Citigroup can offer local banks access to the global capital markets, and help them as they look to expand their business across Africa, according to CEO Michael Corbat, who sat for an exclusive interview with BusinessDay’s News Editor, Patrick Atuanya and senior analysts- Bala Augie and Lolade Akinmurele.
How does Citi view itself in today’s global economy, especially since emerging from the financial crises? How does that role/vision translate into its African operations and Nigerian business specifically?
Our restructuring is over and we are an indisputably strong and stable institution, having evolved to become the world’s most global bank, with a revenue base that is well balanced across products and regions.
We have passed an inflection point and are well positioned for growth at home and globally.
Our strategy for Africa is an extension of our global strategy, which is delivering sustainable and client-led revenue growth by deepening our relationships with our existing clients on the continent.
We want to be the world’s leading bank, based on a balanced business across our products and geographies, and we are well-positioned in terms of the evolving macro-economic and policy landscape in Africa.
This strategy relies on the fact that we have a 98-country footprint, which is not just unique, but essentially impossible to replicate in today’s economic and regulatory environment. We’ve built this network by following our clients wherever they want to conduct business, including the faster-growing emerging markets.
With a presence across 16 African countries, and coverage of 28 non-presence countries on the African continent, our Institutional Clients Group is scaled to serve multinational companies, emerging African market leaders, governments, investors and ultra-high-net-worth households that rely on our unique global network, insights and local market expertise to meet their banking needs.
This model results in over 50 percent of our institutional revenues coming from highly recurring, stable businesses such as cash management, custody, private bank, corporate lending and flow-driven corporate foreign exchange.
As for Nigeria, we have been present here since 1984, and are the oldest existing global bank in the country, with eleven ICG branches spread across the nation.
With our global connectivity, broad product range and innovative solutions, Citi is the first port of call for complex and cross border transactions in Nigeria.
We are well-positioned to assist in the implementation of economic reforms, including liability management and risk mitigation, and we continue to operate the largest, most advanced global payments network, seamlessly connecting our clients in Nigeria across more markets than any peer can offer.
We aim to maintain and enhance our position as the provider of bespoke trade solutions, and are the natural partner for large local corporates seeking to expand geographically.
We are focused on providing e-solutions to our clients, assisting them in creating electronic collections solutions in sectors including aviation, shipping and technology.
Investors are currently worrying about the effect of central banks raising interest rates, and rising inflation. A lot of African nations have been racing to tap the dollar bond market this year before interest rates rise. How far will the Fed go in raising rates and what do you think that will mean for the global economy? What could it also mean for commodity prices, particularly oil, which the Nigerian economy is heavily dependent on?
On March 21, the Federal Reserve raised rates for the sixth time since December 2015. We expect two further rate hikes this year (for a total of three in 2018) and that the pace of rate hikes will remain gradual.
While Citi economists expect 75 basis points (bp) of hikes in 2018, we do think 100bp is a plausible scenario. It is worth noting that out of the March meeting, the Fed Funds long-run median rate moved up from 2.75 percent to 2.875 percent.
Where does this leaves the U.S. economy?
While we think there may be faster inflation in 2018 and 2019, we anticipate that real GDP growth will accelerate to 2.8 percent this year, largely from benefits from the tax overhaul.
Globally, we continue to predict robust global growth, even as downside risk increases. We forecast global growth for the remainder of 2018 of around 3.7 percent up from 3 percent in Q1.
We are in the mature phase of this business cycle, both in the U.S. and globally. The low level of the unemployment and savings rates and the duration of the expansion have made us vigilant in monitoring recession risk.
Regarding commodities, this sustained global economic growth should keep demand robust.
At this moment, geopolitical uncertainties, as well as oil production growth, are likely to have greater impact on oil pricing than monetary policy.
What is your take on the current debate over tariffs that the U.S President wants to impose on China and others? Is it just a symbolic gesture or this have the potential to truly take us into a global trade war?
The Administration appears motivated by at least three factors and these are: 1-Protecting and creating U.S. jobs
2-Reducing the U.S. trade deficit with certain countries
And 3-Deterring or mitigating the impact of China’s economic model.
As a global financial institution with a significant and diversified presence around the world, Citi has strongly supported free and fair trade and trade agreements that facilitate the movement of goods and services across borders while promoting broad-based economic growth.
