‘Merchant Banking Opportunities Remain Untapped’

Mr. Phillips Oduoza is the promoter and Chairman of NOVA Merchant Bank Limited, the latest financial entity in the nation’s banking industry. Oduoza, a former Group Managing Director and Chief Executive Officer of a major commercial bank in Africa, is a consummate banker, with nearly three decades of experience in Nigeria’s banking landscape. In this interview with journalists, he speaks about the nation’s economy, merchant banking and the new strategy embodied in NOVA Merchant Bank. CHIJIOKE NELSON was there.

What is your assessment of the banking sector?

Having been around for a very long time, I ran the operations of a very large bank in Nigeria with footprints in so many countries all over the world. So, I see it from the Nigerian perspective, as well as global. I think there are significant opportunities for banking in Nigeria.

The country, as it is now, is still underbanked. I believe that banking penetration has not gotten to the level that we would be very comfortable. We still have a lot of liquidity outside the banking system and I believe it is an opportunity for us to tap into. Now, in terms of merchant banking, I think the opportunities are enormous.

We have not done so much in terms of infrastructure, which offers tremendous opportunities for merchant banks. We have not done so much in capital market where we also have tremendous opportunities.

The banking industry needs to do more in wealth management. Only 0.1% of Nigerians benefit from this and most of these assets are managed offshore. We would like those assets to be managed in Nigeria. With technology, you can have access to products from all over the world and you don’t need to physically move cash out of Nigeria to manage such assets.

I think that asset management has a lot of upside and we haven’t done much there. We also think that private equity has a lot of opportunities. If you look around, there are so many opportunities we have not tapped into and I believe that as banks continue to strengthen their risk management and personnel, we would start going deep into all these opportunities. Today, we see the foreign banks come into Nigeria without a footprint and collect investment mandates and go ahead to execute them offshore. We would like to be the face of investment banking in Nigeria.

The problem of non-performing loan is a challenge to banks today. How sophisticated is your technology to strengthen risk management?

In terms of risk management and credit profile, you will find that the customer segments we are playing in have a lower risk profile when compared to other segments, because they are well structured and have very strong balance sheets. Secondly, we have put in place a very strong enterprise risk management framework covering market risk, operational risk, credit risk, etc. It is important to emphasise that the MD/CEO’s last role was overseeing risk management at Citibank.

So, where you have a CEO that has risk management background, of course you should know that it will be difficult for such a bank not to get it right. One of our targets, beyond being one of the most efficient banks in Nigeria, is to be one of the best in terms of credit risk quality. In terms of asset quality, we want to have one of the best in this country and the lowest non-performing loans. So, in terms of credit, we believe that we would have a very strong credit risk culture in the bank and that is what we have institutionalised.

In terms of technology, we deliberately selected technologies that are suited for merchant banking, both on the digital front, and effective customer service delivery. In addition, we have deployed very strong firewalls among other security measures to ensure our IT security architectures are fool-proof. In terms of long-term funding, what we are doing is looking beyond the Nigerian market. We are tapping into the development finance institutions outside the country that provide long-term on-lending facilities for our customers given the fact that we have a very good customer profile.

We also believe that the Nigerian economy is moving in the right direction and that the economy will continue to expand. We have seen some diversification in the economy today as against the pre-recession period when oil was the mainstay of the economy. I believe the decline in oil price may have been a blessing in disguise. We have seen what the Central Bank of Nigeria has done with respect to the Anchor Borrowers Programme as the country is almost self-sufficient in rice production. So, you can see that the economy is moving in the right direction and we believe NOVA is going to benefit from the expanding economy.

How did the name Nova come about?

Nova is “new” in many languages including Latin, Portuguese, among others. The reason why we chose the name, is because NOVA Merchant Bank Limited has come with new ideas, fresh thinking, cutting edge technology and excellent customer services. Our key focus is wholesale banking and investment banking and we want to bring innovations in these areas. We believe the industry has reached a stage where it needs another quantum leap to move it to the next level.

Banking is changing globally with the emergence of new entrants and the infusion of non-traditional business models leveraging advances in technology. We believe Nigeria should not be left behind. Therefore, NOVA is here to bring a new experience in the banking industry. That was why we selected the name, NOVA, which means new. We want to do new things.

But why at this period when the economy is still facing challenges?

