# I&M Group FY24 Results

An episode of [The Mwango Capital Podcast](https://invisiblenetwork.ai/podcast/1583367792), 22 Apr 2025, 46 min.

Audio: https://api.substack.com/feed/podcast/161786330/9d26c527380ef4d04a4377652f2551bd.mp3

In this episode recorded on 26.03.2025 and hosted by Ramah Nyang, we are joined by the I&M Bank Kenya CEO, Kihara Maina, and CFO, David Ngata, to break down the bank's 2024 performance. We cover demand for credit, regional performance and diversification, non-performing loans, M&A opportunities, strategic challenges, and growth opportunities. Subscribe to get notified when we make a new post. Show Notes 00:00:00 Introduction 00:01:17 FY 2024 Performance Highlights 00:03:08 Loan Book Trends and Credit Demand 00:07:24 Digital Lending and Customer Engagement 00:12:00 NPLs, Regional Performance, and Growth Opportunities 00:17:01 Future Growth, Interest Rates, and Monetary Policy 00:25:07 Regional Diversification, Sector Growth, and M&A Opportunities 00:33:51 Wealth Management Trends 00:35:31 Challenges and Strategic Concerns 00:41:59 Balancing Cash Reserves and Dividend Payouts 00:43:46 Closing Remarks Get full access to The Mwango Weekly at mwangocapital.substack.com/subscribe

## Transcript

[0:00] SPEAKER_02: Good evening, everyone.
[0:00] March is a month that's absolutely packed to the rafters with
[0:05] four-year earnings results.
[0:07] For those of us who are in this space and those of us in the
[0:09] business space,
[0:10] SPEAKER_02: love to pay attention to the results coming out of the banking sector.
[0:13] Because more often than not,
[0:14] what happens with our banks is mediators of capital,
[0:17] right?
[0:18] You mobilize deposits on one end and you deploy those deposits
[0:20] into the market on the other.
[0:22] SPEAKER_02: We'll be focusing on one of those banks today, INM.
[0:52] SPEAKER_02: I&M.
[0:53] So there's a lovely bit of symmetry in having them back on the
[0:55] space at the moment.
[0:56] And since then,
[0:57] fun fact,
[0:57] the bank share price has actually gone up by 51%.
[0:59] It's roughly 19% higher than its pre-pandemic levels back in
[1:05] 2020 as well.
[1:06] SPEAKER_02: Over the course of the hour,
[1:07] SPEAKER_02: we'll have a conversation with the regional CEO,
[1:09] SPEAKER_02: Kihara Maina,
[1:10] SPEAKER_02: as well as a group chief financial officer.
[1:12] Dibin Gatho will be going over the 2024 results and looking
[1:14] ahead to the operating
[1:15] SPEAKER_02: environments in 2025.
[1:16] SPEAKER_02: We'll
[1:17] Without any further ado,
[1:18] Kihar,
[1:18] I want to bring you into the conversation.
[1:20] For those of us who may not have seen the numbers and your
[1:23] results presentation
[1:24] SPEAKER_02: earlier today,
[1:25] SPEAKER_02: give us the one minute summary of what the performance was like in 2024.
[1:30] SPEAKER_00: Thank you, Rama.
[1:31] SPEAKER_00: And it's great to be back on Xspaces.
[1:33] SPEAKER_00: I think the last time we were on this, it had a different name.
[1:35] SPEAKER_00: It was called Twitter back then and had a different owner.
[1:38] SPEAKER_00: It's great to be back and to talk about our results for 2024.
[1:42] SPEAKER_00: Quick summary, 25% performance on a profit before tax basis.
[1:49] SPEAKER_00: And this is accompanied,
[1:50] SPEAKER_00: of course,
[1:51] SPEAKER_00: with a final dividend that we're declaring of one shilling in 70 cents to
[1:55] SPEAKER_00: complement the interim dividend we gave.
[1:58] SPEAKER_00: of one shilling and 30 cents.
[2:00] SPEAKER_00: So that's coming to a total of three shillings.
[2:02] And as you indicated,
[2:03] this is also reflected in the share price that we have seen.
[2:07] Our counter has probably been one of the best performing in the
[2:10] stock market.
[2:11] SPEAKER_00: But all round strong performance for the group.
[2:14] SPEAKER_00: We've had strong performance from the subsidiaries outside Kenya,
[2:18] SPEAKER_00: contributing 29% to Group PBT and also a very strong set of results,
[2:25] SPEAKER_00: reflecting a 17% growth in PBT.
[2:28] SPEAKER_00: Balance sheets,
[2:30] SPEAKER_00: while this has been flat,
[2:31] it reflected some of the challenges that we've seen with
[2:34] currencies around the region.
[2:35] SPEAKER_00: But if you look at the individual subsidiary performance,
[2:38] SPEAKER_00: that has also been strong on a local currency basis.
[2:41] SPEAKER_00: In terms of provisioning, that was 14% up.
[2:45] I think we all appreciate the difficult times our different
[2:49] economies have gone through.
[2:50] But that,
[2:51] if you look at absolute NBLs,
[2:53] that's relatively flat at about 35 million.
[2:56] And what this translates to then is a relatively flat cost of
[3:02] risk across the group
[3:03] SPEAKER_00: at about 2.6%.
[3:04] SPEAKER_00: Let me stop there and then we can dig into the details a bit more.
[3:08] SPEAKER_02: I do want to start with the loan book, right?
[3:09] SPEAKER_02: Because there was some interesting trends there.
[3:11] SPEAKER_02: We saw this contraction of around 8% in the corporate segment,
[3:14] SPEAKER_02: 7% in the retail and the business banking segment.
[3:17] SPEAKER_02: What's your assessment of where clients demand for debt is at the moment,
[3:22] SPEAKER_02: especially going into fiscal 2025?
[3:24] Is it likely to remain in that same trajectory or might it
[3:28] remain flat this year?
[3:29] SPEAKER_02: And if so, why?
[3:31] SPEAKER_00: So speaking for Kenya in particular,
[3:34] I think we have seen the impact that the macros truly have on
[3:39] the customer balance
[3:40] SPEAKER_00: sheets and appetite for credit.
[3:42] I think if you look back to 2023,
[3:45] we were starting to see interest rates rise.
[3:49] And as we battled inflation,
[3:50] you will recall inflation had risen,
[3:52] touched just under 10% or so.
[3:54] And the aggressive action that had been taken by the central
[3:58] bank on the monetary
[3:58] policy front to rein in inflation meant that interest rates
[4:01] went up to just under 17%.
[4:04] SPEAKER_00: Now, last year, that trend started reversing.
[4:06] But as you will have had in conversation on the stickiness of
[4:11] interest rates as
[4:11] SPEAKER_00: rates are coming down,
[4:13] SPEAKER_00: it has meant that customers have seen,
[4:15] SPEAKER_00: for the last two years or so,
[4:17] SPEAKER_00: a rather high interest rate environment,
[4:19] SPEAKER_00: which has then been reflected in
[4:22] SPEAKER_00: in some prudent steps that they must take.
[4:24] It's a bit difficult to get returns above the almost 20% rate
[4:29] of interest that we
[4:30] SPEAKER_00: were seeing in the market.
[4:33] And that meant that in some cases,
[4:34] customers were defiring any capital expenditure.
[4:38] SPEAKER_00: They were focusing on simply just managing their working capital.
[4:42] So it's not surprising that we saw credit to the private sector
[4:46] actually deep in
[4:47] SPEAKER_00: the previous year.
[4:48] SPEAKER_00: Now,
[4:49] with the interest rates having come down in late 2024 and also
[4:54] early 2025,
[4:55] SPEAKER_00: the expectation is that you will see growing demand coming,
[5:00] SPEAKER_00: the customers revisiting some of those plans for capital expansion,
[5:04] SPEAKER_00: just simply because it's a bit more affordable now.
[5:07] SPEAKER_00: We're not out of the woods yet,
[5:09] SPEAKER_00: and some of those adjustments are yet to happen,
[5:11] SPEAKER_00: but this is what we are expecting.
[5:14] SPEAKER_02: Looking at it from the supply side,
[5:15] SPEAKER_02: right,
[5:16] there's been all these policy moves to try and make a bit more
[5:19] liquidity available
[5:20] SPEAKER_02: in the market,
[5:21] SPEAKER_02: right?
