In this conversation with The Interview, Managing Director/CEO of Fidelity Bank Plc, Mr. Nnamdi Okonkwo, speaks on the 2016 budget and what the government needs to do to improve the nation’s economy. He also speaks on steps being taken by Fidelity to improve its customers’ banking experience in 2016.
The Nigerian Stock Exchange has reportedly lost over N2trillion since May 2015. Do you see the trend reversing itself before the end of second quarter 2016?
I see the trend reversing itself based on the proposed budget for 2016, which is focused on stimulating the economy, attracting foreign direct investment and addressing key investor issues, such as the exchange rate regime.
Some have said portfolio investors started to leave even before the new government assumed office in May, out of fear of a chaotic transition. Do you think that was really why they left, or there was a deeper problem
The stock market indices actually moved significantly higher following the announcement of the result of the presidential elections in April. I think the key drivers for the exit of portfolio investors in 2015 were centred on the weaker macroeconomic indices due to lower oil prices and the attendant expectation of a devaluation, which implied that they would incur losses on their investments.
Banks stocks, traditionally high flyers, have been under-performing lately. Do you think there'll be a rally in bank stocks anytime soon?
I think that if you look at the potential up sides in the current valuation of banks, they are significantly higher than the anticipated forex devaluation rate that prompted the exit of foreign portfolio investors, though the lower oil prices still present some risk to the industry, given the high concentration to the energy sector of the industry’s loan portfolio. We anticipate that there might be a rally when 2015FY results are released at the end of Q1 2016, as the dividend yield on some banking stocks is now far higher than the yields on money market instruments and short-term fixed income instruments
The government is planning a N6trillion budget for 2016, up from N4trillion in 2015, but the price of oil is $38 today and forecasted to still fall. By how much do you think taxes may be raised in 2016?
I think the immediate focus should be on expanding the existing tax net and improved compliance. This government clearly has a lot of political goodwill and I am sure that once taxpayers start seeing the judicious utilisation of their taxes by the government, voluntary compliance will improve, as we saw in Lagos State.
Apart from taxes and recovered looted funds, where else do you think the government will find money to bridge the deficit?
Following the Treasury Single Account (TSA) implementation, there should be improvements in the collection and remittances by government agencies and the government will also borrow about N1.9trilion to finance the budget deficit.
The disparity between the official and the parallel market exchange rates continues to create serious distortions in forex management. Some have even predicted that the parallel market rate could go as high as N300 to the US Dollar in 2016. Do you think that's overstated?
I think that is overstated. However, the President has said the current foreign exchange regime is being reviewed and we believe that will lead to greater convergence between both rates.
What key steps do you think businesses, especially small businesses, need to take to secure their performance in 2016?
They need to improve their business planning and supply chain, especially by sourcing for local input substitutes.
A major product of most banks has been naira-denominated credit cards. Now there are restrictions not only on how much cardholders can withdraw, but there is also a ban on their use in Dubai and China, both popular business routes for Nigerians. How will this affect your bank?
We have not banned the use of our naira cards in any location. However, the existing limits have been reviewed in line with the current liquidity in the foreign exchange market. These cards are actually meant for retail customers and you will agree with me that a daily limit of over $600 for an individual is sufficient for either business or leisure travel.
There is a report in the press today that banks may fire large numbers of their staff in 2016. Does Fidelity have such plans?
As a merit-driven institution, we have a clearly defined, board approved performance management framework for rewarding top performers and those performing below expectation.
In a recent interview with us, lawyer and human rights activist Mr. Femi Falana said the Central Bank of Nigeria (CBN) gave commercial banks $7billion to ameliorate the effects of the global financial crisis. He said that banks should refund the money, because most of it was misspent. Do you agree?
I am not aware of any free funds given to the banking industry by the CBN, except the acquired banks, which, when disposed, have all been sold above their book value. The loans purchased by the Asset Management Corporation of Nigeria (AMCON) had clearly defined transaction terms, including a post transaction claw-back clause in favour of AMCON. It is also important to note that banks are still contributing 0.5% of their total assets to the AMCON resolution fund. Some shareholder associations are still complaining about this, because the annual contribution for some banks is actually higher than the dividends paid to shareholders.
In spite of its benefits, it is feared that the TSA’s impact on the liquidity of a number of banks could affect lending. Would you say the fear is valid?
It is true that TSA initially reduced the industry’s liquidity, however, the reduction in Cash Reserve Requirements by the MPC and less frequent open market operations by the CBN have boosted industry liquidity. Lending is actually more constrained due to the tougher operating environment for borrowers and not necessarily a reduction in liquidity.
What new areas is your bank looking at to improve customer service in 2016?
Digitisation of our services by providing more accessible and convenient banking channels. Our new online banking app has been well received and continues to receive accolades from our customers.
Which three sectors do you think carry the biggest promise of performance and efficient returns in 2016?
Agriculture, infrastructure and banking.
If an investor had only N2m savings - or less - to invest in stocks in 2016, what sort of portfolio would you recommend?
It actually depends on the age of the investor, because that is what would determine the portfolio mix that would be recommended. However, Fidelity shares will be a top pick, with dividend yields currently in double digits.
What are your financial/business resolutions for 2016?
Having laid the foundation for a revitalised Fidelity Bank in 2014, re-branded and consolidated on our achievements in 2015, the focus for 2016 is acceleration.