# NCBA H1 2024 Results

An episode of [The Mwango Capital Podcast](https://invisiblenetwork.ai/podcast/1583367792), 2 Sep 2024, 47 min.

Audio: https://api.substack.com/feed/podcast/148402280/0c1234a1dc8dd19e7dea6ad76ef35f7f.mp3

In this episode recorded on 22.08.2024, we host NCBA Bank CEO and Kenya Bankers Association Chairman, John Gachora, to discuss the bank’s H1 2024 performance. We cover the current state of the economy, the acquisition of AIG Kenya, regional subsidiaries and expansion into West Africa, the risk-based pricing model, and the impact of Kenya’s credit rating downgrade. Subscribe to get notified when we make a new post. Show Notes 00:00:00 Introduction and H1 2024 Performance Highlights 00:02:33 Managing NPLs and the State of the Economy 00:11:24 Regional Subsidiaries and Expansion to West Africa 00:15:52 FX Performance and the Acquisition of AIG Kenya 00:19:32 M&A and Capital Requirements 00:22:49 Risk-Based Pricing Model 00:24:03 Digital Banking Strategy 00:27:49 Dividend Policy 00:29:23 Rising Staff Costs and Strategic Hiring 00:32:41 Mobile and Digital Loan Offerings 00:38:15 Impact of Kenya’s Credit Rating Downgrade 00:40:41 H2 2024 Outlook Get full access to The Mwango Weekly at mwangocapital.substack.com/subscribe

## Transcript

[0:00] SPEAKER_01: Good evening, wherever you're joining us from.
[0:02] SPEAKER_01: My name is Eric Mokai.
[0:02] SPEAKER_01: I'm the founder of Wango Captures.
[0:04] SPEAKER_01: We're going to be discussing NCBS H1 2020 for performance and giving context to the results.
[0:10] SPEAKER_01: If you look around on our timeline,
[0:12] SPEAKER_01: you'll see a bit of analysis on the results so that you can be able to dig in with us.
[0:16] SPEAKER_01: We have
[0:17] SPEAKER_01: Lots of questions which have been sent in,
[0:19] SPEAKER_01: some ranging from dividend to performance,
[0:22] SPEAKER_01: the subsidiary performances,
[0:23] SPEAKER_01: asset quality,
[0:24] SPEAKER_01: MPLs,
[0:25] SPEAKER_01: and a lot of that.
[0:27] SPEAKER_01: And something else to note,
[0:28] SPEAKER_01: of course,
[0:28] SPEAKER_01: our guest is also the Kenya Bank Association Chair,
[0:32] SPEAKER_01: so quite informed on industry trends.
[0:34] SPEAKER_01: We're going to be analyzing that too.
[0:36] SPEAKER_01: John?
[0:36] SPEAKER_01: Thank you for joining us.
[0:37] SPEAKER_01: You're quite well known in banking circles, so I think no much introduction is needed from you.
[0:41] SPEAKER_01: But perhaps for the uninitiated,
[0:43] SPEAKER_01: you could tell people who you are then so they can get to know you a little bit better.
[0:47] SPEAKER_02: Thank you.
[0:47] SPEAKER_02: Thank you very much.
[0:48] SPEAKER_02: This is John Gashora.
[0:49] SPEAKER_02: I'm the Group Managing Director for NCBA Group.
[0:53] SPEAKER_02: For those who don't know NCBA Group,
[0:55] SPEAKER_02: it's a banking or financial institution headquartered in Nairobi,
[0:59] SPEAKER_02: Kenya.
[1:00] SPEAKER_02: Operating in now six countries.
[1:02] SPEAKER_02: We're in Kenya,
[1:03] SPEAKER_02: Uganda,
[1:04] SPEAKER_02: Tanzania,
[1:05] SPEAKER_02: Rwanda,
[1:05] SPEAKER_02: Ivory Coast,
[1:06] SPEAKER_02: and starting some digital operations in Ghana in a short while.
[1:10] SPEAKER_01: Let's start from the broad picture.
[1:13] SPEAKER_01: So perhaps you can use a bird's eye view of the results for H1 2024 and how you
[1:17] SPEAKER_01: feel about the performance so far.
[1:18] SPEAKER_02: Sure.
[1:19] SPEAKER_02: Thank you.
[1:19] SPEAKER_02: Thank you.
[1:20] SPEAKER_02: Thank you again for having me here.
[1:21] SPEAKER_02: We announced our results this morning.
[1:23] SPEAKER_02: Profit after tax,
[1:25] SPEAKER_02: Canadian shillings 9.8 billion,
[1:28] SPEAKER_02: 5% above last year at the same time where we were at 9.4 billion.
[1:32] SPEAKER_02: Our assets continue to grow again at about the same rate, 4%, coming in at 690 billion.
[1:39] SPEAKER_02: And I think key highlights of our results were one,
[1:42] SPEAKER_02: that our bank capital has now reached 100 billion shillings.
[1:46] SPEAKER_02: I think the second observation is that the contribution of our regional
[1:50] SPEAKER_02: subsidiaries has risen significantly.
[1:53] SPEAKER_02: Our non-Kenyan subsidiaries are now contributing 16% of our profitability.
[1:58] SPEAKER_02: And I think that point I'll make is that all our businesses this time around were profitable.
[2:04] SPEAKER_02: which is really good showing that our diversity in terms of earnings is coming through quite strongly.
[2:10] SPEAKER_02: And lastly, our NPL ratio at 12.1%.
[2:13] SPEAKER_02: We're below the industry, which is at 16.3%.
[2:17] SPEAKER_02: So again, showing the work we have done.
[2:19] SPEAKER_02: And as we have talked before,
[2:21] SPEAKER_02: to invest in the public at large,
[2:23] SPEAKER_02: that we were managing our NPLs quite strongly down.
[2:27] SPEAKER_02: For us, it's been going down, as even for the industry, unfortunately, has been rising.
[2:31] SPEAKER_02: So those are some of the highlights I wanted to give Eric.
[2:33] SPEAKER_01: Yeah, let's start with the NPLs, the pain point for many.
[2:36] SPEAKER_01: I think a couple of banks have reported and we've seen NPLs above industry average
[2:41] SPEAKER_01: around 18%,
[2:41] SPEAKER_01: some of them.
[2:42] SPEAKER_01: But you're around 12% and the industry is at 16%.
[2:45] SPEAKER_01: Surely there's something that you're doing that is different from the rest.
[2:48] SPEAKER_01: So perhaps you could give people your secret thoughts to maintaining low NPLs in a
[2:53] SPEAKER_01: capital operating environment.
[2:54] SPEAKER_02: And I think if you look back,
[2:55] SPEAKER_02: Eric,
[2:56] SPEAKER_02: just maybe three years ago,
[2:58] SPEAKER_02: you asked me the question in reverse about
[3:00] SPEAKER_02: Our NPO ratio was higher than the industry.
[3:02] SPEAKER_02: And I explained then that we were seeing the risks ahead of the game, if you recall.
[3:07] SPEAKER_02: And I said, we are taking the risks early enough and acting early enough.
[3:11] SPEAKER_02: Those actions are the ones that have really upheld us, that we were very specific about the names.
[3:16] SPEAKER_02: And even then, if you recall, I did say that there was
[3:19] SPEAKER_02: specific names we were dealing with.
[3:20] SPEAKER_02: We have been able to deal with those names,
[3:22] SPEAKER_02: putting in the actions that are required either to recover,
[3:25] SPEAKER_02: to rehabilitate,
[3:26] SPEAKER_02: and in some cases to take the painful decision of writing them off.
[3:30] SPEAKER_02: We can just make the decisions early, realize the risks early and act early.
[3:34] SPEAKER_02: So that's what you see being the reason where we are.
[3:37] SPEAKER_02: I think I would say that a number of other banks did not perhaps see the risk or
[3:43] SPEAKER_02: didn't even have the risk that we had and maybe then take the precautions that we
[3:47] SPEAKER_02: took at the right time.
[3:49] SPEAKER_01: So in terms of NPLs,
[3:50] SPEAKER_01: the CFO was speaking to something that caught my attention,
[3:53] SPEAKER_01: that the stickiness in terms of NPLs,
[3:55] SPEAKER_01: it can take you up to five to 10 years to be able to deal with them.
[3:59] SPEAKER_01: What's been your learning point in terms of dealing with NPLs?
[4:01] SPEAKER_01: I think the CFO talked about exploring alternative mechanisms for resolution
[4:07] SPEAKER_01: instead of going to court because that takes longer to resolve.
[4:10] SPEAKER_01: Perhaps what are some of the things that you've learned that maybe you can share
[4:12] SPEAKER_01: with the industry in terms of how you're dealing with that?
[4:14] SPEAKER_02: I think the biggest lesson for us is take action early.
[4:17] SPEAKER_02: Customers will always be very optimistic when they're in trouble.
[4:21] SPEAKER_02: I think that is true.
[4:22] SPEAKER_02: Even for us as individuals, we keep making promises.
[4:25] SPEAKER_02: But I think be realistic,
[4:27] SPEAKER_02: take actions early,
[4:28] SPEAKER_02: be obviously empathetic that these customers have taken time,
[4:33] SPEAKER_02: effort,
[4:33] SPEAKER_02: money,
[4:34] SPEAKER_02: family time to create these businesses.
[4:36] SPEAKER_02: So be empathetic about it.