[5:21] SPEAKER_02: The central bank has cut the policy rate.
[5:23] SPEAKER_02: Banks, obviously, reducing the retail rate as well.
[5:25] SPEAKER_02: There was a cut 100 basis points to the cash reserve ratio,
[5:28] SPEAKER_02: which frees up a fair bit of liquidity to come into the market.
[5:30] But looking at it from the perspective of households and consumers,
[5:34] but if you track...
[5:35] SPEAKER_02: where real wages have been over the last five years.
[5:38] Kenyan households effectively have been facing a decline in
[5:40] purchasing power,
[5:41] SPEAKER_02: right,
[5:41] SPEAKER_02: every single year from 2020 through to 2023,
[5:42] SPEAKER_02: and likely the same in 2024.
[5:46] That trend of a very constrained pot of disposable income is
[5:51] likely to remain in
[5:52] SPEAKER_02: place for 2025.
[5:53] SPEAKER_02: So even if there is a reduction in the cost of credit,
[5:56] SPEAKER_02: how will that then translate into demand for future credit?
[6:00] SPEAKER_02: Because to put it crudely,
[6:02] SPEAKER_02: households and businesses will probably be like,
[6:03] SPEAKER_02: hey,
[6:04] SPEAKER_02: we just don't have the money.
[6:06] SPEAKER_00: Absolutely.
[6:06] SPEAKER_00: It's quite what's on.
[6:08] SPEAKER_00: And I think therein lies a bit of a paradox, right?
[6:10] SPEAKER_00: Because yes, your disposable income is being raided.
[6:15] And as a result,
[6:16] people are then looking at adjusting how they spend their money.
[6:20] What that means is if you want to stretch the reduced
[6:25] disposable income that you have,
[6:26] SPEAKER_00: You're then looking at the role that credit plays in that.
[6:29] SPEAKER_00: So you're saying, can I borrow to meet some of these needs?
[6:32] So we expect that at the household level,
[6:35] you will see greater use of credit.
[6:36] The fact that interest rates have come down actually then means
[6:39] you can perhaps
[6:40] borrow more because rates have come down and your monthly
[6:44] expenditure on loan
[6:45] SPEAKER_00: repayments will be that much lower.
[6:48] SPEAKER_00: I think it is still something that we have yet to validate.
[6:51] SPEAKER_00: We did see in 2020,
[6:53] SPEAKER_00: that there was a seriously strong appetite on the retail side.
[6:58] SPEAKER_00: Personal lending initiatives have grown quite well.
[7:02] SPEAKER_00: And particularly because you're offering it on digital channels,
[7:05] we in particular developed some interesting personal loan
[7:09] products that are easily
[7:10] SPEAKER_00: accessible via digital channels.
[7:12] SPEAKER_00: And we have seen the appetite for that grow.
[7:14] SPEAKER_00: Not so sure when we will truly see that signal.
[7:17] SPEAKER_00: But I think from the macro level,
[7:18] SPEAKER_00: if you consider the decline in disposable income,
[7:22] SPEAKER_00: the need for credit will certainly rise.
[7:24] SPEAKER_02: One of the other things that I've noticed,
[7:26] just looking at the results coming through at least in the
[7:28] course of this month,
[7:29] SPEAKER_02: is clients are moving towards a lot more short-term facilities,
[7:32] SPEAKER_02: like the digital loans that you've spoken about,
[7:34] SPEAKER_02: for example.
[7:35] SPEAKER_02: And just looking at that specific market segment,
[7:37] SPEAKER_02: lots of banks,
[7:37] SPEAKER_02: even down bank institutions,
[7:38] SPEAKER_02: SACWAS are now even in that space,
[7:40] SPEAKER_02: offering some kind of short-term loan facility through digital channels.
[7:44] In a market that,
[7:44] at least on paper,
[7:45] looks increasingly crowded,
[7:47] what's INM's differentiator?
[7:49] How do you make that product sufficiently sticky to keep
[7:52] clients coming back?
[7:54] SPEAKER_00: From our experience,
[7:55] and we have been engaging in the retail lending space on the
[7:59] longer term and
[8:00] SPEAKER_00: progressively introducing even shorter data to solutions for clients,
[8:03] we have seen actually an increasing number of customers
[8:07] actually joining our
[8:08] SPEAKER_00: platforms because they want to be able to access the credit.
[8:12] SPEAKER_00: So to give you an indication,
[8:14] SPEAKER_00: we have had just about 50,000 clients who've joined over the past year.
[8:19] SPEAKER_00: And 50% of those have actually come in through digital channels.
[8:22] Now they may be building up their profile,
[8:26] obviously from a lending perspective.
[8:29] SPEAKER_00: We will then assess them,
[8:30] SPEAKER_00: give them a pre-scored limit,
[8:33] which we make it very easy really for them to make a decision
[8:37] on whether they want
[8:38] SPEAKER_00: to borrow.
[8:39] We'll tell you,
[8:39] Rama,
[8:40] you qualify for 30,000 shillings for 30 days,
[8:45] right?
[8:45] SPEAKER_00: And you just need to click to be able to access that.
[8:48] SPEAKER_00: That's immediately dispensed into your current account.
[8:51] SPEAKER_00: Now, you can choose to repay it over eight days.
[8:55] SPEAKER_00: Maybe you are looking to fulfill something very quickly.
[8:58] And once that is repaid,
[9:00] you can take that second facility immediately after that.
[9:03] SPEAKER_00: Now, customers have responded very well to this.
[9:06] SPEAKER_00: And we are seeing, of course, the numbers growing in that space.
[9:11] What that does is,
[9:12] of course,
[9:12] that you're turning credit a lot more frequent.
[9:15] SPEAKER_00: You're turning it a lot more frequent.
[9:17] SPEAKER_00: The longer date and borrowing still remains.
[9:21] SPEAKER_00: You'll still have people who have need to finance assets,
[9:24] SPEAKER_00: whether it is mortgages that they're taking or vehicle finance and so on.
[9:29] But I think that's where the reconsideration is actually
[9:32] happening to our earlier discussion.
[9:33] SPEAKER_00: Do I really need to buy that car?
[9:36] SPEAKER_00: Do I really need to buy that house now?
[9:38] SPEAKER_00: But from our short-term funding,
[9:41] SPEAKER_00: managing your borrowing needs for the short term,
[9:43] SPEAKER_00: that I think has been rising.
[9:45] SPEAKER_00: David, I don't know whether you'd want to compliment on the question.
[9:48] SPEAKER_01: I guess the one differentiator for us,
[9:51] SPEAKER_01: and thank you,
[9:51] SPEAKER_01: Kihara,
[9:52] SPEAKER_01: is the fact that a mobile solution is free.
[9:55] SPEAKER_01: You can access it without any charges.
[9:58] SPEAKER_01: And we have seen that being a competitive advantage for us where...
[10:02] Customers do want to manage their financial affairs using our
[10:06] channels because then
[10:07] they do know that they can transfer monies in and out without
[10:11] incurring any cost.
[10:12] SPEAKER_01: As you both said,
[10:14] SPEAKER_01: as the disposable income have become squeezed,
[10:17] then the customers have become a lot more sensitive to some of
[10:21] these charges.
[10:22] SPEAKER_01: So we are seeing that driving uptake in our digital channel.
[10:27] Just before I get into the question around NPLs and a broader
[10:30] discussion around that,
[10:31] SPEAKER_02: can you give us any sense of what the churn rate is like?
[10:33] If a client comes in and says access to the app is relatively free,
[10:36] it's pretty straightforward.
[10:37] SPEAKER_02: But do these clients come in and stay for the long haul?
[10:41] SPEAKER_02: Or are we seeing the sort of same behavior that we've seen,
[10:43] SPEAKER_02: for example,
[10:43] on the non-deposit taking side of things where you've got
[10:45] clients who are active on
[10:46] SPEAKER_02: multiple platforms and they're not necessarily quote unquote loyal,
[10:50] SPEAKER_02: although that's a bit of a crude word to use here,
[10:52] SPEAKER_02: loyal quote unquote to a specific platform.
[10:54] SPEAKER_02: So they're simply shopping around for the best possible deal.
[10:57] I'd say that you're actually seeing stickiness and it's also
[11:00] driven by the other
[11:01] SPEAKER_00: complementary aspects of our offering.
