Simon Hughes of International Banker interviews Mr. K.C. Li, Group Chairman and Mr. Andrew Bainbridge, Group CEO of SBM Holdings on the positive financial growth of the bank, SBM’s desire to establish a larger pan-African presence and the bank’s expanse of its service offerings.
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Simon: Today International Banker is joined by Mr. K.C. Li, Group Chairman, and Mr. Andrew Bainbridge, Group CEO, of SBM Holdings to discuss the growth of the bank both financially and geographically. Gentlemen, nice to have you here.
K.C. and Andrew: Thank you.
Simon: Now let’s start with your recent results. SBM Holdings posted increases in both group net-interest income and group profit before tax. What are the main factors for this impressive growth?
K.C.: Well, what we can say is that SBM is a very strong domestic bank in Mauritius. It is basically a retail bank with a large network and has very strong fundamentals. And last year the results have been built upon consolidation of our existing services and also strengthening of management capability, which led to better operational efficiency of our operations—were due to very strong consolidation of what we have been offering. But there’s a new dimension to it because we have started diversifying lots of the services of the bank by introducing more non-banking activities. And we have also started beefing up our international banking business, which is called Segment B Mauritius. And therefore we have seen better results in terms of net-interest income but also on non-interest income due to non-banking fee-based activities.
Simon: Andrew, anything to add to that?
Andrew: I think the chairman summed it up really well. I mean, starting two, two and a half years ago, under the guidance of the chair and the board, the group comprising one of the leading financial-sector franchises in Mauritius has been expanding in Mauritius in terms of its offerings to our clients. And also, as the chair said, growing the international business and the non-banking business. So last year I think was a singular success for the non-banking business, and also we saw rapid growth in assets, which fueled the growth in net-interest income through the international business. So a very strong year for us in Mauritius, and setting the right foundations for future growth elsewhere.
Simon: Now, a question for you, K.C. Li. You’ve been clear about the desire to establish a greater pan-African presence. What’s the main reason behind this move? What do you see as being the biggest benefit to the bank of such a move?
K.C.: Well, basically we have reached a situation of saturation in the domestic banking market. As you know, Mauritius is a financial center. And it is the gateway for investment into Asia for international institutional investors. So this meant that there were large opportunities in international banking and also as in serving as a gateway to Asia and Africa. Therefore, the opportunity has now arisen for Mauritius to tap into this huge opportunity opened up by our role in the Indian Ocean, acting as a bridge between Asia and Africa. Hence we had to open up, and we had to see how we could create for ourselves opportunities. But also we had to accompany our clients, our existing clients, who have all been looking for new horizons, especially in Africa—and in India, Bangladesh—for their textile industries and all those facilities which are now diversifying into the region, not the least being the relocation of low-skilled manufacturing into low-cost countries. So we had to follow our clients, and we also had to take advantage of the flow of investment in trade taking place between emerging Africa and a more aggressive India and China driven through their activities into the region. To answer your question, it is the natural and logical thing to do, to open up and to go into a region. But also we are following government policy, because the government of Mauritius has a clear strategy to develop beyond the borders and especially looking into Africa. The government of Mauritius has developed a network of double taxation and avoidance treaties with Africa. And investment-protection agreements with a lot of African states. The government of Mauritius has also taken an active role as a member of SADC and COMESA, which allows us duty-free access into the African markets. And also the government of Mauritius is very keen to have G2G agreements for the development of industrial zones and export-processing industrial parks in Africa in order to share our experience in the industrialization of the economy. So we are therefore following government strategy. We are basically a government-majority-owned bank. And we have all the support of the government in doing our forays into African markets.
Simon: Now the bank currently has presence in India, Madagascar and Kenya in addition to Mauritius. What are the strategic reasons for choosing these territories?
K.C.: Well, this is a historical, logical decision of government because of our very close ties with India, where the majority of our population originated. So India was a natural choice. But also Madagascar because it’s next door. And it is a vast country, almost like a continent, and it has all the natural resources and all the capabilities to become the basket for providing all our food and other basic essentials. So we have chosen Madagascar and India because of our regional and historical ties. But this has also helped us to regionalize and therefore have a better outreach with the region.
