NIC Group Investor Briefing. David Abwoga Finance and Strategy Director Performance Milestones. John Gachora Group Managing Director

Transcription

1 NIC Group 2017 Performance Milestones John Gachora Group Managing Director 2017 Investor Briefing John Gachora Group Managing Director David Abwoga Finance and Strategy Director

2 Who we are Macro-Economic Overview Our Strategy Financial Performance Closing Remarks Page 2

3 Who we are NIC Group PLC was approved as a non-operating holding company following the transfer of Kenyan banking business and net assets to NIC Bank Kenya PLC ( The new bank). This was on completion of the group reorganization effective from 1st September The holding company oversees the banking subsidiaries NIC Bank Kenya PLC, NC Bank (Uganda), NIC Bank (Tanzania), and non bank subsidiaries NIC Insurance, NIC Securities, NIC Capital, NIC Leasing and NIC Ventures. The holding company was set up to support the Group s medium and long term strategy through a structure that facilitates optimal use of capital, better strategic management, more effective risk management, and improved governance of the subsidiaries. NIC Bank Kenya PLC NIC Insurance Agents NIC Leasing LLP NIC Group PLC NC Bank Uganda NIC Securities NIC Ventures NIC Bank Tanzania NIC Capital Page 3

4 NIC Bank Kenya PLC: Appointment of new Directors Wakini Ndegwa Jonathan Somen Philip Lopokoiyit David Abwoga Bank Bank Bank Group Group Group Wealth of experience in Banking, governance and strategy having worked in various capacities in the banking, environmental and property sectors and in the management of other private companies. IT expert and well-known entrepreneur in Kenya. Founder and former GMD of AccessKenya Group Limited Founder and director of various companies in the technology industry Wealth of experience in Financial management, risk management, internal controls and corporate governance, having worked for over 20 years in various senior management capacities in MNCs both locally and abroad. Joined NIC Bank from Citibank N.A where he was the East Africa Cluster CFO Prior to this he held various executive management positions at Citi, Marshalls (EA) Ltd and Deloitte & Touché. BA (Hons) in Geography from the University of Oxford, England. BSc in Economics and Accounting from the University of Bristol, UK. BCom (Hons), Accounting Option, from the University of Nairobi MBA from Warwick Business School, UK. Fellow of the Institute of Chartered Accountants in England and Wales Member of ICPAK and ACMA BA in Economics from Moi University MBA (Strategic Management) from the University of Nairobi. CPA (K) and CPS (K) Page 4

5 Who we are Macro-Economic Overview Our Strategy Financial Performance Closing Remarks Page 5

6 Kenya and Regional Overview Kenya East Africa The Kenyan economy advanced 4.4% y/y in the third quarter of 2017 (the lowest since 2013), affected by the prolonged electioneering period. Kenya GDP had grown by 5.6% in 3Q16. Output growth for financial services plummeted to 2.4% from 7.1% in Q due to a constrained uptake of domestic credit. Agriculture retreated to 3.1% from 3.8% in Q mainly due to dry weather that affected food production. In addition, output for manufacturing increased at a slower pace of 2.1% compared to 4.4% in the preceding year; transport and construction recorded 5.4% and 4.9% compared to 6.2% and 7.8% respectively while accommodation and food services slumped to 7.3% against 13.5% the same period last year. We estimate Kenya s economy to have grown at 4.8% in 2017 down from 5.8% in 2016 Tanzania's gross domestic product advanced 6.8% y/y in the third quarter of 2017, slowing from a 8.5% growth in previous period. Output rose less for agriculture, transport and storage; while output increased faster for construction, manufacturing, mining, trade and repair and information and communication. We estimate Tanzania s GDP to have grown at 6.8% in 2017, slightly weaker than the 7% recorded in Uganda s real GDP growth for FY 2017/18 is projected to pick up to between 5 and 5.5 per cent, supported by the current accommodative monetary policy, increased activity in the agricultural sector due to improved weather conditions, fiscal stimulus as outlined in the national budget for FY 2017/18, recovery in external demand and foreign direct investment (FDI) especially into the oil sector. Page 6

7 Inflation Curve (%) Inflation went up for the first time in five months in January 2018, rising to 4.8% from 4.5% in December It remained below the mid-point of the Central Bank s medium-term target range of 2.5% 7.5% The CPI variance (1.32%) is attributed to increased prices for basic commodities Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Page 7

8 Interest Rates Curve (%) CBR was 10% for all of 2017; adjusted to 9.5% in March 2018 Increased liquidity that has kept short term rates Lending to Government continues to crowd out private sector lending Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun Day Day Day Inter Bank Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Page 8