[11:04] SPEAKER_00: So as we were the first,
[11:05] perhaps still the only bank to offer free bank to mobile money
[11:11] transfers and vice versa.
[11:14] SPEAKER_00: And that has really helped.
[11:15] We were talking earlier about the disposable income that
[11:18] squeeze that we are seeing.
[11:19] It makes sense for individuals and for particularly sole
[11:24] proprietorship businesses
[11:25] SPEAKER_00: to take advantage of the reduced fee profile that the bank offers.
[11:31] SPEAKER_00: So that is leading to attraction and it is leading to tickets.
[11:34] SPEAKER_00: So in terms of customer churn, that has actually been very limited.
[11:39] SPEAKER_00: We are seeing over 70% of the accounts that are opened on the app.
[11:44] SPEAKER_00: actually being funded within less than two weeks or so.
[11:48] SPEAKER_00: So that is not a concern.
[11:50] SPEAKER_00: We are also seeing,
[11:51] SPEAKER_00: of course,
[11:52] SPEAKER_00: that when customers borrow,
[11:53] they are interested in getting that opportunity to borrow
[11:57] afresh because your
[11:58] SPEAKER_00: credit profile improves as you pay.
[12:00] SPEAKER_02: David, I want to bring you in.
[12:02] SPEAKER_02: Let's talk about NPLs, right?
[12:03] SPEAKER_02: Because the number that we saw in the results you presented,
[12:06] SPEAKER_02: 35.5 billion shillings as far as the gross number is concerned,
[12:10] SPEAKER_02: which went up marginally compared to some of your peers in the industry.
[12:13] SPEAKER_02: We've seen double digit increases.
[12:15] SPEAKER_02: Elsewhere, gross NPL ratio is 12.4%.
[12:17] SPEAKER_02: That's about 400 basis points below the industry average.
[12:22] Can you give us a bit more color on what the NPL side of the
[12:25] portfolio looks like?
[12:26] SPEAKER_02: Where is it concentrated?
[12:28] SPEAKER_02: What's driving its accumulation?
[12:30] SPEAKER_01: Overall,
[12:31] our loan portfolio is about 70% corporate and institutional and
[12:36] 30% retail,
[12:39] SPEAKER_01: premium banking,
[12:39] SPEAKER_01: and business banking.
[12:41] SPEAKER_01: And NPL shapes are the same way.
[12:45] So 70% of our NPL is in the corporate and institutional segment
[12:51] of our customers.
[12:52] SPEAKER_01: And then the 30% is the other three segments.
[12:56] SPEAKER_01: Then regional-wise, Kenya is the biggest subsidiary.
[12:59] SPEAKER_01: So Kenya accounts for 30 billion of that, 35.
[13:04] And then what we have seen,
[13:06] and we've just spoken to the challenging Kenya macro.
[13:09] SPEAKER_01: So we did see the Kenya on an absolute number, the Kenyan NPL rising.
[13:15] SPEAKER_01: from about 28 to 30 billion.
[13:17] SPEAKER_01: But for the rest of the subsidiaries,
[13:19] SPEAKER_01: particularly in Tanzania and Uganda,
[13:21] we did see significant reduction in the NPL absolute number and
[13:27] ratios for those
[13:28] SPEAKER_01: two subsidiaries.
[13:29] SPEAKER_01: Tanzania declined from 21% to 8%.
[13:33] SPEAKER_01: and Uganda from about 14% to 5%.
[13:36] SPEAKER_01: In Rwanda, slight uptick, 3%, 5%.
[13:41] But the biggest chunk of the increase we saw and which
[13:44] corresponds to the macros
[13:46] that we have just spoken to in the difficult economic
[13:48] environment was in Kenya.
[13:50] SPEAKER_01: I think that's how the numbers are shaping up.
[13:54] SPEAKER_02: With respect to Tanzania and Uganda,
[13:56] SPEAKER_02: because to be fair,
[13:57] SPEAKER_02: and I think this is a bit of oversight on our part,
[13:59] SPEAKER_02: because when we speak about bank results,
[14:01] SPEAKER_02: we often tend to have a very laser focus on Kenya.
[14:03] But the problem with that is it tends to gloss over some of
[14:06] these interesting
[14:07] SPEAKER_02: trends in the region.
[14:08] SPEAKER_02: So what is it that explains that decline in NPLs in Tanzania and Uganda?
[14:12] Is there a strong correlation between that and the sort of
[14:14] phenomenal growth rates
[14:15] SPEAKER_02: we're seeing in those markets?
[14:16] SPEAKER_02: Or is it that the credits there are simply being better managed,
[14:19] that companies are being a bit more proactive in how they
[14:22] tackle the existing NPLs
[14:23] SPEAKER_01: they have?
[14:24] So firstly,
[14:25] on a macro basis,
[14:26] Tanzania and Uganda,
[14:27] they performed much better than Kenya.
[14:30] SPEAKER_01: Uganda, GDP growth close to 7%, Tanzania.
[14:34] SPEAKER_01: Close to 6%.
[14:36] SPEAKER_01: But in our case,
[14:37] SPEAKER_01: specifically,
[14:38] what we have witnessed during 2024 is actually collections
[14:42] against the NPL loans we
[14:45] SPEAKER_01: had outstanding.
[14:46] SPEAKER_01: As I did say, out of 35, 30 is from Kenya.
[14:49] SPEAKER_01: So the collections, like for Tanzania, that was close to about a billion.
[14:54] SPEAKER_01: So shrinking that, Uganda, a similar number.
[14:57] So it's really connections and aggressive recovery efforts to
[15:03] bring back the money
[15:04] SPEAKER_01: that our customers owe us.
[15:07] SPEAKER_02: In terms of future growth,
[15:09] there's a couple of interesting elements in the four-year
[15:11] presentation that stood
[15:12] SPEAKER_02: out to me.
[15:13] But one of the ones that was listed as new growth areas for the
[15:16] business was growth.
[15:17] SPEAKER_02: the public sector.
[15:18] SPEAKER_02: And hearing that,
[15:19] given the sort of macroeconomic data that I tend to look at
[15:21] from the Kenyan state,
[15:23] SPEAKER_02: the Kenyan state believe in December,
[15:25] SPEAKER_02: the amount of supply debt that they had was 530 billion Kenyan shillings.
[15:29] SPEAKER_02: How are you going to manage that exposure to state business,
[15:34] SPEAKER_02: public sector business,
[15:35] SPEAKER_02: where payments have obviously been a problem for quite a few years now?
[15:39] SPEAKER_00: Roma, indeed, this has been, I'd say, a challenge.
[15:42] It has come at various levels,
[15:43] obviously,
[15:44] at the national level and also at the county level.
[15:47] SPEAKER_00: But for us to use the word, it would be to be very selective.
[15:50] SPEAKER_00: Not every government entity is necessarily a challenge to work with.
[15:56] So we are being selective and working with the stronger
[15:59] parastatals that we know.
[16:01] We are looking at also how they connect to our various customer
[16:07] businesses as well.
[16:08] SPEAKER_00: It's selective and cautious.
[16:10] SPEAKER_00: We appreciate that the profile out there is challenging,
[16:14] SPEAKER_00: but it is an area that we cannot ignore.
[16:16] SPEAKER_00: Government is one of the largest borrowers that you have,
[16:19] SPEAKER_00: whether it's from the treasury or whether it is through our statals.
[16:23] SPEAKER_00: And this is a similar story in other countries as well.
[16:26] SPEAKER_00: If we look at Rwanda,
[16:28] SPEAKER_00: if you are not dealing with government,
[16:30] SPEAKER_00: you are really not doing business in that country.
[16:32] So it's selective,
[16:34] but we know that there is business out there that we can do.
[16:36] SPEAKER_01: And maybe if I can add on to that as well is there's the asset side,
[16:41] SPEAKER_01: growth,
[16:42] SPEAKER_01: and as Kiara says,
[16:43] SPEAKER_01: selective,
[16:44] SPEAKER_01: but then public sector also drives significant transactions.
[16:49] SPEAKER_01: So if we can capture part of that transaction flow on the funding side,
[16:54] SPEAKER_01: on the liability side,
[16:56] SPEAKER_01: it's a focus for us.
[16:57] There's a couple of questions that are coming in to us on
[17:00] WhatsApp and on Twitter.
