“Must do better” was the IMF’s recent verdict on the Nigerian banking system. Many reforms were “highly commendable”, it said, but more still needs to be done to strengthen the central bank’s oversight.
Image: Alex Otti
Here’s a transcript of the conversation between Dr Alex Otti and a World Finance representative, Nick:
World Finance: What challenges still remain for Nigeria’s banking sector?
Dr. Alex Otti: The challenges that we face today are more in line with the socioeconomic challenges that the country faces generally. Here we are talking about power, we are talking about order infrastructure, we are talking about challenges with data capturing, reliable data, that is not that valuable. We also have challenges with the security situation. We have challenges with the very long drawn out judicial process and we also have challenges with the security situation. We have challenges with the re-emergence of challenged-risk assets. That’s bad loads. Even though the establishment of the bad bank, AMCON, helped a great deal in soaking up the bad debts of most of the banks. As things stand today, there are chances that banks are going to face hard times again with respect to very poor quality risk assets.
World Finance: And how does Diamond Bank work to minimise the impact of these challenges?
Dr. Alex Otti: Diamond Bank has always tried to navigate the challenges irrespective of the problems that face them. One of the ways we’ve done that is, in terms of power, we’ve tried to create alternative sources like the solar and the water, and we power some of our branches without necessarily relying on public power supply or generic generators that are expensive. In terms of security, we try to partner the police and the military to ensure that our branches are secured and that our customers are also secured. In terms of data, data-ing, we, because we play very heavily in the small and medium scale enterprises and in retail banking generally, the importance of data can not be over emphasized, so what we’ve done is to partner other organisations, international organisations, like the IFC and EFInA, to help us generate data and research and analytics that will help us in taking decisions that we believe are reliable so that we can avoid bad loans, creating bad loans. We have also tried to set up a system where we also help entrepreneurs and people who play int he retail segment of the market in terms of training, in terms of providing them with other advice for services, so that’s what we’ve done and we’ve done that well.
World Finance: Nigeria’s dependence on it’s energy sector leaves it highly vulnerable to oil price volatility. So how are banks protected from this?
Dr. Alex Otti: The only way to go for a bank is to also begin to think of diversification. Because the Nigerian economy itself and the managers of the economy are working very hard towards diversifying the base of the economy and this is more so where our alternative sources have developed by the US and other importers of oil today. So that they have reduced, the importer for US for instance, which used to be the largest importer of oil from Nigeria, has developed a share gas and today India has become the largest importer of oil. So for the banks, looking at funding the other parts of the economy other than oil and gas is one of the ways to protect itself.
World Finance: So the need to diversify the economy is a real one. Which sectors do you see driving this change?
Dr. Alex Otti: Nigeria is blessed with a lot of economic activities, think of agriculture and statistics has it that seventy percent of the population is employed in the agriculture segment of the economy. Even though a large chunk of that is in subsistence level. But then it has manufacturing, there is solid minerals, and transport, power also, there are so many things to find in Nigeria. I think the problem was that oil and gas took it from the oil and gas took a prominent space because of the higher oil prices. So like you rightly said, if oil prices go down then the economy will suffer so banks like ours are looking at all the sectors other than oil and gas.
World Finance: What is Diamond Bank doing to support these businesses?
Dr. Alex Otti: The loan book of the bank is properly diversified. What we are doing is now to put some energy in supporting the micro and small scale enterprises to reduce the level of unemployment in the country. And also to ensure that the bank is running on on a healthy balance sheet footing.
World Finance: Finally, how do you see the economy developing over the next few years and the vision for Diamond Bank within the economy?
Dr. Alex Otti: The economy has been growing at the rate of over six percent in the last five years so in terms of GDP growth inflation has come down to single digits as of last month and it is believed that it will continue in that frame for the rest of the year. The economy has witnessed foreign revenue of about forty-eight billion dollars and that covers some eleven months of imports so we can safely say that the economy is quite healthy. What is left today is now to link the growth in the economy with developments and that is why we are encouraging support of infrastructure, agriculture, manufacturing, and other areas. So for Diamond Bank we are well positioned to take advantage of the growth that we are expecting to see over the next couple of years. Our strategy is centred on people, and we pride ourselves as having one of the best people in the economy in the bank industry today. And we have strong propositions and processes, technologically driven, that would support the growth that we aspire to see in the next couple of years. So Diamond Bank is very well positioned to take advantage of that and also to support the economy as it grows and becomes one of the power houses by the year 2020.
World Finance: Dr. Otti, Thank You
Dr. Alex Otti: Thank you very much, Nick