How Coronation Merchant Bank is contributing to Nigeria’s investment banking renaissance

After a damaging recession in 2016, Nigeria’s investment banks have bounced back with renewed vigour, as new regulations and technology continue to create fresh opportunities

 
Abubakar Jimoh, MD and CEO at Coronation Merchant Bank. Regulatory changes and shifting ownership structures have improved the depth and potential in Nigeria's banking sector
Abubakar Jimoh, MD and CEO at Coronation Merchant Bank. Regulatory changes and shifting ownership structures have improved the depth and potential in Nigeria's banking sector 

The Nigerian banking sector has emerged from its recession with new characteristics. First, let us look at commercial banks specifically: their business models are traditional and require a lot of capital. There is also a split between commercial banks with plenty of capital, those with moderate capital and those with barely enough. If you have a number of commercial banks that are focused on their capital problems, rather than looking to expand their loan books, then the growth outlook for commercial lending is patchy – some banks can grow, while others cannot. On the other hand, demand for credit is quite weak because companies need an even lower cost of debt in order to compete.

Regulatory compliance remains a moving target, with the latest technologies and trends introducing new risks to the business world

But what does this mean? At present, it has forced Nigerian companies to look for alternative means of capital. Consequently, other sources of financing are taking off, such as commercial papers, corporate bonds, leasing and equity issuance, among other capital market transactions. The wonderful thing is that there is an enormous pool of institutional liquidity to be tapped into. If you look at the various capital markets, this is where the evolution of Nigerian banking is taking place. It’s very exciting and, here at , we’re thrilled to play our part in the process.

Times are changing
The investment banking sub-sector in Nigeria has witnessed significant developments in recent years. These changes cut across ownership, entity structure and the industry’s biggest players. Without a doubt, the number of firms registered to conduct investment-banking-related business has increased considerably of late. This can be attributed to relatively low capital requirements and the ease with which entities in Nigeria can obtain operating licences.

In addition, there are noticeable changes in the industry with respect to ownership structures. Previously, investment banks had sole proprietorships and partnerships with dominant individuals. Today, this is fast changing, as non-traditional banking firms are deliberately institutionalising in response to regulatory and market changes. Likewise, some industry players are now able to support transactions with their balance sheets. What’s more, there is a greater investor capacity to absorb well-structured products, enhancing both the momentum and depth of the sector.

Our investment banking business has been structured to provide solutions to project and structured finance, mergers and acquisitions, and capital markets. Through our projects and structured finance desk, we provide bespoke services to corporate organisations in the infrastructure, construction, oil and gas, international trade and commerce sectors. We are constantly helping clients utilise our solid network of relationships to deliver value in their various ecosystems. Through benefits like this, we have carved a niche in the market for quality service delivery and consistent value alignment. As such, our clients are confident in our capacity to help them position strategically to harness capital flows and deliver timely competitive advantages.

As key capital mobilisation agents, we have assisted various entities, accruing around $1bn in capital flows from the local capital market in Nigeria over a period of three years. We expect to significantly increase this number over a shorter period of time in the near future.

Digital ubiquity
We cannot deny the impact that technology has had on the Nigerian banking landscape; from payment systems to customer management, innovations in technology continue to remodel the entire spectrum of service delivery and customer engagement in the financial services industry. These advancements have shaped the way we work and engage with our customers. As a bank, we understand that a key part of staying relevant in the industry depends on our ability to leverage these technologies and deliver a seamless banking service to our customers, whether they are making a payment, buying into an investment option or utilising our advisory services.

Today, we are talking about incorporating digital innovations – such as chatbots, machine learning and data science – to make financial services simpler, faster and more engaging for our customers. For instance, we have pioneered several digital solutions to improve transaction-processing times, handle existing and projected transaction volumes, and enhance data management and security across the group.

