Category Archives: NIC

Succession Talk

There has been a lot about succession in the news today:

  • Legendary investor Warren Buffet outlined his succession plan for his company and shareholders.
  • Also, legendary World Cup match predictor, Paul the octopus (and beloved by gamblers anonymous), died in his sleep in Germany, without leaving a successor.
  • NIC Bank held a succession planning clinic for its customers and entrepreneurs
  • This is also the week in which retiring Safaricom CEO Michael Joseph is being feted every other day somewhere in Nairobi while his successor Bob Collymore waits in the wings.
  • And at Equity Bank, CEO James Mwangi finally addressed and put to rest the matter of his succession. Announcing the banks Q3 results (with group asset of Kshs 136 billion ($1.6 billion) and profits of Kshs 6.4 billion ($80 million), he was asked about a long-standing issue with some with investors and shareholders – ‘what would happen to the bank if something happened to him?’

His answer? Profit would go up because he’s currently highly paid, and his style over 18 years has changed to one who takes less risks! On a serious note, he pointed out to several of the bank’s current managers who had more experience and knowledge than he did (but he is better than selling himself), and would form a pool from which the Board could pick out a successor. Some of the people he pointed out, and who may succeed him, include Gerald Warui (his principal deputy), Mbaabu Muchiri (ex-Coca Cola and Central Bank who reduced housing bad loans), Michael Wachira (ex-Fortis), Allan Waititu (brought Finacle to the bank & automation and is now in charge of new projects), Samuel Makome (ex-Citibank), Bildad Fwama (ex Citibank, British American), and Mary Wamae (who negotiated the first ever conversion of the Kenyan build society to a bank, the Helios deal, and regional investments in Uganda, Sudan, and currently in Rwanda and Tanzania which are aimed to open in Q1 of 2011)

He also noted that with his busy activities outside the bank at (Vision 2030, Advisor to UN & World Economic Program), he has delegated a lot to the point that he is not a signatory at the bank and does not sit on any of the seven board committees.

Kenya Bank Rankings 1968 Edition

From reading a 1968 book Who Controls Industry in Kenya – a report of a working party comes some history of the Kenyan banking sector. It mentions that in 1968;

– Kenya had 10 banks and all but 3 banks were foreign bank off-shoots.
– They had given loans of loans of £70m, deposits of £83m – a book ratio of 83%, compared to US or UK which had ratios of between 33% to 50%
– Depositors received 3-4% interest on deposits and paid interest of 7-8% on loans [today deposit rates are about the same but loan borrowers pay 12 – 25%]

There were two tiers of banks then;

The Big 3 Banks which 3 held 80% of deposits and 85% of bank assets amounting to K£111 million in 1966 were
– Barclays Bank: Had assets of UK£1.4 billion and had 83 branches, and Kenyan directors included Michael Blundell, S. Waruhiu and J. Opembe. Today it has 111 branches
– Nation & Grindlays (now KCB):  Had assets of UK £401 million and after-tax profit of £1.2 million. It had 50 branches, and 16 directors who were all British. Today KCB has 165 outlets in Kenya
_ Standard Bank (now Standard Chartered): With assets of UK £892 million and a net profit of £3.1 million. It had 41 offices, 22 directors all British.

Next 7 Banks
– Bank of Baroda
– Ottoman Bank
– Bank of India
– African Banking Corporation (subsidiary of Standard Bank)
– Commercial Bank of Africa
– Algemene bank (General Bank of Netherlands)
– Habib bank

Other institutions
– Cooperative Bank of Kenya (established in 1967)
– National Bank of Kenya (established in 1968)

Finance houses
– Big 3 (licensed as banks)

– National industrial credit (then 40% owned by Standard Bank, now NIC)
– United Dominions Corporation
– Credit finance company (now CFC Stanbic)

Others registered as ordinary companies: 
– Transaction Finance Corporation (subsidiary of Cooper Motor Corporation CMC)
– Industrial promotion services (Now IPS, was est. in 1963 by the Aga Khan)
– Africindo Industrial Development (powerful Asian industrialists seeking credit facilities for exports to India with training for Kenyans there)

Development corporations
The big three commercial banks also owned development corporations to undertake longer-term investments than normal banks accepted; these were Barclays Overseas Development [assets of UK£9m and 88 projects in East Africa], National & Grindlays Finance and Development [B£3m] and Standard Bank Development Corporation.

