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Kenya's NIC Bank eyes cheaper deposits to boost margins

By Reuters | June 28th 2016

Kenya's NIC Bank is doubling its branch network to 50 by the end of next year to recruit new customers, particularly in the small business sector, allowing it to cut its deposit costs and boost margins, its chief executive said.

John Gachora told Reuters the mid-tier lender which is known for asset financing has a net interest margin of 6.5 percent, below the industry trend of 7-10 percent.

"Our cost of funds is relatively high and that is why the strategy to expand our branch network, reach more pockets of deposits and liquidity," he said in his office on Monday.

NIC, which also operates in Tanzania and Uganda, has traditionally concentrated on serving large corporations out of branches located in the main cities.

"We need to serve more selected retail and SME (small and medium enterprise) customers," Gachora said, adding extra branches will be in places accessible by the target customers.

"We want cheaper deposits and we believe they will be available within the SME and retail segment," he added.

NIC was appointed by state receiver Kenya Deposit Insurance Corporation (KDIC) last week to assess the liabilities and assets of Imperial Bank, which was put into receivership last October after fraud was uncovered.

NIC got the right to take over some of Imperial's performing assets when it finishes the due diligence. Gachora said the acquisition of those assets was not NIC's main motivation.

"Even if there was no real strategic reason to do it, we probably would have come in to say, let's help," he said, adding its role will help to resolve the closure of Imperial faster and help restore confidence in the sector.

The closure of three small and medium sized banks in the span of nine months to April unnerved investors and prompted the central bank to step in and offer liquidity to lenders.

"The first ingredient in banking is confidence. When confidence is broken, it doesn't matter who broke it, you also get affected," said Gachora.

Shareholders of Imperial obtained a temporary court order to block the move by KDIC and the disposing of any assets saying it might lead to a lack of transparency and undervaluation of assets.

Gachora said they would carry out due diligence of Imperial's assets, with a view to acquiring the good bit, when the court reviews the matter and allows them to continue.

"From an NIC perspective we are known for professionalism and we will live up to that professional expectation," he said.

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