Andrew: K.C. is obviously absolutely right about our historical ties and linkages. I think one of the things that we’re trying to do under the strategy that the board has put in place for SBM Group is to build an Indian Ocean franchise. You heard the chair refer to the Indian Ocean earlier. If you think about it, we’ve got Madagascar, we’ve got Mauritius. Mauritius is a country which I think is a small country but always punches above its weight due to intellect and intellectual capacity. It’s a provider of leadership in certain countries. We have a mandate to enter the Seychelles now. We have a license in Seychelles, which we’re looking to operationalize in the near future. That means for our clients that we can offer that Indian Ocean service. You heard the chair talk earlier about trade flows as well. And being the bridge between Asia and Africa. If you look at it, our presence in India combined with our new presence in Kenya means that we can do that triangle of trade flows and service flows from India to Kenya, Kenya to Mauritius, Mauritius to India. And I think that’s quite an exciting proposition for our clients, frankly.
Simon: So can you briefly explain the role that Afrexim Bank depository receipts have played in the recent advancement of SBM’s capital-market capabilities?
K.C.: Well, as you know, I’m sitting on the board of directors of Afrexim Bank. And Afrexim Bank has been considering for some time to increase its capital. And I came up with the idea of issuing depository receipts. The idea has been explored, and when I joined the board, we came up with a proposition that is to make it a landmark event for Africa. Because that will be the first time that a pan-African institutional body, which is owned by governments of Africa, would issue a financial-instrument security for trading and listing in an African stock exchange. So we at SBM, we have a non-banking arm, and we have our own stock-brokering company, our own custody and asset-management arms. So we proposed to Afrexim Bank to issue and list the security, the depository receipt, in Mauritius, and our bank would act as custodian and depository of these receipts. This is a landmark event because it is the first time that a financial instrument of that nature is issued and listed in an African country and has used only African lawyers, African investment advisors and stock brokers. And also has listed and traded the securities in an African stock exchange for the African investment public. Therefore, that created an epoch-breaking, epoch-making event, and SBM has been very privileged to be associated with this event. We raised 160 million US dollars for Afrexim Bank. And we have had a further increase of depository receipts, which has led it to raise today more than 300 million US dollars. So this is an African capital-market development of phenomenal dimensions.
Simon: So a major success.
K.C.: We can say that. And SBM is very proud to have been associated with that.
Simon: Now the bank is also aiming to further diversify its service offerings. For example, expanding coverage of high-net-worth individuals and boosting wealth-management capabilities. How is that progressing?
Andrew: So I think there are two elements to this, Simon. There’s the real element of making sure that you get the service level right for the high-net-worth individuals, who are normally cash-rich, time-poor. It’s a bit of a cliché. But it’s a cliché because it’s true. So we’re looking to get the right caliber of people and the right training to make sure that when you interact with our private-wealth, our private-banking businesses, you get real quality service. The second side of this is about product, and product capability. What we’re trying to do is build a series of wealth-management products, which you can put together in various combinations to provide solutions to our clients. So it’s not about being part of the retail market and getting a product that is designed to be sold in the thousands or tens of thousands. It’s really about us understanding your needs and putting together a solution that’s based around what you want to achieve. So with the short-term wealth creation, short-term wealth preservation, medium-term looking after your family, looking after generations to come, it’s really about understanding you and what you want. So I think we’re making good progress. We’re not there yet. We’ll keep going at it. I suspect it’s one of those areas where you’re never there. You keep working at it. And the more we work at it, the more I hope our clients will feedback to us about what works for them, what doesn’t work for them. When we’ve heard from them, we’ll keep building on that.
Simon: So, Andrew, you’ve previously held senior roles at Barclays, Standard Chartered and BMI Bank. And you’ve been the Group CEO of SBM Holdings for only a few months. During this period, what’s been your biggest concern or objective?
