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Coronation Merchant Bank CEO, Abu Jimoh speaks on building a great African institution

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Abu Jimoh is the Chief Executive Officer of Nigeria’s leading financial institution, Coronation Merchant Bank.

The Company offers corporate banking, investment banking, private banking, asset and fund management, securities trading, and other related financial services. Coronation Merchant Bank serves its customers in Nigeria

In this interview with African Business Magazine, Jimoh shares the bank’s vision, growth strategy and targets.

He also spoke on the future of Nigerian banking sector and competition between banks and telecommunications companies.

Excerpts:

What is Coronation’s vision? Do you aspire to be more than an investment bank?

The vision of Coronation Merchant Bank is to become Africa’s premier investment bank because we see that we have the required expertise to dominate in that space. Over the last year, we have made considerable strides and won numerous awards to validate our position as one of Africa’s leading investment banks.

However, beyond our investment banking offering, we also offer trade, corporate banking, private banking/wealth management and global markets/treasury services to our clients and have made commendable strides in those sectors as well. For instance, in Global Market & Treasury, we have consistently ranked top 5 in the volume of bond trading transactions on the FMDQ OTC market.

So, it is safe to say our brand aspiration is to be Africa’s leading financial institution, and our business units offer us a pathway to the realisation of this goal.

What is Coronation’s growth strategy to become Africa’s leading bank? Are you looking to do acquisitions?

Our strategy has evolved over the years. Initially, our focus was on providing specialised financial services to high-end corporates and governments across Africa. Today, our growth strategy is rooted on building capabilities to address growing clients’ needs, creating a workplace atmosphere that attracts and retains talent; and growing efficient architectures by expanding our investment in technology.

So, a key focus for us now is bridging the annual $170bn infrastructure gap that exists in Africa as well as facilitating inter-continental trade.

What have you been doing in regard of your continental ambitions? Will you be opening offices in other African countries?

To be clear, the value we provide is not influenced by our physical presence in given locations. Our approach has always been to form partnerships with financial institutions across the continent and leverage digital technology to reach more African countries.

The underlying benefit of this model is that it offers us the ability to be active in every region in the continent without being physically present. For now we will not be opening offices outside Nigeria.

What is your view of the investment banking business in Nigeria? And how have you been able to stay profitable despite the hard times?

The investment banking landscape in Nigeria has undergone unprecedented changes in the past three years. New players have emerged in practically every segment of the market. Investment banking now means more than just advisory as entities are now compelled to lend their balance sheet to transactions.

Consequently, the bias for non-traditional financing has become even more preponderant; hence investment banking firms are increasingly more involved in the financing process.

However, the low barrier to entry in capital market businesses has increased the number of marginal players in the sector who lack the capacity to raise capital and underwrite large ticket transactions.

In terms of how we have been able to remain profitable, I think it’s largely due to the level of expertise that resides with us. When we say we want to become Africa’s premier investment bank, we back it up with what we do and how we do it flawlessly.

In less than four years of our operations, we have contributed immensely to the development of the capital market, having raised over N300bn (US$0.83bn) for various companies in multiple sectors of the economy. This, in turn, has enabled us to garner market confidence and positioned us a leading player within the sector.

What do you think can be done to revive the IPO market in Nigeria?

When we look at the performance of the Nigerian All-Share Index over the last five years, you will notice it was down 64.2% in US dollars terms. Now, consider the performance of the S&P500 over the same period, it was up 51.4% in US dollars.

Truth is, you cannot have an equity culture where you do not have equity performance. In the US, an entrepreneur aims to list his or her company as soon as possible. It brings status and can, through share ownership, make employees rich.

In Nigeria, an employee is more likely to ask for an employee loan than employee equity. In this kind of environment, you do not have an IPO culture. On the other hand, there are companies in Nigeria making investment returns that beat inflation and beat Naira depreciation against the US dollar over the long term.

Investors should not lose hope though, we need to have more discussions along these lines and hopefully, we can begin to revive the IPO market.

With more local companies seeking foreign listings in London and Johannesburg, what are you doing to ensure you get some of that business?

This question speaks to the heart of our business model. At Coronation MB, we believe that the recent trend where a number of Nigerian companies were identified as part of the firms that Inspire Africa on the London Stock Exchange should be the starting point. (See African Banker, Q1, 2019.)

As a bank, we are keen on identifying diamonds in the rough and positioning them to attract valuable relationships, which is a key attraction in seeking a market listing. We are focused on working with our clients to position their businesses to compete internationally and across platforms.

We believe that the overarching objective should not be just to achieve an LSE listing. As good as this is, it should not distract from the more relevant objective of creating unicorns. Therefore, our business focus and model is geared towards building world-class companies by supporting local brands to compete globally.

The thrust of our relationships is to ensure that our clients become best-in-class in their chosen fields. An LSE listing is just one of the many by-products of achieving this objective.

Where do you see opportunities in the Nigerian economy? Are there particular sectors you target?

The telecom, tech and fintech sectors are all booming together. You have to look at the value chains of those industries and then find what their banking needs are. When it comes to the consumer, do not forget that the population is growing steadily and more people are moving to the cities and entering the cash economy.

