Mr. Simon Hughes of International Banker interviews Mr. Ade Adebiyi, CEO and Managing Director of Guaranty Trust Bank Sierra Leone.
—–
Today, International Banker is joined by Mr. Ade Adebiyi,CEO and Managing Director of Guaranty Trust Bank Sierra Leone, to discuss the bank’s CSR strategy, its corporate and commercial offerings, and the bank’s exceptional performance figures. Ade, very good to have you here today.
Thank you for having me.
Let’s start at the beginning. Tell us a bit of the history about your bank.
Well, Guaranty Trust Bank Sierra Leone is a subsidiary of Guaranty Trust Bank Nigeria. Now, so I think it will make sense for me to give you a history of how Guaranty Trust Bank Nigeria started. The story of Guaranty Trust Bank Nigeria dates back to 1990. So, about 20 something years ago. Now, it started with an initial 42 shareholders and initial capital of $2 million. Now, the first two of those shareholders: one was the pioneer managing director, and the second was the pioneer deputy managing director. One member of the team that started with that team is the current group managing director, Mr. Segun Agbaje. Now, the idea of Guaranty Trust Bank Nigeria was to create a truly professional organization, kind of like an oasis in a country where things are not being, were not being done properly. And perhaps now you still have instances where things are not being done properly. So, from the onset, Guaranty Trust Bank Group was set up with the foundation and core values to be based on integrity. And it worked. In 1996, six years after we were listed by introduction on the Nigerian Stock Exchange, subsequently after then, because of the business model of the bank, two prominent business schools—one in the UK here, Cranfield Business School, and the other in the United States, Harvard—did several case studies on Guaranty Trust Bank. On the whole thing, on the fact that you have an organization in a country like Nigeria that has decided to do things ethically. So, between 1990 and 2000, things worked very well. In 2001, we did our initial public offering and also got our universal banking license. Subsequently, without claiming to really say we have understood Nigeria, we started our regional banking expansion. Now, we thought at that point, “We are young. We can take risks.” So we said, “But even though we are going to do that, we are going to start with a small anglophone country. So that it will be easier to make our mistakes.” And we settled for Gambia. Gambia was a country, 1.2 million population at the time. And it worked very well. So, 1.2 million people. If we made any mistakes, people would not notice. Subsequently, shortly after, in 2002, we set up in Sierra Leone. That was the birth of Sierra Leone. To actually take advantage of the economic development in that country. But, looking also down at the history of the bank. Subsequently, in 2004, we raised additional capital. And after that time, we went into Ghana, expanded into Ghana. We came to UK in 2008. Now, the idea of coming to UK, which was the first subsidiary outside of Africa, was not really to come here to compete with the High Street banks. But rather to take advantage of the connectivity between West Africa and the UK. And, so, GTBank (UK) was a mono-branch bank, where they were doing things like trade, correspondent banking and personal banking for the group’s customers that actually commute between Africa and the UK. Things went pretty well. 2007, we went to, we did our first euro bond, where we raised $350 million. It was quite successful. Later that year, August 2007, we listed on the London Stock Exchange. That was a week before the financial crisis. So, if you ask me if we had done it a week after, would it have been successful? Probably not. Did we know? No, I think it was sheer luck. Going on… 2009, we expanded into Liberia. 2012, we started with our first francophone country in Cote d’Ivoire. And in 2014, subsequently, after completing anglophone West Africa and one country in francophone, we now started our East African expansion by acquiring a franchise called Fina Bank that had presence in Kenya, Uganda and Rwanda. In 2017, two years ago, we expanded into Tanzania. And so, over the years, that has been the footprint of the group in Africa, with today over 300 offices in Nigeria, Africa, other African countries and in the UK. And I guess the African footprint still continues.
Amazing story of growth. But if we focus on Sierra Leone just for the moment, the bank had a remarkable year in 2018, recording 40-percent growth in profit before tax and 18-percent growth in customer deposits from 2017 levels. What main factors do you attribute such stellar growth rates to?
