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FCMB’s $300m Loan Intended For Lending Purposes – Yemisi Edun

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In this interview Yemisi Edun, Chief Financial Officer of First City Monument Bank reveals that the $300m loan recently raised by FCMB will be deployed primarily for lending purposes.

Q-Tell us about the successful raising of $300m in medium and long-term funding from DFIs and international commercial banks and its implications for your banking activities in Nigeria.

We had stated in June this year that we planned to raise $300m in debt to support the growth of our business. We explored the Eurobond markets but found the pricing to be prohibitively high for us to be able to on-lend to our customers at reasonable rates. Accordingly, we resorted to the strong relationships we have built with international banks and development finance institutions.

Through a series of facilities, that closed between August and October 2014, and ranged between 3 to 8 years tenor, and involved six financial institutions and priced at least 4 percent below the pricing we would have received in the Eurobond markets, we were able to achieve our objective of raising $300m. These funds will go towards supporting the growth aspirations of our customers in critical sectors of the economy. It will further strengthen our partnerships with the international financial community and our competitive position locally.

Q-The bank has said proceeds of the facility will be used for general lending purpose to key sectors of the Nigerian economy, branch development as well as channel enhancement, could you expand on this a bit more?

Yes, the funds will be used primarily for lending purposes. A portion of the funds will also be used to support our sustainability efforts such as financial inclusion with investment in infrastructure to support agency banking (not traditional branch banking), and the environment with energy efficiency projects for our customers.

Q-FCMB ratings were also upgraded by Global Credit Rating (GCR) to A- with a stable outlook, what does this rating imply about the soundness of FCMB’s operations and the overall Nigerian banking environment?

We have been assigned a stable outlook by all rating agencies that we use: S&P, Fitch and GCR. This is at a time when the economy and the industry at large are on a negative watch.

This is largely due to the diversification of our loan book into the retail space, the strong capital base with 17 percent group tier 1 capital adequacy ratio and 20 percent total capital adequacy ratio, subject to regulatory approval of our successful tier 2 capital raising. This will give us room to support the next 2 years of loan growth without requiring additional equity, and healthy and improving asset quality ratios.

Q-Tell us about the international organisations and firms that participated in providing this loan to FCMB and what their interest in FCMB signifies?

This wasn’t a single loan but multiple facilities. We secured $100m from OPIC and Citibank; $100 from a consortium led by the IFC; $60m from Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO) and Société de Promotion et de Partipation pour la Coopération Economique S.A. (PROPARCO) and $32.7m from European Investment Bank. The diverse range of lenders, both developmental and international bank lenders signifies a number of things.

Firstly, it’s a vote of confidence in the Nigerian economy, the Nigerian banking sector, and the financial soundness of FCMB. Secondly, the DFI community sees that FCMB’s sustainability credentials extend deep into its business objectives, which we choose to lend to and how we lend.

Accordingly, they are willing to support us in fulfilling this agenda. Simply put, FCMB is a responsible corporate citizen contributing positively to the sustainable growth and development of our economy. The DFI’s are acknowledging and supporting this.

Q-What was the attraction of doing a syndicated loan arrangement with several lenders as opposed to a single Eurobond for example?

The advantage is pricing with a 4 percent saving on $300m. We are saving our shareholders $12m a year in interest expense. This is helping to sustain a profitable balance sheet.

Q-How does this loan add value to FCMB shareholders and the Nigerian economy as a whole?

I believe we have answered this above. In addition to the $12m per annum saving in interest expense, we are also able to grow our interest income by expanding the loan book. Most of these funds will support our 20 percent loan growth target over the next 12 months. Loan growth and reducing cost of funds are key earnings drivers and therefore key drivers of shareholder value. In terms of the Nigerian economy, it will support the sustainable development and inclusive growth of our economy in critical sectors.

Q-FCMB had impressive half-year 2014 results with group PBT up 5 percent to N11.14bn even with the regulatory headwinds from the CBN. What does this say about your Nigerian group operations?

We have successfully transformed from a corporate and investment bank, which is how we were traditionally known, to a full service banking group and an emerging force in retail banking. This diversification of our business model has given us the resilience to counter the regulatory headwinds and still show solid growth. This growth momentum will accelerate into Q3 and Q4 2014.

Q-Return on Equity for the HY 2014 period, fell by 3.1 percent to 13.3 percent. How do you intend to improve this measure of shareholder returns going forward?

This observation is correct. We have continued to invest in infrastructure that will improve our customer experience and marketing investments that will accelerate customer acquisition. The results are emerging. We are acquiring over 500,000 customers a year and customer satisfaction levels are increasing.

In the short term, and when combined with the regulatory measures that have affected about 25 percent of industry profits, we acknowledge that while our profits are still growing, the level of profit isn’t yet sufficient to deliver the returns on equity of 20 percent+ that we have set as our medium term target.

We, however, intend to attain this by growing our balance sheet and migrating more of our business to technology platforms and alternative channels in order to reduce the cost to serve our growing retail customer base.

Q-Can you briefly tell us about the social and economic contribution FCMB has made to Nigeria?

Our contributions have been significant. We grant over 200,000 new loans a year, making us one of the most inclusive lenders in the country. We are actively promoting credit extension to women in micro-enterprises. Approximately, 6 percent of our loan book (or over N30bn) is committed to agriculture. This percentage is growing.

We are actively supporting the government’s power transformation agenda. Recently we acted as the only local arranger for the first IPP project in Nigeria to get World Bank partial risk guarantee. Seventeen other proposed lenders are DFIs and international banks.

This project will not only unlock 450mw of power to the grid, but also provide the impetus for critical investments in gas processing facilities. The project is also and serving as a template for future IPPs that seek to attract international funding and itself attracting over $800 million of foreign direct investment. These are just examples of some of the things we are doing, and there is much more.

Q-Where do most of your revenues come from in the country, the investment bank side or the consumer and corporate banking side of the business?

We are a diversified financial services group. The holdco structure has allowed us to remain focused in investment banking and commercial banking separately. 90 percent of our profits come from commercial and retail banking, whilst almost 10 percent comes from investment banking and investment management.

In the commercial and retail banking space, 30 percent of our loans, 40 percent of our deposits and about 30 percent of our profits come from retail banking. This contribution will continue to rise. But it’s safe to say we have fully transitioned.

Q-How involved are you in the Nigerian capital markets in form of equity and bond trading?

We are active in both markets. Most notably, through CSL stockbrokers, which is over 37 years in operation, we are the 2nd largest equity broker by value traded year to date on the Nigerian Stock Exchange with over 11 percent market share.

Q-How is the regulatory environment for your bank with Basel III first globally, and of course locally; is it an impediment or helpful to your growth plans?

Nigeria is just coming to grips with Basel II and still a few years from the implementation of Basel III. We do not see it as a hindrance in the near future as we currently have a healthy level of capital adequacy, which can be significantly bolstered by tier 2 capital in the short run. Compliance with international capital accords will reinforce the stability of the financial system and is therefore a welcome development.

Q-Where do you plan to be five years from now in Nigeria and in Africa, and what are the cost implications of that growth?

In the next five years, we plan to be constantly delivering the best customer experience in Nigeria at a standard that will rival the best in any jurisdiction. We also plan to have grown our share of the retail market in all ramifications to not less than 8 percent and based on our diversified model have attained consistently superior yet sustainable returns.
source:businessday

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