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In this exclusive interview, Managing Director of Coronation Merchant Bank, Abubakar Jimoh, speaks on the significance of the bank's new corporate identity and the performance of Coronation MB since it commenced operations in 2015. He spoke with Chibuike Oguh, Financial Nigeria's Frontier Markets Analyst.

Chibuike Oguh (CO): Coronation Merchant Bank is relatively a new entrant into the crowded Nigerian financial market that features over 400 commercial banks, investment banks, asset management companies and corporate lenders. What is the history of Coronation MB, and what is helping to drive its recognition in the market?

Abubakar Jimoh (AJ): Coronation Merchant Bank was initially founded as Associated Discount House Limited (ADHL) in 1993 by a consortium of reputable financial institutions. ADHL became a leading financial services institution, thriving through the different headwinds the Nigerian economy has experienced. In 2011, a new leadership emerged at ADHL, signaling a new beginning for the institution, which has posted consistent growth across all metrics and turned challenges into opportunities.
    
Since commencing operations in 2015 as Coronation Merchant Bank, the bank has transitioned from a pure play discount house to a well-diversified financial services powerhouse, offering investment and corporate banking, private banking/wealth management and global markets/treasury services to its select clients. The Group also offers, through its subsidiaries, a number of other services such as: securities trading/brokerage, asset management and trustees services. The subsidiaries are Coronation Securities Limited, Coronation Asset Management Limited and Coronation Trustee Limited.

Over its 23-year history, the institution leveraged on sound corporate governance and the support of its shareholders to wax stronger and survive industry tides that sank 40% of its peers.

Our vision is to become Africa’s premier investment bank, with a value proposition to deliver world-class solutions to our esteemed clients in a cost-effective manner; whilst leveraging our extensive knowledge of the local environment and technology. We are also poised to leverage our best-in-class human capital to deliver value-enriching solutions to our clients.

Our quest for industry distinction is made evident in the recently-unveiled corporate identity, which has been designed to effectively communicate the Group’s vision, ambition and strength.

CO: Nigerian banks are exposed to two major macroeconomic risk situations of slowing economy and foreign exchange scarcity. These would be considered as automatic drivers of non-performing loans. But Coronation MB recently reported it had zero NPL. How is this possible?

AJ: The economic challenges Nigeria has experienced in the last three years – due to the fall in crude oil prices and the drop in oil output – has adversely impacted both individuals and corporate entities. The significant decline in foreign exchange earnings has resulted in the depreciation of the naira in both the official and parallel markets. The pressure on the naira has caused a spike in inflation and introduced financial stability risks. All these factors have combined to weaken borrowers’ repayment capacity, thus affecting the performance of the risk assets in financial institutions.
    
At Coronation Merchant Bank, we have identified the segments of the market and the economic sectors that we want to play in. We have also defined a robust risk management framework with a strict risk acceptance criteria. We maintain a disciplined and prudent approach in all our exposures to both dollar and naira-based assets in line with the overall risk management framework of the Group. We employ world-class risk management capabilities that help to balance risk and return.
 
CO: Apart from the NPL, what are the other highlights of Coronation MB’s latest financial statement?

AJ: We have consistently delivered value to all our stakeholders as evidenced by our impressive financial results in the last two years of our operation. Our 2016 financial results showed an exceptional performance across all indices despite operating in an extremely challenging business environment. For instance, net-interest income increased by 86% from ₦4.3 billion in 2015 to ₦8.0 billion in 2016 as a result of increased efficiency in the overall funding mix and significant growth in our balance sheet. 

The Group delivered an impressive Profit Before Tax (PBT) of ₦5.3 billion in 2016, representing an increase of 128% over last year’s performance of ₦2.3 billion. Our return on equity (ROE) was 22.3% in 2016 – making us one of the most efficient banks in the entire banking industry.

Aside from the strong earnings performance, the Group also recorded a significant growth in its balance sheet in 2016. Total assets rose to ₦106.6 billion from N78.3 billion reported in December 2015, and shareholders fund increased to ₦25.8 billion from ₦20.24 billion. This is a valid testament to the competitiveness of the Group’s operations and its adaptability to market realities
 
CO: What is your outlook of the Nigerian economy, and how would it impact the financial market over the next three years?

AJ: The long-term economic fundamentals for Nigeria will continue to remain strong. The country has a burgeoning young demographics, massive natural and agricultural resources, increasing urbanization and a growing middle class. Nigeria will continue to be the preferred investment destination for international investors that have a long-term pan-African focus and interest. As with most commodities-dependent economies, the Nigerian economy was adversely affected by external shocks in 2015 and 2016, particularly the fall in crude oil prices. The economic impact from this was further exacerbated with the substantial reduction in the country’s oil output caused by the unrest in the Niger Delta region. Coupled with some other macro-instabilities, the country plunged into its first recession in decades.

Our house view at Coronation Merchant Bank is that the next 2-3 years should be an economic recovery period for the country. The extent of the recovery would be largely dependent on the formulation of market-friendly reforms, resolution of the Niger Delta crisis, infrastructure spend to address the massive gaps and diversification of the economy to alleviate the dependence on imports. We believe, this period will lead to the resurgence of activities in the capital markets (both private and public equities and fixed income).

Positioning for this turnaround, our financial markets regulators are keen to continue to formulate policies that will broaden and deepen the markets with a view to restoring market confidence and trust.

CO: The country has continued to debate the foreign exchange policy of Central Bank of Nigeria, even after the introduction of the flexible interbank forex market. Do you think we have the right forex policy in place?

AJ: Recently, the apex bank released a number of foreign exchange reforms addressing foreign exchange for travel allowances, school and medical fees. The new reforms also involve reducing the forward tenor to 60 days from the 180-day limit. This new CBN foreign exchange policy will surely meet some of the genuine demand for FX and should likely reduce the pressure on FX demand. If these foreign exchange policy reforms are adequately implemented, the naira should appreciate in the medium to long term, although marked pressure on the local currency may initially cause it to weaken.

We believe this policy is a step in the right direction as we anticipate further policies by the CBN to improve liquidity in the foreign exchange market. We expect the CBN to address the prevailing issues of multiple exchange rates currently being witnessed and also create monetary policies that support economic growth and price stability.

CO: With Coronation MB growing its business and profit, do you consider transforming into a commercial bank?

AJ: There is a clear market demand for more sophisticated banking services from Nigeria’s top tier corporates. We are currently focused on capturing the massive inherent opportunities in the merchant banking space and have positioned our franchise to be a leading player in that segment. We are seeing clear and growing demand for specialised merchant banking services from our corporates, high net worth individual and institutional investor clients.   

Coronation Merchant Bank will focus on bringing its world-class advisory and financing capabilities – which are accompanied by innovative products and services – to deepen and broaden wholesale banking and the capital market space; whilst remaining committed to our values of strong governance and transparency.

We do not have any plan to transform into a commercial bank in the nearest future. We have carefully defined our market segments and our approach to serving our clients will be distinctive. We have the best and brightest people; we will leverage their skills to ensure that the highest standards of client relationship management and professional services are provided to
our clients.