We are concerned about this rising protectionism and the risk of retaliatory trade measures, which would have a negative impact on global growth.
While these are relatively narrow, we have to ask if it is just the beginning or will there be more because it significantly increases risk of a major escalation? We’ll have to wait and see.
How can Citi be a partner with local firms in economies like Nigeria to tackle intractable problems such as structuring mortgages, infrastructure finance, health insurance, increasing financial inclusion and so on?
Our network continues to be our biggest competitive advantage in ICG.
Citi is the payment powerhouse in Africa, processing millions of transactions annually and collecting government taxes through our pipes. This technology-driven solution helps us maintain our position as the leading corporate bank and the trusted bank for large corporate and public sector clients
In Nigeria, we continue to focus on innovative solutions, which are mostly first-of-their-kind in the market. Besides raising over US$12 billion for our Nigerian clients in the past 24 months, this year, Citi Nigeria cleared the first FX futures trade in the local FX market.
Digitization remains a global trend that is rapidly transforming our institutional business. We are working with governments around Africa to leverage technology to improve processes and efficiency, reduce costs and increase transparency. We are working in areas such as tax collections and pension contributions, among others.
Citi also seeks opportunities to help address societal challenges that impact our clients and communities, including job creation and career readiness, affordable housing and protecting the environment through sustainable growth.
In July 2017, Citi Nigeria extended a NGN500 million loan to Accion Microfinance Bank to drive and promote the development of the microfinance sector in Nigeria. This loan will fund Accion’s portfolio, and support the development of approximately 5,000 micro and small enterprises in the country.
We are very active on the social agenda side as well. Recently, Citi Foundation awarded the International Rescue Committee (IRC) a $2 million grant in support of refugees and internally displaced people in the region. The two-year programme will create sustainable livelihoods for 1,000 displaced youth in three locations: Nigeria, Jordan and Greece; and will provide them with business start-up grants and mentorship after they successfully complete the training and demonstrate an ability to move their business ideas forward, and this will be carried out with the support of 60 Citi employees as volunteer mentors and business advisors.
Citi’s shares have roughly doubled since you stepped into the top job in 2012. Citi’s market capitalization recently breached $200 billion for the first time since the crisis. You must be doing something right. Tell us how you see your global business evolving into the future?
As we look to the future, our vision encompasses every part of the firm.
We’ll continue to operate the largest, most advanced global payments network, seamlessly connecting our clients across more markets than any peer can offer.
Beyond becoming the most important banking partner to more of our institutional clients, we have continued our shift away from brick-and-mortar branches to interact with our customers anywhere, anytime they need us through digital and mobile channels.
We are benefitting from the long-term relationships that we’ve secured between our credit cards business and some of the world’s leading brands.
Not only do we boast the best customer service as measured by Net Promoter Scores, having dramatically improved the client experience, we have re-established Citi as a leading aspirational and iconic brand in financial services.
All of these support our commitment to deliver annual earnings power in the range of $20 billion within the next three years and the return of at least $20 billion in capital per year over the same time period.
As we move forward, the foundation of all of our work is a deep commitment to who we are: a bank with a clear and stated mission of enabling economic growth and progress, and a singular focus on delivering for our clients and our shareholders.
Does Citi have any consumer banking plans for Nigeria/Africa?
The local banks across Africa today, Nigeria included, are highly sophisticated with excellent product offerings.
Their digital product offerings are especially impressive. I don’t currently see an opportunity for Citi in the consumer banking market in Africa.
Where I do see opportunity for Citi is in partnering with the local banks to help them, for example, further expand their product offerings as their target market becomes increasingly sophisticated.
We can also offer the local banks access to the global capital markets, and help them as they look to expand their business across Africa.
As for Citi, we have reduced our consumer footprint from over 50 markets to 19 markets, with a focus on the US, Mexico and Asia.
We believe these three markets are attractive and our scale and investments position us to capture additional market share as we put digital and mobile at the core of a simpler, better client experience.
These markets have significant and growing revenue pools, where we can deliver our global capabilities at a local level to differentiate our franchise.
What are the growth prospects for commodity-driven African economies?
We continue to see growth across Africa, driven by the ongoing formation of a sizable middle class, continued trade momentum, good access to capital and a slow recovery in commodity prices.
