By James Anyanzwa

The National Bank of Kenya (NBK) is mulling over a major turnaround strategy with hopes of attaining tier one status in the next five years.

The Bank had been traumatised by trailing its peers in revenue generation.

NBK has announced plans for a major cash call from its existing shareholders by mid next year to support its growth and expansion strategy scheduled for completion in 2017.

The plan, which has been crafted by the Bank’s new management, seeks to reposition NBK as a key player in the banking industry. The move will restore its foothold on its rapidly fading market share.

NBK board has also outlined a raft of new measures to transform the 44-year-old institution into a highly profitable and competitive banking entity.

Competitive edge

The restructuring process includes the diversification of the Bank’s balance, which has highly concentrated on retail banking.

NBK has so far created a new corporate and institutional banking division to rival top lenders like Barclays, Kenya Commercial Bank (KCB) and Standard Chartered Bank. The move reduces its reliance on consumer lending.

In addition, the Bank has strengthened the capacity for its Treasury department; recruited new talents in market risk, operational risk and credit risk. It has also revamped customised value prepositions by venturing into Islamic banking.

The bank has also has hired six executives to head the finance, currency trading, retail banking, Islamic banking and institutional banking divisions in the quest for a larger share of the debt market, currency trading and custody business.

“Now we have diversified our balance sheet and created business units. These two divisions will drive our growth,” Managing Director Munir Sheikh Ahmed told Business Beat last week.

 “Concentrating on retail business alone is a mistake by the Bank. We have now taken deliberate measures to diversify our balance sheet.”

Cutting on costs

Munir explained that NBK would also continue leveraging on technology to drive growth. “With these measures, we are seeing significant cost saving and revenue growth and we will therefore continue paying dividends,” he said.

NBK is set to invest more in branch expansion with plans to open 10-15 additional outlets this year, automate its process and fast track the rollout of agent banking.  “At the rate at which we are growing, we may be going back to our shareholders for additional capital by mid-2014,” said Munir.

NBK’s profit before tax for the 12-month period to December 31, fell more than 50 per cent as high interest rates dimmed lending to the retail segment.

The Bank’s management then scaled up investment in new branches, new products and new technological platform.

 And even as the cost of funds more than doubled to Sh3.56 billion as a result of a high interest rate environment, NBK sought to cushion customers by absorbing the full costs.

 “The performance is less than impressive in one sense but if you look at the profit figures they are certainly healthy,” said Munir who has been at the helm of the Bank for only seven months after succeeding the long serving Reuben Marambii.

Financial results

According to NBK’s audited financials, pre-tax profit dropped 53 per cent to Sh1.14 billion from the previous year’s Sh2.44 billion owing to a high and volatile interest rate environment. These forced the bank to pay heavily for deposits.

NBK’s interest on customer deposits more than doubled to Sh3.56 billion from the previous year’s Sh1.23 billion while total interest expenses grew by 166 per cent to Sh3.65 billion from Sh1.37 billion in a similar period.

Total operating income fell two per cent to Sh7.61 billion from Sh7.79 billion while total operating expenses rose 21 per cent to Sh6.46 billion from Sh5.35 billion.

Fees and commissions on loans and advances plunged 32 per cent to Sh210.32 million from Sh312.66 million.

Total non-interest income grew four per cent to Sh2.83 billion from Sh2.71 billion.

Net loans and advances to customers grew by one per cent to Sh28.34 billion from Sh28.06 billion while customer deposits fell two per cent to Sh55.19 billion from Sh56.72 billion.

Total shareholders’ funds, however, remained unchanged at Sh10.45 billion. Total interest income went up 30 per cent to Sh8.43 billion from Sh6.45 billion. The Government holds a 22.5 per cent stake in NBK directly and a further 48.06 per cent through the state-owned National Social Security Fund.

The Government plans to sell a 51 per cent stake in the Bank to a strategic investor and 10 per cent to the general public after converting its preference shares.