It is a long-term theme and one that empowers the manufacturers and service providers that can match the price points at which those people spend. There are rapidly-growing companies in these areas and of course technology often comes into the equation.

Going further into the value chain, there is still significant un-tapped potential in agriculture and here you have to think of the entire infrastructure that a modernising agricultural sector requires. There are many opportunities for a bank like ours in all these sectors.

If there is anything you could change about the Nigerian economy, what would it be?

At the risk of stating the obvious, the power sector. The costs of manufacturing and providing essential services are strongly influenced by the weakness of the power sector. It negatively affects our competitiveness.

Using generators to power factories and offices, as we do, would be considered a non-starter in many parts of the world. If we can solve power generation and distribution then we would unleash a massive positive force on our economy.

To look at this question another way, look at the speed of development of industries in Nigeria that are not particularly power-hungry, such as education and fintech. There is no shortage of talent and ambition in manufacturing, just a shortage of power.

How do you see the Nigerian banking industry evolving over the medium to long-term?

Over the medium term, and here we are thinking three years ahead, the Nigerian banking industry is going to evolve very quickly. Having a large number of branches and offering card services will no longer be the principal way of retaining customers, and back-office functions are likely to move away from mainframes and onto the cloud.

Digital banking is already evolving very rapidly and will change the landscape. The form it will take will be determined by the regulators, by the leading banks, telecom companies, payment service companies and online retailers. Digital-only banks are likely to emerge as subsidiaries of existing banks.

Financial inclusion is likely to increase dramatically. In terms of how to add value, banks will have to offer customers easily-accessible financial products and services online and demonstrate solid risk management in the digital framework. Beyond the mass market, where corporate fund-raising is required, specialised and niche banking will grow.

As a niche player, do you feel constrained? Or is the ultimate plan to get a universal banking licence?

For us, there are no constraints, no walls or limitations to our value proposition. Think about it, there’s an over $170bn infrastructure gap in Africa. Obviously, there is a clear market demand for more sophisticated banking services in Nigeria.

To answer your question directly, we do not have a plan to get the universal banking licence any time soon as we have carefully articulated our market segments and approach to serving our clients.

How do you think the imminent competition between banks and telcos (via payment service banks) will pan out?

It is not just telecom companies but internet retailers and payment service companies that are going to compete with traditional retail and commercial banks. Traditional commercial banks understand the customer and have the regulatory expertise while telecom companies have greater customer reach.

There are more active mobile numbers than there are bank accounts in Nigeria. Internet retailers have customer flows and payment service companies have technology. We have seen banks around the world become very scared of what internet-based players are doing to them.

On the other hand, it need not be a case of competition: it can be a case of cooperation, so long as both sides move quickly enough. Asian banks have responded by launching digital-only banks, like DBS’s digibank, and in Europe we have seen new banks like Starling and Monzo. All the while the banking regulators will play key roles in making sure that expansion is orderly and safe.

Why has it been so difficult to get interest rates low enough to make them more SME-friendly?

The key problem is inflation which was recently reported at 11.37% year-on-year (April 2019). In the medium term and in the long term it is just not realistic to have market interest rates lower than inflation. So, we have a problem.

Market interest rates are around 14.00% and this forms the basis for lending to SMEs. Not all SMEs can handle that. The answer, in some sectors like agriculture, is to engineer a subsidy so that businesses can borrow money at single-digit rates. But, of course, if you are not paying the market interest rate on your capital then what you have is a kind of equity.

So it comes back to what I said about the development of the equity culture. Equity is often the correct form of financing SMEs. If their investment returns are strong enough then SMEs can take on debt as well.

What keeps you awake about your business at night?

I am a good sleeper, which is helpful. The opportunities in investment banking are enormous and all of us at Coronation Merchant Bank are grateful for that. Developing financing solutions for our clients and getting them done in our bank is always satisfying.

On the other hand, you sometimes wonder if you could have done more, perhaps by leveraging the cooperation of other agencies and creating better and more broad-based solutions. It is not impossible to get this done and I think we can grow in that direction.

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Business

Bank customers start payment of charges for deposits, withdrawal of cash

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The Central Bank of Nigeria, CBN, has given an order that customers making cash deposits or withdrawals will pay charges beginning from today in line with its new policy.

The objective of the “transaction fees” is to give vent to the Central Bank’s policy designed to reduce cash in use.

CBN Payments System Management Department Director Sam Okojere on Tuesday announced the take-off of the charges in a statement.

“The transactions will attract three per cent processing fees for withdrawals and two per cent processing fees for lodgments above N500, 000 for individual accounts.

“Corporate accounts will attract five per cent processing fees for withdrawals and three per cent processing fee for lodgments above N3 million.

“The charges will, however, only apply in Lagos, Ogun, Kano, Abia, Anambra, Rivers and the Federal Capital Territory (FCT),” he said.

Okojere said the implementation of the cash-less policy nationwide would take effect from March 31, 2020.

