Barclays sees data analytics driving loan book growth

Barclays Bank of Kenya #ticker:BBK is strengthening its data analytics team for what it believes is a crucial driver for the next phase of banking in Kenya under the capped interest rate regime.

It recently announced seven per cent growth in net profit to Sh7.4 billion for the financial year ended December 2018 as operating profit grew at the fastest pace in eight years.

The Business Daily spoke to managing director Jeremy Awori on the opportunities and challenges that lie ahead as the over 100-year-old lender draws closer to rebranding to Absa Kenya.

WHAT DO YOU MAKE OF THE PERFORMANCE IN 2018 GIVEN THE SUSTAINED RATE CAP REGIME AND ONSET OF INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS) 9?

Our revenues grew by five per cent — the fastest growth since 2016 — and we are pretty proud of it because banking revenues have been relatively benign over the last three years. We also managed our costs well. Our costs, if you take away one-offs, declined by two per cent, leading to eight per cent growth in operating profits. Overall, we were encouraged and pleased with our performance.

BUT RATE CAP AND IFRS 9 HAD BEEN TIPPED TO SLOW DOWN PROFITS. DID YOU FIND A NEW WAY TO PLAY THE GAME?

You should be able to do business in any environment you are in. But you can end up with sub-optimal business if you have got external factors that affect choices. We are now using a lot of data science to make credit decisions and we had some good growth in the loan book in 2018.

We have been prudent in the risk we take and we will keep searching for the right risk and return balance through new expertise.

YOU HAVE ALSO RAISED YOUR DIVIDEND PAYOUT AND CUT DEBT PROVISIONING. THIS BEATS MANY ANALYSTS’ EXPECTATIONS IN A YEAR OF FALLING INTEREST RATES AND ONSET OF IFRS. BOLDNESS?

We need to reward shareholders when we have good performance. We moved from 71 per cent to 81 per cent payout ratio because we felt it was the appropriate time to raise the payout.

Our dividend is always predicated on performance. We are not a boom and bust dividend payer and hope to continue giving good returns. On IFRS 9, banks had a one-off opportunity to take certain parts of non-performing loans and instead of providing for them through income statement, they could pass them through reserves.

A lot of banks chose to pass the impaired assets through reserves instead of income statement and therefore profits for the sector appear to suggest that banks are doing phenomenally well. You will see profit growth being much narrow going forward because you now have to pass all impairments through income statement in 2019.

YOU CREATED THE POSITION OF CHIEF DATA OFFICER AND CHIEF CUSTOMER OFFICER AT BARCALYS. HAS IT BEEN A GAME CHANGER?

Now everything is around data analytics, artificial intelligence, and machine learning and this involves taking different data points and looking for patterns in this mass of data to understand customers better. You can then tailor-make products for them. You need somebody who has specific skills in advanced mathematical modelling to handle all those data points. Such a person will look at the structure of computer systems and dig out insights. We started a chief data office and further changed our structure to create a chief customer office to improve customer experience. Customer needs are always changing and so should our products.

BANKS ARE SHIFTING FROM CORPORATE SOCIAL RESPONSIBILITY PROGRAMMES TO INITIATIVES THAT CAN TRANSFORM COMMUNITIES WHILE ALSO BRINGING IN A NEW POOL OF REVENUES. HOW HAS BARCLAYS FARED IN THIS SPACE?

We call it shared growth strategy. We believe that when communities thrive, we all thrive and that is why we invest in programmes such as education, skill development and employment. We are passionate about this because Kenya is a country of young people and one of the things we discovered was that there was a big gap in financial literacy.

We embed that in our strategy, instead of just dishing out cheques and people spend on activities that just blow away the money.

THERE IS A SIGNIFICANT SHIFT TO DIGITAL FINANCIAL PRODUCTS. WHAT HAS BEEN THE ACHIEVEMENT SO FAR?

Our Timiza mobile banking product grew beyond our expectations, bringing in over three million new customers as we lend out over Sh10 billion in under a year.

This product uses a lot of data analytics to arrive at what limit we think is appropriate for each customer based on many factors such as their mobile usage, credit score at credit reference bureaus, and our experience with them as customers. You get rewarded when you demonstrate the right behaviour. We want to grow the limits but we are not going to give people limits we feel are irresponsible. We don’t want to put them into a cycle of debt that they can’t afford. It is not the right thing to do even as more unregulated firms join this area.

YOU HAVE POSTED THE LOWEST COST INCOME RATIO (CTI) SINCE 2016. WHAT IS DRIVING THIS INCREASED EFFICIENCY?

About six years ago, we were not as efficient as we should. Our CTI was unacceptable at above 50 per cent. We had to trim the fat and get rid of inefficiencies.

We invested in technology and merged some branches to save costs as more customers moved to digital channels. Natural attrition and a few voluntary early exit schemes trimmed our headcount. We believe the more efficient we are, the more capable we will be in pricing our products well for customers.

WHEN YOU FIRST MENTIONED BARCLAYS PLC SELLING DOWN STAKE IN BARCLAYS AFRICA AND EFFECTIVELY LOWERING CONTROL IN BARCLAYS KENYA, THERE WAS ANXIETY THAT BARCLAYS KENYA WAS LEAVING. HOW HAVE YOU MANAGED TO CALM DOWN THIS?

We are in a much better space now than at the time we made the first announcement. More customers now understand what the change entails.

By June 2020, the Barclays brand will not be present in Kenya and we have up to then to introduce the Absa brand in its place. There is a whole series of activities that goes beyond just taking down the blue eagle on our 84 branches. We are going to invest in our premises and make them fresher using our dedicated team that is working on this. We are 50 percent through with the workload that we have to do.

With Barclays Plc exit, we can now bring in more appropriate systems for our customers. We can do so many things that we could not do when working under Plc. Plc had certain constrictions and restrictions on what we could or could not participate but Absa has a much more flexibility and understands Africa.

PARLIAMENT HAS MADE A FUSS OVER THE TIGHT LAWS ON TRANSACTIONS ABOVE SH1 MILLION. WHAT’S YOUR TAKE?

Rules on giving documentation on certain levels of transactions are not unique to Kenya. When regulators say we should ask about source and destination of money, it is just a duty of care to the financial system.

If the transactions are straight forward, I don’t understand why customers should get worried. Our financial system is linked to global systems and without similar rules, we may be blocked from global systems such as swift transfer service. The terrorism game has changed and so has that of corruption and money laundering.

WHAT KEEPS YOU AWAKE THIS 2019?

The year has its own set of challenges and opportunities too. We are seeing a tightening on regulatory scrutiny and we have seen fights around corruption that puts onus on banks to be more alert.

There is also increased competition from all directions: telcos, technology firms and then unregulated digital lenders.