Ecobank boss seeks balance in turbulent interest caps

He has just tasted a loss. But Humphrey Muturi, the executive director and head of commercial banking in Kenya and East African Community at Ecobank says it is not all gloom. In three months ended March 2017, Ecobank Kenya suffered a loss of Sh49.6 million unlike in a similar quarter last year when it posted a profit of Sh48.7 million.

Its interest income on loans and advances to customers fell by 37.8 per cent to Sh662 million to reflect the reduced premium on loans following the law that set maximum price of loans at four per cent above regulator’s rate.

The net loss followed the decision in October last year to shut down nine of its branches in Kenya in order to flow customers to digital platforms.

But the executive director of a bank that set foot in Kenya in 2008, insists the lender is set to ride on its huge capital base, other 35 subsidiaries and digital products to weaken the headwinds of the era of capped interest rates.

“With the advent of capped interest rates, the concept of risk pricing was put aside. It gives us a new complexity to deal with since we cannot run on higher risk-higher return model,” says Mr Muturi. While he agrees that the law was bound to cut interest income, he says that the bank will strengthen innovations and move to non-interest income areas to bounce back into the profit zones.

It begun by shutting some branches just like in Nigeria where out of 479 branches, 74 had to be closed. “We cannot grow and promote financial inclusion by opening branch after branch. It is an expensive model and not sustainable. The penetration of mobile phones in Kenya offers a low cost channel,” said Muturi.

He anticipates that there will be fewer people interested in walking into physical branches and therefore the justification to close. The focus, he told Financial Standard is to release staff into customer facing roles than the back office duties.

“I perceive banking halls becoming more of consultation centres as opposed to being transactional since most of the transactions that were in banking halls can now be done on digital wallet,” said Muturi.

Branch closure

He says Ecobank is now well placed to enhance efficiency and cut operating expenses. In three months to March, the expenses dropped by 4.7 per cent to Sh839 million but he says the closure of branches will save the bank between 20 per cent and 30 per cent of costs.

In an exclusive interview with the Financial Standard, Muturi said the bank has been cleaning its books. In the first quarter, the bank set aside Sh174.3 million as loan loss provision, being higher by 66 per cent from previous quarter.
“We went through a clean-up process of our books to put aside non-performing book and deal with the bond issue that we had,” he said.

The bank has invested in retraining customers on digital products offered. According to Mr Muturi, the bank has increased less costly channels- ATMs and agency banking- to avoid losing customers. “We are restructuring operations to reduce costs and improve on levels of productivity. Since we closed branches, we have transferred more than 80 per cent of our customers to digital platforms,” he said.

The bank he says, wants to ride more on non-interest income to swing back into profitability. It is also strengthening its bank assurance business so that more customers can finance their assets with the bank and get insurance from the same roof. “We banks are becoming a financial supermarket. Being able to incorporate technology into the way we do banking today is certainly the future,” says Muturi.

According to Muturi, the bank also wants to ride on its huge presence in Africa to facilitate trade transactions. He says the focus is to become a priority bank for traders to facilitate trade finance transactions for importers.

He told Financial Standard that the bank will link up more customers in intra-African trade and benefit from trade instruments like letters of credit.

“We Kenya are a heavily import-oriented country and therefore there is opportunity to do a lot more foreign exchange business and grow our share of pie in non-interest income,” said Mr Muturi.

The fees and commission from trade finance, payment and collection fees and bancassurance will be instrumental in growing non- interest income. “Despite the impact of interest rate cap, the sector is still bright for us. There is a party at the end of it all,” he concludes.