How I plan to bring down NBK’s huge bad loans pile

KCB Group #ticker:KCB recently acquired National Bank of Kenya (NBK) and appointed its group regional businesses director, Paul Russo, as the new CEO. Mr Russo spoke to the Business Daily about his ambition to make NBK as vibrant as its parent firm.

YOU ARE HARDLY TWO MONTHS OLD AT NBK. WHAT IS YOUR IMMEDIATE PRIORITY?

Because of the changes we have made on our board, we are working on reconnecting with clients. But we have another big agenda on loan recoveries and I am giving it priority. We have got to chunk the elephant in bits. If there is no governance at the top, the people below dance to their own tune. That is how an organisation is lost. I am here to bring the right culture.

NBK HAS A NON-PERFORMING LOANS (NPLS) RATIO OF 68.8 PERCENT COMPARED TO THE INDUSTRY AVERAGE OF 12.8 PERCENT. HOW ARE YOU GOING TO CHUNK THAT?

There are records for all the lending and I have a strategy for not just the NPLs but also the written off book. I have a view of every single detail of the top 30 NPLs and I discuss it two hours per day to know progress of each of them. We are putting maximum effort where there is maximum value.

There are those willing to come to the table, those we are going after their security and those who we are pursuing over and above through courts.

BUT THERE ARE CONCERNS THAT THE RECOVERY PROCESS WILL BE COMPLICATED BY THE POLITICALLY CONNECTED BORROWERS YOU MAY FIND IN NBK BOOKS.

We have no fear of realising the security or going to court. I have not found any politician. None of them has called me about NPLs.

You can’t rule out that there are people who take loans with no intention of repaying. In many cases, they are not mama mbogas and so it is easier to collect. That is a good problem to have.

RECOVERING THE WRITTEN OFF BOOK MAY TAKE YOU A VERY LONG TIME. WHAT IS THE STRATEGY HERE?

We have brought in PricewaterhouseCoopers consultants to do an analysis for that. We will go as far back as possible. Most of the NPL problem started worsening around 2013 going to 2015 and so we are going to put maximum effort here to get maximum value. I don’t want us to waste effort chasing shadows. I want to focus on rebuilding the bank but if we find any evidence of wrongdoing by any individual, including staff, we will take action.

SO WHAT ARE YOU DOING DIFFERENTLY ON THE NEW LOAN BOOK TO AVOID PILE-UP OF NPLS?

We have now made it clear that the person involved in evaluating the risk cannot be involved in approval or disbursement of the loan. We have segregated that completely and removed overlaps.

YOU LED THE TEAM THAT RAN CHASE BANK AFTER IT SANK INTO RECEIVERSHIP. DOES THIS MAKE THIS TASK ANY EASIER?

Absolutely. Chase and NBK are like two PhDs because you get to do things that others have not done before. We are co-creating. Being from human resources (HR) background also gives me a thick skin.

The problem was governance and that is why we even changed the board. We are not here to please anybody. We are here to do the right thing. We did it in Chase Bank and in HR function across KCB subsidiaries. I have a personal conviction to do it. One has got to repeat success so that nobody says the first one was by chance.

DOES THIS MEAN THAT PEOPLE WHO ARE NOT ALIGNED TO YOUR VISION MAY HAVE TO LEAVE?

That is not my vision. But my conviction is to do the right thing. I am not going back to Marsabit (my home town) because of failing to work. Today, every staff has an equal chance unless I get a skeleton that has their fingerprints.

People who know me have nicknamed me bandit. People must stand to be counted, even if they are called arrogant. When you stand for something you will be called names but you must have a thick skin. A leader must fight for the good people in any organisation. If a skeleton is brought to my attention and I do nothing, I will be injuring the team.

NBK CORE CAPITAL POSITION IS BELOW THE REQUIRED MINIMUM OF SH1 BILLION. HOW IS THIS GOING TO BE ADDRESSED?

We will soon be compliant. The new board has approved a new capital plan and it is going to group board then to the Central Bank of Kenya. We have done our estimates already.

We have to time our capital injection to ensure we don’t erode it and that is why the clean-up is important. We also need to create momentum on the business front.

CUSTOMER DEPOSITS DROPPED BY ABOUT SH10 BILLION IN THE THIRD QUARTER. DOES THIS SHOW THAT CUSTOMERS SEE NO VALUE IN ENTRY OF KCB?

Not at all. The bank went into a standstill at some point and customers were moving their money where they could borrow. But we had an upside in the month of September as customers started understanding what we were doing. We are engaging them.

WHAT KIND OF A BANK WOULD YOU WANT TO HAND BACK TO KCB AT THE END OF THE TW0-YEAR INTEGRATION?

NBK is not going to merge with KCB. The brand will continue to run. The two entities have different competencies and propositions. We will go back to the regulator about the model. Closing the brand comes with downsides because it is not automatic all customers will remain.