The NCBA Group Managing Director John Gachora spoke to Njiraini Muchira on the dynamics shaping the future of banking across the region.
NCBA resulted from the merger of two fairly successful banks that were strong in corporate, SME and digital banking. Thus, we bring certain endowments the greatest of which is our shared value for customer-centric approach to business.
Our plan is to maintain the customer touch and was part of the reason we made the decision not to let anyone go as we build the business going forward.
Was the merger a result of the industry trend premised on bigger-is-better?
There are good reasons why bigger-is-better. To start with, our perception of risks as a region is that bigger is safer. Therefore, bigger is less riskier. Second, customers are growing and are demanding more financing. Indeed, there are bigger regional corporates that are demanding more financing. This makes bigger better because you can comfortably provide them with the financial services they need.
Third, it is compliance driven by more regulations on anti-money laundering and the know-your-customer maxim. Being bigger means more investments in non-revenue generating areas that are made possible with economies of scale.
Does the pursuit of size portend doom for niche and small banks?
Niche banks will continue to be in the market because a niche means you are the best at where you are. Big banks cannot eat into this space because they suffer from a specialisation problem. Yes, we need more large banks, but then there is room for a few niche banks because you cannot slice and dice small populations into 40 niches. It is not possible.
Are financial technology firms a threat to conventional banks?
Fintech disruptions have been on two levels. The level of service in the form of true product and service delivery and the level of dignity.
On dignity, true fintechs are wining because nobody likes banks, which have never been good at maintaining people's dignity. On products and services, 90 to 95 per cent of what we think as fintechs remain bank services.
The future, therefore, lies in some form of partnership between mainstream banks and those fintechs that are able to deal with customers in a dignified manner. Because of the existence of fintechs, banks must find ways to deliver products in a dignified manner.
Which market segments offer the best growth prospects?
Last year, East Africa experienced tough economic challenges. For that reason it is difficult to project areas of growth. For NCBA, I would include customer-centricity because customers are demanding better service.
We are also strong on local corporates, an area that will continue to grow, albeit slowly. The third area is digital space, where we see opportunity by being more creative and working with partners like Safaricom.
How critical is the retail market?
We are keen on retail. The strategy we are crafting is about growing retail banking because at the end of the day, that is what gives us a brand to bank. Many corporates want to work with banks that can provide employees with banking facilities. For that reason, you must bring retail along with you. We are in 17 counties and want to expand to more and increase our branch network in Kenya where we have 86 branches.
We also plan to expand in Uganda, Tanzania and Rwanda. As the third largest bank, we have to remain relevant to our markets, and that is only possible if we have presence in retail.
Is regional expansion a poisoned chalice?
Going regional is important because a bank is able to support customers across borders. Reason is that our customers are growing and venturing across borders. This means we need to support them.
Second, banking is a business based on trust. If you have developed that governance and management module, then expanding to other countries becomes slightly easier because it is a business you understand. That said, each market is unique and banks must tailor products for each country.
Regional expansion is a story of challenges and opportunities. My position is that we need to be more bold in investments, both at the home and regional markets.
Banks are criticised for making super normal profit. Comment.
It is a sad comment because it is not premised on the investments that people make. At NCBA, we have a combined Ksh65 billion ($634.8 million) of shareholder money. Shareholders have invested that amount and what they make in returns is not super normal whatsoever. Just because other industries have suffered, people compare and say banks are raking in so much. It is not true.
Will banks demonstrate responsible lending with the interest rates caps repeal?
So far, banks have demonstrated compliance. We are working closely with the regulator understanding well that in the current economic cycle, most customers cannot afford to pay more. Yes, banks have shown they can be responsible and are good listens.
Do you think the market needs further consolidation?
We need more consolidation. Part of the reason people view bank profits as super normal is because we are making it from a small volume of business. In developed markets, the volumes are much much higher. Therefore, even if you are charging a lot less per transaction, the volumes are so high that you will still make that profit. Unfortunately in this region the volumes are so low because we have too many banks.
Have regulators who are obsessed with risk-based supervision helped the industry to grow?
Regulators are certainly very helpful and supportive. They are there to help and foster the industry. I find them to be open-minded, which is quite helpful because there are many interesting products being created. Our region is one of the most creative in terms of financial products. Fintechs are flooding this market because the regulators are more open minded about the future.
Having said that, the basic pillar of banking is trust. Thus, regulators have to continuously demonstrate they are involved in regulating sufficiently so that the depositing public can retain trust in bank institutions. Regulators must do everything to foster trust and only then, can they talk about new products.