Positive economic outlook: He noted that the picture is much improved from last year; with good agricultural harvests and prices, high exchange rate, government social programs rolled out (Vision 2030 social equity programs for the youth & marginalized), positive progress in the political arena in terms of new constitution, formation of the East African community with 126 million people, remittances are above 2006 figures, tourist arrival are ahead of the 2007 figures, and overall the economy of Kenya is expected to grow by 4.5 – 5% this year.
Bank focus: How does bank focus strategically?
– They have introduce new concept to influence direction of the bank, which for many years operated at micro finance until five years ago went into commercial banking. They have now created structure and are building capacity to move into investment banking (highest IRR per unit of capital), and merchant banking (private equity, venture capital) around east Africa.
– About 400,000 customers graduated to upper and middle SME’s class. They have invested in a level 4 data centre, with a 65 million-card switch and banking platform that can handle 35 million. also boldly claimed that they have overtaken Safaricom to be Kenya’s premier brand
– Innovation will continue through more collaboration with Telco (e.g they have opened 400,000 m-kesho accounts) without agents (yet) and are doing about 20,000 ones per day. Their their dream of opening 10 million accounts is still alive. They are acquiring merchants for visa and MasterCard (3,000 merchants in Kenya) and CBK has approved 4,000 retail outlets to become agents; they want agents to do transaction processing (withdrawals/deposits) at a commission, and equity do loan processing – so when you go buy milk and bread from kiosks, you may be able to withdraw cash
Bank performance: compared to last June
– Added 20 branches (now 165) but none in 2010, and 550 ATM’s (up from 494) and say they have achieved staff stability (5,169 from ,5,056) – no more huge growth in numbers
– Have 4.96 million deposit accounts (up from 3,.9m) and loans 833,819 loan accounts (up from 710k)
– Loans of 68.3 billion (up 27%) deposits 87.8 (up 53%) and assets 122.5 billion (up 40%) – CEO noted that with the economic recover they ate going back to the days when deposits used to grow at 70 % p.a.
– Interest income was 7.3billion (up 45%), commission income 3.8 billion, total income was 10 .1 billion and with expenses at 6.27 billion, (up 36%), profit before tax for teh half year was 3.88 billion [~$48 million] (up 46% from last June)
Summary: He’s optimistic because unlike last year, income is now growing faster than expenses, staff costs grew at 16% compared to previous 40% and asset quality back to 2007 (before Kenya election chaos and drought). The CEO was keen to emphasized that capital base of bank good, and shareholders will not be diluted this year or next year and that their investment in human resource, capital and systems are large enough and stable enough for the next three years, meaning that they can at least double in size without making new investments or seeking new capital.
Q&A
Regional diversification How have Sudan and Uganda performed?
Sudan: Contributed to profit in first year of investment almost ~$2m– not bad for Greenfield. So far only operated in equatorial Sudan, which they can run from Uganda. They have also got lots of corporates to sign with them as their bankings, which used to take 4 days, now takes seconds with equity. The CEO expect S. Sudan to have a peaceful referendum vote next year, which will yield Africa’s 54th state
Uganda: Here, they have been bleeding – in Q1 lost 12b shillings (Kshs 600m), Q2 made los of 3b shillings (Kshs 120m) – but expect to break even this month, and be out of loss in September. In Uganda they made a made mistake, as they did not freeze lending when they bought the other bank – left in the old managers who lent $16 million in 3 months. He believes its much improved; even though they bought a non deposit taking organization, they now have more deposits than loans, (have mobilized Kshs 4b deposits, compared to loans at Kshs 3b) and have 440,000 savers in Ug.
Their increase in provisions in H1 of 2010 (up 211%) is as a result of making a one off hit to clean up Uganda books and the investment was a learning process for them. In hindsight they should have frozen lending and it’s a good lesson they will apply in more countries – the cost would have been much higher if they had made their first outside investment in south Africa or Nigeria and they still have their plan to be in 10 African countries in the next 5 years and now have a 50 member expansion team.
The next foray in East Africa is likely to be Tanzania, earlier they had wanted Rwanda, but there was no easy entry point. But with the new east African community protocol, staff will be able to work without work permits, and it will be much easier to travel across borders
Cyber crime: While he said there have been no hacking attempts on their secure systems, his managers mentioned that there have been attempts to phish or skim originating from eastern Europeans who see Africa as a soft target – however the attacks are not specific to Equity Bank (who are a leading issuer of visa cards) who are on their guard and have not lost through this fraud.
Agency banking opportunities: – From September this year, customers whose salaries pass through Equity will be able to apply for loans from mobile phones or ATM’s, not fill out any forms, and automatically get approved a loan (without human interaction)
– They do about 2,500 M-Pesa transactions each day through their ATM’s from which they earn more than normal ATM charges, gettingabout Kshs 50 – 60 per m-pesa transaction as customers come and withdraw amounts that other agents can’t facilitate owing to float
Banks- The plan to be in 10 African countries is quite ambitious and I wonder whether it will be greenfield or via acquisition.
KCB have said outside of the region they will prefer to take a strategic stake in a local operator to minimize risk to themselves and reap the profits.
As for Mwangi, I wonder how many agents he has recruited for his agency banking.
Muhindi Papius had told me that they would use their good customers as agents although I don’t know if that came to pass.
Postbank has probably the best example of Agency Banking thru its use of the Postal Kenya outlets.
I still have to be convinced that Mwangi has put in place a robust risk management system.
Man143Steph637: good comments, yes they are ambitious, and I think they won’t do greenfields. locally, safaricom agents are their outlet for now, but he said 4,000 have been licensed as agents (CBK not yet gone public on this)