Historically, you will notice that many organisations that emerged from economic recessions are the ones that end up doing very well because they are focussed on providing solutions to the myriads of economic and financial challenges arising from such difficult periods. We believe Nigeria’s economy has turned the corner and there could not be a better time to come into the industry than now. As the recession is now over, the economy is on an upward trajectory. In NOVA, we are convinced that our products, ideas and knowledge are suited to dealing with the challenges faced by Nigeria businesses. This means that as the economy normalises, we are going to flourish with it. That is why we are coming out now. As we are a new bank, we have come with a clean slate and are well positioned to take advantage of emerging opportunities as the economy recovers.

With NOVA, there are five merchant banks now in Nigeria. What are your unique selling points?

In 2013, the demarcation between commercial and merchant banking was brought back following the review of the Universal Banking license. So, you now have merchant banks and commercial banks with different areas of focus and permissible businesses. Merchant Banks are very important because they support the economic development of the nation through the provision of long-term funding.

Unfortunately for us in Nigeria, the banking model has not been fully tapped into. The most common form of banking is retail banking with its attendant branches and legion of retail customers. We have opted for Merchant Banking in its strict sense. NOVA brings the total number of merchant banks in Nigeria to five, which I believe is still very little for Nigeria. There is opportunity for more, considering the key role merchant banks play.

Merchant banks focus on wholesale and investment banking where you have advisory services, wealth management, asset management, debt capital markets and equities. These services are still very rudimentary in Nigeria. If you look at the major international financial institutions involved in investment banking, they are doing very well. Today, we do not have any of these banking institutions in Nigeria. This is the space NOVA would occupy not only in Nigeria but other countries in Africa.

Bear in mind that ours is the first green field licence for a merchant bank. We didn’t convert from being a representative office or from being a discount house. So, from day one, we have been licenced to operate as a merchant bank. What have we done? We have equipped ourselves with talented people and cutting-edge technology to enable us deliver as a merchant bank.

We have structured our products around merchant banking and are not converting any legacy product or service. We have carved a niche for ourselves and we believe strongly we can deliver in this area and that is our promise to customers.

It is also important to say that NOVA is adequately capitalised for the roles it has set for itself. As you know, for a new bank, there is a minimum capital that is required before the central bank will approve the banking licence. I want to state that NOVA is capitalised well above the minimum capital requirement for a merchant bank and it is fresh and unencumbered capital.

With industry competition, are there strategies to sustain your niche?

Like I mentioned that we are the first merchant bank that does not have any legacy history associated with it, as we are a greenfield merchant bank. In essence, we don’t have to deal with legacy issues such as carrying-over staff and technology from a legacy operator. We are starting fresh from day one by hiring very efficient and result minded people that are cut for merchant banking. NOVA is starting with technology that is suited for merchant banking. Our products and services have been tailored and are suited for the inter mediation roles we are set to play as a merchant bank.

Now for us, it is very important that we play in that niche that we have selected to play in and that is wholesale banking and investment banking. I did mention that as far as wholesale banking is concerned, we have prepared ourselves adequately to play in that sector and we believe that we have the capabilities, technology and products to be able to compete strongly. NOVA has been very selective of its roles and will not go into areas we consider are not relevant to a merchant bank. We are just going to focus on wholesale and investment banking.

Again, we have a very strong board that is made up of people that have distinguished themselves in various sectors and have international exposure. Our Managing Director/Chief Executive Officer was a Director outside Nigeria in one of the major financial institutions in the world. So, he comes with enormous experience. We also have a British board member, who was the Managing Director in a bank that was focused on investment banking. He comes to the Board with a lot of experience. So, we are adequately prepared to compete in that segment.

Governance is very important for the survival of any business. What is your board composition like?

Governance stands out very well in our philosophy, our activities and business principles. Our core value is encapsulated in the acronym UPLIFT. Here, U stands for uniqueness, that is we want to be unique in the way we do our things; P stands for passion. That is, we want to be passionate in the way we serve our customers and relate with our community. L stands for leadership because want to lead in the league we are playing. I stand for integrity; while F stands for fairness and T- teamwork.

As far as we are concerned, governance is at a high level at NOVA. We have four independent directors out of the nine directors on the board. There are three executive directors and six non-executive directors.

So, we have twice the number of non-executive directors as executive directors. Out of those six directors, we have four independent directors that are capable for independent opinion. We have former President of the Institute of Chartered Accountants of Nigeria (ICAN) and he was also the President of the Institute of Directors in Nigeria. He is an independent director, which means that he is not interested in anything other than the governance and good of the bank.

We have on the board a director that distinguished himself at the central bank and retired recently as a deputy director. For us to put such a person on the board is just to make sure we get regulations right. And other directors we have on the Board have all distinguished themselves in their various fields. So, for us governance is key.

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