Africa Needs to Trust Financial Institution with Nations’ Reserves- Abiagam

The Managing Director/Chief Executive Officer (CEO) of Coronation Merchant Bank, Paul Abiagam, has said there is growth potential for Africa to unlock if the governments could trust financial institutions with managing the reserves of the nations.

He said this at Arise TV’s Global Business Report on Tuesday, November 16, while sharing his thoughts on other issues, including the need to bring down borrowing costs, build the domestic market to fund projects and transition savings to investments.

“As a policy shift, governments need to start to trust African financial institutions with the reserves of nations. Doing so will help to achieve financial independence and build confidence in the institutions, Abiagam said. “In doing that, we’re going to be able to unlock liquidity. We’re going to be able to provide capital beyond the traditional pension funds and insurance pool of funds.”

He said to achieve this, there needs to be macroeconomic stability, good policies and, of course, strong institutions, stressing that when Africa does this, the continent should be able to finance its projects.

Concern over borrowing costs

While commending the Nigerian authorities for making efforts leading to inflation decelerating for some months now, he, however, stated that for businesses, there is a need to bring down borrowing costs, as it encourages investors to bring in funds.

“So, what we see are opportunities opening up for the country now and in the future, and we hope price stability is maintained as this deceleration continues,” Abiagam said.

He noted that there is still a perceived high level of risk in the market, affecting the level of rates that financial institutions charge.

“We still have heightened risks in the market due to limited credit data. We have a high cost of capital still affecting the markets, even though rates are coming down. Also, we have structural bottlenecks due to an infrastructure gap. All of these increase the cost of doing business,” he pointed out.

He hinted that, as a result of this, his bank is cautious in bringing down rates while continuing to monitor the market for those macro conditions before making any rate impact or any rate decision.

Leveraging tech for merchant banking

Speaking on how merchant banks can leverage technology, Abiagam said technology can be used to improve business decisions, operations and activity for efficiency.

“From a product structuring point of view, technology has become very integral beyond the day-to-day operation. It helps us to make better insights and decisions in our risk management practices. It also helps us to improve our collection payments and collections.”

He stressed that how financial institutions integrate technology in providing services, even to the ultimate productive sector, now matters a lot.

“Technology, without saying, is very important in today’s banking world. The use of AI allows you to make better decisions and have better insights into how you project your business going forward.

“We need to start building and leveraging the domestic capital within Africa. We need to start to have significant confidence in our institutions and build resiliency in our structures such that we can attract and retain the domestic capital to finance our projects.

Concern over African countries’ dependence on external funding

The Coronation Merchant Bank CEO also expressed concern that African countries have, over time, been dependent on external funding to finance their projects.

He noted that this funding usually comes at a very high cost, stressing the need for African financial institutions to start leveraging the domestic credit that abounds within their system.

He added that there is a need to harmonise regulations and pool resources to be able to grow project finance from an African perspective to fund projects.

Need to build domestic market

He noted that, arising from the recently held African Financial Summit in Casablanca, Morocco, earlier this month, key policy issues for the continent will include the need for Africa to strengthen its domestic markets.

“The shift is very critical because when we begin to build our domestic capital market, we will begin to see inflows within our borders, promoting long-term investment and long-term capital growth.

“We also need to see the importance of harmonisation of regulations that will promote this and what this ultimately does to start to encourage cross-border flows within the African continent,” Abiagam also suggested.

He noted critically that at the summit, stakeholders discussed digital integration, creating platforms that essentially connect savers, investors and entrepreneurs across the African ecosystem with the desire to pool funding needed to drive growth for the continent.

Transitioning savings to investment

Commenting on how Africa can transform local savings into investment capital, Abiagam explained that one of the things Coronation Merchant Bank has been doing in the last couple of years is to leverage significantly on its investment banking franchise.

“Essentially, what we’re doing is providing sectoral expertise in the private sector corporate as well as the public sector corporate in our different offerings and services, one of which is advisory, structured finance, mergers and acquisitions, and all that.

“So what we do here essentially is to bring those expertise in terms of origination strengths. We also bring our sectoral expertise to bear in providing that bridge for accessing cheaper capital, providing that bridge for providers of funds and investors in the productive sectors of the economy,” Abiagam said.

He explained further that the bank has essentially been pulling together institutional and retail credits towards viable economic assets to contribute to nation-building.

Stating that he believes in Africans having financial sovereignty, Abiagam said, “I’m a very strong believer in that. I believe in homegrown solutions. And that solution essentially is having confidence in our financial institutions today.”

“This will ultimately give businesses in the African continent the opportunity to be able to grow commensurate with their counterparts across Europe on our own terms,” he added.