[17:01] SPEAKER_02: But before I get to those,
[17:02] SPEAKER_02: gentlemen,
[17:03] SPEAKER_02: I want to talk about the growth plan,
[17:05] SPEAKER_02: right,
[17:05] SPEAKER_02: in future,
[17:05] SPEAKER_02: because can operations now account for 71% of free tax earnings,
[17:10] SPEAKER_02: at least for fiscal 24?
[17:12] SPEAKER_02: Over the medium term,
[17:13] is there a target for that number to drop to as part of broader
[17:16] efforts to
[17:18] SPEAKER_02: diversify the business?
[17:19] SPEAKER_02: If we have this conversation five years from now,
[17:21] SPEAKER_02: what will that PBT split among the regional entities look like?
[17:26] That's always a difficult question to answer because you have
[17:29] to appreciate that
[17:30] SPEAKER_00: every business wants to grow and Kenya's leading position in terms of the
[17:34] SPEAKER_00: contribution is not one to be easily seeded.
[17:37] SPEAKER_00: If you look at the trajectory we've had over the last three years,
[17:41] that's risen from about 16% contribution from the subsidiaries
[17:45] to now 29% of
[17:47] SPEAKER_00: Of course, there's noise in those numbers.
[17:49] SPEAKER_00: We've had a couple of those businesses while loss-making.
[17:53] SPEAKER_00: So obviously,
[17:54] the share that came from the other countries would be depressed
[17:57] and Kenya would be outside.
[17:58] SPEAKER_00: But let me say this.
[18:00] It really is our expectation that our geographical
[18:04] diversification can be mirrored
[18:06] SPEAKER_00: in our financial diversification.
[18:09] SPEAKER_00: Because the reason you get out into these various countries is initially,
[18:13] SPEAKER_00: of course,
[18:13] to make sure that you're able to support the customers who you
[18:18] are already serving
[18:18] SPEAKER_00: and are also expanding.
[18:20] SPEAKER_00: You're following your customers.
[18:21] They want to work with familiar names,
[18:23] but you're also tapping opportunities in those markets.
[18:26] SPEAKER_00: The objective for each presence market we have is to become relevant.
[18:32] SPEAKER_00: We want to be tier one in each market that we operate in.
[18:35] And that means that the opportunities to scale will come from
[18:39] organic growth.
[18:40] SPEAKER_00: We come from inorganic opportunities that we cite in those markets.
[18:45] SPEAKER_00: Ideally, you do not want to be too reliant on one market.
[18:49] And if you can get a great counterweight to your big home market,
[18:53] that would be fantastic.
[18:54] SPEAKER_00: But we know that we'll keep on looking at the different opportunities,
[18:58] SPEAKER_00: both organic and inorganic,
[18:59] SPEAKER_00: to scale the size of our various businesses.
[19:02] SPEAKER_00: Is there a target?
[19:03] If we could get to 50% contribution from all our subsidiaries
[19:07] within that five-year period,
[19:09] SPEAKER_00: that would be great.
[19:10] SPEAKER_00: But it is an operation for me at least.
[19:13] SPEAKER_02: There's a question that's come in with respect to loan pricing models.
[19:17] SPEAKER_02: And for context,
[19:18] SPEAKER_02: for listeners,
[19:19] this is a conversation that I believe was kicked off early in
[19:21] the month when your
[19:23] SPEAKER_02: counterpart over at Stanbeck,
[19:24] SPEAKER_02: Joshua Agara,
[19:25] SPEAKER_02: mentioned that,
[19:25] SPEAKER_02: look,
[19:26] as banks are trying to have a conversation on having a single
[19:29] reference rate that
[19:30] will be in place to make it easier for people to just
[19:33] transparently price debt,
[19:34] SPEAKER_02: price facilities across the board.
[19:36] Are there any updates you can give us on where those
[19:39] discussions are at the moment
[19:40] SPEAKER_02: to the regulator,
[19:41] SPEAKER_02: the Central Bank of Kenya?
[19:42] SPEAKER_02: And assuming we do move to a single point of reference,
[19:46] what issues would that give you as I&M in terms of how you
[19:49] price your facilities?
[19:50] SPEAKER_01: So the discussions with the regulator, they are ongoing.
[19:54] We are working collectively,
[19:56] all the banking institutions through the KBA.
[19:59] SPEAKER_01: We've given our input.
[20:00] The proposal right now is to have the reference rate based off
[20:04] the CBR and the interbank rate.
[20:08] So there are mechanics as to how then that will work through
[20:11] and how to capture the
[20:13] SPEAKER_01: differentiation in the business models of the various banks.
[20:17] SPEAKER_01: And really,
[20:18] SPEAKER_01: until those points are finessed and concluded,
[20:22] SPEAKER_01: it will be,
[20:23] SPEAKER_01: I think,
[20:24] SPEAKER_01: a little premature to say what the impact to INM would be.
[20:28] SPEAKER_01: I think we'll have to see what's crystallizing.
[20:31] We can then walk back to what that means for our counter to our
[20:35] current practice.
[20:37] SPEAKER_00: Let me add,
[20:37] SPEAKER_00: Ram,
[20:37] that I think to be able to deal with this issue that's
[20:42] currently under discussion,
[20:43] SPEAKER_00: we have to frame the right questions.
[20:46] SPEAKER_00: I think at the outset,
[20:47] SPEAKER_00: when we started talking about risk-based pricing,
[20:50] a very important outcome that was expected was that we reflect
[20:56] the credit profile
[20:58] SPEAKER_00: of our customers in the pricing that we offer.
[21:01] SPEAKER_00: And that was the push at the time to make sure we get that.
[21:04] SPEAKER_00: Now,
[21:05] we've always been at INN about reflecting the riskiness that
[21:10] clients have in the
[21:11] SPEAKER_00: pricing that we offer.
[21:12] The second aspect that is really being looked at is monetary
[21:16] policy transmission.
[21:18] SPEAKER_00: Is the framework that we have strong enough to...
[21:21] SPEAKER_00: actually transmit that desired outcome when a policy decision is made.
[21:25] SPEAKER_00: Those are the elements that we need to work on as a marketer and say,
[21:28] SPEAKER_00: are we actually capturing the right questions?
[21:31] And then say what really then is the appropriate solution so
[21:35] that we can solve
[21:35] SPEAKER_00: those two problems with a framework.
[21:38] Just before I get to a question related to that on interest
[21:40] rates that we're
[21:41] SPEAKER_02: getting at the moment,
[21:42] some of the listeners in the room at the moment will remember
[21:44] that we tried
[21:45] SPEAKER_02: something similar.
[21:46] I think it was about a decade ago,
[21:47] KBIR,
[21:48] the Kenya Bankers Reference Rate,
[21:49] right?
[21:50] Which was a combination of CBR plus,
[21:53] I believe it was a rolling average of the 91-day period.
[21:56] SPEAKER_02: T-build rates.
[21:57] SPEAKER_02: And at face value, what's in discussion now seems familiar.
[22:02] SPEAKER_02: The question, though, is what will be different this time around?
[22:06] SPEAKER_00: As I said, the issue is to say, how do you balance those two things?
[22:09] SPEAKER_00: Now,
[22:09] SPEAKER_00: one of the concerns I think we had with KBR back in the day was,
[22:14] SPEAKER_00: yes,
[22:14] SPEAKER_00: it is linked directly to the CBR.
[22:17] SPEAKER_00: And as it moves, of course, that rate moves.
[22:19] And you've also got a linkage into some of the principal rates
[22:23] in the market.
[22:24] SPEAKER_00: But
[22:25] Are you truly reflecting then the risk to capital that you have
[22:29] as a bank if these
[22:30] SPEAKER_00: rates are adjusting so dramatically?
[22:33] And this is a really important aspect of asset and liability
[22:36] management because if
[22:37] you look at the sharp drop that we had in interest rates just a
[22:41] few months ago,
[22:43] SPEAKER_00: If you were to say that your primary rate is then adjusted,
[22:46] SPEAKER_00: so all the new credit that you're putting in,
[22:47] even existing credit that you have on your book is repricing at
[22:51] that new bed.
[22:52] What happens to all of the deposits that you already have on
[22:54] your book that are at
[22:56] SPEAKER_00: significantly higher prices?
[22:58] SPEAKER_00: You have a significant repricing risk, right?
[23:01] So you have to balance all of these things and get outcomes
[23:04] that also reflect that
[23:07] SPEAKER_00: this is actually a very competitive market.