Recently, we launched the Coronation e-trader, an online trading platform that allows users to buy and sell equities through the Nigerian Stock Exchange from anywhere in the world. The platform guarantees convenience by enabling investors to open virtual stockbroking accounts. Furthermore, the platform gives real-time notifications on trade executions and allows the investor to take full control of their investments at all times. It also provides users with market data and information on all quoted companies, which is accompanied by top-quality research reports that help our customers make safer investment decisions.

Good for all
As a high-finance organisation, we have always supported various state entities, private companies and public firms in raising funds to finance infrastructure projects in Nigeria. We remain committed to developing products and playing a deeper role in structuring infrastructure projects that help the economy thrive.

In June, we launched our inaugural commercial paper, which recorded very strong performance in the market. From an initial target of NGN 15bn ($41m), we received commitments of around NGN 30bn ($82m) from various investors. Essentially, we have contributed immensely to the development of the capital market – both on the equity side and in terms of debt capital. We have distinguished ourselves as a formidable player in the capital market, raising in excess of NGN 300bn ($820m) for various companies in multiple sectors of the economy.

For us, helping to develop the economy and promote sustainability is not just a stated commitment: it’s something that applies to every facet of our organisation. Far from simply ticking boxes, we seek to deliver positive development to society, while protecting the communities and environments in which we operate. We achieve this by assessing and mitigating the direct and indirect impacts that arise from our business operations. We also respect human rights in all of our activities by implementing robust and transparent environmental and social governance practices. What’s more, we promote women’s economic empowerment through a gender-inclusive workplace culture, encouraging diversity of thought and actively nurturing a collaborative workforce. We believe that such an approach towards sustainable banking is consistent with our business objectives, and can stimulate further growth and opportunity, as well as enhance innovation and competitiveness.

Against this backdrop, regulatory compliance remains a moving target, with the latest technologies and trends introducing new risks to the business world. Financial institutions have faced a host of challenges when trying to stay abreast of these changes, as well as when implementing an effective and dynamic risk-based compliance framework. We recognise that any potential weaknesses in our compliance management systems pose serious risks to our reputation. Therefore, we strive to ensure systems are in place to guarantee the conformity of our processes with international best practices and standards.

Market insights
Every day we make decisions that rely on our knowledge of companies, markets, interest rates, naira and US dollar liquidity, industry sector strength, and the macroeconomy. Traditionally, the research department in our investment bank was an offshoot of the securities division, but we have since changed this structure. We have put our research department right in the middle of the bank, with a mandate to serve every key department. Furthermore, market knowledge is not confined to the research department; we have weekly meetings for the entire bank at which a different department presents a company in analytical detail. The forum is then opened up to questions from other departments.

The most effective way to ensure that our research department is the best at what it does is to have it face outwards – towards the clients – where competition is tough. So, a significant part of the research department’s mandate is to function as a traditional team, writing and publishing reports on companies, interest rates and macroeconomics, as well as meeting institutional investors. We have also raised our research standards to global levels, taking on all the processes of international frameworks such as MiFID II. The research team’s objective is to create independent, long-term views based on in-depth knowledge that institutional and individual clients can trust when they turn to us to manage their liquidity.

The future
Coronation Merchant Bank currently generates over 80 percent of its revenue from its corporate banking and global markets business. Over the past three years, however, we have seen a significant uptick in contributions from our subsidiary businesses. Since December 2017, our asset management business recorded over 230 percent growth in profits before tax (PBT), while our securities business recorded a PBT growth of 206 percent. Overall, revenue contributions from our non-core banking businesses have increased from about four percent in 2015 to approximately 12 percent in 2017. We expect this to reach around 20 percent in the next five years.

Although the bank is still very young, we believe we are on a journey towards becoming Africa’s leading investment bank. Personally, I believe we have made considerable strides in this direction, especially when you consider where we are now compared with where we were a few years ago. We remain committed to this vision and we are confident that we have the requisite people and resources to convert this vision into a reality. In the meantime, we will focus on the Nigerian market and leverage our robust distribution network and strategic alliances to provide high-quality services across West Africa and beyond. The sub-Saharan region retains significant potential for growth, as well as favourable long-term macroeconomic and demographic factors.