[4:38] SPEAKER_02: But be firm in terms of taking the action.
[4:41] SPEAKER_02: I think that is what we have done.
[4:42] SPEAKER_02: The second thing is be a good listening bank.
[4:45] SPEAKER_02: As you say, going through the calls can take forever.
[4:48] SPEAKER_02: So the advice I always give to my customers is, look, we're not here to mess up your business.
[4:52] SPEAKER_02: We're not here to not see you successful.
[4:54] SPEAKER_02: We started this journey with you to help you succeed.
[4:57] SPEAKER_02: Therefore, let's not end it with a third party telling us how we started this relationship.
[5:03] SPEAKER_02: Let's come together and discuss.
[5:04] SPEAKER_02: And we do that a lot while we discuss.
[5:06] SPEAKER_02: We agree on a vision, a journey of resolution.
[5:09] SPEAKER_02: We'll give you the time to do the resolution.
[5:11] SPEAKER_02: But I think any customer will tell you the question we always ask is,
[5:15] SPEAKER_02: what is the most realistic journey to resolution?
[5:18] SPEAKER_02: We tell them, please be realistic.
[5:20] SPEAKER_02: A customer comes and says, I'll be able to make these payments every month or these quarterly payments.
[5:25] SPEAKER_02: I want to see exactly where it's going to come from.
[5:27] SPEAKER_02: And then after you show me that,
[5:28] SPEAKER_02: tell me how you're going to pay fees for your kids to go to school,
[5:32] SPEAKER_02: how you're going to pay for your rent,
[5:33] SPEAKER_02: all that.
[5:34] SPEAKER_02: Then I say, once you take all that out,
[5:35] SPEAKER_02: is this amount realistic for you to pay down your debt?
[5:38] SPEAKER_02: And if it's not, then let's take another course of action.
[5:41] SPEAKER_02: And I think we've gotten good resolution out of that.
[5:44] SPEAKER_02: I think lastly is that there is a journey to resolution where the customer keeps their business.
[5:50] SPEAKER_02: That should always be the preferred route to take.
[5:52] SPEAKER_02: And if all else fails, obviously the court process unfortunately does.
[5:55] SPEAKER_02: But it's very rare that you see the bank
[5:58] SPEAKER_02: That is, we're in the back for that mantra.
[5:59] SPEAKER_02: There's one initiated called processes.
[6:01] SPEAKER_02: Typically, those will be initiated by the customers.
[6:04] SPEAKER_02: But I encourage customers and banks to see if they can use alternatives to get to a
[6:09] SPEAKER_02: better position for everybody.
[6:11] SPEAKER_01: I think NPLs is the heartbeat of how the country is performing.
[6:15] SPEAKER_01: In your conversations with customers and clients,
[6:17] SPEAKER_01: what are they telling you about the state of the economy?
[6:19] SPEAKER_01: What can you see in terms of their movement and spending?
[6:22] SPEAKER_01: Maybe give us a bit of a view on the state of the economy.
[6:25] SPEAKER_01: Give us your state of the nation address on the economy.
[6:27] SPEAKER_02: A very loaded question there.
[6:29] SPEAKER_02: Let me start saying the obvious.
[6:30] SPEAKER_02: Obviously, we're operating in a situation where interest rates are highly elevated.
[6:35] SPEAKER_02: There are customers being charged over 20% interest rates on their loans.
[6:39] SPEAKER_02: These are customers that I would say prime customers paying that sort of interest rate.
[6:44] SPEAKER_02: So it's a tough environment.
[6:45] SPEAKER_02: Things are expensive.
[6:47] SPEAKER_02: I know inflation has come down quite well.
[6:49] SPEAKER_02: We're between 4.3% and 4.6% as we speak.
[6:53] SPEAKER_02: In the country now, I'm talking about Kenya.
[6:55] SPEAKER_02: Obviously, we operate in a number of markets.
[6:57] SPEAKER_02: Talking to Kenneth specifically,
[6:59] SPEAKER_02: if you look at that and given the few years where inflation has been elevated,
[7:04] SPEAKER_02: it means the cost of living is quite high.
[7:06] SPEAKER_02: There's a debate on school fees now and university fees being too high.
[7:10] SPEAKER_02: I think you're seeing that very big debate.
[7:13] SPEAKER_02: salaries being delayed.
[7:14] SPEAKER_02: I'm sure you've seen that quite a bit.
[7:15] SPEAKER_02: So when we speak with the industry, it is a tough time.
[7:18] SPEAKER_02: The economy is going through a tough time.
[7:21] SPEAKER_02: The withdrawal of the finance bill obviously also means from even at a not just micro,
[7:26] SPEAKER_02: now at a macro level,
[7:28] SPEAKER_02: our fiscal policy is challenged,
[7:30] SPEAKER_02: which is,
[7:31] SPEAKER_02: I believe,
[7:31] SPEAKER_02: why the government is signaling the intention to bring back
[7:35] SPEAKER_02: quite a few of the clauses that were in the finance bill,
[7:39] SPEAKER_02: because that's the only way to be able to address some of the macroeconomic
[7:43] SPEAKER_02: challenges as well as the commitment they have made for physical consolidation.
[7:47] SPEAKER_02: So all in all, tough times.
[7:48] SPEAKER_02: So when we speak with our customers, that is indeed the message that we're getting.
[7:54] SPEAKER_02: There are obviously concerns about consistencies in tax policies not being helped
[7:59] SPEAKER_02: by the fact that obviously that Kenyans were going to court even getting the 2023
[8:05] SPEAKER_02: finance bill almost reversed.
[8:07] SPEAKER_02: It means there is quite a bit of uncertainty about the tax environment.
[8:11] SPEAKER_02: So when you look at all that, I would say that the business environment continues to be challenged.
[8:16] SPEAKER_02: The economy as a whole continues to be challenged.
[8:19] SPEAKER_02: When I speak with Gen Zs who recently went on the streets,
[8:22] SPEAKER_02: Part of the reason they did that was that the main street had a lot of financial challenges.
[8:27] SPEAKER_02: To your question, is it an easy time?
[8:29] SPEAKER_02: No, it's not.
[8:30] SPEAKER_02: All that said,
[8:31] SPEAKER_02: I say this morning,
[8:32] SPEAKER_02: the fact that the government has listened,
[8:36] SPEAKER_02: they've shown a level of listening with the recent Gen Z mandamano.
[8:41] SPEAKER_02: They have acted.
[8:42] SPEAKER_02: The president has come publicly to commit to dialogue going forward.
[8:45] SPEAKER_02: I think the approach of governance has changed for the better.
[8:49] SPEAKER_02: I think Kenya's resilience,
[8:51] SPEAKER_02: which we have seen in the past,
[8:52] SPEAKER_02: gives me a lot of optimism that we will be on a good path
[8:57] SPEAKER_02: And I think we shouldn't take it for granted the commitment that the president has
[9:00] SPEAKER_02: made on physical consolidation,
[9:02] SPEAKER_02: the short-term pain for long-term gain.
[9:04] SPEAKER_02: And I think we should certainly listen and hopefully come together and support some
[9:09] SPEAKER_02: of the measures that the government is coming up with.
[9:12] SPEAKER_02: So I would say all in all, it's a mixed bag.
[9:15] SPEAKER_02: The last thing I would want to comment on is obviously that all this and the failing of Main Street,
[9:20] SPEAKER_02: Obviously, it depends on what happens to interest rates.
[9:23] SPEAKER_02: I think the Monetary Policy Committee signaled in its last meeting the intention to
[9:29] SPEAKER_02: start monetary easing by lowering the central bank rates.
[9:33] SPEAKER_02: I think the intention would have been to continue on that trend.
[9:36] SPEAKER_02: Given inflation is within the range,
[9:39] SPEAKER_02: the target range,
[9:40] SPEAKER_02: given that the shilling has stabilized the two things that they were focused on
[9:44] SPEAKER_02: when they raised interest rates.
[9:45] SPEAKER_02: But I think obviously that said,
[9:47] SPEAKER_02: it all depends on what happened given the fiscal need to raise more money from
[9:53] SPEAKER_02: borrowing given the withdrawal of the finance bill.
[9:56] SPEAKER_01: On that note,
[9:56] SPEAKER_01: it would be good to remind you that if you want to be participating in the discussion,
[10:00] SPEAKER_01: you can just DM us your question.
[10:01] SPEAKER_01: Below the pinned tweet, you can send us a few more of your questions and we'll get them answered.
[10:05] SPEAKER_01: So I just wanted to move a little bit to maybe the income statement to see how that
[10:09] SPEAKER_01: top and bottom line have been evolving in the past couple of years and your feeling
[10:13] SPEAKER_01: on where the areas of growth have come in the past year and how maybe net interest
[10:17] SPEAKER_01: income and non-interest income lines have evolved in the past year.
[10:21] SPEAKER_01: So perhaps you can take us a bit through the income statement and then the profitability,
[10:25] SPEAKER_01: top and bottom line.
[10:26] SPEAKER_02: Okay.
[10:26] SPEAKER_02: So I think what you see with the numbers,
[10:29] SPEAKER_02: I didn't intend to go through each of the lines,
[10:32] SPEAKER_02: is that you've had very good growth on the interest income line,
[10:37] SPEAKER_02: very good growth.
[10:37] SPEAKER_02: What you see,
[10:38] SPEAKER_02: obviously,
[10:38] SPEAKER_02: because of the rates have been rising and we've been revising interest rates,
[10:43] SPEAKER_02: is that interest income has risen comfortably.