[23:09] SPEAKER_00: We have to trust that customers are able to switch.
[23:13] SPEAKER_00: Nobody is bound to trade with one bank.
[23:16] SPEAKER_00: And therefore,
[23:17] SPEAKER_00: if you are not responsive to what the market is doing,
[23:22] SPEAKER_00: you're going to lose out,
[23:23] SPEAKER_00: right?
[23:24] And that competitive market is really what we must strive to
[23:27] get so that you can
[23:28] SPEAKER_00: get that responsiveness to interest rate signal.
[23:31] SPEAKER_02: I want to come to a question here.
[23:33] SPEAKER_02: This is from Jamma Abdi Zed, and he's focusing on interest rates.
[23:37] He says we're seeing rates reducing at the moment,
[23:39] but how long will that continue?
[23:41] And what figure do you expect it to stabilize,
[23:43] at least in the short term?
[23:45] SPEAKER_02: It's been like asking you gentlemen to appear into a crystal ball here.
[23:48] SPEAKER_02: We have ringside seats at the MPC meeting,
[23:51] SPEAKER_02: but it's still going to be an interesting one to cover.
[23:52] SPEAKER_02: Where do you think the trajectory of rates will be?
[23:55] I'm more hesitant to try and predict what interest rates will
[23:59] be because more often
[24:00] SPEAKER_00: than you get it wrong.
[24:01] Suffice it to say that you need to be balancing at least two
[24:06] other macro issues,
[24:07] right?
[24:08] SPEAKER_00: You have to look at inflation.
[24:09] SPEAKER_00: We have a focus on our monetary policy on inflation targeting.
[24:13] SPEAKER_00: And as long as that is under control,
[24:16] then you expect that the interest rate level that is prevailing
[24:19] is actually dealing
[24:20] SPEAKER_00: with that now if you're...
[24:21] SPEAKER_00: looking forward to where inflation is likely to rise,
[24:24] SPEAKER_00: then you expect that the interest rates will respond.
[24:26] SPEAKER_00: The other element is the exchange rate.
[24:28] SPEAKER_00: And again,
[24:29] SPEAKER_00: if that is stable,
[24:30] SPEAKER_00: you then expect that that Holy Trinity is actually going to be in sync.
[24:36] SPEAKER_00: So I'd say in the short term,
[24:38] the direction that we have seen with interest rates coming down
[24:42] seems to prevent
[24:43] SPEAKER_00: that equilibrium.
[24:44] SPEAKER_00: I don't expect that we will see significant further movements downward.
[24:48] SPEAKER_02: But just to follow up on that,
[24:49] do you expect that we've essentially hit the floor with the
[24:52] current series of rate
[24:53] SPEAKER_02: cuts being where they are?
[24:54] SPEAKER_00: Difficult to call, as I said.
[24:56] I think what I'd say is as long as we're not seeing any sharp
[25:01] movement in any of
[25:01] SPEAKER_00: the other indicators,
[25:03] then it would tell us that the interest rates level have
[25:05] reached an equilibrium level.
[25:07] SPEAKER_02: There's a question here from Gitao Kelvin,
[25:09] SPEAKER_02: although I'm going to add in a bit of flavor to it as well.
[25:13] He's asking if there are any plans for the bank to get into the
[25:16] DRC market.
[25:17] SPEAKER_02: We've seen that with some of the larger players,
[25:19] SPEAKER_02: KCB,
[25:20] SPEAKER_02: equity banks that have gone into the specific markets.
[25:22] SPEAKER_02: But I guess with your regional diversification at the moment,
[25:26] SPEAKER_02: you're present in Tanzania,
[25:27] SPEAKER_02: Uganda,
[25:28] SPEAKER_02: Rwanda,
[25:28] SPEAKER_02: Mauritius as well.
[25:30] Is there really a business case to get into the DRC or would
[25:32] the focus now,
[25:33] SPEAKER_02: given the capital you have at the moment,
[25:35] be on growing new business lines within the markets in which
[25:39] you're geographically present?
[25:41] I'd say that we remain open to opportunities that are in the
[25:45] wider Eastern Africa space.
[25:47] SPEAKER_00: We will keep a watching brief on markets like those.
[25:52] SPEAKER_00: If anything is interesting, we would certainly look at it.
[25:55] We appreciate that our customers who are particularly in the
[26:00] business markets
[26:01] SPEAKER_00: bordering the DRC are doing business across both borders.
[26:06] It makes sense for us to then say if it is sufficient in terms
[26:10] of this opportunity,
[26:11] SPEAKER_00: we would look at it.
[26:12] SPEAKER_02: With respect to future growth plans,
[26:14] SPEAKER_02: are there any specific sectors that you're interested in growing?
[26:17] SPEAKER_02: Because I know you've spoken about,
[26:18] SPEAKER_02: for example,
[26:19] SPEAKER_02: the wealth management business and trying to grow that.
[26:21] SPEAKER_02: You've spoken about bank assurance as well in a presentation here today.
[26:24] Are there other business lines in addition to those that you're
[26:27] really keen on
[26:28] seeing potential growth that other players in the market
[26:30] haven't tapped into?
[26:31] I would say that we are certainly interested in becoming a lot
[26:35] more relevant in
[26:37] SPEAKER_00: segments that we haven't been traditionally strong in.
[26:40] And this in particular is the case in the SME,
[26:44] MSME space,
[26:45] the retail,
[26:46] so personal space.
[26:47] We are building out our customer value propositions in each of
[26:51] those spaces,
[26:52] SPEAKER_00: a lot of which digital led.
[26:53] SPEAKER_00: We've invested very heavily in the digital space.
[26:57] SPEAKER_00: And it is being borne out in the kind of awards we've been getting,
[27:00] SPEAKER_00: the kind of accolades we've been getting.
[27:02] SPEAKER_00: We were recognized,
[27:03] SPEAKER_00: for example,
[27:04] SPEAKER_00: for being the number one bank in customer sentiment on social media,
[27:08] SPEAKER_00: by far and away the largest,
[27:10] which is really testament to a lot of the investment that's
[27:13] happened in making sure
[27:14] that our customer experience on the digital front is very
[27:18] strong and class-leading.
[27:20] So we expect that this provides a good platform for us to get
[27:24] into these new markets.
[27:26] We still feel that there's a lot of opportunity in the
[27:29] financial inclusion space.
[27:31] There's a lot of opportunity in providing innovative solutions
[27:35] in the MSME space.
[27:37] We have sectors in the corporate space that we are still under-representing.
[27:42] SPEAKER_00: We've made a good foray into oil and gas.
[27:46] There's still a lot of opportunity to expand that,
[27:47] not just in Kenya,
[27:49] but across the region.
[27:50] SPEAKER_00: We talked in the presentation earlier today about the Uganda opportunity.
[27:56] SPEAKER_00: While they're looking to get fast oil out,
[27:59] it means that there's a lot of opportunity in the value chain
[28:02] that is attached to that.
[28:03] SPEAKER_00: We want to service that as well.
[28:05] SPEAKER_02: Just to be clear,
[28:05] SPEAKER_02: that's going to be involvement in the upstream oil sector,
[28:08] SPEAKER_02: essentially businesses adjacent to the upstream part of the value chain.
[28:12] SPEAKER_02: And for clarity for our listeners,
[28:13] SPEAKER_02: when we say upstream,
[28:14] it's essentially the process of getting the oil out of the
[28:16] ground and getting that
[28:17] SPEAKER_02: into a refinery.
[28:18] SPEAKER_00: Yes, exactly.
[28:19] And there are a lot of associated suppliers that have to work
[28:23] to get that going out
[28:23] SPEAKER_00: of the ground.
[28:24] SPEAKER_00: So we are making sure that we are well positioned to service that.
[28:28] SPEAKER_00: Indeed,
[28:29] SPEAKER_00: you'll appreciate,
[28:29] SPEAKER_00: Rama,
[28:30] SPEAKER_00: that this is why the Bank of Uganda has been leading in the market.
[28:34] SPEAKER_00: in the region to drive capital requirements for banks.
[28:38] They want a strong financial sector to really enable these
[28:41] opportunities to be serviced.
[28:43] SPEAKER_00: I think it's quite a wide range.
[28:45] We know that in the payments space as well,
[28:48] there is a lot of opportunity.
