
Nigeria’s external reserves added a whopping $9.1 billion in the first half of the year to close at $47.8 billion– its highest level since 2013. This dramatic rise in gross external reserves was driven by a number of factors including Eurobonds worth $5 billion that was issued between November 2017 and February 2018; oil export proceeds, driven by stability in domestic production, higher oil prices, which rose to $79.4/b as at the end of first half of 2018; and net capital flow, which surged over the last 12 months, thanks to the introduction of the Investors and Exporters’ Window.
Although events in the political space ahead of the 2019 general election and the external environment, particularly the policy normalisation in the United States, may push the apex bank to do more in terms of defending the Naira, we believe the current reserve level would provide succour to any potential volatility that may arise. At $47 billion, the CBN can conveniently cover 12 months of Nigeria’s import. This projects a stable outlook for the second half of 2018, given that the continuous improvement in external balances will support sustained stability of the exchange rate.
Are you worried by the multiple exchange rate system?
The Central Bank was able to resolve the protracted crisis in the FX market by opting for a multiple window solution. The other option proposed by the market was an outright devaluation or a more market-friendly flexible exchange rate regime. Clearly, the gains recorded in the currency market over the last 12 to 15 months are testimonials to the success of the CBN’s strategy. For instance, as at June 2018, the total transaction at the I&E segment topped $32.6 billion since it was introduced in April 2017. Similarly, FX rates across market segments have converged around N360/$ compared to pre-April 2017.
With the stable oil prices, should the country revisit the ECA scheme?
The ECA is still in use, hence, proceeds from excess crude will continue to be remitted in the ECA. However, Nigeria can learn from economies such as the UAE, where proceeds from oil were deployed into investment in Tourism, Real Estate and so on. Oil revenues should be integrated and managed with a view of mitigating the overall impact of oil market volatility on the broader economy. Nigeria is rich in agriculture, human capital, mineral resources and immensely blessed with historical and cultural features that can boost tourism. Accordingly, Nigeria can focus on deploying the excess from oil into investments in these sectors.