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Faith Tuedor-Matthews, Group Managing Director / CEO, Mainstreet Bank Limited spoke with Jide Akintunde, Director, Nigeria Development and Finance Forum, and Managing Editor, Financial Nigeria magazine, in her final days as top executive of the bank before Skye Bank’s takeover of full ownership of the bank from AMCON.

Jide Akintunde: The crisis which hit the Nigerian financial system in 2008 – 2009 is almost history. The brighter sides to the crisis and its resolution include the emergence of some individuals as turnaround experts. You surely are a proven member of this elite financial honchoes. In that context, how are bankers and banks to navigate a boom period considering that a bust inevitably follows, and the system can be fixed by regulatory intervention and turnaround operation?

Faith Tuedor-Matthews: You are right by saying bust typically follows boom historically but financial managers must cautiously learn to manage these changes to safeguard depositors’ funds. As you know, banking entrusts upon its managers a strict fiducial responsibility, which requires the utmost caution in the exercise of authority by bank managers.

Indeed, the Nigerian banking system, like in other transitioning economies, has had its fair share of banking distresses. What is important, however, is that the Federal Government established a resolution vehicle, AMCON (Asset Management Corporation of Nigeria), to manage the last distress situation. Our bank tells the story of the Federal Government’s commitment to this cause.

However, bank managers must not rely on Government for bailout. They must endeavour to deal with the endemic issues that have plagued banking in Nigeria especially poor risk management architecture which manifest in weak corporate governance, weak credit risk processes, capital inadequacy, illiquidity and other challenges that collectively threaten the health of the interconnected financial system. Bank managers must strive towards building the right risk governance structure around institutionalized systems. And with teams built around the right culture, banks can deliver internal operating capabilities that take one from the pack.

JA: One other huge debate is around the path the Central Bank of Nigeria (CBN) has taken in resolving the banking crisis. What do you consider as the strengths and, maybe, weaknesses of the crisis resolution path, from the intervention by the CBN from June 2009 to today when the sale of the bridge banks are just about done and dusted?

FTM: The Federal government through the Central Bank of Nigeria and AMCON championed the resolution of the banking crisis through the purchase of toxic assets, recapitalization of insolvent banks and through more intense regulatory oversight. The recapitalization of the three failed banks by AMCON helped restore confidence in the banking industry and prevented industry failure. The purchase of the banking industry’s toxic assets helped free the industry’s balance sheet for proper financial intermediation. Beyond these two very important interventions, I have equally seen a more focused and intense regulatory oversight in the banking industry since the 2009 crisis. I think there is a much stronger regulatory oversight on the industry, covering areas like risk management, capital allocation, ICAAP (Internal Capital Adequacy Assessment Process), competency frameworks, sustainable banking, governance and so on. There are now more frequent regulatory reviews on banks. You may see banks being reviewed by regulators more than six times in a year on various subjects with a view to ensuring a sound financial system and averting another crisis. The interconnectedness of the financial system is a strong highlight of the regulatory oversight, and I think this is a major change arising from the 2009 crisis intervention.

I also have noted a greater focus on stress testing in the industry. From time to time, you see the regulators requiring banks to perform one stress test or the other. You also see a stronger focus on ensuring that banks maintain a satisfactory capital buffer for their risks, including restricting payment of dividends to shareholders if certain conditions are not met.

So overall, I see a more closely regulated industry focused on ensuring that the financial industry remains sound. I believe the prevention approach adopted by the Central Bank through its strict regulatory oversight is a more sustainable strategy and will guide against future crisis.

JA: When you were appointed as CEO of Mainstreet Bank, I guess some issues immediately ran through your mind. You must have considered how to deal with the hangover of a legacy institution that was known for unrest at board/shareholder level, apart from having a highly unionized staff. How have you managed to deal with these and other issues that confronted you in discharging your mandate?

FTM: We knew our mandate and timeframe from the day we were given our letters of engagement. Our mandate was to stabilize the institution and prepare it for sale to interested investors within three years. Though we had a short-term three-year and a long-term five-year strategic plan for the institution, with a vision for the future, we also knew that our mandate was to put in place the solid foundation that will be needed to build a strong and highly efficient financial institution.

