Looking beyond the balance sheet and focusing on building businesses, communities and partnerships for more than 120 years has made the top-rated Kenya Commercial Bank (KCB) one of the EAC’s strongest financial institutions. Joshua Oigara, Group CEO of KCB Group, and Chairman and Chair of the Governing Council of the Kenya Bankers Association, explains how the bank is now leveraging on ICT innovation to simplify access to financial services and expand banking across the region.
Could you please discuss how the US Federal Reserve’s tightening of monetary policy in 2015 will affect Kenya’s economic outlook and financial sector?
The Kenyan economy is very resilient, in comparison to other African economies. We are not co-dependent on a single sector like many in the continent. In fact the dependency on the export of natural resources and primary commodities was largely responsible for reducing Africa's growth rate in 2008 and 2009. In comparison, however, the Kenyan economy has long been one of the most diversified in Africa, based on traditional sectors such as agriculture, ICT, the skills and service industry, finance and tourism.
Secondly, the USA is not our biggest trading partner, thus when I look at the impact in terms of the macroeconomics, actually the euro market will have a more significant knock-on affect in my opinion, as we trade with Europe more frequently. However, in the long term, an abrupt change in risk appetite for emerging market assets could become contagious and affect capital flows, reducing FDI inflows, and new investments.
How do you evaluate Kenya’s growth prospective?
Kenya has strong economic growth prospects at a challenging time for other emerging markets, and this is due to it having one of the largest and most diversified economies in sub-Saharan Africa, which has allowed it to weather the long downturns; a great example is the shutdown of the tourism sector in recent years.
Naturally, Kenya went through some turbulent times, when American and European investors had to cut down, or when they had to introduce travel advisories. However, the table is turning – we are already seeing some of those key investors and tourists coming back to Kenya. In fact, if we look at the US investment inflows, we are second largest on the continent after Egypt. There is no doubt that the 2016 focus will be investor oriented, as Kenya will be a natural market. Now is the time to invest, which is backed by recent reports produced by powerhouses such as Moody and the World Bank predicting a strong and resilient growth for our economy in 2016.
What role does the Kenyan banking sector play in sustaining and attractive new investors?
If you look at Africa, Kenya has the most sophisticated financial sector outside South Africa. We are also number one in terms of leveraging technology and mobile revolution within the financial sector. Now we are using block chains, algorithm lending that is deepening financial access. Our level of inclusion is the highest ever, and what this kind of high adoption technology means is that you're creating an environment that is very attractive to investors.
We are seeing new micro-lending platforms, more people coming to the financial network. Simultaneously we are also seeing bigger projects taking place, such as geothermal, solar and wind energy, new infrastructure, roads, energy pipelines, and new transportation links. Banks in Kenya are very proactive and have the nerve center, enabling all these projects or investments. I believe in the long term the banks will continue being enablers for innovation and growth of our economy. They will also bring in new transformative services in addition to financial services only: pensions, savings, long-term maturity for people, healthcare, education. If I look at Vision 2030, banks are sitting within the epicenter of transformation.
I always say if our role in businesses, whether you're a bank or not, is just to make money at the end of a certain period, they're not in any business. Business is about transforming the lives and experiences of the communities around where we operate.
Commenting on KCB’s role, we are an institution that wants to build a legacy for not only our employees, stakeholders and shareholders, but for the whole country. We want to be enablers of progress, we want to be able to transform livelihoods, especially for people who are marginalized and without access to resources, people in poor areas and poverty.
KCB has set its sights way beyond the East African Community as it hunts for new frontiers to grow. What is your strategy to emerge as a single cross-border platform for Africa’s financial sector?
Our business is twofold to build on the platform in Nairobi to become a natural hub, or call it a financial hub, a technology hub, a services hub. The Nairobi International Financial Center is a key catalyst for enabling global businesses to plug into the region. Now with South Sudan joining the East African Community (EAC), Ethiopia not being far away, and the DRC, which is part of the northern corridor, this is largely a 300 million people market. It’s the size of the United States or central Europe.
We intend to leverage on innovation to simplify access to financial services, focus on customer experience and boost capital buffers to build an African business for the future. We sit at the epicenter of shepherding Africa’s economic transformation agenda.
Secondly we don’t go to countries for the sake of growth – we follow our trading partners in order to enable their businesses and bank their value chain. We also understand the language and cultures of the region. Being the oldest bank, 120 years plus, we have been building railways, ports, airports, new towns and infrastructure. We have invested heavily in the mobile revolution, digital financial services, which will be utilized as an anchor storage for us to grow in those markets. We may not deploy branches the way we deployed before, in markets such as Uganda, South Sudan, the DRC, Mozambique, or Zambia; where financial inclusion is low, the future revolution of financial services will definitely be outside of the traditional banking models. The future is in digital banking.
Look at what we did with our recent partnership with Safaricom last year, where we were at the forefront in offering innovative products and solutions that met the dynamic demands of customers in the changing world of technology. The partnership gave us an opportunity to offer loans through the mobile phone – KCB Mpesa – which has been a game-changer in the financial services sector. Since its launch in March 2015, the proposition has provided a fantastic banking experience to over 5 million new customers, with at least KShs 8 billion disbursed in loans. We have already shifted our conversation where 90% of our transactions are coming out of mobile platforms. The bank is moving toward becoming a financial technology company, where we see this proposition as the next frontier for our growth and the best bet in deepening financial inclusion.
Standard & Poor’s (S&P) and Moody’s have assigned KCB Group top ratings and a stable outlook, affirming the bank’s strong corporate franchise, its increasing penetration in the retail market, and a strong capital ratio, which compares favorably to the industry average. Could you please discuss the key highlights for such high ratings, and what makes KCB a stable institution as an international partner
Our risk management profile is one of the best today and this is due to the fact that KCB is a conservative bank. The bank has the largest capital ratio with around $750 million that works favorably and provides an excellent buffer against unexpected shocks.
Secondly we are very modest, and would never say our objective is to reach 30% growth, but instead a sustainable 10% to 15% growth.
I strongly believe that this verdict by the two agencies is a clear confirmation of KCB’s story of a strong growth that is formed around building not only a profitable but also a sustainable business.
It is pivotal to remember that KCB is the largest corporate bank, the largest retail, mortgage, and trade finance bank. This was not achieved from nowhere; it was due to our excellent team of experts and the dedication we provide to our customers, that the bank now has such a wide network and strong partnerships in the region and around the world.
What is the significance of the UK Prime Minister David Cameron’s upcoming visit to Kenya?
Kenya is at the center of a major geopolitical shift, explained by recent visits by top global leaders and hosting of several major international summits like the GES. This is changing the game for Kenya in as far as her relations with allies go, as it gradually moves to the center of global trade and diplomacy.
Naturally there is already a very strong relationship between Kenya and the UK, whether it’s our education or financial sectors that have inherited the fundamentals from UK, or whether it’s where Kenyans send their children to study or British tourists go on holiday. I think what this visit will do is to strengthen a relationship that was stronger before and elevate it to a new status.
What better way than having a partner in the UK who was a hounding partner for us as building the future of our country, to build businesses, to build networks, to build new knowledge, to be able to create new aspirations for growth momentum in our economy.