[10:46] SPEAKER_02: But that also means the cost of deposits
[10:49] SPEAKER_02: has also risen quite tremendously.
[10:51] SPEAKER_02: So net interest income actually for us was flat year over year, did not really grow.
[10:55] SPEAKER_02: I think that's what you find.
[10:57] SPEAKER_02: And indeed,
[10:58] SPEAKER_02: the growth that we have seen from an income perspective has been from non-interest income,
[11:02] SPEAKER_02: where the non-funded income has had good performance on our digital business,
[11:07] SPEAKER_02: for example.
[11:08] SPEAKER_02: And that has been driven by the
[11:11] SPEAKER_02: down.
[11:11] SPEAKER_02: Our FX is down.
[11:13] SPEAKER_02: However, our transactional income, whether that be trade and transactional income is up comfortably.
[11:19] SPEAKER_02: So those are the lines generally in terms of direction.
[11:22] SPEAKER_02: That's what you find with our income statement.
[11:24] SPEAKER_01: And the subsidiaries, how is their performance?
[11:26] SPEAKER_01: What's your feeling around the region beyond Kenya and how they are performing?
[11:30] SPEAKER_02: So again, those have performed very well.
[11:32] SPEAKER_02: So Ivalu Kada Subsidies Uganda has done very well, both on the core bank as well as the digital bank.
[11:39] SPEAKER_02: They continue to perform actually quite strongly, well ahead of plan.
[11:42] SPEAKER_02: Tanzania has again been performing.
[11:45] SPEAKER_02: I would say the core bank has been ahead of plan.
[11:47] SPEAKER_02: The digital bank has not, but it has turned around quite well.
[11:51] SPEAKER_02: They had a tough start in first place.
[11:52] SPEAKER_02: quarter, but it's turned around well in second quarter.
[11:55] SPEAKER_02: So it's actually,
[11:56] SPEAKER_02: whereas it's still behind plan,
[11:58] SPEAKER_02: given the trajectory we have seen,
[12:00] SPEAKER_02: I believe it will catch up in the rest of the year to plan.
[12:03] SPEAKER_02: Rwanda,
[12:03] SPEAKER_02: which is very good performance from the digital bank,
[12:06] SPEAKER_02: but actually not as good performance from the co-bank.
[12:09] SPEAKER_02: The co-bank actually reported us
[12:12] SPEAKER_02: slight loss.
[12:13] SPEAKER_02: And that's really because we had one large customer that has not performed well and
[12:17] SPEAKER_02: we have had to take significant provisions in Rwanda for that one customer.
[12:22] SPEAKER_02: Even if it's a small business,
[12:24] SPEAKER_02: when a large customer gets into trouble and you have to provide for them,
[12:28] SPEAKER_02: obviously that has a big lever effect on your income.
[12:32] SPEAKER_02: So that's generally what you find.
[12:34] SPEAKER_02: And then find every cost.
[12:35] SPEAKER_02: Small business,
[12:36] SPEAKER_02: profitable throughout the month,
[12:38] SPEAKER_02: but again,
[12:39] SPEAKER_02: probably not big enough to make a huge difference to the bottom line.
[12:42] SPEAKER_01: And Ghana, there was some talk about you putting your wings there.
[12:46] SPEAKER_01: How's that going?
[12:47] SPEAKER_02: Yes, Ghana, what I've said about Ghana is that we have applied for a license to operate digitally.
[12:55] SPEAKER_02: So it's really to work with local partners from a digital banking perspective,
[13:00] SPEAKER_02: the same way that we work in Ivory Coast with MTN and in other markets with MTN,
[13:06] SPEAKER_02: Vodacom,
[13:07] SPEAKER_02: here in Safar with Safaricom.
[13:09] SPEAKER_02: And since we don't have a bank,
[13:10] SPEAKER_02: we'll probably have to get a bank or a microfinance partner to work within that market.
[13:14] SPEAKER_02: But for us, it's really to provide our capability and our capacity on the digital lending side.
[13:21] SPEAKER_02: And that is the business that we want to open.
[13:23] SPEAKER_02: So we've made applications for Provewood.
[13:25] SPEAKER_02: do that.
[13:26] SPEAKER_02: And my estimation is that we'll be operational sometime next year.
[13:29] SPEAKER_02: I don't have an exact date because we depend a lot on the approvals that we get.
[13:33] SPEAKER_02: And given that they don't have exactly the kind of license we're looking for,
[13:37] SPEAKER_02: it's hard to tell you exactly the timeline that we will face to get the approval.
[13:41] SPEAKER_01: And in terms of your West Africa strategy,
[13:43] SPEAKER_01: is that like part of your co-ambition to be a kind of east to west coverage of the continent?
[13:49] SPEAKER_01: Is that what you're seeking to provide at some point?
[13:50] SPEAKER_02: Yes, yes and no.
[13:52] SPEAKER_02: I think we are slightly opportunistic.
[13:54] SPEAKER_02: We look at the markets that speak to, one, the innovations that we have.
[13:59] SPEAKER_02: And I think it was very clear to us that Ivory Coast spoke to us.
[14:03] SPEAKER_02: It's clear that Ghana speaks to us, very similar like Kenya, fairly sophisticated private sector.
[14:09] SPEAKER_02: good individual banking.
[14:11] SPEAKER_02: And if you look at our numbers in Ivory Coast,
[14:13] SPEAKER_02: for example,
[14:14] SPEAKER_02: very high saving rates from customers,
[14:17] SPEAKER_02: similar to what we see here with Amshuari.
[14:19] SPEAKER_02: And that has been what we look at essentially when we go into these markets.
[14:23] SPEAKER_02: That said, do we have an east to west strategy?
[14:26] SPEAKER_02: I think it gets informed daily in terms of how that will evolve.
[14:30] SPEAKER_02: I think before we have talked about places like DRC, we've looked at DRC.
[14:34] SPEAKER_02: We still continue to look at it.
[14:36] SPEAKER_02: Again, we don't have any timeline.
[14:37] SPEAKER_02: The DLP has an interesting market for us.
[14:39] SPEAKER_02: Again, we don't have timelines.
[14:41] SPEAKER_02: That depends on when the government will liberalize its financial sector.
[14:45] SPEAKER_02: I'm not saying it's a random walk,
[14:46] SPEAKER_02: but again,
[14:47] SPEAKER_02: it's not an east-west belt strategy,
[14:49] SPEAKER_02: if I may put it that way.
[14:50] SPEAKER_01: Maybe a curious question from my end.
[14:52] SPEAKER_01: Are there like regional differences in terms of how people bank across the region
[14:56] SPEAKER_01: that you've observed from your vantage point of operating across the region?
[14:59] SPEAKER_02: Yes.
[15:00] SPEAKER_02: Corporate banking is global.
[15:02] SPEAKER_02: Retail banking is local.
[15:04] SPEAKER_02: I think that's the best way to put it.
[15:05] SPEAKER_02: Because whereas corporate banking,
[15:07] SPEAKER_02: you look at companies' balance sheet,
[15:09] SPEAKER_02: the companies' reporting,
[15:11] SPEAKER_02: and most countries have requirements for tax filings and all that for companies.
[15:15] SPEAKER_02: It's not necessarily true for individuals.
[15:17] SPEAKER_02: So cultural differences of repaying of loans have been
[15:20] SPEAKER_00: Kenya,
[15:20] SPEAKER_02: we're blessed to have had a culture where people understand when you take people's money,
[15:25] SPEAKER_02: you must repay.
[15:25] SPEAKER_02: It's not necessarily true in every culture.
[15:27] SPEAKER_02: And so there's a lot of education that needs to be done in some of these markets.
[15:32] SPEAKER_02: Lastly, it's people capacity.
[15:34] SPEAKER_02: I think,
[15:34] SPEAKER_02: again,
[15:35] SPEAKER_02: Kenya has been blessed to have the human capital capacity to do what we've been
[15:39] SPEAKER_02: able to do.
[15:40] SPEAKER_02: It's not always true in some of these markets that we get into that you can get the
[15:43] SPEAKER_02: right workforce to deliver the kind of sophisticated products that NCBO wants to deliver.
[15:50] SPEAKER_02: that we have taken from working in these markets.
[15:52] SPEAKER_01: I just wanted to move a little bit perhaps now discussing about the FX.
[15:56] SPEAKER_01: And last time you and I were discussing about some issues around FX in the country
[16:01] SPEAKER_01: that was launched two years ago.
[16:03] SPEAKER_01: I think the issue has evolved quite a bit now to a space where I think there's been
[16:07] SPEAKER_01: a lot of breathing space,
[16:08] SPEAKER_01: especially after the Euro bond repayment earlier this year.
[16:11] SPEAKER_01: What has driven kind of the FX performance from your vantage point of being KBO chair?
[16:17] SPEAKER_01: What have you seen in the markets or evolved over the past two years and where we are right now?
[16:21] SPEAKER_02: Last time I said, and maybe I got into a bit of trouble.
[16:24] SPEAKER_02: So when the selling war goes on,
[16:27] SPEAKER_02: weakening and the exchange rate was falling.
[16:30] SPEAKER_02: I did say then that there are no fundamentals to support that.
[16:34] SPEAKER_02: I think it was sentiments.