Building societies
As at 1964, they had loaned UK£3m more than they had in deposits; this was after sudden withdrawal in 1959 of £4m savings by European and Asian depositors.
– Savings & Loan Society
– East African Building Society
– First Permanent (East Africa)
– Kenya building society (subsidiary of Commonwealth Development Corporation CDC)
– Housing Finance Company of Kenya (now Housing Finance)

NIC Bank 2009 AGM

The 2009 annual general meeting (AGM) of NIC Bank took place on Wednesday April 29 at the Kenyatta International Conference Centre Nairobi. (more on the background and recent performance of NIC)

The Chairman JPM Ndegwa (Chairman) led the meeting which began after the Company Secretary making some housekeeping announcements – mentioning lunch would be served afterwards but members should not litter the building as they eat, asked shareholders to switch off their mobile phone (a few still rang during the meeting) and that the bank had a marketing desk where their products would be on display for shareholders to ask questions and could open share accounts

Chairman Performs: The Chairman introduced the board and the management and representatives of S&F Bank of Tanzania who were seated at the side of the dais. He spoke throughout the day in a mix of English and fluent Kiswahili. He began by commenting that the 2008 AGM held at Safari Park Hotel had been quite crowded hence the move to a larger venue (the bank has almost 25,000 shareholders)
Most important was how he controlled the tempo of the meeting, by stating upfront that only relevant questions should be asked and only as related to what was being discussed or voted on at each time. The result was one of the most constructive Q&A segments I have seen, with no frivolous questions asked during the session and the meeting progressing quite rapidly

Financial accounts 2008: the bank ended the year with a profit of Kshs. 1.48 pre-tax billion (~$18.5 million) and significant growth in assets deposit and loans. After the audit partner (Mr. Ndonye from Deloitte & Touche) read out their opinion, there were no questions and the accounts were approved!

Dividend: a final dividend of Kshs 0.25 for a total for the year of Kshs 0.5 was approved by shareholders. The voter elicited a couple of the shareholders to as usual ask for a higher dividend to be paid than the board had recommended. Another shareholder asked that, since the dividend was meager, could they be paid a bonus share? he clearly had not read or listened to the agenda

Directors fees – while you can’t compare the level of disclosure to shareholders at Stanbic (Uganda), the Chairman stated that the total sum paid to non-executive directors was Kshs 5.2 million ($65,000) – in sitting allowance for board & committee meetings. This was actually lower than the 5.36 million paid the year before last year and the results were plain to see. Vote was approved

Auditor Re-elections: the directors recommended that Deloitte continue in the accounting roles and asked shareholders to approve that; one shareholder asked if Deloitte was the only firm considered and if so why the Central Bank (CBK is bank regulator) also had to approve the appointment of the auditors – was there a problem with Deloitte? The chairman answered that they used other audit firms, and that there were provisions that firms could not consult and audit at one company and they were quite satisfied with the work Deloitte has done. He added that Central Bank, in looking out for depositors interest, also vetted audit firms employed by banks to see that they were competent (an aside is that the recent ‘enhanced rules’ for stockbrokers don’t specify their quality of their auditors or indicate that the CMA will even vet them)

Director Re-Elections: Isabella Ocholla Wilson and George Maina were re-elected as directors; so was lawyer Michael Somen who required was an extra vote since he is over the age of 70 years He’s the Chairman of Access Kenya, but it seems NIC have a habit of de-emphasizing their directors board positions on other companies

Bonus share : The next motion, for NIC shareholders to receive 1 new bonus share for each 9 they own produced the first unscripted moment of the day and the hot button issue was again – rogue stockbrokers – three different shareholders asked the same question – i.e. NIC was giving them a bonus share, which they would be forced to take to a stockbroker who may sell this shares without their knowledge, or collapse with their shares/funds. The Chairman replied NIC Bank now had their own stockbrokerage firm NIC capital Securities where their shares would be safe. The war by banks against stockbrokers is still being waged in public – and a few days ago it was Equity Bank shareholders who were being given the same message –that their shares were safer with the strong commercial banks that they know and own, rather than with some small stockbroker

Purchase of 51% of S&F Bank: NIC is purchasing 51% of Savings & Finance, a Tanzanian Bank for a total cost of Kshs. 580 million (~$7.25 million). Continuing part of expansion and diversification since their 2007 rights issue that has seen them open branches in Kenya, an now make a cross-border investment; the vote brought out the most questions of the day;

Q. exchange rate change since deal was announced; why is some payment in Tanzania shillings and some in US$?
– mix of currencies is s how the Tanzanian owners requested it be paid. – the shillings is weaker and they are now paying about 2.1x book value compared to 1.9x earlier. Also some S&F shareholders live outside Tanzania
Q. The owners seem to be family/private individuals:
– True most companies start with individual shareholders only – and the institutional shareholder is the East African Development Bank. S&F was started in the 1990’s and its origins were in hire purchase business are similar to NIC. The shareholders with 49% are also going to be re-investing the NIC money in the banking, not taking it out.
Q. why is the bank attractive? Is it a leading bank in Tanzania – where does it rank?
– Tanzania has 28 banks and S&F would be between no 15 and 20. NIC felt they would get best value by acquiring a small bank and driving its growth. NIC directors did their due diligence, have observed S&F operations, got transaction advice and confidential banking reports from Tanzanian regulators confirming the bank was a good buy. It has 3 branches in Aruaha, Dar es Salaam and Mwanza which are all key trading points. MD added that – NIC was not the only suitor interested in S&F.
Q. How will it be run?
– S&F will have 7 board members – 4 nominated by NIC (including the MD’s post) and 3 by S&F (including the Chairman’s post – Abdulsultan Jamal). NIC have opted to retain the current Tanzanian MD – Suranjan Ghosh, Mark Bomani (former Tanzania attorney general) and Andrew Ndegwa (Kenyan NIC director) and James Macharia (Kenyan NIC managing director) as their four nominees.
Q. Other Kenyan banks have focused on Rwanda Uganda and Sudan- why Tanzanian (which has not been receptive to other Kenyan companies
-Chairman replied that Kenyans were the biggest investor in Tanzania (excluding the mining sector). Also in terms of diversification, the election violence of 2008 affected Kenya, Uganda and Rwanda equally – since countries were on same trade route! However Tanzania was a completely different market. A large untapped country with great agricultural and resource potential. Many NIC customers do business there already.
Q. Deal wrap up?
– Approval has been got from Central Banks of Kenya and Tanzania. After NIC shareholders voted to approve the deals, it is now expected to be wrapped up on Monday next week and S&F will become a subsidiary with their accounts consolidated in NIC’s from next month.

