Nairametrics had a chat with the management team of Coronation Merchant Bank, consisting of the GMD, Mr Abubakar Jimoh, the Head of Research, Mr Guy Czatoryski, and the Head of Coronation Capital Markets, Mr Aigbovbioise Aig-Imoukhuede.
Here are excerpts from the interview which touched on several areas, including the outlook for the company and economy in 2019, as well as advice for those keen on starting a career in finance.
Nairametrics: How have you been able to maintain zero NPLs in four years?
Abu: We have been in operation in the financial service sector for close to 26 years. We started operations in 1993, though as a discount house. That means we understand this market, as we have gone through different cycles of the economy.
You have to operate in a very conservative way. When we became a merchant bank four years ago, we decided that our risk appetite was going to be medium, meaning that we were going to select the kind of clients that we dealt with. Once you focus on the kind of strategy you operate in, and stick to it, you are likely to survive, and reduce loan provisions and NPLs.
As a bank, we decided to focus on the area of trade finance which is relatively safe. As a trade finance bank, we focus mainly on people that are importing and exporting. That means we have a cycle of 90-180 days.
Also, in determining the kind of clients that we deal with, we selected what we call Coronation 200. These are the top end of sector in which we operate. When you focus on the top end of the economy, you are likely to have very low NPLs.
Nairametrics: Where do you see growth in the economy?
Guy: Going forward into 2019, we see more growth from agriculture, sustained high growth from telcos, some growth from manufacturing and we think trade will sustain some level of growth this year.
The IMF forecast for growth in 2019 is 2%. That looks a bit conservative to us. We are at 2.25%, and I think the risks are to the upside.
Nairametrics: Are you hedging FX?
Management also spoke on FX from the perspective of the bank.
Abu: If you look at the way foreign exchange transactions are done in Nigeria, unless you are taking an exposure, there is no need to hedge. For us as a bank, we don’t have FX exposures. FX transactions in Nigeria are done on an order basis. Order basis means you either have a customer that needs to buy or needs to sell.
The people that will be taking the FX exposure are the customers. So when we go into transactions where we have customers that have exposures, we can help them to hedge the exposures, so they are not too exposed. The CBN has a NDF that can be used as a hedge instrument.
Nairametrics: Is there provision for hedging products?
Guy: In 2019, we think the current rate in the NAFEX market, about N360 to the dollar, is going to hold for three reasons. First, the Naira is not fundamentally very far away from fair value. Depending on how you measure it, it is either 10% overvalued, or undervalued by 10%, relative to fair value. There is no fundamental pressure to move it.
The next reason is CBN has $42.9 billion of foreign reserves to defend it. You don’t worry about where the CBN is until its reserves go down to about $30 billion.
The last reason is that we have recently seen inflows of foreign portfolio investments. Over a billion in January, and about $1.7 billion in February. Their money then props up the foreign exchange reserves of the CBN.
Alternative products – We have three funds, and we are looking to bring in another five this year. Who said this?
Outlook for fixed income – The overall direction is down. I don’t think we will see as dramatic a change as we saw in the last two months. I still think the fundamental underpinnings of lower rates are there, before cuts later in the year.
Nairametrics: What is the
Group’s outlook for the year
Abdul Jimoh: For the economy as a whole, things slowed down last year, as we approached the elections. Things will stabilise now. As the economy picks up, our activities will pick up. Reasonably, we think we will be able to do better than we did last year.
Nairametrics: What advice would you give a 21 year old who is interested in pursuing a career in finance?
Abu: I think pursuing a career in finance is a great idea. We have moved away from the past, where you would just say I want to be a banker. Nowadays, we have people who are specialised. People have to know the area they want to be specialists in, and get the certification and experience, which would enable them progress in that line.
Guy: Be curious. Finance changes very quickly. What made money a few years ago, may not make money today. There may be a few avenues opening up that look unlikely right now. So, I would say, stay curious and keep on learning.
Aig: The finance market is changing. Fintech is coming into the market, and there are a lot of opportunities for those who have curious minds to do not just industry–changing things, but also improving the value of people’s lives. That’s what fintech is going to do.
We have a graduate trainee programme which we have run in the last two years, and you would be surprised at the array of people we bring in, and the opportunities they have. It’s not just from straight banking or finance. There are opportunities with communication, research and so on.