[16:35] SPEAKER_02: And I think what we have seen,
[16:37] SPEAKER_02: even when it comes to now the sharing strength beginning,
[16:39] SPEAKER_02: is actually sentiment again.
[16:41] SPEAKER_02: It tells me that sentiment is what was driving
[16:44] SPEAKER_02: performance of the shilling for the last possibly couple of years.
[16:48] SPEAKER_02: And by taking the action,
[16:50] SPEAKER_02: the government,
[16:50] SPEAKER_02: the central bank took on one,
[16:52] SPEAKER_02: repaying the Eurobond,
[16:53] SPEAKER_02: but two,
[16:54] SPEAKER_02: issuing that very big infrastructure bond,
[16:57] SPEAKER_02: which was well oversubscribed and we understand a lot of the money came from
[17:02] SPEAKER_02: from overseas, that helped to strengthen and stabilize the shillings.
[17:06] SPEAKER_02: And once the buyers of the dollar got a change in sentiment,
[17:10] SPEAKER_02: that has helped continue to keep the shilling where it is.
[17:13] SPEAKER_02: I think it does help that the central bank also received additional dollars to show up their reserves.
[17:19] SPEAKER_02: So they have shown that they are capable of supporting the shilling.
[17:22] SPEAKER_02: It does help that they did come into the market a few times,
[17:25] SPEAKER_02: not necessarily just to support the shilling,
[17:26] SPEAKER_02: just to
[17:27] SPEAKER_02: stabilize it, that also showed that they were ready to act.
[17:30] SPEAKER_02: And I think all that has helped change the sentiment on the sharing for the better.
[17:34] SPEAKER_00: So could you probably share with us more about the acquisition of AIG and probably
[17:38] SPEAKER_00: how you've integrated it into NCBA's operations and the progress in it so far?
[17:43] SPEAKER_02: Yes, for those who don't know, we purchased the 67% share that we do not own of AIG Kenya business.
[17:52] SPEAKER_02: That's the pure general handwriting business here in Kenya.
[17:56] SPEAKER_02: And we closed that purchase on the 1st of July.
[17:59] SPEAKER_02: So from 1st of July, AIG is
[18:01] SPEAKER_02: Kenya is now part of NCBA.
[18:04] SPEAKER_02: Obviously, that came from a long time of work.
[18:07] SPEAKER_02: We announced the acquisition in September of last year.
[18:11] SPEAKER_02: And since then, we've been getting the one regulatory approvals that we need.
[18:15] SPEAKER_02: And more importantly, trying to get everything geared up towards
[18:19] SPEAKER_02: crossover on 1st of July in terms of operations,
[18:22] SPEAKER_02: in terms of technology,
[18:23] SPEAKER_02: in terms of reporting,
[18:25] SPEAKER_02: in terms of people,
[18:25] SPEAKER_02: in terms of policy.
[18:26] SPEAKER_02: And that has gone very well.
[18:28] SPEAKER_02: So I would say today from where we sit, we are well integrated.
[18:31] SPEAKER_02: Not everything is integrated.
[18:32] SPEAKER_02: Brand, for example, we have not changed the brand yet.
[18:35] SPEAKER_02: There's still some work that is going on there to get the brand changed.
[18:38] SPEAKER_02: But really good acquisition, if I may say, from a
[18:42] SPEAKER_02: strategic perspective,
[18:43] SPEAKER_02: perhaps more beneficial to AIG Kenya that they'll be able to use our very expanded
[18:48] SPEAKER_02: network to do marketing,
[18:50] SPEAKER_02: to service customers,
[18:51] SPEAKER_02: and to work with agents all across the country,
[18:54] SPEAKER_02: as opposed to agents near the two branches that they have had.
[18:58] SPEAKER_02: And then from our existing customer,
[19:00] SPEAKER_02: the ability for us to have conversations that touch on the full financial needs spectrum,
[19:05] SPEAKER_02: from investment,
[19:07] SPEAKER_02: savings,
[19:07] SPEAKER_02: to transactions,
[19:09] SPEAKER_02: to borrowing,
[19:10] SPEAKER_02: to insuring,
[19:11] SPEAKER_02: that we can actually have that full conversation with them.
[19:14] SPEAKER_02: and be able to give them first-hand information on what's required from the insurance perspective.
[19:20] SPEAKER_02: So all in all, very positive.
[19:22] SPEAKER_02: I think you start seeing the numbers as from this quarter when we report they were
[19:28] SPEAKER_02: not part of the June numbers,
[19:30] SPEAKER_02: but they'll be coming on stream from this quarter.
[19:32] SPEAKER_01: The next question I had was mostly about strategic acquisitions.
[19:34] SPEAKER_01: There has been the proposal from the central bank to raise the core capital of
[19:38] SPEAKER_01: banks over a period of time.
[19:39] SPEAKER_01: That would mean opportunities, perhaps strategic, to be able to maybe make up a few more acquisitions.
[19:44] SPEAKER_01: Is that something that you're actively in the market for,
[19:46] SPEAKER_01: or are you just more sitting back and relaxing and waiting perhaps for
[19:50] SPEAKER_01: opportunities to present themselves at some point?
[19:52] SPEAKER_02: The change in capital that's being proposed,
[19:54] SPEAKER_02: which is moving from a billion to 10 billion,
[19:57] SPEAKER_02: is significant.
[19:58] SPEAKER_02: It's necessary.
[19:59] SPEAKER_02: It should have happened many years ago,
[20:00] SPEAKER_02: if you ask me,
[20:01] SPEAKER_02: because you all need very strong and large banks for safety and security of our
[20:07] SPEAKER_02: depositors and employees and everybody else and other customers.
[20:11] SPEAKER_02: So I think it is a good move.
[20:12] SPEAKER_02: Also,
[20:13] SPEAKER_02: I've said this before,
[20:14] SPEAKER_02: that Kenya,
[20:15] SPEAKER_02: with our size of population,
[20:17] SPEAKER_02: our size of economy,
[20:19] SPEAKER_02: I don't think 43 banks are necessary.
[20:22] SPEAKER_02: We probably need quite a few less than that.
[20:24] SPEAKER_02: That said, I don't necessarily imagine that even...
[20:29] SPEAKER_02: Capital requirements were raised that a lot of the banks that are already quite
[20:33] SPEAKER_02: strong will not be able to raise it.
[20:35] SPEAKER_02: I think they will be able to raise the capital that is required.
[20:38] SPEAKER_02: Those who will not be able to do, then they will perhaps be forced into a merger.
[20:41] SPEAKER_02: It depends on what the law is going to say.
[20:43] SPEAKER_02: They may be given quite a bit of time to raise it.
[20:45] SPEAKER_02: But if they are not,
[20:47] SPEAKER_02: and they are told they must raise it in very short order,
[20:49] SPEAKER_02: then I expect that there will be some mergers expected.
[20:52] SPEAKER_02: To your question, where does NCBA stand?
[20:54] SPEAKER_02: As I said, our capital stands at $100 billion, so we are comfortably above the $10 billion.
[21:00] SPEAKER_02: We're looking to do a merger.
[21:01] SPEAKER_02: I think we are opportunistic, yeah?
[21:03] SPEAKER_02: We are opportunistic.
[21:05] SPEAKER_02: And when this has happened,
[21:06] SPEAKER_02: at least when it happened in Nigeria,
[21:08] SPEAKER_02: I believe the regulator went and tapped certain banks and said,
[21:11] SPEAKER_02: I know you're not interested in a merger,
[21:12] SPEAKER_02: but I think you should.
[21:14] SPEAKER_02: take this bank.
[21:14] SPEAKER_02: And that's how it happened.
[21:16] SPEAKER_02: Would it happen here?
[21:17] SPEAKER_02: We don't know.
[21:17] SPEAKER_02: But I would imagine,
[21:19] SPEAKER_02: I've used the word forced marriages before,
[21:22] SPEAKER_02: that if this became necessary,
[21:24] SPEAKER_02: that every bank must be at a capital that is significantly higher than where they are,
[21:30] SPEAKER_02: that the regulator would want to do some forced marriages.
[21:33] SPEAKER_01: Yes,
[21:33] SPEAKER_01: I think you hinted also on the fact that you recorded a milestone of crossing 100
[21:37] SPEAKER_01: billion shillings in terms of shareholder funds.
[21:40] SPEAKER_01: What does that mean for you as a bank?
[21:42] SPEAKER_02: It means that we're actually getting closer and closer to fulfilling some of the
[21:46] SPEAKER_02: promises we made for the merger.
[21:48] SPEAKER_02: We said one of the
[21:49] SPEAKER_02: aspirations was to have a large capital base to be able to support the large
[21:54] SPEAKER_02: companies that are operating in this region.
[21:56] SPEAKER_02: I think we now have a large capital base.
[21:59] SPEAKER_02: It continues to grow.
[22:00] SPEAKER_02: And now we can do deals that are of significant size.
[22:04] SPEAKER_02: The maximum lending we can do is 25% of our capital.
[22:07] SPEAKER_02: So that means with a hundred billion of
[22:11] SPEAKER_02: capital we can lend up to 25 billion to a single customer that's a significant
[22:16] SPEAKER_02: lending and it's one even if we lent it to governments just significant lending or
[22:21] SPEAKER_02: any undertaking so it's really coming to life what we said was one of the
[22:25] SPEAKER_02: motivations that we want to be a catalyst to local businesses local corporates we
[22:30] SPEAKER_02: want to be able to support large infrastructure projects
[22:34] SPEAKER_02: And I think this is what this large capital base means.
