K-Rep Bank has announced a 27.6 per cent drop in net profit to Sh372 million for the period ending December 31, 2015 ahead of its April 4 plan to change its name to Sidian Bank. The tier-4 lender had posted a Sh514 million profit in the previous financial year.
In the period under review, the bank's profitability was weighed down by increased non-performing loans in the second quarter. During an investors' briefing yesterday, the lender's Managing Director, Titus Karanja, said non-performing loans and advances registered a 107 per cent jump from Sh776 million to Sh1.6 billion.
"This is following tighter loan classification to reflect the overall trends noted in the economy and stricter management of the loan book," he noted. Interest income grew by 13 per cent to Sh2.7 billion from Sh2.41 billion in the previous financial year. The growth was supported by an increase in loan portfolio.
However, the bank's operating expenses rose by 15 per cent to Sh1.5 billion. This was attributed to increased investment in automation and number of services.
Investment in IT took the lion's share of the costs. The bank completed the first phase of a server and telecommunications upgrade at Sh150 million and expects to pump in Sh400 million this year.
The lender is now focusing on shaking off the micro-finance institution image and using a strategic business transformation plan to grow into a tier-II lender by 2019.
In December 2014, Centum Investments acquired a controlling stake in the institution and injected a further Sh1.2 billion in October last year. Having grown shareholder equity by 58 per cent to Sh12.5 billion, the company's capital adequacy is at 24 per cent against the statutory minimum of 14.5 per cent.
According to Mr Karanja, the bank will spend Sh254 million on expansion. However, he did not disclose how much would be channeled to re-branding. "We are re-engineering the bank from ground up. Since Centum acquired us, we have spent a lot of time focusing on fixing the missing links. This will elevate the bank into a leading SME finance partner," said Karanja.
The bank will embark on expanding agency networks to 10,000 within the next financial year. Other areas of focus will be to grow mobile banking and its ATM footprint. However, the MD said that the lender is not so keen on growing physical branches. Currently, it has 37 branches and hopes to add three. In three years, the bank hopes to grow customer deposits to Sh100 billion with a Sh6.6 billion net profit.