As the final lap of the year beckons, how will you rate Nigeria’s economic performance, especially in the first half of the year?

Mixed. When you look at the headline numbers, both output growth, which has been trending down over the last 12 months, and unemployment, which has remained stuck at very high levels is immediate source of worry.

A lot of the recent pressure on the economy reflects global concerns as external demand fails to recover as fast as most analysts had expected from the 2008/2009 downturn. Nonetheless, there is much to be said for the extent to which a slowdown in the domestic reform initiative has held down the economy’s options.

That said, consolidation on the fiscal side is a major upside to the economy’s outlook. In the six months that ended June 2013, the external reserve had strengthened, and both rainy-day funds (the sovereign wealth fund and the excess crude account) have seen substantial accretions.

On the strength of the preceding, two things will matter, going forward. First is the pacification of restiveness in key centres of the country. This will be necessary if we are to recover some of the lost capacity in the agricultural sector, and in the downstream portion of the oil and gas industry. Second, we will need to ratchet up the reforms needed to complete the transfer of the economy to a private sector-led model.

A recent report by KPMG said only 20 percent of Nigerians use banks. How do we capture more Nigerians in the banking net?

Two policy responses are crucial to the effort at broadening domestic financial inclusion.    The first requires that we remove as much as possible the risks involved in major transactions at the sub-prime level.

This de-risking process could begin with defraying start-up costs or subsidising upfront research on customers, for example. The second requirement is to implement a strong credit culture.

This latter would ensure that banks have assurance on the identity of their counterparties/obligors, and can credibly perform checks on their credit status.

To the industry’s credit, a number of initiatives are underway all aimed at increasing financial participation in the country. Prime amongst these are the deployment of the mobile money platform, and advanced work on introducing an agent banking architecture in those places where the formal financial services do not reach yet.

Recent performance of banks are said to have altered the ranking in the industry. How comfortable is First Bank as the foremost bank in Nigeria?

To the extent that our current position is not fortuitous, and that the successes associated with our brand over the past three years have been the consequence of a conscious resolve to set the pace for the industry’s performance, we are quite comfortable with our pole position in the industry.

Having said that, though, it is often far easier to play catch up than to hold on to a leadership position for a long time. So we face a far bigger challenge constantly trying to exceed our customers’ expectations.

Without any question, the same technologies that we will leverage in our quest to move the envelope further every day, is available to competition and are now available to our customers in a way that was not possible a decade ago.

These are what will make our short- to medium-term trajectories both challenging and interesting.

Are you satisfied with the pricing of bank stocks on the stock exchange? When will the activities of market makers begin to add value to stocks?

“Satisfied” is a difficult verb in this circumstance. I understand the basis for the pricing. We had a massive correction of prices generally after the last price bubble on the exchange saw prices run ahead of market fundamentals.

Do not forget that equities are very simple derivatives.

In this sense they ought to be stronger than their underlying assets (the businesses over which possession grants holders a claim) only because the market has identified growth prospects.

But considerable liquidity in the run up to 2008 meant that a lot of stocks just ran ahead of fundamentals. Unfortunately, the ensuing correction has erred too much on the side of caution.

Again, this is understandable. A lot of retail investors lost their shirts following that correction. It will take their return to the market for prices to begin reflecting the fundamentals proper.

That will take some time, and further reforms to the market, especially such changes as strengthen transparency and openness for this to happen.

Again, another opportunity for big banks like First Bank to buy any of the three bridged banks has opened with the planned sale of the three bridged banks. Is First Bank interested in any of the banks?

I think that we are approaching that point where concentration risks in the industry may be becoming a major source of system vulnerability. As it’s, five Tier 1 banks control about 70% of the market and 80% of PBT. Ordinarily, anti-trust concerns should be raised where any one of these institutions minded to buy into the three bridged banks. Further consolidation of the industry along these lines will have clear and present implications on competitiveness, and consumer welfare.

However, if we recall that one main lesson from the roles played by financial institutions in the current global and economic crisis is the need to closely supervise systemically important financial institutions, and then you understand why we may not be interested in bidding for any of the bridged banks.

Consolidation at the lower tiers will be more beneficial to the market in terms of both increasing industry competition, and delivering better customer service propositions.

The Federal Government recently warned banks to avoid embarking on indiscriminate lending to state governments for obvious reasons.

Will you say banks have learnt their lessons given the fact that many state governments have defaulted in loan repayment to some banks?

