The banking sector is experiencing a paradigm shift with traditional banks facing stiff competition from new entrants into the sector, especially virtual and digital banks. Group Managing Director/CEO of VFD Group Plc, Nonso Okpala says the new entrants will ride on the back of technology to serve the unbanked, and underbanked hardly noticed by commercial banks. Okpala speaks with COLLINS NWEZE on the company’s future, Nigeria’s investment climate this year, ways to resolve the currency remittances hitches, among other things.
WHAT do you think is the biggest challenge facing the financial sector?
It is the ability to maintain the new interest rate regime that we are in. If this regime is to be reversed, then it should be in such a controlled manner that allows for stability between the fixed income sector and the capital or higher risk instrument that would exist. I think that if that aspect is not well managed, there would be a run on the capital market in a way that would create panic. I am sure the Central Bank of Nigeria (CBN) is well aware of this process, and they would be able to successfully maintain the low interest regime, for a sustainable period, and if otherwise would occur, they will manage it in a way that would create stability in the economy.
Last year, the naira depreciated due to pressure. What do you really think is the problem with the naira or exchange rate policy?
When you talk about the exchange rate, there are many things that come to play. There is the parallel market, the FMDQ Window rate, the CBN rate and a couple of other rates in between. If you look at the parallel market rate, I do not think that last year has been the worst. In 2017, I think it got to N525 to a dollar. In that year, for all intents and purposes, there was the highest volatility in the naira. I will give a good score to the CBN with respect to the rate management this year.
You know the challenges that we experienced, to all purposes, it would have been worse than this but for the ability of the CBN to deploy necessary policies that allowed for the rate to be managed properly.
How soon are you likely to secure the commercial banking licence from the CBN?
One of our prominent investment intentions is to obtain a commercial banking licence from the Central Bank of Nigeria. We have been on this journey for about two years, and we have kept a deposit of N25 billion with the Central Bank.
Within this year, we would see the completion of that request. That would give us the much-needed basis to develop the ecosystem that would give our group, a strategic edge in the economy. We think there are lots of economies of scale that would play out in various sectors.
Having products and services well integrated under a technological platform, aligns with the needs of the common man in the country. We are of the opinion that if we play very well into such strategy and get it right, we will entrench ourselves in a very good place in this economy.We are poised to do very remarkable things.
What are the most striking aspects of VFD Group operations and reach?
VFD Group is a proprietary investment company with a financial service focus but with ambition to go beyond. We have identified opportunities outside of the financial service industry that will complement our business. In addition, we have an ecosystem strategy that we would deploy that utilises technology greatly.
One of our flagship products is the virtual bank that we launched recently. We also have the VFD Microfinance Bank, and substantial investment in Abbey Mortgage Bank Plc. It’s quite a generational bank in itself and has been able to make a generational transfer of leadership.
We have investments in the real estate sector, currency exchange and remittance businesses, which are vital aspects of our group. We think that with a well integrated financial services sector across Africa and connected to diaspora destinations where lots of Nigerians are resident, we will be able to start resolving some of the currency remittances problem that we have in the continent. We do have a leasing business called, Atiat Leasing. We are working on returning the company to profitability after it declared losses for many years.
Are you aware of the stiff competition in the commercial banking sector? Do you think you have a chance to compete in that market, when the CBN eventually grants the company commercial banking licence?
I think we have a remarkable chance. And I will tell you that the financial services industry, particularly the banking sector, is gearing up for a major restructuring. The restructuring is on the back of technology. There is no doubt about it. The indicators are very clear, and the major players understand it. The more technological enhancement you make to the delivery of your products and services, the better you are well positioned to take on the opportunities that exist.
Permit me to illustrate. Twenty years ago, the Automated Teller Machine (ATM) was literarily not available. Ten years ago, ATM had become the order of the day, running up to today. That is 20 years of technological change, and behavioural adjustments for the customers of the financial services industry. Now look at the IT infrastructure; they have to deploy in 2000 relative to the IT infrastructure they had to deploy. The latter is modular, very inexpensive, relative to what it would have cost you 20 years ago.
