BoI is getting very creative in raising money to ensure it lends at 10%
At 7 p.m. on May 27, 2017, following an announcement by the Presidency, Olukayode Pitan, effectively became the managing director and chief executive of Bank of Industry (BoI), the Nigerian development finance institution, which has a mandate to promote industrial development in the country through the provision of finance to businesses, small, medium and large scale. He is conscious of this mandate and is pursuing it diligently, especially with a view to maintaining the bank lending at an interest rate of not more than 10 percent. Pitan, a consummate banker whose experiences cut across trade finance, commercial, consumer and corporate banking, as well as treasury management, in an interview with business a.m. at his office in Lagos, told PHILLIP ISAKPA and STEVE OMANUFEME, that BoI is a good bank that’s attracting double “A” ratings from major global rating agencies and is gaining the attention of international financial community, where it has seen a $500 million fundraising oversubscribed with over $1 billion.
Let us start with the role that Bank of Industry (BoI) is playing in providing nance for economic growth and development; how is this role being played and how effective is BoI, especially since you came in as managing director and CEO?
Part of our function is to promote the industrial policy of the government and to ensure that all the ailing and dead factories are brought back to life, to ensure that the ones that are ailing are brought back to life, in terms of required working capital, required money for fixed assets and that others are actually supported, such that they actually do what they need to do.
We have interests in ensuring that our youths are employed, that local raw materials are used, that companies that we deal with can generate foreign exchange. In this way, the demand for foreign exchange in the nation will reduce. BoI is a good bank and my job is to make it a better bank than I met it. We are expanding and growing the book. Since I came in, we have attracted close to $500 million in different ways in naira terms. Also, we have raised money overseas; we are about concluding a $500 million syndicate facility and all of this is to ensure that we have the resources to promote industrialisation. Most of the companies that borrow money now from the banks are paying anywhere between 25 and 35 percent per annum as interest. Not very many companies can survive and still be profitable while paying 35 percent. Even if you are pro table and paying 35 percent, that money would have been better utilized in expanding your operations.
We are committed to single-digit interest rate; we want to lend to people at about 10 percent, which is even lower than the rate of inflation. We are committed to giving people long-term money and as Nigerian entrepreneurs continue to battle a lot of problems like power, raw materials, price fluctuations, various types of taxes and levies, to add financing problem to these is making it more di cult.
In terms of how we have helped the small entrepreneurs; in the last year, we have expanded our portfolio in all aspects of lending, both for small, medium scale enterprises, and large enterprises.
When you mention single digit interest rate, especially against what currently obtains among commercial banks in the country, it sounds like a fairytale; but this is what everyone wants. How do you manage to keep this single digit interest rate going, against the challenge of sourcing of funds?
It is a major challenge when you run a bank like BoI. Every businessman knows that if you are going to get money at 10 percent, it makes a lot of sense than to borrow money at 30 percent. That means that you have more demand for our funding than the funding that is available. People don’t realize that we are not one of those agencies that collect a lot of money from the government. For instance, last year budget allocation was just N10 billion and that was basically to increase our equity. But our lending last year was over N70 billion, and our portfolio is about N700 billion. So, it means we are able to attract resources aside from allocation from the government.
One major source of our funding is the Central Bank of Nigeria. We partner with them, in intervention funds; another instance is the $200 million Nigerian Local Content Intervention Fund. The money is coming from them and we are managing it. BoI is getting very creative in raising money to ensure that we are able to lend at 10 percent. In addition, we have now gone out to raise money from outside Nigeria. is is because if you want to raise money in Nigeria, we can’t raise money at less than the rate that government is raising money. Usually, the rate reflects the cost of borrowing, so we are talking about at 16 percent and we are lending at 10 percent. We as a bank have double A rating from Fitch, double A rating from Moody’s, A+ rating from Augusto, so technically we can raise money locally; but you can’t raise money at less than 16 percent, which is higher than the cost of lending.
What we have now done is to go out of Nigeria and that is how we put together the $500 million facility; as the idea is to borrow at less than 10 percent. The next question you would ask is that since you are borrowing at 10 percent but in dollars, you have taken on a foreign currency restriction loan. What we have done to take care of that problem is to sit with the Central Bank and they have agreed to help swap the money, so the money comes in dollars and goes to the CBN, who swaps the money to naira and we are able to lend at 10 to 12 percent.
A lot of things are in our favour. Like I said, BoI is a good bank and what we are doing is to leverage my experience and contacts. We went out there to raise $500 million; preliminary indications show that the people interested are for over $1 billion, so the offer was over-subscribed. What we are doing for the first time is to market BoI in such a way that it has never been marketed before, letting people know the good things the bank has been doing, the fact that we have good control, good management, and board and work well with the government. So we have been able to put all this
in such a story that the foreign banks are interested in. The banks that have shown interest are over 15 banks and by God’s grace, we hope to conclude this before the end of March.
With regards to international development financial institutions, like the World Bank and the rest, what level of contacts and discussions are you having with them in terms of partnering to realise this goal?
Well, for now, the market we approached is the syndicated market; so, these are international banks we are dealing with. Usually, when you talk of the World Bank or AfDB, you talk of bilateral agreements and we have facilities from AfDB, that is a kind of bilateral deal. Recently, we engaged Islamic Development Bank, and I believe in the next two or three weeks, we should get a positive offer from them, involving lines of credit, from them also. And we are also engaging some of the export support arms of various governments like the Chinese, the British. The idea is to be able to offer Nigerian business men different options of how they can finance what they want to do. So, we work with all the international agencies to ensure our people get the best deals.