[22:37] SPEAKER_02: And of course, lastly, is that we want to be a safe, secure bank.
[22:40] SPEAKER_02: And certainly this amount of capital shows that we're exactly that.
[22:43] SPEAKER_01: All right.
[22:44] SPEAKER_01: Thank you so much.
[22:45] SPEAKER_01: We have 24 minutes to go.
[22:46] SPEAKER_01: So if you have any questions, please send them in and then we'll be able to check them out.
[22:49] SPEAKER_01: What's your general outlook,
[22:51] SPEAKER_01: especially in terms of risk-based lending and how you've integrated that in your
[22:55] SPEAKER_01: lending so far to clients?
[22:56] SPEAKER_01: Is that something you've taken up very seriously or is it just not part of the core
[23:01] SPEAKER_01: strategy that you've been implementing so far?
[23:03] SPEAKER_02: Look, I think we have developed a risk-based pricing model.
[23:07] SPEAKER_02: We have shared that with the central bank and they seem to be okay with it.
[23:11] SPEAKER_02: There are a few questions still remaining, especially to do with the digital bank.
[23:16] SPEAKER_02: And imagine that risk-based scoring for digital banks is fairly different because
[23:20] SPEAKER_02: we don't have the granular information on each customer that we would get on the
[23:24] SPEAKER_02: core bank side.
[23:25] SPEAKER_02: But what I would say is that we are applying the methodology that we presented in
[23:29] SPEAKER_02: terms of how we are pricing our customers.
[23:33] SPEAKER_02: We're already applying it.
[23:34] SPEAKER_02: It's really based on cost of funds.
[23:36] SPEAKER_02: It's based on direction of the signals from the central bank.
[23:40] SPEAKER_02: MPC.
[23:41] SPEAKER_02: So I would say CBR is an input to that model.
[23:44] SPEAKER_02: I would say cost of funds is an input to that model based on indicators of cost of
[23:49] SPEAKER_02: funds that we use and then individual risks inputs to that model and of course
[23:54] SPEAKER_02: expected profitability and the cost of service.
[23:57] SPEAKER_02: So those are some of the things that go into that model that we developed and we
[24:00] SPEAKER_02: already are supplying it to our customers.
[24:03] SPEAKER_01: And then in terms of digital banking, how Gen Z is now at the top of town.
[24:08] SPEAKER_01: And I had one of the questions that you asked today is how much the average age of your customer is.
[24:13] SPEAKER_01: You did not want to disclose that,
[24:14] SPEAKER_01: but perhaps you have a digital strategy and you want to share that with us in terms
[24:18] SPEAKER_01: of how you're approaching the Gen Z and all the younger customers who are around.
[24:22] SPEAKER_01: What products do you have so far that are geared towards them?
[24:25] SPEAKER_02: Sure.
[24:25] SPEAKER_02: So I think...
[24:26] SPEAKER_02: What I said this morning is that,
[24:27] SPEAKER_02: whereas I didn't disclose the numbers,
[24:29] SPEAKER_02: our customers tend to be slightly older than the average customer in the market.
[24:35] SPEAKER_02: And the reason I explained this morning is that because we're an aspirational bank,
[24:40] SPEAKER_02: we tend to get customers who have made a few decisions about their future.
[24:45] SPEAKER_02: And what you find is, therefore, we are not typically the first bank.
[24:49] SPEAKER_02: We tend to be the second or third bank.
[24:52] SPEAKER_02: Our statistics show somewhere between 75% and 80% of our customers are multi-bank,
[24:58] SPEAKER_02: and we were not their first bank,
[24:59] SPEAKER_02: and that is understandable.
[25:01] SPEAKER_02: If you open your backing account when you're on Compass,
[25:05] SPEAKER_02: I think you know quite well,
[25:06] SPEAKER_02: it probably was not NCBA or one of their predecessors,
[25:09] SPEAKER_02: the bank that you sold.
[25:11] SPEAKER_02: It's probably one of our other larger competitors and smaller competitors that have
[25:15] SPEAKER_02: presence on campuses.
[25:17] SPEAKER_02: That said,
[25:18] SPEAKER_02: we then developed a strategy to attract the younger generation because I think in
[25:23] SPEAKER_02: terms of products,
[25:24] SPEAKER_02: in terms of services,
[25:25] SPEAKER_02: in terms of the things that good offers the bank,
[25:28] SPEAKER_02: I think we are as good,
[25:30] SPEAKER_02: if not one of the very best.
[25:31] SPEAKER_02: for younger generation who are discerning,
[25:34] SPEAKER_02: who are looking for good service,
[25:36] SPEAKER_02: who want to be treated in a very customized way.
[25:39] SPEAKER_02: And that's why we developed the Loop Digital Bank.
[25:42] SPEAKER_02: And Loop Digital Bank really is offering you full bank on your phone, a full bank on your phone.
[25:48] SPEAKER_02: And this was launched, we actually launched it beginning of last year.
[25:53] SPEAKER_02: now have seen a bit more marketing that we're trying to do on it.
[25:56] SPEAKER_02: We're developing it now as a super app because we know that you don't go into the
[26:00] SPEAKER_02: banking app just to do banking.
[26:02] SPEAKER_02: These days, you go there to find deals, for example.
[26:05] SPEAKER_02: You go there to find advice.
[26:07] SPEAKER_02: You go there to find a way to save for a trip.
[26:10] SPEAKER_02: We have goal setting.
[26:11] SPEAKER_02: We have investments.
[26:12] SPEAKER_02: So it's adding all the things that you care about.
[26:15] SPEAKER_02: And finally, we're giving you more terms and more information from a budgeting perspective.
[26:20] SPEAKER_02: We're moving away from those days where you go to a bank,
[26:23] SPEAKER_02: you draw your money and you got to write it on your notebook at home to remember
[26:26] SPEAKER_02: what you did.
[26:27] SPEAKER_02: We're providing you all that information on the phone through this loop app.
[26:31] SPEAKER_02: I would encourage anybody who is listening to me to please try it.
[26:35] SPEAKER_02: You can open the accounts remotely at the comfort of your house.
[26:38] SPEAKER_02: And then again, that makes it to be aimed at that population and also a lot cheaper.
[26:43] SPEAKER_02: to use than most other alternatives that you would have to make payments,
[26:47] SPEAKER_02: transfer money,
[26:48] SPEAKER_02: or do most of the transactions that you would want to do.
[26:51] SPEAKER_02: The other thing I talked about today is that the way we have built it is that its system,
[26:55] SPEAKER_02: its infrastructure is separate from that of the NCBA core bank.
[27:00] SPEAKER_02: That's because we also want to give people a redundant solution.
[27:04] SPEAKER_02: So for some of us like myself,
[27:06] SPEAKER_02: lifelong NCBA customer,
[27:08] SPEAKER_02: I would get very frustrated when NCBA app,
[27:11] SPEAKER_02: for example,
[27:11] SPEAKER_02: goes down.
[27:12] SPEAKER_02: But now with Loop,
[27:13] SPEAKER_02: which I'm a very dedicated member and a customer,
[27:16] SPEAKER_02: I have two channels that I use that work.
[27:19] SPEAKER_02: One is down, the other one is working.
[27:21] SPEAKER_02: And inevitably, sometimes because of maintenance that we have to do, a channel will be down.
[27:26] SPEAKER_02: And those are the times you don't want to be frustrated.
[27:28] SPEAKER_02: I urge everybody, even if you bank with NCBA, please try Loop as your alternative bank.
[27:34] SPEAKER_02: And if you're on Loop, try NCBA as your alternative bank.
[27:37] SPEAKER_02: It works a lot better that way.
[27:38] SPEAKER_01: Thank you on that.
[27:40] SPEAKER_01: It's also a good time to pitch yourself and your bank to the customers who are listening,
[27:44] SPEAKER_01: potentially,
[27:45] SPEAKER_01: who may be looking to switch or looking to start banking with you.
[27:49] SPEAKER_01: The next question should be about capital allocation.
[27:51] SPEAKER_01: So I think there is a nice dividend increase, entry dividend.
[27:54] SPEAKER_01: I think you've been a regular at that.
[27:56] SPEAKER_01: Perhaps you can speak to the dividend payout and how that fits in your capital
[28:00] SPEAKER_01: allocation strategy so far and shareholder returns.
[28:03] SPEAKER_02: Sure.
[28:03] SPEAKER_02: So I think it's fair to say one of the big discussions that we always have at the
[28:08] SPEAKER_02: board level is that we do this for,
[28:11] SPEAKER_02: obviously,
[28:12] SPEAKER_02: for the shareholders.
[28:13] SPEAKER_02: Society that gives the license to operate,
[28:15] SPEAKER_02: sustainability becomes very important,
[28:17] SPEAKER_02: but also for shareholders who have invested their capital into this bank and who
[28:21] SPEAKER_02: expect returns.
[28:22] SPEAKER_02: So that said, the conversation we always have is, are we giving the best to our shareholders?
[28:28] SPEAKER_02: And how do we make them be part of our journey?
[28:31] SPEAKER_02: And because of that,
[28:32] SPEAKER_02: we've developed what I would call a fairly aggressive,
[28:35] SPEAKER_02: but I think very good dividend policy,
[28:37] SPEAKER_02: which is that unless there is an absolutely compelling investment opportunity,
[28:43] SPEAKER_02: the first decision should be that we should return as much money to shareholders as possible.
