KCB Group announced a 49 percent growth in net profit to Sh44.5 billion in the nine months of trading ended September 2024. CEO Paul Russo spoke to Business Daily on what has put subsidiaries on a roll, creating the right culture for growth, bursting non-performing loans menace and the power of opening both eyes when dealing with government.
The performance across the subsidiaries shows improved performance. What is working for you in the region given the many macroeconomic factors that continue to play out?
We started a deliberate journey about eight or 10 years ago when contribution from subsidiaries was five percent. We sat down, took a step back and asked, ‘What do we need to do to enable these subsidiaries?’ We started working on governance, people and strategies— and ruthlessly focused on these.
That is when we set up a new role called regional business director— somebody who just looks at those subsidiaries, but is also a member of ExCo [executive committee].
Up until 2016, KCB Kenya owned all the other subsidiaries and it became difficult for them to thrive. That decision of creating a holding company and creating a group executive created focus on all businesses.
But the growth has also been down to basic things. In the past, KCB subsidiaries used to have chairpersons and managing directors (MDs) from Kenya yet they did not understand the dynamics in those markets. Now we have localised chairpersons and MDs for all subsidiaries.
It makes a huge difference, both on connections with customers and with staff. So the growth has been down to the small things we have done that are very big and also the ruthlessness of focus on strategy from a group perspective.
When you are driving such a huge organisation with multiple companies in different countries, what does it take to have a uniform culture that delivers results?
I don't think, as an HR [human resources] expert, I will ever say that you can get a uniform culture across seven markets, because there are differences and diversity. But you can create an aligned strategy and aligned culture, even if there are nuances you will never change.
How I speak to people in Kenya, I will never do the same to those in Tanzania or vice versa. But once you've aligned your purpose and values, and everybody subscribes to that, then you can deal with the smaller differences from border to border.
This is the first time in five years for KCB to be top on the profitability chart after nine months of trading. Does it give you some room to relax and focus on strategy?
I think if I speak about the two and half or so years, I have focused the group on running our own journey. We have to run our own journey at our own pace.
Every single shareholder of KCB wants certain level of returns. Our staff want a certain working environment in place, and they want sustainability.
If you notice, we took hard decisions, and I explained to you earlier on those hard decisions when it took over and this is now paying back.
When we were at our lowest, everyone was baiting us. But it was a conscious decision to correct. When you are a new CEO, you have to correct. I think now for this year, investors will see the value of correcting early.
I am sure you read all the financials from the other entities and you can see NPLs [non-performing loans] ticking up. But two years ago, we were the only guys taking NPL up in the same environment.
This is no time to relax. I have told my team we will run a sustainable organisation. If you take a call today, it pays you, instead of delaying that decision.
Much as it was painful the last two years, I think you can see the results starting to come. You can see the rebound of KCB Kenya. You can see the value of investments for what we took.
When I look at National Bank of Kenya (NBK) performance right from the first quarter, one would say it has strongly recovered and now it is on a roll. Does it make you want to change your mind about selling it to Access Bank?
Not at all. First, it will still need capital. It is the only subsidiary that is non-compliant. Do you pump that money into KCB Kenya or do you extract from KCB Kenya?
Secondly, you just get conflicting strategies, right? You have a cash cow called KCB Kenya and then NBK on the opposite front. We still believe it [selling NBK] is the right decision.
One of the areas that has been a big focus for you is taming non-performing loans (NPLs). You have revised the group’s NPL ratio outlook from 13-15 percent to 16-18 percent. Does it speak to the fact that this is still an area that you see a lot of unfinished business?
Yes, it is. And it is top for me. That NPL stock of about Sh215 billion remains a key focus. You can imagine how much capital is tied in there. We have to focus on that stock.
What I like about it is that we took a hard decision and we understood the stock. You can see the growth now is tempering. If you look at the rate of growth, it is slower than that of the industry.
Our stock is huge because we took that decision [to downgrade loans that were problematic] in 2022 and 2023. The rate of growth is now tempering and this is good news. You have to continue to close to make sure nothing new comes. It is never a zero but that is part of life.
Now we need to attack that stock, particularly from what is in court. You get injunction after injunction yet you have securities to realise and people who are willing to buy. I would estimate 50 percent of our NPLs is in court.
At half year, you spoke about the cooking oil deal and said you believe that was bad business for KCB. Did it leave KCB with a loss?
Apparently, no. It is the pain it caused us. Our share price went to Sh15 largely because of that thing. The lesson we picked is that sometimes it is okay not to make some money. There are some things that can really cause you a failure.
I was in your papers every day. When your share price comes to Sh15 and the competition starts saying ‘We are bigger in market capitalisation than three closest banks,’ it was probably the lowest moment for me.
From the experiences of getting involved in government-to-government oil deal and cooking oil deals, how does your perspective change in terms of structuring future deals with government?
Show me a bank that is not dealing with government. Show me even a tier III bank that is not in the corridors looking for government.
Even the rest of the world [of borrowers], there is trouble. That is why even when people are saying government is doing badly, they are still looking for business with it.
There are some deals you get right and some that go the way the cooking oil deal went. Pick up the lessons and just change the lens.
We are going to change the lens and thicken them a little bit. You need to get closer to a magnifying glass when dealing with government.