I am not aware, and the emphasis here is on the “not”, that any state government has defaulted on its loan obligations to any bank in the country.

There are worries over the rising domestic debt profile of the public sector. But it is fair to argue that following the last convulsions in the industry, most operators have strengthened their risk management systems in ways that reinforce the regulatory authority’s new focus on macroprudential regulations.

Thus, I would argue that the industry is uniquely positioned to address the issues as they might arise here.

Can you assess the implementation of the CBN Cashless policy and how real is the fear that politicians may frustrate the implementation of the policy especially in areas like Abuja, Kano, and other areas?

Let us look at the numbers that matter. First, in the six months to end-June 2013, about N1.83trn cheques were cleared monthly.  In the same period, monthly electronic transactions were around N2.4trn. Second, the cash to card utilisation ratio in the country as at July stood at 80:20.

In between, we have seen a burgeoning of online retail institutions.

All of which means that over the medium-term, we should be seeing a reduction in SMEs’ inventory and receivable financing requirements.

On balance, the call is yours. Do you think this is a successful policy, or not?

And then, why would “politicians” frustrate the implementation of the policy”? I am at a loss understanding the utility of such conduct.

The naira has been under pressure in recent times in spite of CBN’s interventions at the just suspended WDAS. Do you believe the downward trend will continue till the end of the year?

As the relevant authorities addressed the structural rigidities in the domestic economy, especially the CBN’s efforts at de-risking the financial services space, we saw over the last two years a healthy inflow of foreign portfolio capital.

  Most market watchers then started flagging this exposure as a potential vulnerability. Any sustained reversal of this flow was always going to pressure the exchange rate of the naira.

There was much debate over potential triggers for any such reversal. And in the last 9 months to 1 year, consensus began building around domestic shocks (including concerns over the fiscal side as we move into a new election cycle, succession to the office of the CBN governor, etc.) and the oil outlook, as potential triggers.

To this extent, the domestic market was blind-sided by the US Federal Reserve’s comment in June on the possibility of an early retrenchment of its quantitative easing programme. Rising yields in the US then triggered an outflow of capital from most emerging markets.

This process has however subsided with most commentators now persuaded that the tapering off of the quantitative easing in the US will not happen until late 2014. So we should expect the pressure on the naira from that source to recede.

However, at close to US$50bn the CBN has external reserves large enough to address the demand pressures at the WDAS.

The apex bank’s biggest challenge in managing the naira going forward will lie in its ability to persuade the markets of its readiness to match rising demand with its relatively large war chest.

Banks have continued to receive bashing for their poor disposition to funding agriculture despite the huge potential in the sector. When will agric become attractive to banks?

The absence of a strong credit culture or of a national identity management system is the biggest impediment to lending across all the sectors of the economy.

Bank lending as a portion of total business lending is thus miniscule. And given the huge unmet demands for loanable funds in the country, there is no doubt that opportunities are bountiful in the sector.

But it would be foolhardy for a financial institution with responsibilities to its depositors and shareholders to lend money on a whim and a prayer.

If we are therefore to see an increase in the extension of banking services to this sector, we need to repair both the credit scoring mechanism and our national identity management infrastructure.

How would you explain the rising appetite for the issuance of Eurobonds by Nigerian banks?

The Nigerian yield curve is still very short, especially on the liability side with true liquidity barely stretching beyond 90days. As such when you look at the FCY balance sheets of Nigerian banks, the bulk of FCY funding is on demand, made up from domiciliary account balances.

Though actuarially they exhibit much longer duration, there is a need to bridge the liquidity gap that is occasioned by the longer tenured nature of FCY loans, now stretching out to 5 years and beyond. Hence there is a structural need to close the liquidity gaps by borrowing long term.

Historically, most banks have met their funding needs on a bilateral basis funding short term 1-2 years via bank loans. Following the successful launch of the benchmark FGN 10-year Eurobond in 2011 and the inclusion of FGN NGN bonds in the JPMorgan Global bond index, there has been a marked increase in interest and appetite for Nigerian issues, by EM and other global market fixed income investors.

Hence this is an opportune time, for Nigerian banks to tap the global pools of liquidity. It becomes more attractive given that within the entire SSA universe, there are very few issuers of international debt, given that there are few institutions or corporate entities of sufficient scale that can access debt in sufficient size required of a Eurobond issue.

This rarity in itself, further drives appetite as EM investors look for assets to buy, providing some demand pull on potential issuers.