Andrew: My biggest objective and probably my biggest concern when I arrived in January was really to understand the group. Understand the constituent parts. Understand what we were doing in terms of the strategy that the board had put in place. Understand the capabilities of my colleagues. And I think it’s very easy to arrive in an institution and think you have answers to problems, which may in fact not exist. And I think one of the things that has delighted me about SBM Group is getting to know my colleagues, getting to see that we have a number of high-caliber individuals, that there is a strategy in place that is working, that is demonstrably delivering results in terms of the core franchise and the non-banking franchise in Mauritius, as the chair has already talked about. And that there is a credible strategy there for the rest of the kind of five-year period. So some people have asked me over the last few months, when will your new strategy be ready? My answer has been resolutely the same, which is there will be no new strategy. The chair and board have put in place a strategy that is eminently logical, eminently sensible, and it’s my job to work with my colleagues. And I’m delighted to do so, to actually make sure we operationalize that. So I believe that as a bank what we’re really about is about execution. Our clients don’t want us to talk about fancy stories. Our clients want us to deliver for them. And that’s what we’re going to do. So it’s been a really exciting few months. I’ve got to know some excellent new colleagues, some of whom I would now call friends. I hope to call more and more of them friends as we go on. I’m proud to work for the organization. And I’m proud of where I think we’re going.
K.C.: I must add here that Andrew has been involved with Mauritius. He governed Mauritius in his capacity as Managing Director of Barclays Africa at one time. So he has been very much involved in Africa, and that’s the reason why we chose Andrew to be our Group CEO. Because really we are looking for somebody who has experience in the region to lead the bank to play the role of a regional leading bank.
Simon: A question we always ask all of our guests is what, it’s about digital, so what are the main ways that you’re expanding your digital-banking capabilities?
K.C.: Well, we have a technology-transformation program that has been running for some years now, and we are now, we can say quite operational in terms of Internet banking with online application, online onboarding of clients, online processing of loans. But we need to move further to become a fully digital bank, and we need all the mobile applications, because now the world has become a global village, and people are more savvy in terms of the use of smartphones and in terms of connectivity. And, therefore, we are not looking for brick-and-mortar banking anymore. We are looking for anytime, anywhere banking. And this is where we are really working out full-fledged into creating that virtual, digital bank on a full scale at SBM. And we hope to be able to roll it out within a couple of months, and already we have tested a lot of all these innovative technologies, and we will soon transform the delivery of our services and a better customer experience. And at the same time get better operational efficiency for the bank.
Andrew: I think there are a couple of things that I would add to what the chair has said. So as we talk, Simon, we’re on Day Two of our new Internet banking offer. We upgraded that over the weekend. And that’s again based upon client feedback, customer feedback to us about what they wanted to see changed. So the interface that customers use has literally changed in the last 48 hours; and where we’re gathering feedback on that, that’s quite exciting for us because we’ve been promising it for some months now. Two weeks ago, we, to switch from what the clients see, two weeks ago we went live with robotic process automation of our SWIFT payments capability. That probably sounds a little bit dull, but for us it’s really exciting. What it enables us to do is, it enables us to automate a capability that then operates 24/7 rather than just nine hours a day—to offer that service to some of our banking clients, so clients who are banks and other financial institutions. It makes us more efficient; it makes us faster; and it makes us better for our clients. So for me digitalization is about having a clear agenda. And it’s about delivering piece by piece. And that’s what we’re doing.
Simon: Much of the bank’s CSR policy is focused on improving education in Mauritius. Ultimately as a way to tackle poverty. Have the projects you’ve been involved with been successful in achieving this broad objective?
K.C.: I think this is a resounding “Yes” as an answer. Because we are the bank which has initiated a program of offering scholarships to less-favored people in the secondary-college stream. Because what we wanted was to offer the opportunity for those deserving, capable students to go to university. And this we have done. Every year we give at least 300 scholarships to deserving secondary-school students who have been able to enroll successfully in a university in Mauritius, but unfortunately don’t have the means to enter university. So we have offered the opportunity for these students, 300 every year, and we are on the seventh year; so more than 2,000 students have now been able to pursue university studies, thanks to our corporate social responsibility. And others in the education field. And we can say that most of them have been able to get well-qualified and rewarding jobs. And, therefore, we think that we’ll wait until the low-income groups of society to continue in this endeavor and to try to empower as many of our youth as possible with the one tool which will help them to get out of a vicious circle of poverty. That is education. So we are going to pursue this path further, and now that Andrew is on board, we will try to see what better ways we can adopt to improve this endeavor.
Simon: So it is a very direct approach, isn’t it?