[28:50] We have built up a very nice business in the bank assurance space,
[28:55] very strong in Kenya.
[28:56] SPEAKER_00: We're looking to extend that across the region.
[28:58] SPEAKER_00: We have all done very well on the wealth management side.
[29:02] We're now looking at assets and the management,
[29:04] I think it was 30 billion shillings.
[29:06] SPEAKER_00: And that's just about a two-year period.
[29:08] SPEAKER_00: This is also something that we can extend across the region.
[29:11] SPEAKER_00: So I think there's a lot of opportunity.
[29:13] SPEAKER_00: And what we're looking to do is
[29:15] build out those customer value propositions that we can provide
[29:18] a range of
[29:19] SPEAKER_00: financial solutions to the clients that we choose to serve.
[29:22] Ethiopia is another one of those markets that often comes up in
[29:25] these conversations.
[29:26] SPEAKER_02: Is there any interest in hiring them to jump into the Ethiopian market?
[29:30] SPEAKER_02: Or would you prefer a much more cautious,
[29:32] SPEAKER_02: paced approach and say,
[29:33] SPEAKER_02: let's see how the market evolves first?
[29:35] SPEAKER_02: Because regulations for allowing foreign entities into the market,
[29:38] SPEAKER_02: I think,
[29:38] SPEAKER_02: have only just been approved the other day.
[29:40] So what's your thinking at the moment at board level about how
[29:43] to approach the
[29:44] SPEAKER_02: Ethiopian opportunity?
[29:45] SPEAKER_00: Ethiopia, obviously, is a market you can't ignore.
[29:47] SPEAKER_00: I mean, I think it's over 90 million people that you're looking at.
[29:52] SPEAKER_00: It's a big market.
[29:53] I think it is still relatively young in terms of the banking
[29:59] market developing,
[30:00] SPEAKER_00: but we've been watching it for the past five years or so.
[30:04] SPEAKER_00: Obviously,
[30:04] SPEAKER_00: the discussion on opening up for banking started a while ago,
[30:08] SPEAKER_00: but having watched it develop a clear
[30:12] SPEAKER_00: expectations around deployed capital in those markets.
[30:15] How are you positioned in terms of owning an entity there,
[30:20] controlling it?
[30:21] SPEAKER_00: Do you have the opportunity to exit if you are a minority, for example?
[30:26] SPEAKER_00: And we know that they're building out their capital markets as we speak.
[30:29] SPEAKER_00: They're trying to get that going.
[30:31] SPEAKER_00: So we maintain a watching brief.
[30:33] SPEAKER_00: I think it's an opportunity to engage via,
[30:36] SPEAKER_00: first of all,
[30:37] correspondent banking and looking to support customers who are
[30:40] already in that place.
[30:41] SPEAKER_00: But as I said,
[30:42] we'll just keep watching brief on this until they get perhaps
[30:46] the structures right
[30:47] SPEAKER_00: for bank participation.
[30:49] One last question on potential M&A opportunities before I dive
[30:52] back into one of the
[30:53] SPEAKER_02: questions we're getting on Twitter.
[30:55] SPEAKER_02: With the directive at the moment,
[30:56] SPEAKER_02: at least in this market,
[30:57] SPEAKER_02: and Uganda as well,
[30:58] SPEAKER_02: to raise capital levels across the banking sector,
[31:02] do you see that as an opportunity for potential acquisitions
[31:06] among Tier 2 and Tier
[31:07] SPEAKER_02: 3 lenders?
[31:08] So the stated objective by some of the regulators who are
[31:12] ramping up the capital
[31:13] SPEAKER_00: requirements is that they want to see a stronger financial sector,
[31:17] SPEAKER_00: perhaps fewer players,
[31:18] SPEAKER_00: but stronger players,
[31:19] SPEAKER_00: which means that you should then see if the trigger is right,
[31:23] SPEAKER_00: some consolidation happen.
[31:25] SPEAKER_00: We've done a couple of acquisitions in our past,
[31:28] and you need to tick a number of boxes before you can say this
[31:31] is an attractive partner.
[31:32] SPEAKER_00: There has to be willingness as well from the various partners.
[31:36] SPEAKER_00: And sometimes this is going to be driven by a trigger to say,
[31:40] SPEAKER_00: actually,
[31:42] SPEAKER_00: this is to reach for us to keep on investing capital as shareholders.
[31:46] SPEAKER_00: Can we look for partners?
[31:47] I can only say,
[31:49] really,
[31:49] if the opportunity is right,
[31:51] we would certainly look at it.
[31:53] But it can also be time consuming to keep on tying up with
[31:56] different entities.
[31:58] SPEAKER_00: You have to deal with the assimilation challenges, cultural issues.
[32:02] SPEAKER_00: You have to deal with systems, transfers, customer impact and so on.
[32:06] SPEAKER_00: It's not that you want it to be sizable, right, if you agreed to do it.
[32:10] SPEAKER_00: But as I said, it would have to be interesting for us.
[32:14] SPEAKER_02: Brian Omolo has a question for you too, gentlemen.
[32:17] Going back to something we discussed a little early in the hour
[32:19] around the value
[32:20] SPEAKER_02: proposition on digital lending.
[32:22] SPEAKER_02: And this is the gist of his question.
[32:23] SPEAKER_02: He says, quote, there's a resurgence in digital lenders.
[32:25] They're giving loans at high interest rates and they're really
[32:27] giving banks,
[32:28] SPEAKER_02: he says,
[32:29] SPEAKER_02: a run for their money.
[32:30] SPEAKER_02: What's the plan to ensure that I&M remains relevant in this market?
[32:35] SPEAKER_00: So one of the,
[32:37] SPEAKER_00: I think,
[32:37] advantages of being a bank that is then providing digital
[32:42] lending solutions is that
[32:44] SPEAKER_00: we have been a regulated entity for very long.
[32:48] We appreciate the direction that the regulator is going to make
[32:52] sure that lending
[32:54] is done responsibly and that customers are not suffering
[32:58] because of the gouging on
[33:00] SPEAKER_00: interest rates.
[33:01] SPEAKER_00: So we expect that the regulation of credit providers,
[33:07] SPEAKER_00: digital lending providers,
[33:08] SPEAKER_00: is going to drive discipline in that space.
[33:13] SPEAKER_00: Now, from our perspective, we understand credit very well.
[33:17] We are looking at how we can bring in new tools to also help us
[33:22] understand the
[33:24] SPEAKER_00: customer profiles we have.
[33:25] opportunities that we are seeing from the data arising from the
[33:30] customers who are
[33:30] SPEAKER_00: dealing with us.
[33:31] SPEAKER_00: And we can therefore develop new solutions based on those insights.
[33:35] SPEAKER_00: As I mentioned earlier, we've invested very heavily in the digital space.
[33:39] That includes on what we are doing around data and the insights
[33:42] that come from that.
[33:43] And I think that gives us a very strong advantage to be able to
[33:47] develop new
[33:48] SPEAKER_00: solutions and scale them.
[33:50] SPEAKER_02: Indeed, it certainly does.
[33:51] SPEAKER_02: I want to go back to something you mentioned a little earlier,
[33:53] SPEAKER_02: the wealth management side of the business,
[33:54] SPEAKER_02: because looking at the trends there,
[33:56] SPEAKER_02: we're seeing double digit growth,
[33:57] SPEAKER_02: I believe to 64%.
[33:59] SPEAKER_02: From memory,
[34:00] SPEAKER_02: and correct me from wrong,
[34:01] SPEAKER_02: between 22,
[34:01] SPEAKER_02: 23,
[34:01] SPEAKER_02: and then into 23,
[34:03] SPEAKER_02: 24,
[34:03] we're looking at a jump of around 81% in assets under
[34:06] management to 31 billion shillings.
[34:08] What's driving that growth and how do you maintain that
[34:11] momentum into fiscal 25s?
[34:14] SPEAKER_01: I think all of this, it's interrelated maybe from where we began.
[34:19] SPEAKER_01: The funds we serve is financially savvy.
[34:22] SPEAKER_01: As we say, the household income is under pressure.
[34:25] SPEAKER_01: They raise that need by the client to earn a higher yield on their funds.
[34:30] So part of it is,
[34:32] as you recall then,
[34:33] interest rates were very rich last year.
[34:36] So we did see some clients pivoting out of the time deposits
[34:40] into wealth management.