[28:49] SPEAKER_02: So it is based on that, that we've been able to pay very healthy dividends.
[28:53] SPEAKER_02: And as you say,
[28:54] SPEAKER_02: we just announced that the board has approved payment of an interim dividend of two
[28:58] SPEAKER_02: shillings and 25 cents,
[29:00] SPEAKER_02: the highest interim dividend we have ever paid.
[29:03] SPEAKER_02: And given our performance, I think you will continue to see us pay better and better.
[29:09] SPEAKER_02: That's our policy.
[29:10] SPEAKER_02: And I can tell you that the board is very clear that shareholders must continue to
[29:15] SPEAKER_02: walk this journey with us.
[29:17] SPEAKER_02: And as we work, we should make sure that we keep them in mind and paying them what we can.
[29:23] SPEAKER_01: On that note, I wanted to ask a bit about staff costs.
[29:26] SPEAKER_01: You're quite up, I think, double digits growth in staff costs.
[29:29] SPEAKER_01: And I know you're quite good in terms of investing in very good and high quality
[29:33] SPEAKER_01: executives to be part of your team.
[29:35] SPEAKER_01: Now,
[29:35] SPEAKER_01: as far as you can speak to that,
[29:37] SPEAKER_01: the writing staff costs and your kind of strategy to get the best in business to
[29:41] SPEAKER_01: lead the various growth initiatives in the group.
[29:44] SPEAKER_01: And that's one part of it.
[29:45] SPEAKER_01: The second part is also a bit about there have been a bit of tax changes in the past couple of years.
[29:50] SPEAKER_01: From an earnings call I had with the corporate bank,
[29:53] SPEAKER_01: they said part of the rise in staff costs was due to the housing levy and some of
[29:57] SPEAKER_01: these levies that are coming up.
[29:59] SPEAKER_01: Could you speak to both of those in terms of your bank and your vantage point of seeing things?
[30:03] SPEAKER_02: Yeah, so you're right.
[30:05] SPEAKER_02: Our staff costs have been rising and I think
[30:09] SPEAKER_02: You have observed year over year quite a substantial growth in staff costs.
[30:13] SPEAKER_02: Let me explain it this way.
[30:15] SPEAKER_02: Obviously, as you say, others have explained about the statutory reasons taxes are up.
[30:21] SPEAKER_02: So that's a starting point.
[30:23] SPEAKER_02: But I think just two things for us are probably the ones that make the biggest difference.
[30:27] SPEAKER_02: One is last year we hired about 450 new people into the organization.
[30:32] SPEAKER_02: And those people then,
[30:34] SPEAKER_02: depending on what time of the year they came last year,
[30:36] SPEAKER_02: this year they'll be accounting for 100% of their cost.
[30:40] SPEAKER_02: If somebody came in September last year, this year we started carrying that cost straight in January.
[30:45] SPEAKER_02: So those people have come on payroll fully this year.
[30:49] SPEAKER_02: And so quite a bit of the growth that you have seen is because of the hiring that we did last year.
[30:54] SPEAKER_02: Why did we do such hiring?
[30:56] SPEAKER_02: I talked before about the investments we have made.
[30:58] SPEAKER_02: We continue to open branches quite aggressively.
[31:01] SPEAKER_02: Last year, we said to open 10 branches.
[31:04] SPEAKER_02: This year, we're opening about seven branches.
[31:06] SPEAKER_02: And all those come with a significant cost in terms of people.
[31:09] SPEAKER_02: And that is the reason why.
[31:11] SPEAKER_02: The second reason is that we had obviously to give people raises given the
[31:15] SPEAKER_02: inflationary environment that we all find ourselves in.
[31:18] SPEAKER_02: So again, we give raises across the organization to meet with the individual needs of the organization.
[31:25] SPEAKER_02: At the end of the day, banking is about people and banking for us is about our staff, making sure that
[31:30] SPEAKER_02: We are so sensitive to their needs.
[31:32] SPEAKER_02: They are humans after all.
[31:33] SPEAKER_02: So that's actually the reason that you've seen those costs rising.
[31:37] SPEAKER_02: I think this year we are taking some special measures.
[31:40] SPEAKER_02: For example, our hiring will have reduced.
[31:44] SPEAKER_02: And I think you'll see that over the course of the year.
[31:46] SPEAKER_02: We're not hiring as much as we did last year.
[31:49] SPEAKER_02: We're driving more productivity.
[31:51] SPEAKER_02: per person,
[31:52] SPEAKER_02: using our people a lot better,
[31:54] SPEAKER_02: having the ones who came last year now better trained,
[31:57] SPEAKER_02: so they are more productive.
[31:59] SPEAKER_02: So that's what you'll find now going into next year.
[32:01] SPEAKER_02: But that's the reason in terms of the people cost.
[32:04] SPEAKER_01: Two or three questions that have come in from the audience.
[32:06] SPEAKER_01: I'll take them up and then I'll ask you one or two closing questions.
[32:10] SPEAKER_01: Someone is asking about Lou.
[32:12] SPEAKER_01: Is it just on the tech side that it's separated from NCBA or is it also on the operations side?
[32:18] SPEAKER_01: He's asking about how the loans and how the integrity they are into the NCBA ecosystem.
[32:22] SPEAKER_01: I think that's the first part.
[32:23] SPEAKER_01: And then the second part is asking the status of mobile and digital loan offerings.
[32:28] SPEAKER_01: And maybe you can speak to that.
[32:29] SPEAKER_01: And then Arnold is asking, given the close relationship with ICA Lion, will AIG operations be merged?
[32:36] SPEAKER_01: Those are the three questions I've seen from the audience.
[32:39] SPEAKER_02: Okay, very good questions.
[32:41] SPEAKER_02: So let me start with the first one on loop.
[32:43] SPEAKER_02: So I talked about the fact that the system is separated.
[32:46] SPEAKER_02: Operations are also separated.
[32:48] SPEAKER_02: So loop runs as a separate unit, even physically.
[32:53] SPEAKER_02: However,
[32:53] SPEAKER_02: people sitting in Westlands,
[32:54] SPEAKER_02: because again,
[32:55] SPEAKER_02: for the need for redundancy,
[32:57] SPEAKER_02: business continuity management and all that.
[32:59] SPEAKER_02: And that's why we keep these two quite separate.
[33:02] SPEAKER_02: So operationally separated and system separate.
[33:05] SPEAKER_02: Obviously, there are certain things that you use a bank, for example, SWIFT.
[33:09] SPEAKER_02: For example,
[33:10] SPEAKER_02: you go to the bank,
[33:11] SPEAKER_02: but most things that you need from a transactional perspective,
[33:15] SPEAKER_02: those will be separated.
[33:17] SPEAKER_02: In terms of the question of status on mobile and digital loans,
[33:20] SPEAKER_02: I'm not sure whether that's speaking to world status.
[33:24] SPEAKER_02: Let me maybe try to attempt to answer that.
[33:26] SPEAKER_02: To say that, one, we have two types of mobile loans today.
[33:30] SPEAKER_02: We have the mobile loans that are traditional that we have offered through our digital bank.
[33:35] SPEAKER_02: That's the Amshuari, Fuliza, Mokash if you're in Uganda, Mokash if you're in Ivory Coast.
[33:44] SPEAKER_02: Empower, if you're in Tanzania, more cash if you're in Rwanda, and then Loop.
[33:49] SPEAKER_02: I should add in there Loop as well.
[33:51] SPEAKER_02: Those offerings continue as they were, and we have seen a lot of growth in that.
[33:55] SPEAKER_02: I announced today that as of June, we had lent $478 billion.
[34:00] SPEAKER_02: through those channels.
[34:03] SPEAKER_02: And we serve about 65 million customers across Africa,
[34:06] SPEAKER_02: the largest retail bank by customer numbers actually in Africa today.
[34:10] SPEAKER_02: And that's something that we continue to see growth in.
[34:14] SPEAKER_02: Given the economic terms that we have seen, one of the things
[34:17] SPEAKER_02: have done is we've been very active in increasing limits for customers on those
[34:22] SPEAKER_02: channels to continue supporting them.
[34:24] SPEAKER_02: So that's the one positive that you have seen from our mobile loans and perhaps the
[34:28] SPEAKER_02: reason that our disbursements have continued to grow.
[34:32] SPEAKER_02: We then also have mobile loans for what we call our core customers.
[34:35] SPEAKER_02: So if you're an NCBA
[34:38] SPEAKER_02: And therefore, you use NCBA Now app.
[34:42] SPEAKER_02: Again, one of the highest rated mobile banking app in East Africa.
[34:46] SPEAKER_02: If you use that, then they raise a mobile loan available to you.
[34:50] SPEAKER_02: We call it Now Loans available to you.
[34:53] SPEAKER_02: And that goes up to a median shareings, from zero to a median shareings.
[34:57] SPEAKER_02: And that you can choose the 10-hour days, month to one year in terms of repayment.
[35:02] SPEAKER_02: And again,
[35:03] SPEAKER_02: that is developed for co-customers who we believe that they should benefit from the
[35:08] SPEAKER_02: fact that we have a bit more data about them than we have an emissary customer,
[35:13] SPEAKER_02: for example.
[35:13] SPEAKER_02: So that's the status of mobile and digital loans across the organization.
[35:17] SPEAKER_02: Lastly, is a question about ICLI and AIG.
