Kenya Commercial Bank Group chief executive Joshua Oigara spoke to Njiraini Muchira on the bank’s performance for nine months ending September, whose results were released last week.
KCB has posted a 43 per cent decline in profit. What challenges, besides Covid-19 is the bank facing this year?
Every sector of the economy has been affected by Covid-19, including KCB. For that reason, performance was affected by an increase in non-performing loans (NPLs) and in loan provisions. From a business growth and revenue growth perspective, the pandemic has affected major macroeconomic drivers, reducing all economic activities. This made credit quality deteriorate significantly across all segments and banks, which have traditionally been the providers of credit have been badly affected.
Did you anticipate such a huge drop?
This has been a unique year, but a 43 per cent decline in profitability is a better performance in light of the crisis. In March, we forecast that results would be down by 75 per cent year-on-year.
We are actually ahead of our expectations. This is a year of survival, of supporting clients and people to come out of a crisis. Profit is not the priority at this time.
Does increase in NPLs reflect how bad the business environment has been?
The banking sector is the heartbeat of performance of businesses. Key sectors (hotels, eateries, airlines, education, traders, importers and hospitals) have slumped. This is why we restructured $955 million worth of loans over the difficult macroeconomic activity. What will happen with the second big wave? However, our results include a focus of the deteriorating environment heading to the end of the year. The credit quality is reasonable and the 15.2 per cent increase in NPLs is based on the difficulties in the market mainly driven by Covid-19 and a difficult macroeconomic driver. We don’t anticipate more loan restructuring but a number of these loans could still be extended by another six months up to March of 2021.
Are government securities the most viable option for banks currently?
The increase reflects the reality of the moment. With a lot of liquidity in the sector, and credit is not growing as fast as you need it to, banks have been forced to put money to government securities. This is a temporary response as we expect that as economic activity comes back, we will continue focusing on traditional lending. Although credit is slowly growing, businesses are not back to where they were before March until they get credit they need to stabilise. We needed to survive this period.
SMEs suffered too but you are increasing lending to them, why?
SMEs are important and also, the credit guarantee scheme is almost complete and targets micro and small businesses. We are aligning ourselves to it because there are interventions both from banks and the National Treasury, so we are very bullish. Two, a number of sectors are coming back up like transport, manufacturing and even segments of SMEs that we want to support.
And National Bank of Kenya whose profit declined by 77 per cent?
NBK had a strong performance particularly on loan recovery. When we bought NBK we had three things to do; inject capital, bring in more customers and recover some NPLs. We achieved a lot in Quarter One but Quarter Three was slowest in terms of recovery but we remain on track to post more than $9 million in profits by December.
How about the regional subsidiaries?
No doubt Covid-19 has impacted these countries. However, our businesses in Uganda, Tanzania, Rwanda, Burundi and South Sudan were not as badly affected as Kenya. All subsidiaries are performing better than Kenya because of the way Covid-19 played out in the region, plus, we did not have a lot of exposure in many economic sectors.
Regional units did quite well compared with Kenya. Don’t forget 90 per cent of provisions is in Kenya, which is a big economy in the region. Going forward, I expect the subsidiaries to contribute significantly to our growth.
Has digital banking transformed KCB?
We are in a very good position now. Our new platform is already running and 98 per cent of transactions are happening through mobile, internet and agency. Although we are not charging fees on mobile for now because we have a moratorium for this year, we are waiting for rates to come back from zero-rating position to enable us do better next year. We are ready for takeoff and see more customers on the mobile platform.
Joshua Oigara is the group chief executive of KCB.
He holds an MBA from Edith Cowan University, Australia and a Bachelor of Commerce (Accounting) degree from the University of Nairobi, in addition to other professional trainings.
He started his career at PwC and has also worked for Bidco and Bamburi Cement, where he rose to be Group finance director.
Mr Oigara is the chairman of the Kenya Bankers Association, sits in the Vision 2030 Delivery Board and also serves as a board member of Young Africa Leaders Initiative.