Also to further promote the cashless economy and to enhance the collection of applicable government revenues, the CBN announced a review of the process for merchant settlement.

The regulator has, effective today, approved for banks to unbundle merchant settlement amounts and charge applicable taxes and duties on individual transactions as stipulated by regulations.

Okojere announced a downward review of the Merchant Service Charge (MSC) from 0.75 per cent capped at N1,200 to 0.50 per cent capped at N1,000.

“The cash-less policy provides safe and efficient mechanisms for making and receiving payments with minimum risks to the CBN, payment service providers and end-users.

“The cashless payment is catching on to the extent that even the lowly members of the society now do transactions online.

“Without this policy, Nigeria cannot be integrated into the world’s financial system,” the statement read.

Pushing for the full use of the online payment system, the apex bank said for Nigeria to actively play at the world stage, “our payment system must be successfully benchmarked against the global best practices, as in most developed nations of the world.”

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The Americans will see attack on Saudi oil as an attack on them

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One of the two oil facilities struck in the early hours of Saturday morning was recently described by one industry expert as the the Achilles Heel of the Saudi oil industry.

Its size and production capacity makes it a critical part of the global oil supply industry.

It’s not yet clear how much damage was caused to the two plants or for how long production will be impacted, but the Saudi oil minister confirmed overnight a temporary loss of 5.7 million barrels per day of production because of the attacks.

For context, Saudi Arabia pumped 9.8 million barrels per day in August.

The Abqaiq plant was the target of a failed al Qaeda attack in 2006. Since then it has been heavily fortified but is still vulnerable from the air, especially from drones which can bypass air defence systems.

In terms of the impact on the global market and oil supply: well, short term there may be a problem which will become clear when the markets open on Monday morning.

But longer term the gap will probably be bridged by increasing production elsewhere and by releasing reserves into the market.

The much bigger concern now is the geopolitical fallout and the consequence for regional security.



Drone attacks targeted a major Saudi Aramco processing facility and oilfield in the kingdom's east

The US government is in no doubt that the Saudi drone attacks were the work of Iran.

The operation was claimed by the Yemeni Houthi rebel group but they are known to get weapons and technology from their main backer, Iran, who are suspected by other nations to use relatively low-tech ‘attack drones’ as weapons.

With cheap new technologies, small attack or ‘kamikaze’ drones are proving to be disproportionately effective when successful.

Two weeks ago, Israel carried out what they said was a preemptive strike on fighters they said were linked to Iran’s elite Quds Force who were preparing to launch a drone from Syria (where Iran now has a strong foothold) to attack Israel.

US Secretary of State Mike Pompeo said Tehran had launched an “unprecedented attack on the world’s oil supply”, adding that there was “no evidence that the drones were launched from Yemen”.

It’s true that, geographically, the two oil refineries are closer to Iran and Iraq (where Iran has a foothold) than to Yemen.



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Who launched the drone attack against Saudi oil facilities?

The Americans have always blamed Iran for stoking the flames of the Yemen conflict. But the drone attack represents, in US government eyes, an attack on global energy supply which they’ll interpret as an attack on them.

“We call on all nations to publicly and unequivocally condemn Iran’s attacks,” Mr Pompeo tweeted. “The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression.”

In such a chaotic and delicate region, an attack of this type is very dangerous.

Donald Trump has been hoping to meet Iranian President Hassan Rouhani in his latest attempt at rapprochement (after limited success with North Korea’s Kim Jong Un and no success with Afghanistan’s Taliban).

Last week he fired his national security adviser John Bolton who was calling for a much harder line on Iran.

While Mr Bolton sits out of office no doubt saying “I told you so”, President Trump must now be pondering the merits of the proposed meeting with the Iranian president.

His own secretary of state seems clear: “Tehran is behind nearly 100 attacks on Saudi Arabia while Rouhani and Zarif pretend to engage in diplomacy…”

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Vat Increase: Businesses In Lagos To Pay 12.2 Per Cent On Goods, Services

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Businesses in Lagos will pay 12.2 per cent on the sale of goods and services once the 7.2 per cent Value Added Tax increase comes into force.

An analyst with Afrinvest, Adedayo Bakare, pointed this to SaharaReporters on Wednesday during a chat.

The Lagos State Government had since collected tax from restaurants and other retailers under a sales tax law despite a Supreme Court ruling against such in September 2018.

Bakare while speaking with SaharaReporters, said, “In Lagos, consumption tax is already 10 per cent because Lagos State charges five per cent VAT and there is also another consumption tax of five per cent.

“So, for Lagos State, automatically, consumption tax is 12.2 per cent.”

Citing the data on VAT collection given by Nigeria’s former Finance Minister, Kemi Adeosun, in 2018, Bakare said only about four states were generating most of the VAT, adding that the tax burden on just a few is disproportionate.

“Meanwhile, when they generate all these money, they will share it between 36 states when most of the money is generated in just four states.”

While admitting that the hike in VAT was not wrong, Bakare said there was a more urgent need to keep widening the tax net.

He added, “It is important that they widen the tax net to bring more informal businesses to the formal sector.”

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