Real GDP growth in Sub-Saharan Africa in 2017 was in the 2.5-3 percent range, compared to 1.4 percent in 2016. We think growth bottomed out in early 2017 after a difficult couple of years.
Nigeria returned to positive growth in Q2 2017 and growth accelerated in the third quarter (Q3) and fourth (Q4). We expect further momentum in 2018, partly on the back of higher oil prices.
We will be closely watching whether other countries in the region continue to push ahead with the types of necessary reforms we have seen in Nigeria, such as significant adjustments to exchange rates.
We are hopeful that the bounce in oil prices since late 2017 will provide a more conducive environment for long-delayed reform, rather than the “bunker mentality” that seemed to pervade when prices were at their lowest levels.
We find that the financial markets wallet tends to grow 1.5-2x the rate of GDP in developing markets, and we believe we are well positioned to grow our business in Africa, in support of our clients.
What is your outlook for Nigeria’s economy?
We continue to see encouraging economic reforms in countries such as Nigeria, among others.
The reform program, which started here in 2016, has certainly helped to spur further economic growth and encouraged international investment in Nigeria.
It also led to a significant contraction in Nigeria’s import bill, which quickly pushed the current account into surplus.
Nigerian policymakers seem intent on following through with a series of reforms, which started with the naira flotation, and I am hopeful that we will see considerable exchange rate stability against the US dollar this year after the major devaluations in 2016 and 2017.
In this context, the country has done well managing its finances by successfully tapping international capital markets in order to replace local currency debt.
The government’s oversubscribed Eurobond issues speak volumes to the success of the country’s structural reforms, and highlight global institutional investor confidence in the Nigerian credit story.
What is Citi’s role in facilitating south-to-south trade or investment flows?
Supporting and facilitating global trade is in Citi’s DNA.
We bank over 70 percent of the multinationals in Africa, and actively take Emerging Market Champions worldwide. In addition, we are the primary bank for trade finance, and cross- border payments.
Balanced growth across the world economy means trade in every direction is poised to expand.
Global initiatives, such as One Belt & One Road, have momentum, and promise to enhance trade from China to Nigeria.
It is not just about trade finance, but also helping clients across a range of products including capital markets, lending, securities services, advisory, hedging FX and interest rates across different currencies and managing cash.
Citi is present in 58 of the 65 Belt & Road countries – the most of any bank globally.
Citi is also the runaway leader in Latin America, an increasingly robust trading partner for Africa.
What is the outlook for African capital markets and M&A activity?
DCM re-opened for African issuers in 2017, starting with sovereigns (Nigeria and Senegal), followed by banks (AFC, Zenith, and UBA) and eventually including corporates (Liquid Telecom).
ECM was also strong, with some very successful transactions for South African names (Star and Sybane) and a strong 2018 pipeline.
Citi is actively working with a number of sovereigns to refinance existing debt and in some areas address rising deficits (leading arranger of most recent bond issues from Nigeria, Kenya, Egypt).
Apart from supporting the sovereign clients in tapping the debt capital markets (Ghana, Nigeria, Senegal, South Africa), we also made important relationship progress with regional development banks by leading the bond issues for BOAD (West African Development Bank) and TDB (Trade & Development Bank).
We see renewed interest from strategic investors in African companies with GDP growth driven-stories, including Liquid Telecom buying Neotel, Kansai (Japan) buying Sadolin in East Africa, Fairfax Africa buying into Atlas Mara.
The bank set an efficiency ratio target of low 50 percent by 2020, and your last report showed that you recorded 57.70 percent. Do you get the feeling that you are closing in on that target and how will it happen?
What is important is to continue improving ahead of 2020.
At current levels, we already have the best efficiency ratio among of our US peers, but we want to continue to push the edge.
To achieve this, we believe technology has a part to play in helping out in terms of efficiencies, intelligence and voice recognition. And we see there is opportunity for us, as we have been doing, to continue to grow our revenues around the world.
It will be a combination of revenue growth, spending discipline, reasonable cost of credit and the use of technology that will take us to where we need to be in 2020.
Effect of change in corporate tax
Our 4th quarter results reflected the impact of a significant non-cash charge due to the tax reform, the impact on our regulatory capital is much less significant. Tax reform not only leads to higher net income and increased returns, but also serves to strengthen our capital generation capabilities going forward.