At the time I was given this job, I simply had faith in God to help me succeed. I have a strong drive to succeed and I am highly motivated. These two characteristics and my faith in God gave me the courage to pursue our mandate with a single focus.

In addition, at the heart of our success was the Board. The Board was very supportive and we could not have achieved this level of success without them. Even in cases where we have disagreed on approach, the combined experiences of the individuals on the Board ensured that such differences did not derail our mandate. This success is largely attributable to great team work under the leadership of the board.

When I resumed at Mainstreet Bank, I met serious challenges in several areas. One of the biggest problems was an ineffective technology platform that was apparently poorly implemented. It meant that it failed to provide the right backbone to support the bank’s business and we could not vouch for the integrity of the financial numbers produced from the system. We also had serious people issues, which manifested in the level of fraud in the bank at the time. It had one of the highest levels of frauds in the industry. The workforce was ageing and needed rejuvenation in every way, including a reorientation. There was also absence of detailed and complete policies for managing the bank across its various functions – including risk management, internal control, human resource management, operations and so on. And of course the bank was reporting huge losses in its financial statements.

In addition, the bank was highly unionized. However, we   were able to gain the cooperation of the staff to enable us carry out some of the very difficult but necessary decisions for the turnaround of the bank. This gave us the platform to implement some of our major initiatives and milestones; such as the successful migration to a new core banking application to support our service delivery objectives; and the staff realignment exercise, among others. We were able to attract good quality professionals from other banks to join us in executing the turnaround; and I must not fail to mention the support from the entire management team.

What we have done here has been largely due to great team work with the full direction and support of the Board, many of whom have several years of banking and related experiences. Not only have we been able to surpass our mandate of turning around the Bank, the value created is reflected in the purchase price of the Bank which is N126 billion.

JA: I suppose there are two standout areas of value delivery for you at Mainstreet Bank. You have to deliver value to the present owner – the CBN through the Asset Management Corporation of Nigeria and Nigerian Deposit Insurance Corporation – to address liabilities imposed by the intervention. At the same time, you are to present Mainstreet Bank to prospective acquirers as a profitable business. Would you like to elaborate further on the value you have been able to deliver?

FTM: Yes, we needed to deliver value to AMCON, our owners, by ensuring that the bank was properly run and prepared for sale at a premium. NDIC and CBN were primarily interested in returning the bank to sound financial footing and safeguarding depositors’ funds. In addition, we believed that we needed to add value to the government through AMCON who funded the bail out of the bank.

A quick recap of the bank’s position at takeoff will be appropriate. We inherited a bank that was running at a loss. Over 80% of the 200 branches were posting losses – an average of N2 billion – every month, and cost was largely uncontrolled. Customers were fleeing in droves; the work force was de-motivated and ill equipped for the future. So we reduced cost by putting in place controls and introduced cost-reduction initiatives to bring down the high cost-income ratio from over 1000% to about 55% in 2013.  Most importantly, we re-engaged our customers, deepening existing business relationships and improving our service delivery.

We also continued to invest in training our people. We introduced a Group Shared Services platform for speedy transactions processing and employed a crop of experienced and professional personnel to lead the culture change envisioned etc.

Our ability to reduce the cost of our operations, improve our service  and our success in re-engaging our customers and winning them back resulted in stabilizing the bank and creating the values I will highlight shortly.

The bank returned to profit and sound financial footing in her first full year of operations from a monthly loss of N2.5 billion to an annual profit of N24.5 billion in 2012 and N13.8 billion in 2013. The bank made major strides in putting in place the following: improved customer service, enlarged and revitalized customer base, excellent technology infrastructure, good corporate governance, robust risk management infrastructure and well trained and motivated work force.

A clear indication of how much value we added at Mainstreet Bank is seen in the winning investor bid for the bank, which was  N126 billion – a N50 billion premium on Mainstreet Bank’s net-worth of N76 billion as at December 2013. That investors are willing to pay such a significant premium for the bank only indicates that immense value has been created at Mainstreet Bank.