[35:21] SPEAKER_02: That's a curious question, but let me be really clear and want to clarify it.
[35:26] SPEAKER_02: ICA Lion is not part of NCBA at all.
[35:30] SPEAKER_02: We are completely two independent organizations.
[35:34] SPEAKER_02: ICA Lion, the only commonality we may have is in terms of shareholders, that we share some shareholders.
[35:41] SPEAKER_02: The main shareholder is a shareholder in
[35:45] SPEAKER_02: And I think that is in the public domain.
[35:48] SPEAKER_02: But besides that, there is nothing that we have in common between us and ICA.
[35:52] SPEAKER_02: And we deal with them on a non-flank basis, just as we deal with every other underwriter.
[35:59] SPEAKER_02: AIG Kenya is part of NCBA Group 100%.
[36:03] SPEAKER_02: We count it as a part of us now.
[36:05] SPEAKER_02: We determine its strategy.
[36:07] SPEAKER_02: We determine everything.
[36:08] SPEAKER_02: Somebody is asking about combining ICA and AIG.
[36:12] SPEAKER_02: That would have to be a merger negotiated by very different shareholders and we'd
[36:16] SPEAKER_02: have to announce that quite with a lot of details.
[36:19] SPEAKER_02: So just to be clear, we are two very different companies, ICLion and LCBA.
[36:24] SPEAKER_01: Yes,
[36:24] SPEAKER_01: as we draw to a close,
[36:25] SPEAKER_01: perhaps one question is you could attempt to answer,
[36:28] SPEAKER_01: are there any observations that you're making in terms of mobile loans uptaking
[36:33] SPEAKER_01: tenure and how that links to the economy?
[36:34] SPEAKER_01: There was some comment on that last year.
[36:36] SPEAKER_01: Have you seen any differences?
[36:39] SPEAKER_01: in that way.
[36:39] SPEAKER_01: And then secondly,
[36:40] SPEAKER_01: someone is asking about credit rating agencies downgrading Kenya and the debt
[36:44] SPEAKER_01: situation in the country.
[36:46] SPEAKER_01: Is this something that worries you as a bank and that is worrying your customers?
[36:49] SPEAKER_01: And on that note,
[36:50] SPEAKER_01: you can also take the opportunity to give us your kind of high-level outlook for
[36:55] SPEAKER_01: the second half of the year and set the tone in terms of what customers and
[37:00] SPEAKER_01: shareholders can expect from you and the bank going into the second half of the year.
[37:06] SPEAKER_02: So let me start with the first one on mobile loan growth.
[37:10] SPEAKER_02: I think last year I said that we have seen significant growth in mobile loan optics
[37:14] SPEAKER_02: as an alternative source of funding for a lot of customers.
[37:17] SPEAKER_02: This year,
[37:18] SPEAKER_02: we have continued to see some growth,
[37:20] SPEAKER_02: not as strong as we saw last year,
[37:22] SPEAKER_02: I must say,
[37:23] SPEAKER_02: year to year.
[37:24] SPEAKER_02: But what we have seen really change is mobile loan defaults.
[37:28] SPEAKER_02: We have seen that come down quite strongly.
[37:31] SPEAKER_02: And our read into this is that mobile loans are
[37:35] SPEAKER_02: These digital loans have become a way of life for a lot of us in Kenya.
[37:40] SPEAKER_02: And because of that,
[37:41] SPEAKER_02: what we have observed is that our customers would rather default or fail to pay
[37:45] SPEAKER_02: their credit cards,
[37:46] SPEAKER_02: default or even fail to pay their rent,
[37:48] SPEAKER_02: than fail to pay their mobile loans because that has become part of their life.
[37:53] SPEAKER_02: And I think you all know how people don't want to be embarrassed
[37:56] SPEAKER_02: anymore to say that I cannot get a full visa loan, right?
[37:59] SPEAKER_02: Sometimes you have no money.
[38:00] SPEAKER_02: You typically tell them just full visa, isn't it?
[38:03] SPEAKER_02: So I think that's what we have observed on the positive.
[38:05] SPEAKER_02: It's become a way of life.
[38:07] SPEAKER_02: And because of that,
[38:08] SPEAKER_02: people are quite fidel to making sure that they maintain a good credit rating for
[38:13] SPEAKER_02: their digital loans.
[38:15] SPEAKER_02: I think the second question there was on rating of the country.
[38:18] SPEAKER_02: Yes, we have been downgraded by Moody's and FIG as a country.
[38:23] SPEAKER_02: And that is because of the withdrawal of the finance bill.
[38:26] SPEAKER_02: where they have questioned the ability of us to meet our fiscal commitments and
[38:31] SPEAKER_02: also to maintain the fiscal consolidation journey that the country has been on.
[38:37] SPEAKER_02: The question being, what do I think about this?
[38:40] SPEAKER_02: First of all,
[38:40] SPEAKER_02: is that when the country gets downgraded,
[38:43] SPEAKER_02: any company that is in that country that had a rating that's equal to the country's
[38:48] SPEAKER_02: rating also gets downgraded.
[38:49] SPEAKER_02: Hence why you would have seen some announcements saying that a number of banks that
[38:53] SPEAKER_02: enjoyed credit rating from these agencies have been downgraded.
[38:57] SPEAKER_02: For us,
[38:57] SPEAKER_02: we were just two weeks ago by Fitch,
[39:00] SPEAKER_02: who has a rating for NCBA,
[39:02] SPEAKER_02: came back and said we are downgrading it.
[39:04] SPEAKER_02: But that downgrade really just leaves us at the same level as a country.
[39:09] SPEAKER_02: Policy being that you cannot be more credit worthy than your country, which makes a lot of sense.
[39:14] SPEAKER_02: So am I concerned about all this?
[39:16] SPEAKER_02: Actually, I am not.
[39:17] SPEAKER_02: And I'll tell you why.
[39:20] SPEAKER_02: A country like ours is not very credit rating sensitive.
[39:24] SPEAKER_02: And when you come to private businesses, our credit rating anyway was not very high.
[39:30] SPEAKER_02: And even when we sell bonds into the market previously that we have done,
[39:35] SPEAKER_02: or any company for that matter,
[39:37] SPEAKER_02: you notice that pricing for bonds tends to be about the same,
[39:40] SPEAKER_02: at least coming from the corporates.
[39:41] SPEAKER_02: It has to be about the same across.
[39:43] SPEAKER_02: You look at the country where they are borrowing today,
[39:46] SPEAKER_02: they are borrowing higher than some corporates are able to borrow.
[39:49] SPEAKER_02: It tells you that rating is not really determining cost of funds for us.
[39:54] SPEAKER_02: I think it's more bragging rights, yeah?
[39:56] SPEAKER_02: It's more of a bragging rights.
[39:57] SPEAKER_02: That's really what it comes down to, that your bragging rights now is slightly worse.
[40:02] SPEAKER_02: Interesting enough,
[40:03] SPEAKER_02: I think,
[40:04] SPEAKER_02: Eric,
[40:04] SPEAKER_02: you may have noticed that Eurobonds,
[40:06] SPEAKER_02: Canadian Eurobonds,
[40:07] SPEAKER_02: actually performed better after the downgrade.
[40:10] SPEAKER_02: They perform better after the downgrade,
[40:11] SPEAKER_02: which really supports my sentiment that people's view of our credit is not so
[40:16] SPEAKER_02: highly dependent on the view of the credit rating agencies of our credit.
[40:20] SPEAKER_02: It's more of a bragging rights thing, if I may.
[40:23] SPEAKER_02: Obviously, we like to stay rated better.
[40:25] SPEAKER_02: There is a point you reach where the rating matters a lot.
[40:28] SPEAKER_02: Instead of getting to the investment grade,
[40:30] SPEAKER_02: Triple B,
[40:31] SPEAKER_02: for example,
[40:31] SPEAKER_02: then ratings start to matter a great deal,
[40:33] SPEAKER_02: which is why a country like South Africa that used to be investment-grade,
[40:37] SPEAKER_02: when they get downgraded,
[40:38] SPEAKER_02: it matters a great deal,
[40:40] SPEAKER_02: and not for a country like us.
[40:41] SPEAKER_02: So looking forward, coming from there, what's my view going forward?
[40:45] SPEAKER_02: I think perhaps
[40:47] SPEAKER_02: Go back to what I said.
[40:48] SPEAKER_02: We just had the Gen Z demonstrations here in Kenya.
[40:51] SPEAKER_02: And as I said this morning,
[40:54] SPEAKER_02: one of the perhaps biggest realization and appreciation we should have is that
[40:59] SPEAKER_02: because of that,
[41:00] SPEAKER_02: we had the greatest movement,
[41:02] SPEAKER_02: the greatest change in governance in the shortest time that we have seen in Kenya.
[41:06] SPEAKER_02: And I think that's something to applaud.
[41:08] SPEAKER_02: We,
[41:09] SPEAKER_02: as Kenyans,
[41:09] SPEAKER_02: must applaud not just the Gen Zs,
[41:11] SPEAKER_02: but we ourselves,
[41:12] SPEAKER_02: because it's a two-way process that there were Gen Zs that woke up and went to
[41:18] SPEAKER_02: fight for their future.
[41:19] SPEAKER_02: And the country also listened, the political listened, and our president listened.
[41:24] SPEAKER_02: I think we must applaud everybody.
[41:26] SPEAKER_02: for paying attention to the growing call for change and taking that change quickly.