So, the reality is that technology has become cheaper, the infrastructure required for banking has been so democratised, and the barrier for entry with respect to that cost has very well reduced.
And so, the question is: How well do you understand the market? How aligned are your systems and processes with the customers? How do you position your bank or your brand to be that of first choice for the industry? Once you can answer these well, then you have the advantage of not having the overhead of the traditional financial institution, but you would have built the same capacity to deliver to the customer. That is a huge shift, which will continue to create opportunity for new entrants and for which we are very well positioned.
Does it mean that the traditional banks will be run over by the new entrants?
It is not to say that traditional banks would be swept off, of course not. I think that business will improve significantly because of the activities of virtual and digital banks like us. We are hoisted on their platform, but we will be able to generate more transaction earnings and achieve better banking of the unbanked and underserved customers in different locations.
Investors are looking at what 2021 would present to them. Which area do you think presents better investment opportunities for investors?
Well, I am usually reluctant to provide free advice because there is no remuneration for it, but there is also a moral burden of advising people to make investments and if it does not go right, you have that burden to carry. But I am also very opportunistic when it comes to selling my products so here goes: I think that one remarkable investment opportunity that exists is investment in VFD Group. We will be offering our shares in February, subject to regulatory approval. And I think that any discerning investors should consider it strongly for investment because we have demonstrated an extraordinary track record of growth and profitability in the last 11 years.
It is a company that would represent a great deal of case study in the future, because our initial share 11 years ago, were sold at N2 per share, and today, we are considering, subject to regulatory approval, to sell those shares for N600. So, by all measures, if you check it, it is a remarkable growth. Even if you check the market share, you will see that VFD Group is one of the most compelling investments in the country today.
Now, you are talking about going to the market this month; how much are you looking at raising?
The board and members of the company had in December approved a capital raise of N13.5 billion. And they gave directors the leeway to combine it via Rights Issuance, Special placements and Debt issuance. So, the entire package of investment opportunity is about N13.5 billion.
What plans do you have for further expansion and where are you going to invest the funds when they are raised?
The plan has always been in line with our 3-5-5 strategic plan, which commenced in 2016. It is to keep orchestrating investment and acquisitions that will create a compelling network of companies with products and services tha will serve as the base of our ecosystem strategy.
I give you a simple example. We want a platform that would provide real estate assets, creatively build those estates, provide mortgages for up-takers to take it, and provide maintenance services to those estates, and also give investors or property owners the opportunity to make secondary exchange of those properties.
We want a situation where individuals who want to buy vehicles are afforded auto loans for those vehicles for companies that we have significant interest in. And those vehicles will be maintained within the structure of those companies that we have investment service and you can even sell it through that same system.
We want to be able to own companies that have the right technological platform to secure homes and loans to customers, who want to buy such homes in a secured way.
We want to build a virtual bank which goes beyond an ordinary bank but will integrate very well with the lifestyle of individuals. We are interested in a company where consumer finance is provided in a way that the customer gets that support when it is required without the bureaucracy of traditional banks, among other things.
What are the products and services that you will deploy to enable your company achieve its 2021 objectives?
I think that it is very clear for our group. Our focus for 2021 is our virtual bank. And we intend to push it as much as possible with the objective of increased adoption. Our target is to achieve two million subscribers and with a deposit liability in excess of N12 billion. Of course we think we can still hit N30 billion in the process as that was the original objective that we had, and we think we are very well disposed towards achieving it.
So, our entire objective will be to deliver on that platform. Once that is done, the first phase of our eco strategy system will be in place, and we think that from then on, it will be easier.
The second aspect is identifying key components that will make up that ecosystem, which will include making investments in companies that complement our current portfolios. We are looking at companies that have technological spread, and ability to muster retail customers services that is very well integrated in the lives of individuals. We are looking at those companies that can easily have 100,000 customers.