How Zenith Bank achieved 40% drop in cost of funds in 2018—GMD
Fresh revelation has emerged on how Zenith Bank recorded about 40 percent reduction in cost of funds in the nine month ending September 30, 2018.
In an interview, the group Managing Director of the bank, Mr. Peter Amangbo disclosed that “We have always been a net placer of funds,” noting that “We have never taken money from any bank since inception and it is actually deliberate”.
According to him, “Our business is to take money from our customers and do business. But the key thing about cost of funds, generally, is that it is not just about Zenith Bank.
“In 2017, in the early part of December, treasury bills were about 21 to 22 percent but at some point in 2018, at the beginning of the year, it actually crashed to between 12 and 13 percent. So it was really more from a CBN perspective that cost of funds should come down.
“We on our own too, we try to be much more efficient in terms of how we do our business. If you are able to bring down your cost of funds, it is much easier to pass it on to our customers in terms of lower cost of loans.
“And we believe if you are going to lend to the retail segment, households, small businesses and you are looking at those high rates, then you are inviting a bad loan. So for you to say you are going into retail, you must be sure of your cost of funds, which is what we are very mindful of. “And that is why we said that deliberately we must bring down our cost of funds, which is basically what we are doing, so it makes it much easier for us to lend in the retail space.
Besides, on retail space, the rate must be affordable; if it is not affordable from day one, you have set out to fail and to have bad loans.
Explaining more on how Zenith Bank managed issues of Nonperforming loans (NPLs) during the last financial year, Amangbo averred that “As I said earlier, we are not going to lend at exorbitant pricing. It has to be affordable such that we will not have issues”.
“Our job is not to start selling people’s properties or securities; no, it is to ensure that from day one things are put right, and again, what you are lending to, you want to actually see through that particular business. If you say your business is hair dressing and you say you need some amount to pay for the rent, we would want to ensure you pay the rent, which is the purpose the loan was meant for, even if we have to pay directly to the shop owner or owner of the property, we would do that.
“Or if you are going to buy any equipment, if we are even issuing a cheque directly, we would do that. So we ensure all those safeguards, not just to disburse the money and allow you to do whatever you wish; we actually want to see through the transaction. Then the issue of security becomes a bit downplayed. Because you can have all the properties in this world and somebody defaults, he just goes to court and get an injunction and you will be in court for ten years. Is that what you want? You don’t want that. You want people to take a loan and use it for the purpose for which they have taken the loan.
Amangbo revealed that “The beauty of retail is that most of the loans are not huge; they are well spread. I lend N1 million here, N2 million, N3 million; unlike oil and gas where somebody comes and say I want $50 million, that is where you have challenges, and that is why you see that the NPL in the oil and gas industry is very huge”.
Continuing, Zenith Bank boss argued that “But for the retail, even if N1 million goes bad, it won’t kill you unlike the challenge that the banking industry had with over concentration of loans on few people in all these capital intensive industries”.
