Interview transcript: Ladi Balogun, CEO, First City Monument Bank
Ladi Balogun, CEO of First City Monument Bank, talks about banking in Nigeria, competition with foreign banks, and the forex business.
Banking in Nigeria
Emmanuel Daniel (ED): How is banking in Nigeria like, and could you please gives us some background on your bank and where it stands in the hierarchy of the banking system in Nigeria.
Ladi Balogun (LB): The Nigerian banking industry is very dynamic. We currently have 25 commercial banks operating in Nigeria, an industry size of about 20 trillion Naira ($134 billion), which would be at an exchange rate of 160 to 1. First City Monument Bank (FCMB) have about 4.7% market share, close to 5%, and are the eighth largest bank in Nigeria. We started as an investment bank in 1983, known then as a merchant bank focused on corporate finance, treasury activities and trade finance, wholesale funding.
My father founded the bank, he’s now retired - he was an ex-investment banker who helped the Nigerian government’s preeminent development bank set up a joint venture investment bank with various international partners,and thereafter set up his own stock broking business City Securities Limited (CSL).
CSL was set up in 1977 and handled most of the listings of multinationals onto the Nigerian stock exchange when they started listing here between 1978 and 1982. It was from the success of that listings and brokerage business that we then set up the merchant bank. Merchant banking then was an easier business to get into because you didn’t need as much capital and was much more closely related to the securities business that we had been doing. CSL is still in existence today in Nigeria and is the largest domestic stock broker in the country and a subsidiary of our holding company FCMB Group.
We ran with the merchant banking model from 1983 until 2001 after which we changed into what we call a universal bank in 2001. We ran as a universal bank from 2001 until 2012 when we created a group structure where we have a holding company, which is FCMB group PLC at the top, which is listed in Nigeria. Then FCMB the bank, which is a commercial and retail bank, a subsidiary of the group, plus we have CSL, which is a stock broking business, another subsidiary.
ED: So the evolution of your family’s business mirrored the evolution of financial services in Nigeria.
LB: Absolutely.
ED: From the days of the securities industry and getting the capital market up and running, Nigeria today is much more broad spectrum financial services infrastructures in place, right?
LB: Yes.
ED: In terms of banking, how has that evolved? I guess moving from universal banking to a group structure is something that you needed to do to rationalize what you had but you also had a number of mergers in order to grow, correct? So there was an inorganic portion of growth. When did that start?
LB: That started in 2005. It came about because in 2004, we had a very activist regulator in Nigeria, always trying to transform the industry structure for the better of the economy. In 2004, the then Central Bank Governor brought about a new policy, which required every bank, whether they be merchant bank or commercial bank, to have a minimum capital base of what was then 25 billion Naira ($155 million). We were then sitting on a capital base of about two billion Naira ($12.4 million) so clearly, there was a wide gap between where we were and what was required.
So we did a private placement amongst most of the existing shareholders followed by a public offer. We were able to get ourselves about 70% of the way required to meet minimum capital requirement by doing a private placement followed a few months later by an initial public offer. To cover the rest of the gap, we were required to make some acquisitions. Now, fortuitously, those acquisitions also enabled us to improve our distribution for what was then a commercial bank.