Simon, the truth is I think the first thing is the collaborative efforts of the staff and the management of the bank. Over the years, the bank has recruited brilliant and innovative staff members, and I think it’s the dedication of these guys that has resulted in such good performance. We’ve invested heavily in technology platforms. That’s to ensure that we’re able to provide efficient service and value-adding services to the customers. And they know it. Because the service is really differentiated when you look at the service you get from other banks in the industry. We also have the fact that the bank is the highest capitalized bank in the country, and so we’re able to take advantage of those large-ticket transactions that add a lot to the bottom line. The risk-management strategy and our structures are very robust, which ensures that as a bank, we have a very healthy and profitable loan portfolio, with NPLs that are way below the industry average. Again, our understanding, deep understanding of the market, our customer service and the fact that we understand the market has ensured that during that year, we are able to capture a good share of the business of our customers.
And thinking about strategy, the bank recently began a five-year strategy growth plan. What are the main aims of the plan? And how do you intend to achieve them?
The main aim of the plan is to expand the retail footprint of the bank. So, let’s look at some numbers here. We have 14 banks operating in Sierra Leone; collective unique customer base is 700,000 thereabouts. You have a population of about 7.4 million. So, you only have about 9 percent of people that have bank accounts. Now, the strategy of the bank is to make sure that we are able to expand our retail footprint. But we’re not looking at brick and mortar. Brick-and-mortar expansion would be too expensive for the bank. But in that space, you also have the telecommunications companies. They have currently a subscriber base of about 5.6 million people. So, it’s about 75 percent of the population. So, they also have what we call mobile wallets, where you can do banking transactions. So, they are in direct competition with us. But today, Guaranty Trust Bank, we have, our total customer base is about 170,000, which we have acquired over the years. But, in the next five years, we’re ambitiously taking that to one million customers. And how are we gonna do that? We’re gonna use technology. Not branching. Technology. Being able to do things on your phone. And the central bank has recently approved an agency-banking structure. So, I can use third parties to actually go out there to open accounts. So, to grow the customer base in the next five years, are we going to do it the traditional way? No. We’re going to lean on technology.
Thinking about the corporate side of the business, how do you differentiate yourself from the competition?
This is a structure that was inherited from the parents in Nigeria. Essentially, what we do is that the relationship-management structure is along industry lines, so you have a typical structure of telecommunications, aviation, airlines, shipping, commodities, commercial. So, what happens over time is that a relationship manager is able to understand the markets deeply because they deal with the same customers in the same industry on a day-to-day basis. We also complement that with sending these relationship managers for training abroad, so that they actually have the knowledge. What does this do? This ensures that our managers are able to provide specialized services to their customers, which always, always ends up in the bottom line of the bank.
If I’m not mistaken, the bank’s most dominant sectors in the local market are both upper corporate banking and middle commercial banking. What’s been the key to achieving market dominance in both of those segments?
I think it’s also based on the specialization I spoke about previously. The fact that the relationship managers understand the markets; they are able to provide value-adding services. In addition to that, a lot of the big corporates now and the medium-middle corporates, they rely on technology, so we’re able to deploy our technology products to dealing with them. And they enjoy the service. The thing that distinguishes you from the pack in any industry at all is the level of service, but these days, service is actually complemented with technology. You need to invest in technology, and we have done that, and we have deployed the live products to the market.
Sierra Leone is very dependent on commodities. Are you happy with the bank’s relative exposure to the commodities sector? And how much of an impact does commodity-price volatility have on the bank’s earnings?
Yes, Simon, the truth is that the strength of any bank to a very large extent depends on the strength of its loan portfolio. We have a very strong risk-management strategy. Risk-management structures. And before any loan is disposed, these loans are evaluated critically before they are disposed. So, I am confident when I say that we are comfortable with the exposure to the mining and other commodity companies. With the mining companies, there is a general trend whereby initial set-up costs… so, the equipment they need to mine, fixed assets, licensing costs are usually funded largely by equity. And, so, they usually resort to the banks for debts in order to finance their working capital, which we have engaged in. So, it’s right to say that when you have fluctuation in the price, the international price of commodities, it would affect them, their ability to pay. So, but most times in the industry, you sit down with the customers and see how you can restructure their loans in line with their cash flows. So, over the years, we haven’t had any significant losses. But in terms of earnings, yes, because the higher the international price, the higher the volume of foreign exchange that comes into the country; the higher the volume of foreign exchange that comes, the more foreign-exchange-related income I’m able to make. But I have a reduction in my earnings but I try not to sustain any credit losses.
