Skye Bank grew 81% in pretax profit in the first quarter of this year. Could you unpack those results?
Skye Bank had always taken the route of organic growth strategy till 2013 when we decided to acquire one of the nationalized banks offered for sale by the Asset Management Corporation of Nigeria (AMCON). Consequently, in line with regulatory requirements, the Bank submitted an Expression of Interest (EoI) for the acquisition of Enterprise Bank Limited, for which Heritage Bank Limited was announced the preferred bidder on September 11, 2014. Skye Bank later emerged the preferred bidder for Mainstreet Bank Limited (MBL) on October 3, 2014 after a rigorous bidding process. The Bank effectively took over the management of MBL on December 18, 2014. The acquisition of MBL has repositioned and transformed Skye Bank to a more commercially inclined institution. Following the takeover of MBL, both institutions were fully integrated in June 2015 and are now running on one of best and most efficient banking applications in Nigeria; Flexcube 12.0. The speedy and smooth integration was a result of past investments in best-of-class IT infrastructure made by the Bank in the last two years. With the acquisition, the Bank's branch network grew from 259 to 469 branches in Nigeria, and about 70 branches have been slated for closure as part of the Bank's ongoing branch rationalization exercise. This network made Skye Bank to become the 4th largest bank by branch network. The Bank is already reaping the benefits of this acquisition. For instance, owing to the boost in business activities, we recorded 81% growth in pretax profit in Q1 2015. In absolute terms, we posted a pre-tax profit of NGN6.2 billion and NGN10.7 billion for the period Q1 and Q2 2015, respectively. We achieved this result despite the tough economic and business environment informed by change of leadership in the country and various regulatory headwinds.
What were some of the benefits of the Mainstreet Bank takeover, and how did this provide you with opportunities like agricultural lending?
In terms of service quality and turnaround time, MBL had not been a great brand prior to our acquisition. However, MBL has a pool of loyal, institutional and corporate customers who remained with the bank despite its status as an AMCON owned bank. This loyalty is also reflected in its customer base, which did not reduce significantly prior to AMCON take-over. MBL also has competitive advantage in agriculture lending which accounted for 12.6% and 16.9% of its total loans in 2012 and 2013 respectively. NPL ratio on agriculture loans was very negligible, at 0.01%. We expect to leverage MBL's success story and footprint in agriculture business. We intend to leverage MBL's branch network in the South-East, South-South and Northern regions of Nigeria. This will complement our spread in South-West and North-Central and ensure our complete coverage and presence in all the 36 states of Nigeria.
Do you have plans to reach beyond Gambia and Sierra Leone? And will future growth come from bricks and mortar expansion, or other means?
Our immediate strategy is to focus on the Nigerian market. Hence, we will seek to optimize our existing branch network rather than build new branches. As one of the market leaders in e-business in Nigeria, we provide top-notch and tailored e-solutions for our corporate and public sector clients. For instance, the Bank's internet banking platform has robust functionalities that meet the needs of our corporate and growing middle-income class customer. Similarly, in our quest to provide secured e-channel platforms for our esteemed customers locally and internationally, we recently received three International Certifications from the UK Trade and Investment. The three-fold awards include ISO 20000 IT Service Management, ISO 27001 Information Security Management and ISO 22301 Business Continuity Management. We have invested in the creation of ATM galleries and e-centers as opposed to brick and mortar branches. We also have a business office in Dublin that acts as an investment company. We plan to use it as an access point for clients looking for projects in Nigeria.
How has Skye Bank responded to the Forex restrictions that were recently put in place?
Skye Bank ensures strict compliance with regulatory directives. However, we expect certain developments to occur as a consequence of the foreign exchange restriction. There are major issues for correspondent banks but the full impact on the banking industry is still not clear. In Skye Bank for instance, some of our transactions will be affected as we need to clear the backlog in a bid to maintain the Bank's credibility and reputation. On the other hand, institutions with huge investments in certain lines of trade like rice importation may have issues with meeting their banking obligations. This may lead to higher credit impairment and lower earnings from such transactions. Although the policy has its own advantages, we will continue to evaluate the impact of the policy on our overall business. This puts us in a position to consider alternative forms of generating income.
What are your expectations for the year ahead?
By 2016, the present administration should have highlighted their programs and policies for the growth and development of the Nigerian economy. We are getting ready to debate budgets for 2016, and the period between now and the end of the year will involve planning for 2016. We are beginning to see positive effects from the government transition, such as electricity generation and distribution and the optimization of our refineries and accretion of foreign reserves. In addition, the security situation is improving, creating more opportunities for foreign direct investment inflow. This will strengthen the economy and the banking industry will certainly benefit from these improvements.