Corporate

NCBA maintains positive growth, hiring outlook

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NCBA Group managing director John Gachora during an investor briefing of the half-year to June results on August 30, 2021. PHOTO | DIANA NGILA | NMG

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Summary

  • NCBA was the third bank by assets in 2019 after the merger of the former NIC Group and CBA Group but has since been relegated to fourth place with Sh542.59 billion assets as at June 30.
  • Managing director John Gachora spoke with the Business Daily on performance over the period and the march towards the one-trillion-shilling mark.

NCBA Group #ticker:NCBA reported a 76.9 percent jump in net profit in the six months to June to Sh4.6 billion, driven by income from lending and customer transactions.

NCBA was the third bank by assets in 2019 after the merger of the former NIC Group and CBA Group but has since been relegated to fourth place with Sh542.59 billion assets as at June 30.

Managing director John Gachora spoke with the Business Daily on performance over the period and the march towards the one-trillion-shilling mark.

THE BANK’S LOAN BOOK DECLINED BY SH8.7 BILLION TO SH239.6 BILLION. WHAT WAS THE REASON FOR THIS, AND WHAT IS THE PLAN ON CREDIT EXTENSION IN THE SECOND HALF?

What you notice even in other banks, credit growth has been muted. Not to give an excuse, but a good amount of it has to do with given moratoriums and therefore recapitalising interest in loans, which gives some growth. At NCBA, we had restructured 35 percent (Sh83.86 billion) of our loan book portfolio and 85 percent is now paid back.

We don’t have that benefit of recapitalising now. After bringing two banks together, we had to examine our trading portfolio and in doing so we had to shed some names we felt were not the right names for this bank. It also takes time to set up a new credit policy and that has not settled.

Finally, companies and individuals went slow on investing and as a result, we have not seen a lot of credit growth. We are rejigging our books towards supporting smaller businesses. Customers now want to invest and go into capital expenditure because of better expectations.

ALREADY TWO BANKS ARE IN THE ONE-TRILLION-SHILLING VALUATION MARK BY ASSETS. WHAT IS THE PLAN FOR NCBA TOWARDS THAT?

Thank you for pointing out how much work I have to do. It is a big gap. What it tells us is that there are big opportunities there and we are clearly on a march to that. But there are a number of things. One, a lot of it would be organic.

NIC and CBA came together to create NCBA. We are now a big bank and we can do much bigger deals if the economy opens up. We are on a momentum to grow and I think we can grow the industry. Secondly, these banks have grown to that level because of inorganic growth; acquisitions.

Having done one of the biggest mergers, we are not averse to doing more acquisitions when opportunities come up. That is why we believe we will grow towards that number. Are we chasing it? No. We are not chasing numbers for the sake of chasing numbers. We are not in a hurry to get to one trillion by trying to buy everybody across the nations, but I do believe that we are on a steady pace and march towards that.

THE BANK SPENT SH742 MILLION ON VOLUNTARY EARLY RETIREMENT PROGRAMME THAT SAW THE EXIT OF 130 EMPLOYEES LAST YEAR BUT STAFF COSTS WENT UP STILL…

On a normalised basis, we were actually down on staff costs. But as we expand our branches we have had to hire. We are going to add 15 branches this year, so far we have done six.

Each of these branches has about eight people. Because of those investments, our costs will go up. Secondly, there were a few adjustments last year. For instance, we didn't pay staff bonuses or give a rise.

This year we want to give a rise and we are putting money aside in case we get approval for staff bonuses. So this again comes into those staff costs, if were to remove that you would see we are down.

ARE YOU GOING TO RECALL SOME OF THE STAFF THAT WERE LET GO LAST YEAR FOR THE NEW BRANCHES?

Mid last year, we released about 350 temporary staff. Out of this we have recalled more than half of those and most of them are now on permanent contracts. So yes, we are bringing them. For the permanent staff, they were more under redundancies.

WHAT IS THE OUTLOOK ON DIGITAL LENDING PRODUCTS?

The outlook on digital remains positive. We think M-Shwari is reaching its plateau level with 26 million customers and so we are trying to be creative around that service.

Fuliza is still on a growth path, that is why most growth in Sh272 billion digital loans this year is coming from Fuliza. We expect it to grow and we still feel there is leeway for growth. We are also trying to grow our own NCBA Sasa for our bank customers and make it more available.

DO YOU HAVE THE LOAN PRICING RATE WITH CENTRAL BANK OF KENYA?

We have not finalised the loan pricing conversation with the central bank. It is very advanced, but not completed.

NON-PERFORMING LOANS OVER THE PERIOD GREW BY 16.4 PERCENT TO SH45 BILLION WHILE THE BANK HAS BEEN FOCUSED ON ASSET FINANCING. WAS THIS SEGMENT THE LARGEST CONTRIBUTOR AND HOW DO YOU PLAN TO CONTROL IT?

The growth of NPLs was largely driven by some of the large corporates that have gone into administration like Kaluworks. On asset finance, we continue to see a growth of the business except that growth is not coming from large transport companies. It is now coming from smaller transport companies and SMEs.

LAST YEAR, NCBA ACQUIRED AN AUCTIONEERING YARD. WHAT HAS BEEN THE IMPACT?

We introduced the NCBA yard for redisposing of vehicles. We finance about 35 percent of the vehicles financed in this country. Because we are the largest supplier of these vehicles, we noticed that they were not well taken care of and we didn’t realise much value as we thought we would.

Our cost of storage has also gone down because we used to pay auctioneers for the period the cars stayed under their storage. We have seen much better turnaround and resale value for vehicles that we repossess. We are still using yards for vehicles from other areas like Kisumu.

HOW DID SUBSIDIARIES PERFORM DURING THIS HALF PERIOD?

Rwanda, our latest subsidiary, has turned into profitability towards the end of last year and now this year. We have seen steady growth from both core bank and digital business. We have struggled in Uganda where we were profitable before but not this year.

The main reason was the digital business which has been fairly profitable has not been due to strong lockdowns, affecting overall profitability from the bottom line. We had to take high provisions as a result.

Tanzania has not been profitable this year because of a mandate from Central Bank of Tanzania. If a customer there is not paying, even if they have good collateral you end up having to take hits on loans that you know you are going to recover. But first, you are forced to take the hit.

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