You mentioned earlier big-ticket transactions, which have allowed the bank to gain a competitive edge in the banking industry in Sierra Leone. Could you give me a recent example of such a transaction? What does it actually look like? What does it mean?
O.K., Simon, I need to be careful here, because I don’t want to breach any confidentiality principles that I have to adhere to. However, I’ll speak generally. So, an example, for instance, is the power-generation sector in Sierra Leone. A lot of this is outsourced to foreign companies who provide power and actually sell the power to the local state for distribution. Now, a lot of those foreign companies, we want some kind of guarantee, some kind of assurance that the government will pay. So, a recent transaction, I think one of the big ones, was the one that we were able to do by virtue of our size. And it was to provide a guarantee to such a foreign supplier of the power. And that has added a lot to the bottom line since we have been running the transaction. The transaction has been run for about two years now, and we’re comfortable with it. It has translated to heavy earnings, and for the bank. And we will continue to look for those transactions. Because it’s those transactions that actually set you aside from the pack of the other banks.
In terms of customer service and in terms of kind of market share, you’ve mentioned technology a number of times. Are you currently satisfied with the bank’s mobile-banking and online-banking capabilities? You’ve got the mobile-banking product GT SimPay, which sounds like a really exciting new innovation. Can you let me know what are sort of the most appealing features around that?
I think the returns on our investment in technology is really, I feel comfortable with it. I would say that I’m happy with the products, the alternative-channel products that we have there. But in terms of the capabilities, less so. And why do I say that? The main reason is the fact that the country doesn’t have what you call a national switch, and so…. A national switch is a platform that enables transfer from one bank to the other to go instantly. So, whilst I have the electronic-banking products out there, I’m not able to maximize its use. So, a typical transaction now would probably take about 24 hours. Now, where I have the national switch—and the World Bank has sponsored the project, working together with the management of the central bank, and we hope that that would actually be implemented by the close of this year—that would now bring out the capabilities of my electronic-banking products. Now, back to GT SimPay. GT SimPay is a mobile-phone solution, whereby you’re able to make payments to other banks, check your balances, pay utility bills, without connecting to the internet. And it’s a product that sits very well with the earning capacity of the population in Sierra Leone, because a lot of people are not well paid, and they can’t really afford data for the internet. So, that product just sits very well. In addition to other array of products, which are internet-based, which are deployed to mostly the personal and also the corporate segment. But the GT SimPay is a product that sits very well with the environment that we are operating in.
Now, you mentioned earlier, too, that you came, well, the bank came into the UK back in 2008, and you were actually the managing director of Guaranty Trust Bank (UK) Limited for a while. What do you consider to be the biggest difference between your roles at the two banks?
Different business models, Simon. With GTBank (UK), the idea was not to come here to compete with the High Street banks. The idea was to see the connectivity and take advantage of it between West Africa, East Africa and also the UK. So, we’ll leverage on the business that’s coming out of our African subsidiaries. So, because of that, we’re able to do things like trade, correspondent banking and personal banking that actually would appeal to people that commute between Africa and the UK. Or you want to buy property, and you need a mortgage. Those kinds of things. It wasn’t to compete with the High Street banks. And that’s why the franchise here is a mono branch and not…unlike Sierra Leone. Sierra Leone was set up in Sierra Leone to compete with the local banks. And because of that, we have 14 branches scattered all over Sierra Leone—seven of them in the urban areas and the others in the rural areas. And the idea was to actually compete with the local banks there and get and, of course, be profitable. And that over the years has largely happened. In addition to the fact that the regulatory environment in the UK is much more stringent than that in Sierra Leone. And, so, the management styles would actually be different.
Now, I mentioned at the beginning, the kind of bank’s corporate CSR program. And it focuses on four major pillars: community development, education, environment and health. Are the projects with which the bank is involved divided roughly equally among those four pillars? And do you have an example of a project you’re currently undertaking from each of those four pillars?