[41:31] SPEAKER_02: Now, obviously, the proof is in the pudding.
[41:34] SPEAKER_02: We have made some changes already, as we have seen.
[41:37] SPEAKER_02: The president has committed that his government will be one of listening and one of dialogue.
[41:42] SPEAKER_02: We will hold him to that,
[41:43] SPEAKER_02: I think,
[41:44] SPEAKER_02: to make sure that going forward,
[41:46] SPEAKER_02: the decisions that we make as a country are well-reasoned.
[41:49] SPEAKER_02: and followed through as well.
[41:51] SPEAKER_02: I think there were concerns about fiscal spending.
[41:54] SPEAKER_02: And again,
[41:54] SPEAKER_02: it's a hope that the promises that have been made in terms of cutting costs and
[41:59] SPEAKER_02: cutting spending will be maintained.
[42:01] SPEAKER_02: I think that said, obviously, the withdrawal of the finance bill, as I said earlier,
[42:06] SPEAKER_02: Whereas it was perhaps necessary,
[42:09] SPEAKER_02: it's also the case that there are a number of things in that finance bill that were
[42:13] SPEAKER_02: necessary for us to meet our macro commitments and to keep ourselves on the fiscal
[42:19] SPEAKER_02: consolidation journey that the Kenya Kwanzaa government committed.
[42:24] SPEAKER_02: And for that reason,
[42:25] SPEAKER_02: I think as you have heard some noises being made,
[42:27] SPEAKER_02: there is consideration that we must relook at some of the clauses that were in that
[42:31] SPEAKER_02: finance bill and hopefully by dialoguing together,
[42:35] SPEAKER_02: We can get to a point where we agree what we can live with and what we cannot live with.
[42:39] SPEAKER_02: So looking forward then,
[42:40] SPEAKER_02: a lot of it will depend on what comes back after that dialogue,
[42:45] SPEAKER_02: after that dialogue and consideration.
[42:47] SPEAKER_02: It will depend on then what it means from a liquidity for the country perspective,
[42:52] SPEAKER_02: given that the MPC has already signaled.
[42:55] SPEAKER_02: is intention to bring interest rates down.
[42:59] SPEAKER_02: We are hopeful that will be possible to bring rates down in this environment.
[43:03] SPEAKER_02: And that will also depend on whether the government is able to raise enough funds
[43:08] SPEAKER_02: to be able to pay some of its pending bills so that they raise liquidity released
[43:12] SPEAKER_02: into the market.
[43:12] SPEAKER_02: So there are a lot of dependencies.
[43:14] SPEAKER_02: We as a bank, I think we've gone through some challenging times, some good times.
[43:19] SPEAKER_02: So if I project forward, I would say that the times will remain challenging.
[43:24] SPEAKER_02: We are fit for that challenge.
[43:27] SPEAKER_02: I expect that we'll continue to record good growth.
[43:31] SPEAKER_02: We'll continue to work very closely with our customers.
[43:34] SPEAKER_02: We'll continue to watch that NPO ratio that we talked about.
[43:37] SPEAKER_02: earlier.
[43:38] SPEAKER_02: And as I said this morning, I continue to be a very big bettor on the Republic of Kenya.
[43:44] SPEAKER_02: So I wouldn't challenge everybody.
[43:46] SPEAKER_02: If you are looking for a country to bet on, please bet on Kenya.
[43:50] SPEAKER_01: Thank you so much, John, for joining us today.
[43:51] SPEAKER_01: So perhaps I can give you a chance to give you your closing thoughts and we look
[43:55] SPEAKER_01: forward to hosting you again soon.
[43:57] SPEAKER_02: Okay, no, thank you.
[43:58] SPEAKER_02: I think...
[44:00] SPEAKER_02: The first half of the year, as I said, has been challenging.
[44:04] SPEAKER_02: But I think the second half could be even more,
[44:06] SPEAKER_02: given that the Manda Manu and the resultant new government,
[44:11] SPEAKER_02: if you may,
[44:12] SPEAKER_02: drone-based government,
[44:13] SPEAKER_02: has come in the second half of the year.
[44:15] SPEAKER_02: So I think that's really our focus,
[44:17] SPEAKER_02: to see how the drone-based government will operate,
[44:20] SPEAKER_02: whether there will be a listening government.
[44:22] SPEAKER_02: But what I'd like to...
[44:23] SPEAKER_02: to say,
[44:23] SPEAKER_02: and I said this morning,
[44:25] SPEAKER_02: is that if there's anything that we continue to prove to ourselves and to the world,
[44:31] SPEAKER_02: it's how resilient we are as a country that will go through very tough times,
[44:36] SPEAKER_02: very challenging times,
[44:37] SPEAKER_02: and come out of the other side having found solutions and still smiling.
[44:41] SPEAKER_02: My message to everybody is let's bet on a country called Kenya.
[44:44] SPEAKER_02: I think it's one that will keep winning a hundred times.
[44:48] SPEAKER_02: The second thing I would say is as NCBA,
[44:51] SPEAKER_02: We have also gone through some challenging times,
[44:53] SPEAKER_02: both from the political front and,
[44:55] SPEAKER_02: of course,
[44:56] SPEAKER_02: as I talked about,
[44:57] SPEAKER_02: the economy and the same challenges everybody else is facing.
[45:00] SPEAKER_02: When you look at all the challenges that any business could face, I think NCBA was primed to face them.
[45:06] SPEAKER_02: come out of that very strongly.
[45:08] SPEAKER_02: We continue to do very well.
[45:10] SPEAKER_02: Again,
[45:11] SPEAKER_02: all that has been because we have maintained the primary strength that we have,
[45:16] SPEAKER_02: which is to take care of our customers.
[45:18] SPEAKER_02: We stay close to our customers.
[45:20] SPEAKER_02: We continue listening to customers.
[45:22] SPEAKER_02: And that is the most important thing that we have done.
[45:24] SPEAKER_02: I would say the second one, obviously, is taking care of our staff.
[45:27] SPEAKER_02: We continue to be very mindful, very empathetic to our staff.
[45:30] SPEAKER_02: And those two have gotten us to where we are.
[45:32] SPEAKER_02: So again, if you're to bet on a company, if you're to bet on a bank, I would say please bet on NCBA.
[45:39] SPEAKER_02: And I think lastly, I should say that for everybody, this is not the time to be cynical.
[45:43] SPEAKER_02: This is the time to look at the future with optimism.
[45:46] SPEAKER_02: This is the time to hold leaders to account.
[45:49] SPEAKER_02: to make sure that the promises that we made during the Gen Zima,
[45:53] SPEAKER_02: Damano,
[45:54] SPEAKER_02: and any other time in the past,
[45:55] SPEAKER_02: that you're holding us all to account,
[45:57] SPEAKER_02: that what we say is what we do,
[45:59] SPEAKER_02: and what we do applies to all of us equally,
[46:02] SPEAKER_02: which is also very important,
[46:03] SPEAKER_02: because quite often we do things that apply to a few,
[46:06] SPEAKER_02: but not to us.
[46:06] SPEAKER_02: Let's make sure that what we say is what we do, and what we do applies to all of us equally.
[46:13] SPEAKER_02: Back to you, Eric and Asante.
[46:14] SPEAKER_01: Thank you so much, John.
[46:15] SPEAKER_01: I know it's a long day today.
[46:17] SPEAKER_01: You must have explained the results so many times today.
[46:20] SPEAKER_01: So we let you go so that you can get some rest and prepare the results for the next half year.
[46:25] SPEAKER_01: I think that's very important.
[46:27] SPEAKER_01: So very good on what you're doing.
[46:28] SPEAKER_01: Keep at it.
[46:30] SPEAKER_01: And the shareholders seem to be very happy.
[46:31] SPEAKER_01: I think the share price was up 5% today on the back of those really nice results that you posted.
[46:36] SPEAKER_01: So keep at it and let's see you again, perhaps in Q3 or Q4,
[46:42] SPEAKER_01: you've had so far.
[46:43] SPEAKER_01: So for the rest of our audience, thank you so much.
[46:46] SPEAKER_01: Keep tuned in and keep an eye on the timeline so that we can give you more conversations like this.
[46:51] SPEAKER_01: John, you can say kohere and then we let you know.
[46:55] SPEAKER_02: No, thank you.
[46:55] SPEAKER_02: Thank you.
[46:56] SPEAKER_02: Thank you, Eric.
[46:56] SPEAKER_02: Thank you, Manuel.
[46:57] SPEAKER_02: Thank you to the Muango team for putting this together.
[47:00] SPEAKER_02: Thank you to my team that's been working with you to put this together.
[47:03] SPEAKER_02: And thank you to the audience for taking the time to come and listen to us.
[47:07] SPEAKER_02: We don't take it for granted.
[47:09] SPEAKER_02: And hopefully I've been able to answer some of the questions that you may have.
[47:13] SPEAKER_02: In the future, of course, when we don't have results to talk about, I'm hoping we can meet again.
[47:18] SPEAKER_02: Then I can tell you a lot more stories to do away from the results.
[47:21] SPEAKER_02: But yeah.
[47:22] SPEAKER_02: Have a good evening, everybody, and certainly a great weekend ahead.
[47:25] SPEAKER_02: Thank you.
[47:25] SPEAKER_02: Definitely.
[47:26] SPEAKER_02: Thank you so much, our audience.
[47:28] SPEAKER_02: Thank you so much for joining us.

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