Goodies: a souvenir wall clock

– Smart NIC had a boxed lunch served to shareholders (much easier to manage than any buffet and needs fewer catering staff). each box had cold roast chicken piece, beef sandwich, juice, water bottle, cupcake, and an apple.

NIC Soars

The NIC bank AGM will be held of April 29. The company has 24,000 shareholders up from 20,000, and while the top 10 shareholders remain unchanged, they are in for the long haul in the bank which is diversifying its business strategy as a re-branded NIC that aims to be a regional giant.

– NIC is now into banc assurance – through NIC insurance agents which partners with two leading insurance companies and had a modest profit in 2008
– NIC acquired 58% of Solid Stockbrokers and has now upped its stake to 88.3% through new capital and buying out other shareholders. The cost so far is about Kshs. 423 million and it made a 2008 profit of Kshs. 5.2 million. The brokerage and investment firms are capitalized at 349 million and 219 million well above the 30 million and 50 million minimums set by the capital markets authority (CMA). Also, legal claims brought by customers of Solid and which NIC inherited in the deal are pegged at Kshs 84 million.
– NIC also plans to complete a deal to acquire 51% of a Tanzanian Bank – Savings & Finance Commercial Bank by 30 April 2009 at a cost of Kshs. 322 million. S&F has in 2007 the equivalent of of Kshs 2.37 billion in assets,with deposits of Kshs 2 billion and loans of Kshs 1.3 billion and pre-tax profit of Kshs. 77 million.

Barclays and the NIC-ex

A few days after Equity led with their 2008 results next comes Barclays Bank Kenya and NIC Bank.

Barclays Kenya have shrugged off a difficult year to report a slight growth in profits while also admitting a slowdown in lending and shift in plans to consolidate after an expansion period that saw the bank go on an expansion splurge in the last two years. Barclays Kenya 2008 profits (PDF)
– Growth of in assets of 3% every quarter of 2008, except Q4 which had a reduction of 2% to end the year. Overall asset growth in 2008 was 7%, while in 2007 it had been was 34%. Assets at December 31 were Kshs. 168.8 billion ($2.1 billion) compared to 172.3 billion at September 2008
– Deposits grew by 12%, 5%, 3% in first three quarters, followed by a decline 5% in Q4 – and overall up 16% for the year – same as in 2007
– Loans were up 3% from 2007
– Income up 25% compared to 24% in 2007
– Expenses up 33% compare to 37% in 2006
– NPA up 22%
– Despite modest growth, edged past Equity as most the capitalized bank

NIC was spun off from Barclays as an asset finance specialist, a business it still dominates while competing against Barclays itself now. The Bank is still in expansion mode with a rebranding under the 1 bank banner as a one stop shop for all their customers business needs. NIC Bank 2008 profits (PDF)

– In 2008, growth in assets was 36%, including 18% in Q1 (while the country was fighting?) and 8% in q4
– Deposits were 42% up from a year ago, again with 17% in Q1 and 10% in Q4
– Loans were up 35% in 2008, with 9% in Q2 and 14% increase in Q3, followed by just 2% in Q4 the lowest (went big on Q3 and decided to slow down in Q4?). NPA’s still just 4% of loans
– Despite re-branding, income was up 33% with expenses up 25% in 2008
– Profit was up 41% in 2008, compared to 55% in 2007.

KCB overtook the overtook Barclays as the number one bank, a position it should hold, despite the hit it will take from the link with Triton Oil , the collapsed, scandal ridden oil company. Results should be out in a few days.

Conflicting signals – crunch or not?

KCB’s housing subsidiary Savings & Loan (S&L) extended financing to real estate developers this week, increasing lending limits to Kshs. 250 million ($3.12 million) and willingness to finance of 85% of the construction costs of property developments. Some already wonder if they are contributing to a real estate bubble in Kenya.

Meanwhile there was an offline story in the Standard this week where the MD of listed paint maker, Crown Berger, lamented that banks are behaving strangely, reluctant to lend money, and he was now looking to launch a bond to raise working capital funds for the firm.