In Conversation with Segun Agbaje, CEO of Guaranty Trust Bank

Segun Agbaje, CEO Guaranty Trust Bank, talks exclusively about the bank’s shifting focus. 

Throughout Nigeria’s near two-year recession Guaranty Trust Bank remained profitable and even raised its profit margin by almost 10%. How did the bank manage to weather this downturn?

In a time of recession, it all depends on the structure of your business. If you have a retail business, people will be spending and so you tend to do well. You also have to be disciplined with your costs which is what we were. You grow your retail business; you don’t get in a frenzy to book loans because if you do, you’ll pick Non Performing Loans (NPL), so you have to be calm and not engage in any aggressive loan growth.

If the government is borrowing it’s also a good time to invest in fixed income securities that will keep your interest up – so it’s a lot of transactional-type business. Additionally, normally in a recession you will find a devaluation of the currency and so if you structure your balance sheet properly, you should make some money from that as opposed to losing money. And that’s what we did throughout the recession and that’s how we survived the two years.

Now that Nigeria is growing healthily again, what lessons has the banking sector learned from the past two years? How have lending patterns been influenced, if at all?

If you look at it, there’s been very little loan growth in the past two years; most banks were down in terms of loan growth in 2017 – most people are quite conservative.   

However, I think the oil sector got a worse bashing than it deserved because really it depended on what side of it you were involved in. If you financed the primary acquisition of an asset, you really didn’t need to worry much about the drop in oil price as long as you were able to pump the oil. All you had to do was restructure your loan book.

The people who needed to worry were the people who lent with equity. If you went into equity, the only way you were going to be paid was in dividends and because the companies weren’t making that much profit, you weren’t going to get any back.

Now that oil prices are back up to about $72 per barrel, these loans are actually paying faster than the restructured tenders so I think oil got a bit of a bashing.

At GTB, what we were more worried about during the recession was less the price of oil and more when the pipeline was blown up. Irrespective of the price of oil, once pumping stops there are no cashflows to pay the loans, so I think that was always a bigger risk than the oil price. The oil price you can navigate fairly easily.

How would you characterise the vitality of oil and gas sector as it currently stands?

I would say the sector is one of the strongest sectors on the ground at $72 per barrel and with further exploration in the pipeline. Even the suppliers to the oil sector, to the big international oil companies (IOCs), are doing well. Most importantly there’s been a change in the financing structure whereby big IOCs are now allowed to finance the Gravity Based Structure (GBS) for the Nigerian National Petroleum Corporation (NNPC) – so that’s a big opportunity. Today, I think the oil sector is probably the most attractive corporate sector to lend to.

Many banks in Nigeria are streamlining their operations towards retail banking; assuming growth will be consumer led. GTB is unique in the fact it operates retail, corporate and investment banking. What are the advantages of your model?

You are right, we tend not to discriminate. However over the last couple of years, we have been focusing on retail and that will continue. Nigeria has a population of around 190m and at the moment only about 32 to 33m have a bank account, meaning retail will continue to grow.

Another sector we really like are SMEs. SMEs are only around 10% of our deposits and 2% of our loan book but when you look at the shared volume, there’s a lot of potential there. We will maintain our corporate business at around 70% but over the next three years, it might drop to about 60% and we will replace it with a bit more retail, a bit more SME. Importantly, all this will be driven by digital technology because the whole world is changing. If you’re doing a lot of retail and SME, you have to have a robust digital strategy and that’s where we are going.

Our mobile banking has actually overtaken our internet banking, which means more people are using our services on their phones. Our 737 SMS banking service, which is dollar-based, has grown by 65%. We have recorded over 200m unique transactions in six months so we are wrapping our growth in SME around digital while staying strong in corporate.

Also, our subsidiaries are becoming more important. Today, subsidiaries outside Nigeria account for 12% of our profit, 15% of loans and 18% of deposits, so it’s beginning to get to where we are aiming. In three years, we hope they will contribute around 20%.

In contrast, many banks in Nigeria are scaling back international operations to focus solely on the Nigerian market. How has GTB successfully maintained its wider presence where others have failed?

Our franchises are not yet all as successful as we want them to be but you have to be patient and give it time. What you have to realise is that even if you are a big bank in Nigeria, in other countries you are a small bank and hence, you can’t take your strategy from Nigeria into those new markets because you don’t have the balance sheet. We begin by going back to where GTB was 20 years ago and start replicating what we did then.

Another thing is that we haven’t gone into 20 or 30 countries, we are in 10 countries. We are managing our growth and taking our time to understand the environment and not looking for 30 to 40%. Last year our subsidiaries made 9%, next year   [it’ll be] 14 to 15% – so it’s baby-step growth. 

In the Nigerian banking sector, banking those who are unbanked is practically a race between the country’s largest banks. Where do you situate yourself in this race and what is the strategy?

You’ve got to do it in two ways. First it will have to be on the phone; it won’t be a smartphone but basic phones, which are US dollar-based, and for this, we use our 737 service.

Second, you also have to have a store front and it’s not economical to have branches in all these places so you’ve got to use existing networks. In the Nigerian banking industry we call these agents. We get other companies, like mobile money operators, to roll out these networks. If you have 50,000 of these agent networks and those networks are then allowed to open bank accounts, it allows you to get there without taking on the cost of these structures.

We have 30,000 of those and it will get to about 100,000 by the end of the year, maybe 150,000, which will start to create some real traction, pushing well beyond Lagos and Abuja to the northeast and northwest, which is where you find the real financial exclusion. n