Boss Talk

Joshua Oigara on winning with customers as loan defaults rise 

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Joshua Oigara is the chief executive of Stanbic Bank Kenya and South Sudan. ILLUSTRATION | JOSEPH BARASA | NMG

Joshua Oigara has completed one year as the CEO of Stanbic Bank Kenya and South Sudan, leading the Kenyan business in posting a nine-month net profit that was more than what was recorded in the full year ended December 2022.

Mr Oigara spoke to the Business Daily about his journey at Stanbic, what worked for the bank in 2023, his view on 2024 and how the bank is responding to challenges such as elevated interest rates and increased defaults. 

You have closed over a year at Stanbic since moving from KCB Group. How has the journey been like?

It has been quite exciting. The possibilities for Stanbic Bank and Standard Bank [parent company of Stanbic] on the continent are immense. If you look at the opportunities of transforming lives, bringing in new clients and connecting dots across the continent, I wouldn’t have joined Stanbic at a better time.

The more I reflect on the challenges of the continent, the more I realise Stanbic has a chance to play in moving the continent forward.  

Your 2023 nine-month results reflected a 34 percent rise in profits, racing past the full year for 2022. What worked for you in a year earnings for many of Stanbic peers were slowing down?

What I loved most in the nine months was the strong growth in client activities such as trade and investment. Our performance was as a result of strong fundamentals and managing our risk much more clearly even as the cost of funds increased.

Where we saw weaknesses is the area of increased interest rates. But we took a lot of opportunities to support our clients early enough. We started preparing in March 2023 on how to support clients facing less disposable income and higher taxes

A lot of people spoke about the challenging macroeconomic environment, high inflation, high-interest rates and depreciation of the Kenyan shilling against foreign currencies. But I would say, generally in the business cycle, there are headwinds. 

The cycles are part of the nuances of the economy. Our challenge is to be prepared from a risk model to take advantage of such cycles.

By preparing early enough, we were able to ride the wave we faced. I don’t think we are there yet. This may take another year or two to resolve. 

What are some of the support measures you are taking to support clients who are running into difficulties of servicing loans? 

Additional facilities for individuals, additional working capital facilities for our enterprise clients, SMEs and large clients and being able to accommodate those who need extended periods to service their loans. We have refinanced through top-up facilities for those who need to settle old loans.

We have also accommodated price increases. We haven’t passed the full cost increase to clients. If you look at the rising central bank rate (CBR), the bank has had to accommodate customers by absorbing part of the cost of funds.

Despite the support to customers, Stanbic had by the third quarter of 2023 increased provisioning for loan defaults. What was the thinking behind this and what’s your view in the New Year?

Risk management in a difficult environment is one of the greatest strengths an institution should have. We see the headwinds. Our clients are facing pressure. Their income levels are coming under a lot of attack from different areas. 

If you are an SME moving goods from one area to another, your transport costs have gone up, power costs have increased and yet you are not really pricing up your goods. We have also had sectors such as agriculture and manufacturing where we have faced difficulties with some of our clients. 

High-interest rates mean there is a likelihood of more defaults. We anticipate clients will face such difficulties and so when we do forward modelling, we realise we need to increase our level of provisioning. 

It is probably the highest provisioning we have held as a bank in the last three or four years but we expect this to ease in 2024 or 2025. My view is that this environment we are in is not short-term. 

After three upward CBR reviews in 2023, what is your take on the direction of interest rates going forward?

Do we anticipate interest rates to come down? I think we do in the medium term. I can’t tell you if it’s happening in 2024 or 2025 but I think once inflation is down then we should begin to see this easing.

Central Bank of Kenya closed 2023 with a CBR rise that took the figure to levels seen 11 years ago. This is a new pressure point for borrowers. How do you see this playing out? 

This is not a new chapter. When you create new limits, you create new possibilities for clients. Rising interest rates will bring in more pressure for clients but the clients and banks are very dynamic. 

As a bank, we haven’t been able to pass the full cost of the increase in funds to clients given the CBR review. I don’t think this will happen even with the new rate. 

We will continue to support our clients by engaging them to know what we can offer in line with their cash flow positions. The underlying business position of our clients has not changed. What has changed is their cost profile. 

Large clients are prepared to remodel their finances while private customers have flexibility within themselves to balance price increases. We are seeing more pressure on mass market clients like SMEs. 

I think we will come out much stronger as an industry by working closer with our clients. We just need to be more cautious and proactive in supporting our clients.

Interest rates are going up, the shilling is weakening against the dollar and job stability is threatened. Are we at that point where banks have to activate the strategies that worked during Covid-19 pandemic?

There are many shocks in the financial sector than we always imagine, only that we remember big bang like Covid-19 and the financial crisis, Russia-Ukraine war and now the Israel-Hamas situation. 

The situation we are in has progressed gradually unlike the Covid-19 shock. The adjustment we needed to make is what you have seen the CBK do and we are very much aligned to it. 

We have known how to support our clients through a crisis and so I don’t think the current crisis is to the magnitude of Covid-19. Having said that, the value of non-performing loans in the industry are currently at their highest levels ever and the way to get out of it is to stay closer to our clients.

Our clients’ level of imagination and their energy towards their businesses is what defines why we exist. So, staying close to them and making sure we walk with them through the crisis is key. That is what we are doing at Stanbic and we are projecting our NPLs ratio will come down in 2024 because we are able to work with clients through this cycle.

Looking at South Sudan and the businesses that operate their, including Stanbic, is it almost just a case of keeping the lights on? What are the prospects? 

To the contrary, we see relative stability in South Sudan than before. You can only get to feel the pulse of South Sudan when you visit Juba or Rumbek or go to Yei. 

The amount of investment going on in sectors such as infrastructure, housing, education and healthcare is different from what people see today. The macroeconomic challenges and the level of currency depreciation is much less. We anticipate South Sudan to come out of hyperinflation by the end of 2024.

I am quite excited. Are we building our business? Yes. We opened up new sites of representation in 2022 and we intend to do much more. We are there for the long haul. The energy sector is a big part of our growth momentum and this is expected to continue growing.

We see international development organisations like United Nations and World Food Programme running and we are seeing huge investments in telecommunication coming up. We see bubbling economic activities than before.

Unfortunately, many Kenyan businesses are not represented in South Sudan. For me, it is a pity. It is a great opportunity just like the DRC Congo especially when you look at the volume of goods entering South Sudan.

There always questions about whether the country’s laws and regulations are moving fast enough. I think the answer is that it can get better. 

One of the sticky problems is that of pending bills for people and businesses that do business with government. How do you see this playing out?

There are cases where clients are unable to get their payments but government ultimately settles the obligations. Pending bills is an old problem and I have no doubt it is going to be there in 2024. So it is the bridge-financing and working close with clients, especially the SMEs, to give them the support and accommodation they need.

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