Because of the impact that education has on economic development, I think I would be, I would say that we’re a bit biased with the education sector. And, so, we have had so many projects, construction projects, in the education sector to provide classrooms and learning blocks for primary and secondary schools. Because we believe that the foundation of economic development is education, and so we’re biased towards that. The new government was elected in 2018, April of last year, and we were kind of excited when they came out with a free education curriculum. Because it was just aligning with our CSR objective. And throughout last year, we gave out various learning materials to various schools across Sierra Leone to assist the government and also to meet our own corporate-social-responsibility objectives. Community development, you know, with the war in Sierra Leone, over the years, you had a lot of disabled people, some people amputated. We have a robust scheme that takes care of the welfare and livelihood of the disabled association. This we have been doing for quite some time.
Moving from CSR, how big a priority is the promotion of financial inclusion within Sierra Leone to you? And what measures are you taking to ensure that your products and services are reaching the unbanked and the underbanked within the country? Because there is quite a significant portion of citizens who aren’t yet using banking facilities.
Yes, and I think that is what I said earlier, that our five-year strategy is actually based on increasing our retail footprint. That would be largely financial inclusion. It’s not going to be brick and mortar. So again, this is where technology comes in. We have products like the GT SimPay, where you can do transactions on your phone. We are working on something whereby you’d be able to, in a very short time, open accounts on your phone. But these accounts are not accounts that you can do very significant transactions. Just as an example, a ‘Tier 1 Account’, as we call it, is an account where your balance cannot exceed $500, and your transaction that you do, maximum of $50. So, these are retail transactions. But guess what? Those are the transactions, those are the kind of accounts that you need to get to the rural areas, to the mass population. Those are the kind of volumes that they do. We were also in the forefront of recommending to the central bank on tiering a tiered KYC structure. Whereby on such Tier 1 accounts, KYC requirements are less stringent than either the corporate or the higher ones. So, a lot of what we do is to promote financial inclusion. It’s in the strategy. It’s in the activity of what we do. And it’s in our business services.
Now, other than the kind of issues around 2015, Sierra Leone has enjoyed a buoyant, positive economic growth throughout much of the last couple of decades. You mentioned that earlier. Do you expect this trend to continue during the coming years? And if so, would you say that Guaranty Trust Bank Sierra Leone is sufficiently prepared to capitalize on that growth?
Yes. I think the medium-term outlook of Sierra Leone is quite a positive one. If you look at this year the World Bank released a report and the country is thinking of closing with a GDP growth of about 5.4 percent, that is expected to continue in the medium-term. And what would be the driving factors? One of the key commodities out of Sierra Leone is iron ore. The prices internationally are looking up now. In 2015, they bottomed out at about $39 per ton. Today, it is about $120. So, that would translate into additional revenue for the government and for the country. Mining activities are expanding, so you have other commodities in the country: gold, diamonds, rutile, bauxite. Most of them are expanding their activities, with World Bank-assisted projects. So, not only is the price going up, the volume would go up. The government also, the new government, has supported a lot of agricultural projects. And you’ve had a lot of foreign direct investments that have come into the country for boosting agriculture. Private consumption, because of the increase in revenue, would go up. Government consumption, less so, because of the fiscal policy of the government. And, so, with all of this, the future for the country is bright. Are we going to take advantage of it? Yes, we will. We have a huge geographical spread across the country. Our customer base, our customer service. And we’ll continue to take advantage of these opportunities as the country continues to grow.
How do you see the banking industry in Sierra Leone changing over the next few years? And what do you consider Guaranty Trust Bank Sierra Leone’s biggest challenge during that time will be?
I think the banking sector in Sierra Leone is going to be strengthened over the years. The central bank has recently come up with a regulation that the minimum capital of all the banks should be increased from $3 million to $10 million. That takes effect at the end of this year. That strengthens the financial system. It actually increases the confidence of the financial system, with the customers. And for us, it means that competition is now more. But we’re not going to be stagnant as a bank. We would continue to plow back most of our profits into reserve. So the more profits we make, and we plow back into reserve, the bigger we get, and the more relevant we will be in the Sierra Leone banking industry.
Ade, thank you very much for your time today. And best of luck in the future.
Thank you for having me, Simon.