Sh2.1bn cash call sets NIC Bank on new growth path

Opinion and Analysis

NIC Securities general manager Catherine Karita. PHOTO | DIANA NGILA 

 

By CHARLES MWANIKI

NIC Bank opened  its Sh2.1 billion rights issue on Thursday, coming after September’s bond issue that raised Sh5 billion, a statement of how rapid things are moving at the mid-tier bank.

NIC plans to use money raised from the cash call to shore up its capital and fund expansion. Managing director John Gachora gave the Business Daily an insider’s view of Kenya’s rapidly-changing banking industry and how NIC plans to play its game in the competitive landscape.

You have been at NIC a year now. What is your experience so far?

It has been a very good one. I took over the leadership of a well-run and governed bank. Because I came from outside, I have had to take a very hands-on approach.

It was important that I do so in order to gain a deeper understanding of the bank. NIC also has hard-working and innovative people who are working on some new products that we plan to launch in due course.

What is your outlook for the economy, and what bright spots do you see in there as a bank?

Significant growth is certainly going to come from the big infrastructure investments we are seeing in all parts of the country. I see transport as a key growth area, which for us as a bank is significant because we are big in asset financing.

We also expect oil and gas to play a major role in growth in the next decade. As a bank, we haven’t exactly figured out how to take advantage of that opportunity, but we are studying it closely because a lot of the investment needed to develop the infrastructure will take place in the next three to five years.

Decentralisation of government also presents opportunities that have informed our branch expansion plan. Besides, the SME segment is also presenting good growth prospects as a source of employment.

With the rights issue coming so soon after the corporate bond, how is your capital adequacy looking now and what is the outlook?

We met the required core capital ratio in June, but when we looked ahead to January with the new capital ratio requirements, we came to the conclusion that we were going to miss the requirement for total capital ratio. For core capital, which is where most of the money raised in the rights will go, we are okay at present and in January.

Total capital ratio (capital adequacy ratio) is where we felt there could be challenges in January. We decided to go out to the market for additional capital that would help us meet this regulatory obligation and most importantly to fund growth.

We have calculated how much capital we need for growth in the next four years, and are raising that this year through the bond and rights issue. Currently all our capital is in core capital.

We have not historically had what one would call tier two-capital, which we have now built up using proceeds of the bond. Once we are done with the capital raising plans, we can concentrate on our strategy for the next four years.

NIC has largely been a player in the corporate side of banking. Are there any new thoughts for the retail segment?

We are primarily a corporate banking business and from the subsidiaries perspective, our Kenyan operation accounts for about 96 per cent of the group’s total profits.

We want to do two things: expand the retail and SME segments that require significant investment in a larger branch network and in people to help us grow. We also plan to invest in our subsidiaries in order to boost their contribution to the bottom-line.

Will we then see NIC expand into emerging business lines in the retail market such as agency and mobile banking?

We are already in agency banking through our partnership with Postbank, which has 98 branches that act as our agents. We are looking to expand this further and are on the look-out for credible partners we can work with.

We are picky in our choice of agents to ensure that they fit with our type of customers. On mobile banking we have recently launched the Move to Now theme, which ensures that access to mobile banking services is seamless and effective.

You have a wealth of experience in banking, part of it acquired working outside the country. How does the Kenyan banking industry compare with those of countries you have worked in?

In capital adequacy ratios, the numbers for Kenya, Nigeria and South Africa are about the same. What is different is the calculation and capital levels. South Africa uses a very classical Basel 2 model where you can rate every customer or apply different capital requirements per customer.

In Kenya we weight a loan based on its type without much emphasis on how strong a customer is from a credit perspective. For minimum capital requirements, Kenya’s is fixed at Sh1 billion and there have been some suggestions that CBK should think about raising it.

Nigeria raised theirs to $100 million and South Africa’s is similarly high, forcing banks to consolidate. This means that South African and Nigerian banks are able to lend much bigger amounts to a single customer due to their high levels of capitalisation. The bottom-line is that they are able to participate in large projects, which we cannot do in Kenya.

We have had some challenges with banking security, especially coming from cyber attacks by fraudsters. Should customers fear for the safety of their money especially those using mobile and online banking?

Banks are always under constant threat from fraudsters. The result is that most banks have heavily invested in security, and will continue to do so.

Each time we are subject to attempted attacks by fraudsters we do thorough forensic audits and close the loopholes that were exploited. It need not be a worry for our customers. Their money is safe.

It suffices to say that banks will continue to incur costs in the fight against fraudsters but that is a battle we are willing to fight to protect our customers.