Eyes focused on retail banking

Early last February, Henry Semenitari was barely one month old on his new position as CEO of Unity Bank plc, when the Central Bank of Nigeria (CBN) announced another hike in the Cash Reserve Ratio (CRR) for the second time in less than six months.

The February hike pushed the requirement for CRR from 50 to 75 percent. The last hike was in August of 2013. With Nigeria’s economy being public- rather than private sector-driven, many banks in Nigeria have come to depend heavily on public sector deposits for their liquidity base showing.

The hike has the potential of exposing the true colour of some Nigerian banks that, because of their access to cheap and easy money from the public sector, make minimal contributions to the growth of the real sector and yet continue to declare huge profits every year.

Such increase in CRR is bound to reduce access to such funds and force banks to become innovative both in mobilising savings and increasing lending. In addition, it will reduce the inclination for insider lending which contributed significantly to non-performing loans of some of the banks in recent years.

Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves with the Central Bank of Nigeria or whatever country for that matter. And as is the case with many of Nigeria’s banks, the largest customer deposits usually come from state governments and their agencies.

The simple argument of the CBN leadership is that it does not make economic sense for the government to borrow over N2trn from the banks, while its agencies have over N1.3trn sitting interest-free in the same banking industry. To correct the anomaly, the Central Bank increased the CRR for public deposits to 75 percent hoping that this will stir the banks to go out and chase deposits, which they will have to advance as loans if they are to make any profits on such deposits.

It worries the apex bank and industry watchers alike that while banks had access to cheap public sector funds, they tended to focus on lending to government, general commerce and importation, paying less attention to crucial productive sectors such as agriculture, manufacturing and SMEs.

But this policy did not come to the new CEO of Unity Bank as a surprise. He saw it coming and got prepared.

Asked in a recent newspaper interview about what his challenges are in the new position, he identified the task of transiting his bank from a “high public-sector –driven bank to a private-sector driven”. Truly, Unity Bank, which was a product of the largest merger of banks in Nigeria’s history, was forged by fusing nine banks into one in 2005 with the biggest bank in that merger being the Bank of the North—historically the bank of the state governments of the entire Northern Nigeria.

Bank of the North has enjoyed the patronage of keeping the huge public deposits of the odd 19 Northern state governments for several years. It is a legacy that the CBN is now challenging with stricter regulations, including use of the CRR tool. It is also a legacy that Semenitari is prepared to face and convert into strength. And his chief tool for achieving this is robust retail banking service.

He has already convinced himself that massive government businesses “have become unattractive, both for regulation and for our balance sheet.” So how does this new CEO of the seventh largest bank by spread (locations) intend to wean his bank from relying on public sector deposits?

Retail banking seems to be the gospel Semenitari chooses to preach. He is bringing to Unity Bank 22 years’ solid experience in the banking industry with a recognised strengthens in business process re-engineering and design. His specialisation is in strategic process enterprise management and integration of business process models with Information Communication Technology (ICT) to drive business at product and strategic business unit levels.

Retail banking refers to the division of a bank that deals directly with retail customers. It is also known as consumer banking or personal banking. It is the visible face of banking to the general public, with bank branches located in abundance in most major cities. And if the strength of retail banking is measured by the abundance of its branches, then Unity Bank, with excess of 240 branches, has such strength in abundance.

And this is the strength Semenitari saw in his bank and wants to leverage on. He has three major strategies to push the retail banking service offering.

First, the main derivative is leveraging on Unity Bank’s very strong network across the country totalling over 240 branches.

Second is agriculture. With branches in most remote corners of the country, no bank in the country is better-located and situated within the agrarian belt of the country than Unity Bank. From where I came from one can find Unity Bank branch at Chiromawa, amidst the rural tomato and rice growers of Kura and Garun 

Malam Local Government area councils. Few meters away, Dangote is now setting up a tomato manufacturing plant.

Thirdly and closely related to agriculture, is the promotion of the rural economy through SMEs, which provide the gateway to middle market businesses and in fact the main driver of the large business in Nigeria. 

In short, Semenitari’s vision is to make the Unity Bank a retail bank of choice in the next five years.

With a vision set on retail banking service excellence and given the strategies outlined by Unity Bank now under Semenitari and the supporting human and technological capital he is willing to unlock and deploy, in few years the bank will be a model for others to emulate in Nigeria’s banking industry.

And the starting point obviously is raising the bank’s capital from its current N50 bn base to see to its implementation. Already, the capital market is awash with discussions on the forthcoming share capital issue by Unity Bank plc.

Retail and commercial banking services are of critical importance to the domestic and global economies. Retail banking brings in the customer deposits that largely enable banks to make loans to their retail and business customers.

This concept, which Semenitari is preaching like a high priest, is what will, more sustainably, correct today’s anomaly where banks in the country are not lending to the most productive sector as they should, more than using the CRR tool. And identifying agriculture, specifically targeting rural economy via the empowerment of SMEs as the focus of Unity Bank’s retail banking strategy means that the bank will be acting what it preaches.

The concept of retail banking may not be a new one, but it has not so far produced the expected impact of serving the real sector of Nigeria’s budding economy. Neither has there been a more committed driver of its wheel.

Will a bank that perches its corporate vision on striving to be the most preferred retail bank in Nigeria make the desired impact? Henry Semenitari, CEO of Unity Bank, has asked to be given just five years to prove that it will.