[34:43] SPEAKER_01: And then part of it as well is given what happened to the currency,
[34:46] SPEAKER_01: we did see clients holding assets in foreign currency.
[34:50] There was uplift in foreign currency deposits across the
[34:54] banking sector and for us as well too.
[34:57] SPEAKER_01: And then when the foreign currency rates started coming down,
[35:01] SPEAKER_01: then again,
[35:02] those clients looking for better return on their funds got into
[35:06] the wealth management.
[35:08] SPEAKER_01: Now,
[35:08] SPEAKER_01: in the other aspect of it,
[35:10] SPEAKER_01: I guess,
[35:10] SPEAKER_01: and this is more structural than anything in part that,
[35:14] SPEAKER_01: and especially our young customers,
[35:17] SPEAKER_01: maybe 20 years ago,
[35:18] SPEAKER_01: they would have looked to start investing in landed buildings.
[35:21] SPEAKER_01: That seems not to be the trend now.
[35:24] So if you're talking in terms of then stickiness and these
[35:27] continuing to grow,
[35:28] SPEAKER_01: yes,
[35:28] SPEAKER_01: we do expect it to continue growing.
[35:31] SPEAKER_02: Now,
[35:32] I want to turn our attention to challenges and strategic issues
[35:35] that keep you awake
[35:36] SPEAKER_02: at night going into fiscal 25.
[35:37] And I'm going to list a few things that keep me awake at night
[35:40] from this end of the desk,
[35:41] SPEAKER_02: looking at the macro picture in the region.
[35:43] And I wanted to see what your thoughts are on them,
[35:45] especially with respect to Kenya.
[35:47] I think it might be relatively difficult to call where
[35:50] inflation does land.
[35:51] SPEAKER_02: Given the volatility we're seeing on some of the key inputs,
[35:53] SPEAKER_02: oil prices might be whipping up and down.
[35:55] SPEAKER_02: G2G might moderate some of that, but to what extent, it's a bit unfair.
[35:59] SPEAKER_02: Food prices,
[36:00] SPEAKER_02: ultimately dependent on how rains do turn out,
[36:03] SPEAKER_02: and if the last five years anything to go by,
[36:05] SPEAKER_02: those could push things a lot higher.
[36:07] SPEAKER_02: Interest rates,
[36:08] SPEAKER_02: given the fact that we might be running much higher deficits,
[36:11] SPEAKER_02: at least on the government side,
[36:13] SPEAKER_02: for the foreseeable future,
[36:14] SPEAKER_02: there's going to be a lot more demand,
[36:15] SPEAKER_02: I think,
[36:16] SPEAKER_02: for government debt.
[36:16] SPEAKER_02: Rates might remain relatively elevated on that side as well.
[36:20] SPEAKER_02: And therefore,
[36:21] given the fact that we haven't really dealt with the disposable
[36:24] income problem,
[36:25] which in my view is the original sin that we need to deal with
[36:28] speaking generally
[36:28] SPEAKER_02: as a country,
[36:29] SPEAKER_02: credit demand might therefore be slightly subdued.
[36:33] SPEAKER_02: So on those three metrics,
[36:34] SPEAKER_02: interest rates,
[36:35] SPEAKER_02: disposable income and inflation,
[36:37] SPEAKER_02: gentlemen,
[36:38] SPEAKER_02: what keeps you awake at night?
[36:40] SPEAKER_00: Let David, you got to stop.
[36:41] SPEAKER_00: Okay.
[36:42] SPEAKER_01: Yes.
[36:42] SPEAKER_01: I'd say all of them,
[36:44] SPEAKER_01: I think we are thinking about the same thing we did on interest rates,
[36:47] SPEAKER_01: for instance,
[36:48] SPEAKER_01: how quickly that came down,
[36:49] SPEAKER_01: how we had to adjust.
[36:51] SPEAKER_01: We have to think about the reinvestment risk.
[36:54] SPEAKER_01: We have to think about when the rates are going up,
[36:57] what that means to the credit quality and how quickly we adjust
[37:00] and recalibrate our
[37:01] SPEAKER_01: risk appetite.
[37:03] SPEAKER_01: So, yes.
[37:04] SPEAKER_01: However,
[37:04] SPEAKER_01: in as much as,
[37:06] SPEAKER_01: yes,
[37:06] SPEAKER_01: these are headwinds,
[37:07] then I guess there's a sliver of hope in some of the things the
[37:12] government is doing
[37:14] SPEAKER_01: on having money in circulation and paying the pending bills.
[37:18] SPEAKER_01: There's not a lot of NPL in the banking sector,
[37:21] SPEAKER_01: including for ourselves,
[37:22] SPEAKER_01: to support incomes and money velocity economy.
[37:27] SPEAKER_01: Then we are seeing the government as well,
[37:30] SPEAKER_01: not all overly focused on bridging the deficit from the local sources.
[37:35] I think I saw just today then again,
[37:38] 60 billion,
[37:39] I believe,
[37:40] coming from external sources.
[37:41] SPEAKER_01: So that does give us reprieve.
[37:43] SPEAKER_01: So it's really navigating those challenges,
[37:47] SPEAKER_01: which I think keeping targeted,
[37:49] SPEAKER_01: I believe we're well equipped,
[37:51] but the challenges will continue to be there and they will
[37:54] continue to be compounded.
[37:55] We are talking about Kenyan economy here,
[37:57] but globally,
[37:59] as well as what's happening.
[38:00] Yes,
[38:01] I would say that you've articulated,
[38:03] obviously,
[38:04] challenges that everybody is watching.
[38:06] I think we have to appreciate that we're always going to see
[38:10] unexpected challenges.
[38:12] Nobody had expected,
[38:13] for example,
[38:14] that Trump,
[38:14] too,
[38:14] would have such a significant impact.
[38:16] And we are seeing it even in our markets and in our books
[38:20] because of the sudden
[38:21] SPEAKER_00: shift in age-related spending.
[38:24] SPEAKER_02: And we are barely 90 days into his first time in office.
[38:27] SPEAKER_02: Another 100 plus weeks of this due to come.
[38:30] SPEAKER_00: This is episode one.
[38:31] SPEAKER_00: We have to focus,
[38:33] SPEAKER_00: however,
[38:34] on what it is we can do to make sure that we can weather
[38:38] changes as they happen.
[38:40] So resilience is a really big issue for us and it cuts across
[38:44] various aspects.
[38:46] SPEAKER_00: So if you think about the impact that comes from these macro challenges,
[38:50] they manifest themselves in how do you actually manage net
[38:53] interest margins,
[38:54] SPEAKER_00: for example.
[38:55] So asset and liability management is something that we're
[38:58] investing very heavily in
[38:59] SPEAKER_00: to just make sure that we have
[39:01] the tools to really do our scenario planning very well and make
[39:05] sure that our
[39:06] SPEAKER_00: targeted names are actually being achieved.
[39:08] SPEAKER_00: We're also looking at,
[39:10] SPEAKER_00: given the heavy investments that we've made in digital and,
[39:13] SPEAKER_00: of course,
[39:13] SPEAKER_00: the direction of travel around the globe,
[39:15] SPEAKER_00: of course,
[39:16] SPEAKER_00: everybody's getting more digital.
[39:18] SPEAKER_00: It means that you're getting a lot more challenges coming at you.
[39:21] SPEAKER_00: As a financial institution,
[39:22] SPEAKER_00: not only will you get a tax on your networks,
[39:25] SPEAKER_00: you will also get very high velocity kind of attempts at fraud.
[39:29] SPEAKER_00: So how do you build that resilience from a cybersecurity perspective?
[39:33] SPEAKER_00: Building that resilience is critical for us,
[39:35] SPEAKER_00: and we have been investing continually on this space.
[39:38] SPEAKER_00: The policy space, policy uncertainty can also be a big challenge.
[39:42] What we have to do is also be a voice in various lobbying
[39:45] groups to make sure that
[39:46] SPEAKER_00: the concerns that we have are actually heard and are incorporated in the
[39:50] SPEAKER_00: policymaking space.
[39:52] SPEAKER_00: We know all these challenges are going to come at us.
[39:54] SPEAKER_00: The question is,
[39:55] how do we make sure that we are resilient enough to be able to
[39:58] be what is needed?
[39:59] There's a question I believe that should be the last one I'll
[40:01] take from the
[40:01] SPEAKER_02: audience at the moment.