In support of the government that has put together the bank’s bailout scheme; we recognized the viability of the broad reform of agriculture by the federal government and decided to support the vision by participating in the Growth Enhancement Support Scheme (GESS). Our experience was very fulfilling. We invested N15 billion in subsidizing fertilizers directly and supporting the Out-grower Scheme to farmers thereby eliminating the ‘middle man syndrome’. About one million farmers across the country benefited from our participation and we are proud to report that we recorded no loan delinquency. Above all, through our contributions, more people in rural areas became aware of the economic benefits of farming and participated in farming activities to make a living.

I will be handing over a profitable, well-organized and highly structured bank that is well-positioned for the future, with technology-enabled service delivery, sound risk management, motivated work-force and a respected brand name.

JA: What prepared you for the role you have played in helping to resolve what is arguably the biggest crisis yet in the history of banking in Nigeria?

FTM: I considered this role as a national assignment. I had just left my job as a Deputy Managing Director in a leading bank. I had over 28 years working experience under my belt. Suddenly, my nation was calling me to use my experience to help save a financial institution in distress. I considered it a privilege to be called upon. It was time to give something back to the nation that has given me so much. I also saw it as a challenge. The regulatory authorities reposed much confidence in me by asking me to come and turnaround the failed bank. So, for me, it was also a personal challenge not to disappoint them.

JA: What is your outlook of the Nigerian economy over the short- and medium-term, considering that the currency has just been devalued by about 8% and we have revenue shocks arising from the crash in the price of crude oil?

FTM: Certainly the devaluation of the Naira and the drop in crude oil prices are very important developments because of the high dependence of our economy on revenues from the sale of crude oil. I think we are seeing the dual effect of reduced production and a sustained drop in crude oil prices. I will not say that the economy is in trouble. The moment demands the right response from the managers of the economy, and I think we are already seeing concerted efforts to respond to these developments; from the Finance Ministry as well as the Central Bank. I am optimistic that the measures already being implemented will have the desired effect in the short and long term. The current slide in oil prices is a great incentive to see through the implementation of the measures that government is already working on to diversify the economy.

Devaluation means that the value of the Naira falls relative to a foreign currency, in our case the dollar. Now, that means that the cost of imported items will rise and become more expensive for everyone. So if your income has not risen proportionally as the devaluation, you may find that you can purchase fewer items with your income, however, it will also stimulate the creativity of Nigerians to seek alternative local substitutes to the imported items. Devaluation also has a positive impact. It makes exports more attractive because our exports will be cheaper compared to that from other countries. Therefore, it can encourage more attention to the export sector.

There is no reason why the current economic growth would not be sustained and even surpassed if we get the key growth ingredients right. The federal government has demonstrated enough will and commitment to achieve that. Remember, we have got the power sector almost fixed. Regardless of the current challenges, the power sector is now fully in private hands and will work out soon. We are going through the gestation period now. There are also a lot of positive activities in the agricultural sector, in which Mainstreet Bank has also played an active role. Getting the power sector and agricultural sector right almost at the same time will have a revolutionary impact on the Nigerian economy. It will help diversify the economy and shield us against the impact of the slide in crude oil prices.

JA: Congratulations on the recent National Award of OFR conferred on you by President Goodluck Jonathan. What does the award mean to you, especially because it is a high cadre national award, which most honourees get after receiving the lower cadre awards before the OFR?

FTM: It was a privilege to be honoured by my country’s President, His Excellency President Goodluck Ebele Jonathan (GCFR), amongst other distinguished Nigerians. As I told my colleagues in the bank, the honour is for all Mainstreet Bank staff. I received it on behalf of the staff, Management and Board of the bank. We were all being honoured for the work we have done in the last three years in turning this place around. I therefore believe the national honour is for everyone that has been part of this great team in the last three years; from the security man to the Board chairman, I believe everyone has contributed towards this national award. I tell our people that the reward for hard work is indeed more work.

JA: Which turn is your career likely to take when you leave your current position, will you be willing to take on any other national assignment if called upon to do so?

FTM: It has been a challenging but extremely rewarding three years. I believe I deserve a holiday first. I love Golf and I have been off the course for over three years now, so I am going back to playing golf.

Having said that, it is always a privilege to serve ones country in any capacity when called upon to do so. As I said earlier, I considered this job to turn around this institution as a national assignment. So, if I am needed in a similar capacity again, why not.