You have been doing this for some time and I know you have challenges. What kind of challenges do you have, apart from funding, like repayment of loans, for instance
Well, the market perception is that BoI is a bank for SME because you see a lot of adverts on SMEs from BoI. However, it is because we are trying to support that area. In reality most of our loans are not in SMEs; 80 percent of our loans are in bigger corporations, because we have been dealing with them for many years based on our history. It is true that the non-performing loans under SMEs are higher, but because we have a larger proportion of our loans in large corporations, so when you take an average of the non-performing loans, it is about 4.5 to 4.7 percent which is below the 5 percent NPL benchmark from CBN and that’s why we have the type of ratings we have. If we are not very good in that area of collection, we would not have the same type of rating from international firms.
Many people would like to know how loans are accessed in BoI?
Well, we work a lot with the banks. So, one of the ways you can access our loans is through your banks, because we are not a commercial bank; people don’t open accounts with us. Your bank knows you more than we do, so they can approach us to seek for support for the company they are close to. But that notwithstanding, we also have the people we call business development companies (BDC), they are listed on our websites and they are over 100. They can hold your hands and walk you through how you can get a loan from BOI.
In addition to that, you can actually go to any of our state offices to talk to some of our officers; but more importantly, the facilities we have are available on our website. So, there are many ways you can approach us.
Industrial development is one of the roles BoI has to play as a bank in this economy; what are your thoughts on the challenges of industrial development, apart from finance, as you engage with players in the economy – big, medium and small?
Well as you said, the problems of the industrial sector are quite few, and some of the problems have to do with policy consistency. A government comes in and decides to ban certain products and encourage local production; and another government then comes and reverses that policy. Look at the issue of tariff; sometimes if tariffs are not properly set, they can actually encourage importation to the detriment of the local industry, because the goods are coming from countries with lower interest rates and government support, sometimes even subsidized.
Most of the people in industry want our tariff rates to reflect that government wants to help local industry to produce. Part of the problem is also access to foreign exchange, and there are times that we have some challenges and also fluctuations in the price of foreign exchange, apart from access to the foreign exchange.
Some people have collected and sold their goods and when it is time to remit money back to creditors, it is difficult as the naira has lost most of its value. In some industries, the issue is having the right personnel with the training; whether Nigerians have the right skills or do you have to hire foreigners. Also, people complain of taxation, that they are paying multiple taxes, paying to the federal government and state government and being harassed by the local government.
All of these affect local businesses. When you put all of these together and then you add the high cost of finance also, it makes it difficult for them. Any businesses that have invested and are looking to expand complain about the type of collateral the banks are asking for, that Nigerian banks need to be a bit more flexible and to accept properties, while most banks don’t accept properties in certain areas or even if the banks are willing to accept, in some states the process of getting governor’s consent delays it, and by the time it is all done, one year is gone and opportunities have been lost. When you put all of these together, you realise why the industrial sector is having problems, and they are also competing with imported goods that are cheaper because interest rates are cheaper in those countries and they produce at a cheaper cost and they bring it into Nigeria. Even though our tariffs are high, there is an increased level of smuggling, and they kill our local factories; you go to the north, textile factories are closed, due to smuggling.
Is there a simple way to look at how to leapfrog to become highly industrialised, giving that the world is now talking about the 4th Industrial Revolution and we are still trying to ensure that we get our industries working properly?
Well, from what I have been saying since, you can’t have a simple way; but there are many ways it can be done. In some other countries, they promote national champions, they say look it is not everyone that can do this, so people we have seen in Nigeria that are doing well like [Aliko] Dangote, you can call him a monopoly, but you strengthen him so that he becomes stronger and do things many Nigerians can’t do and this helps the country. Someone like [Mike] Adenuga, too. In some cases it is a matter of government investing in key areas, putting resources behind it and then selling off later on to the locals who might not have the capital to do it. It might be some kind of subsidy, like what we are doing and it might even make life easier by having some industrial parks where you provide all the minimal requirements so that entrepreneurs can rent space and do their business.
It has to be holistic and the policy must be consistent. It is not because a new government has come and you decide to change everything, it must be a national policy that we all key into. It might tinker a little bit concerning who is in power but must be consistent, otherwise we would not be able to attract the foreign investment we need. No country has the money it requires for all of this, so if you want foreign capital, the money will go to where it is needed. We must put things in place to ensure we attract foreign capital, consistent policies, taxation have to be holistic.
What message do you have for SMEs – giving the problem they face accessing finance, their books not properly kept and, when they access finance, many do not repay – what general message do you have for that side of the economy?
The first thing people have to realize is that honesty pays and the money that you take from the BoI is not your part of the national cake. It is money government has set aside to help you grow your business and the idea is when you repay your loan, that money is now available to others to increase their business. Some people say they are SMEs and the idea is to access the money and they plan not to pay back. So, they have to learn from the beginning, that honesty pays.
Secondly, they must work smarter. The skills they don’t have, let them pay for it; your books are not in order, put your books in order. You have to have an accountant put these things in order for you. We have found out in some states, where we do matching funds, like in Kaduna, that people lost money not because they were fraudulent, but because they didn’t understand the rudiments of doing business. Many of them have to get themselves trained, and we have centres for these across the country. In Kaduna now, before you can access money that the government has set aside, you must have gone to like a business school. Some of the states should ensure that SMEs benefit from those types of trainings, so that you can run the business better and get the right people to work with you. When you run into problems, let the banks know, because it doesn’t mean that when you are having problems, the bank will stop financing you; the bank might actually be sympathetic.
But, definitely, they must know that the money is not national cake, it is nationally supported, but not a cake. SMEs actually employ more people than the big companies, but they don’t survive as long as big companies, because they have lot of challenges in businesses. Many of them, before three years, are out of business. So they should ensure that they are the few that beat the statistics.