Andrew: It is. Absolutely. And it’s one of the first things that I got involved in when I joined SBM. I was lucky enough to be there at the time when they launched this year’s round. It’s hugely exciting. So I met some of the people who’d been through the scholarship program, who are now employed, and they talked about how they had opportunities they wouldn’t otherwise have had. And what struck me was, we’ve given people those opportunities. We are a really important part of the community in which we live and work, and helping that community to make things better for people. But equally the students who’d been through and who were now working were all remarkably mature when I was talking to them. All of them had a sense of needing to give something back. So they’d had something. SBM had reached out and given them a hand to help them up. And now they felt the need to do it for others in their community as well. That’s hugely exciting. I’ve worked for, gosh, this is my fourth employer in my entire career, but this CSR policy, the way in which we implement it in SBM, compares favorably with anything I’ve seen in many markets. I’m really pleased to be part of it.
Simon: You’ve been Group Chairman of SBM Holdings for almost three years now. What’s the bank’s one achievement during that time of which you’re most proud?
K.C.: Well, there have been so many initiatives, so it would be difficult to pick only one of them. But what I can say is that there is a new culture at the bank. And a new bond between the staff, management and the board of directors. And there’s a single vision. And a well-understood and well-engaged strategy. And this, I think, is a transformation that was long overdue because we have shifted the culture of the bank from a top-down—from a culture of following procedures, following rules—to a new atmosphere where they are not held down by their work contract and by their conditions of employment to just follow the rules. They are allowed, they are empowered and they are encouraged to come out and offer all that they can give in terms of their own views, their own capabilities to improve the image of the bank. The work methods of the bank. And also to contribute to make the bank a really forward-looking and a frontrunner in terms of customer experience and client relations. So I think that would be one of the main achievements that I’m proud of: to make the bank feel as one, so that everybody is engaged to make that bank an institution that we are proud of and which will be a frontrunner in terms of banking capabilities and banking coverage in the country and the region.
Simon: Now picking up on that sense of culture change, how do you get the best, Andrew, from those working under you? Do you have specific leadership philosophies that you follow and apply?
Andrew: I think it’s really down to having a sense of proportion. And it’s about recognizing that you have no God-given right to be correct. So, as I said earlier, I’m delighted to be working with some of the people who I have come to know in SBM. Because there are people with real domain expertise there. There are people who want to do things differently and to create different ways of serving clients. And that’s really exciting. And I think when K.C. talks about the change in culture, he talks about it moving from being top-down, it really is about empowering our people. It really is about saying, “Your opinion is as valid as mine.” Just because I happen to be the CEO, that doesn’t mean I’m necessarily correct. It means that it is my job to encourage that debate, to encourage different ways of doing things. And if there are difficult decisions to be taken, then neither I nor the board shirk from those. So it’s not about abdication, but it’s about encouraging our people. And it’s about making sure that our people are excited and happy to be at work. If the people I work with are enjoying what they’re doing, then that will come across in the ways they serve clients. If they feel their views are important, then they will think about what they want to change. So it really is about that enabling culture. If you can get that across to people, then the whole place becomes actually a really enjoyable place to be. So that’s what it’s about to me. I was incredibly lucky when I was new in my career. I worked for some people who treated me as an adult, who gave me opportunities. And I believe that it’s my duty to do the same for other people.
Simon: Now, getting great performance out of people is one thing, but the bank intends to double its balance sheet by 2020. What are a couple of the main ways in which you intend to achieve this goal?
Andrew: Well, let me start here. This is an ambition from 2015 to 2020, so it’s not as though we want to double the balance sheet in the next two years. We’re bankers. We know what happens to banks that try to double their balance sheets overnight. Normally it has a sad ending. This is a consequence of the strategic plan to build a regional capability, to build a pan-African capability. And pan-African doesn’t mean being everywhere. It means enabling for our clients, enabling for the country of Mauritius. Different things in different places. So we’ve increased the size of the balance sheet as a consequence of the growth initiatives that have been underway for the last couple of years, from a little over four billion dollars to just under six. So we are, after two and a half years, we’re halfway there. We have the inorganic acquisition that is underway in Kenya at that moment, and that will further accelerate that growth. So growing our balance sheet is not something we’re doing for the sake of growing it. It is a consequence of serving our clients. It is a consequence of following government policy, as the chair said earlier. What are we going to do about it? We’re going to keep doing what we’re doing, which is serving our clients well, building a great franchise outside Mauritius that complements our franchise inside Mauritius. And where we see excellent opportunities, then we will take those opportunities.
