Customs Street Advisors is a full service investor relations firm based in Lagos, Nigeria.

Mind your tongue: A few words of advice for the new bank CEOs

This week in Street Talking on NEXT, I examine the narrative content being pushed by the Central Bank of Nigeria appointed SWAT CEOs at the eight stressed banks. At these institutions, the predominant message is that debt recovery is the most important priority, which gives the strong impression that it is also the sole priority. By design or default, this view is fast congealing. The new CEOs need to re-theme their messages to an equal emphasis on growing their businesses and improving margins in a sector where most offerings have become commoditized. If they fail to do so, they run the risk of irretrievably damaging the attraction of their institutions to the capital market.

It’s been two months since the Central Bank of Nigeria announced major changes at the top of some of the country’s leading banks. The event has been described with a slate of catastrophic titles: tsunami, Black Friday, blood-letting, and Hurricane Sanusi.

Predictably, much of the attention has been on the lax credit policies and true health of the institutions under the former managements, the scale of the government’s capital injections, corporate governance, risk management culture and the permissive regulatory environment, which allowed these infractions to thrive for so long.

Sandwiched between these, there have also been conspiracy theories of a northern agenda and blowback from the losers of Operation Banking Consolidation under the previous regime.

Debt recovery

To calm any anxiety, especially among depositors, the new helmsmen have issued press releases and granted press interviews setting out their agendas. While the releases have been of the ‘A New Day has dawned’ variety, the common theme through all these interviews has been the pressing priority of debt recovery.

The unprecedented publication of the names of owners of nonperforming loans by the Central Bank underlined this task. Perhaps, without purposefully intending to do so and definitely without considering all the implications, the new CEOs, led on by blaring newspaper headlines and the central bank, have unwittingly boxed themselves into a corner as glorified debt collectors in the public mind.

The focus on debt recovery, specifically exposures to particular borrowers and weekly reporting on amounts recovered, has started to raise questions in some quarters about what happens next after all the money is back in the banks’ vaults? The constant reference to absolute values recovered as against relative values constricts a proper understanding of the broader business objectives of the new executives.

For instance, rather than ‘X bank has recovered N37.5 billion in 2 Weeks’, the banks should instead place those figures in its appropriate contextual topography. For example, ‘our goal is to bring down our exposure to margin loans and petroleum marketing to about 9% of our loan book by the time we report end of year results. Based on our success so far, we are confident that we are on track to achieving this. Simultaneously, we plan to increase our exposure to infrastructure financing from about 14% to around under 23% of our balance sheet in the next year. We see exciting opportunities there.’

Now, that is the type of message that makes clients and investors sit up. There is a world of difference between statements like this and those that give the impression that debt collection is an end in itself.

In the same breath they use in publicizing debt recovery figures, the executives should throw light on how they plan to consolidate on their institutions’ traditional strengths in particular areas (investment banking, consumer finance, project finance, retail banking) and address challenges in others (technology, branch network, margins, operating leverage, talent).

Government bailout

Whatever the interim ownership structures of these banks as a result of the federal government’s convertible capital bailout, the long-term goal is to restore their attraction to the capital markets. Given the case that corporate banking clients are mostly interested in how prepared the bank is to deploy its balance sheet in support of their funding needs, on the one hand, and the market is interested in the return to equity from that deployment, on the other, only a narrative focused on winning new business and selling more products and services to existing ones at better margins will place these banks in a good position in the competition for capital.

Ultimately, the investment community, not the federal government’s succour funding, will determine the fates of these banks.

Rebuilding investors’ confidence

After getting their fingers burnt from enthusiastic forays into the stock market during the boom, the Nigerian investor sentiment has swung to the other side of the pendulum. Once bitten, twice shy. Rebuilding investor confidence will require sustained efforts from companies. In this regard, the stressed banks carry a double burden. The sooner they start rebuilding bridges, the better their chances.

It is unlikely that the huge successes recorded by pre-public offering advert barrages in the 2004-2007 period, when offerings were oversubscribed based mainly on seductive marketing ambiance, will be repeated anytime soon. From the point of view of corporate issuers, the public offering as a one night stand with investors is a thing of the past. Investors will not lose their virginity twice.

If the new CEOs think that they can ignore the investment community’s interest in their current narratives then perform an emergency re-engagement when they plan to sell equity in future, they have another think coming.

In the coming months, the bank CEOs need to carefully craft the messages they put out in the public domain. They must move quickly to extricate themselves from the fast cooling mould of debt collection chief goons. When the time comes, investors are going to ask: ‘show me the money’. When that happens, the money had better be at work somewhere earning attractive returns and not sleeping in the vault. Or else, they can be sure that no one will be signing on to their teams.

The original article may be read on here on the NEXT website.

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