[40:02] SPEAKER_02: This one's from Catherine Wyderon.
[40:03] I love these questions because they essentially encapsulate the
[40:06] difference between
[40:07] SPEAKER_02: how we think about expanding the business.
[40:09] What's the direction of growth,
[40:10] the growth factor for the banking business?
[40:12] SPEAKER_02: And this is the question that Catherine is posing.
[40:14] SPEAKER_02: Branch expansion, she says, was huge in the last two years, 21 branches.
[40:19] SPEAKER_02: So how will this brick plus mortar approach withstand the digital drive,
[40:24] SPEAKER_02: digital lever that the bank has cemented itself on?
[40:27] SPEAKER_02: Essentially,
[40:27] SPEAKER_02: I believe her framing is,
[40:29] SPEAKER_02: in a sense,
[40:29] SPEAKER_02: if or,
[40:30] but the way I would look at it is maybe these two are actually complementary.
[40:34] You do eventually need a physical presence to backstop the
[40:37] digital expansion.
[40:38] SPEAKER_02: transactions that we're seeing,
[40:39] SPEAKER_02: even though that may eventually end up handling 80%,
[40:42] SPEAKER_02: 90% of transactions.
[40:43] SPEAKER_02: But I could be wrong.
[40:44] SPEAKER_02: Gentlemen, your thoughts?
[40:45] I'd say that our head of distribution recently put an article
[40:48] in Business Daily
[40:50] that addressed this particular question because I'd say just a
[40:54] few short years ago,
[40:56] SPEAKER_00: There was a huge push to just say, let's go everything digital, right?
[41:01] SPEAKER_00: But the experience has been somewhat different.
[41:03] SPEAKER_00: Yes, people want to be able to easily open an account.
[41:08] SPEAKER_00: They want to be able to get serviced on digital platform,
[41:11] SPEAKER_00: transact from the comfort of their homes.
[41:14] But you will still need physical presence and you want it to be
[41:19] near you to be able
[41:20] SPEAKER_00: to say,
[41:21] SPEAKER_00: let me have that conversation on advice,
[41:24] SPEAKER_00: on what to do with my savings,
[41:26] SPEAKER_00: on how to solve a particular problem that I have.
[41:29] SPEAKER_00: So the new word that is increasingly being used is physical experience.
[41:34] SPEAKER_00: So you have a physical presence and you have a digital presence.
[41:38] SPEAKER_00: And the two have to go in complement.
[41:40] SPEAKER_00: So while currently in Kenya,
[41:41] SPEAKER_00: about 95% of our transactions are being done on digital platforms,
[41:46] SPEAKER_00: all of our transactions,
[41:48] we are still seeing that the physical presence that we have
[41:52] when we open a branch
[41:53] SPEAKER_00: actually drives our brand affinity and drives customer uptake.
[41:57] SPEAKER_00: The two have to work in complement.
[42:00] SPEAKER_02: Gentlemen, one last question for you to wrap up the space.
[42:02] And I'm going back to a data point that Jack you put up at the
[42:05] start of our conversation.
[42:06] SPEAKER_02: The dividend payout is around three shillings per share.
[42:09] SPEAKER_02: But given all the risk issues we've discussed,
[42:12] SPEAKER_02: and certainly around the direction of trade policy internationally,
[42:16] SPEAKER_02: fiscal policy back home,
[42:17] SPEAKER_02: and how that will then affect disposable income at household level,
[42:20] SPEAKER_02: at personal level,
[42:21] SPEAKER_02: at the direction of inflation,
[42:23] SPEAKER_02: At one point,
[42:24] SPEAKER_02: if I'm sitting on the board,
[42:25] SPEAKER_02: my question would be,
[42:26] SPEAKER_02: okay,
[42:26] SPEAKER_02: we probably do need capital buffers.
[42:29] We need to hold back a bit more cash to essentially make sure
[42:31] that we've got enough
[42:32] SPEAKER_02: gunpowder dry to deal with any anticipated events.
[42:36] SPEAKER_02: But on the other side of the equation,
[42:37] SPEAKER_02: shareholders will be saying,
[42:39] SPEAKER_02: guys,
[42:39] SPEAKER_02: we would like a slightly higher dividend payout ratio here.
[42:43] SPEAKER_02: How are you navigating that tricky balance between those two?
[42:46] SPEAKER_01: Yes,
[42:47] we have to have a balance between rewarding shareholders now
[42:52] and supporting our
[42:53] SPEAKER_01: business for the future and building that resiliency.
[42:56] SPEAKER_01: That is something we considered in coming up with the debated proposal.
[43:01] SPEAKER_01: Just a bit of a background policy is to target a payout of about 30%.
[43:05] SPEAKER_01: I think we are just about there.
[43:08] SPEAKER_01: But in terms of then building up buffers,
[43:12] SPEAKER_01: as well as some of the business opportunities that we see ahead,
[43:16] SPEAKER_01: I think we're well aware that in December,
[43:19] SPEAKER_01: we did actually have a capital raise,
[43:21] SPEAKER_01: about $5 billion coming through from Ananka shareholders.
[43:25] And then that together with the retained earnings on the 70%,
[43:30] that's not paid out.
[43:31] SPEAKER_01: We do believe it gives us the
[43:35] right resilience to withstand anything that may come away in
[43:39] terms of a challenge
[43:40] SPEAKER_01: and to exploit any opportunity then again that we may see out there.
[43:46] SPEAKER_00: Right then, Keanu, any closing thoughts, closing remarks?
[43:49] SPEAKER_00: Yes, thank you again, Ramah, for having with you and I on Wango Spaces.
[43:53] SPEAKER_00: And it's great to see that five years on,
[43:55] it's still very strong in shaping the thinking that's happening
[43:58] in our markets.
[43:59] SPEAKER_00: So please keep it up.
[44:00] I'd say that we are increasingly proving our resilience in what
[44:06] are tough markets.
[44:07] We have exciting directions that we are exploring,
[44:10] particularly driven by digital.
[44:12] And it is exciting for us to see the kind of contributions
[44:15] coming in from our
[44:16] geographical footprint and from the different product lines and
[44:21] segments we're
[44:21] SPEAKER_00: getting into.
[44:22] SPEAKER_00: Thank you again for listening to us.
[44:24] And we look forward to seeing continued growth for the business
[44:28] and to be able to
[44:29] SPEAKER_00: discuss this one year on to report what we've done since.
[44:32] SPEAKER_02: Much appreciation to you,
[44:34] SPEAKER_02: of course,
[44:34] and the entire team at I&M as a pointer to the sort of
[44:37] engagement that you have
[44:39] SPEAKER_02: with in terms of the digital presence that the bank has.
[44:41] When this post on this space actually went up on LinkedIn,
[44:45] that had a ton of engagement in it.
[44:47] Normally,
[44:47] I don't see that sort of engagement with a lot of posts that
[44:49] are coming in from banks.
[44:50] SPEAKER_02: But in this instance,
[44:50] SPEAKER_02: I believe there was,
[44:51] SPEAKER_02: at least on the one that I saw,
[44:52] SPEAKER_02: over hundreds of interactions with it.
[44:54] SPEAKER_02: So that does point to the strength of the brand, especially online.
[44:58] Kihara Maina,
[44:59] Regional CEO,
[45:00] INM Group,
[45:00] and David Ngata,
[45:01] Group CFO,
[45:02] also at INM.
[45:03] SPEAKER_02: Thank you very much for your time this evening.
[45:06] SPEAKER_02: And of course, much credit to Eric and the team behind Wango Capital.
[45:10] They've managed to grow this brand progressively over the last
[45:12] four or five years and
[45:13] And hopefully they'll still be here for another four or five
[45:15] years to come.
[45:16] SPEAKER_02: And of course,
[45:16] SPEAKER_02: to you,
[45:17] SPEAKER_02: our audience,
[45:18] having dedicated the last hour of your time to listen to us
[45:21] talking about the
[45:21] performance of I&M in the last 12 months and the future
[45:24] direction of the business.
[45:26] SPEAKER_02: We know you could be doing something else on a Wednesday evening.
[45:28] SPEAKER_02: So we do not take your time and attention for granted.
[45:32] SPEAKER_02: Thank you very much.
[45:33] SPEAKER_02: And we'll see you in the future in more Wangra spaces.

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