K.C.: Yes, the bank has very strong fundamentals. It has a strong balance sheet. It has now a top Group CEO and a good management team. So we are covering two big emerging hubs. One is India. And the other one is Kenya. So we have a lot of potential to grow the bank along this corridor between Asia and Africa. And we are having soon a full-fledged digital bank. We are in the process of regionalizing the bank. And we are also diversifying into the capital markets, into non-banking services. So we have all that it takes to make SBM a leading bank in the region.
Simon: So the economy of Mauritius has been maintaining a pretty solid pace over the last couple of years. Do you believe SBM is ideally positioned to capitalize on this?
K.C.: Definitely yes. We have a strategy called Vision 2030, which is a roadmap for raising the standard of living of the population and increasing income per capita to that of what is called a high-income economy. This is a clear roadmap, and there are also milestones to achieve, not the least being my students for the financial-services sector, which is a key driver of economic growth. So we have moved from a sugarcane agricultural-based economy to an industrial economy, which was based on textiles. And now we are a fully service economy, which rests on three or four pillars. Being tourism, being ICT (Internet communications and telecommunications) and also financial services. We are moving towards further services like health and education. So Mauritius is going to be a hub for services, especially business services, in order to serve the two emerging areas of Africa and Asia. Asia is fast-developing; Africa is now rising. So we are right in the middle, serving as a gateway, as a bridge between these two continents. And the potentials are there. And we have all that it takes to do it, to achieve that status of a high-income economy. There are very strong governance fundamentals in Mauritius also. We have a very stable parliamentary democracy. We have a rule of law, and the ultimate court of appeal in Mauritius is the Privy Council in the UK. And therefore we inspire confidence, and Mauritius is now being used as a kind of a regional headquarters for many of the regional corporates that are investing and doing business in the African continent. Therefore, Mauritius is leading this initiative, and the bank will ride on that initiative in order to grow its strength.
Simon: So thinking about the kind of broad economy, how do you think the banking sector itself is going to change over the next several years?
Andrew: I think the banking sector in Mauritius has to change quite fundamentally. The chair has already talked a little bit about our digitalization agenda. And the ability to provide—I think the phrase the chair used was “anything anywhere”—in terms of banking to our clients is really important. So I think you’re going to see, if you’ll forgive the dreadful phrase, the dematerialization of banking-services provision. It will be over the phone. There will be clients of ours in the future who have never visited a branch, who have never owned a PC. And I’m of a generation where the PC was an innovation when I was young. And who do all their banking over the phone with us. And the challenge for us is to make sure that we know those clients well, that we maintain the rigorous standards demanded of us by regulators worldwide, and that’s absolutely right. And we are committed to doing that. But that we marry that with great service provision. So I think you’ll see banking digitalization, which everyone talks about, become a reality. Now as part of the culture and fabric of Mauritius, we also have to manage that transition really carefully because we have clients of all ages, of all capabilities in Mauritius. And one of the things that the board has impressed on me is that we are a service provider. We serve our clients. We will not deprive them of access to banking services. What we want to use is, we want to use digitalization to increase access. So I think it’s a hugely exciting time in the industry for us. Because we have to come up with answers to some real challenges. You have the fintech providers coming in, taking part of the business away, but equally we have a better opportunity than ever to provide banking services to people who are previously unbanked. To provide banking services to people who never dreamt that they would qualify for banking services. And we can do that profitably. We can do that great service provision. So really challenging, really exciting. Chair….
K.C.: Well, we do have a very vibrant banking industry in Mauritius based on solid fundamentals. And we have weathered the financial global, financial meltdown very well. And we are now not only revitalizing our banking industry but also looking into capital-market developments on the non-banking side of things. And as you know, we have a very, very vibrant stock exchange in Mauritius, which allows joint listings in Africa, in Europe. We, as a state bank, we have been the first bank to obtain an investment-banking license. And we are also rapidly developing our wealth-management capabilities because there’s wealth in Africa and in the region. And Mauritius also wants to play a role as a wealth-management center. And we are also developing our bank assurance and our pension-fund industry. So there are a lot of services in the non-banking sector that we are watching, developing. And SBM doesn’t want to be left outside this development, and we need to watch this space because SBM is there for the long haul.
Simon: Very good. Gentlemen, it’s been great talking to you today. Thank you very much for your time.
K.C. and Andrew: Thank you.