9 KES / USD Exchange Rates (%) Foreign exchange stability against the US Dollar. The USD shed 12% of its value last year, flattering KES performance The shilling gained against the US Dollar to close the year at units. It however underperformed significantly against the GBP and Euro, shedding 7% and 11% respectively The gain against the USD, achieved despite a widening of the Current account deficit to 6.2% from 5.5%, was due to USD weakness as measured against a basket of other major currencies Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Page 9

10 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Private Sector Credit Growth Trend 21.2% 21.0% 20.8% 19.5% 18.7% 18.0% Deceleration blamed on poor asset quality in the banking sector, subdued credit demand due to tough business environment and rate caps 17.0% 16.0% 15.5% 13.5% 11.1% 8.6% 7.1% 5.4% 4.4% 4.6% 4.2% 4.1% 3.9% 3.5% 3.0% 2.3% 1.9% 1.5% 1.4% 1.6% 1.7% 2.0% 2.7% Page 10

11 Kenya borrows USD 2bn in fresh Eurobond Two papers issued Interest rate USD 2bn/KES 206bn borrowed/ raised by issuing two papers; a 10 year and a 30 year bond. Each paper raised USD 1bn/KES 103bn. Investor interest was apparently high with both papers attracting total bids of USD 14bn. The 10 year (2028) was offered at a coupon rate of 7.25% while the 30 year (2048) was offered at 8.25% The 10 year can be termed as expensive given the existing 10yr Eurobond (2024) was offered at 6.875%. Despite lower yields on the existing issues, it appears the Moody s Downgrade and concerns on Kenya s debt sustainability were weighty enough to result in a higher yield Purpose of funds Liability management which we infer to mean settling the maturing 5 year Eurobond due next year (2019) of USD 750m. To finance capital projects Page 11

12 Growth Outlook The economy is expected to pick up strongly in 2018 supported by Stable macroeconomic environment Favourable weather conditions Improved business environment and investor confidence Continued public investment in infrastructure Expected direct flights to the U.S. Political stability Global growth recovery is expected to continue in 2018 however uncertainties remain particularly with regard to Recent U.S. trade policy developments Post - Brexit resolution Pace of monetary policy normalization in advanced economies Page 12

13 Who we are Macro-Economic Overview Our Strategy Financial Performance Closing Remarks Page 13

14 We had a clear Strategic Roadmap for First choice bank for Local Corporates Expand selected Retail and SME Employer of Choice Most innovative Bank in East Africa Retain market leadership in Asset Finance Grow Target Market Reposition Brand Positioning Scale Talent War Step Change Substantial contribution from our subsidiaries Branch expansion Return on Capital Achieve an acceptable Return on Capital Page 14

15 Over the last couple of years our strategy has been affected by a number of developments, to which we have had to course correct Developments Flight to safety (following Chase and IBLIR) NIC Response Embarked on growth strategy Supported IBLIR resolution Strengthened customer relationships Banking (Amendment) Act 2016 Increased focus on cross-selling/ NFI Executed a reduction in workforce program Slowed down on unsecured lending Increased regulatory scrutiny Growing NPLs Rapidly evolving digital landscape Embarked on Group reorganization which allows for flexibility to enhance non-banking offering Increased focus on collections Established a Credit Advisory Group (CRAG) division Established NIC Ventures, a subsidiary focused on investing in/ partnering with Financial Technology Firms Digital solutions (NIC NOW App, NIC SASA, BillsBoss) Page 15

16 Strategy Update: Digitization Focus Mobile based solution for buying/ selling FX SASA First Video Teller Machine in East Africa Mobile Lending Solution for Suppliers/ Distributors Page 16

17 Strategy Update: Digitization Focus Page 17

18 Brand Positioning: Net Promotor Score While we have done well to double our NPS from 22 in 2015 to 45 in 2017 we still have some work to do to reach our target NPS of > 60 X We want to enhance our market leading Customer Service Proposition over the next few years NIC 2015 NIC Netflix Amazon Apple Page 18

19 Brand Positioning: 2017 Industry Recognition The Banker East Africa Awards Best Customer Service Kenya (2017) Winner Africa Technology Innovation Awards Best Branch Automation Project (2017) Winner The Banker East Africa Awards Best Customer Service East Africa (2017) Winner COG Awards Finance and Investment Sector (2017) Winner Institute of Pension Management Custodian Bank of the Year (2017) 1 st Runners Up COG Awards Overall Champion of Governance (2017) Winner Page 19

20 Return on Capital: Key investments made in Retail Banking last year Grow the Base Scale Reposition the Base Efficiency Reposition the Base Engagement Opened 6 new branches (Parklands, Nanyuki, Watamu, Malindi, Kilifi and Diani Deployed new cash recyclers in 13 branches Introduced first VTM in East Africa Decommissioned unprofitable ATMS and Sales Offices Commenced the journey to green and paperless branches Reduced TAT across all branch processes Developed a faster bidbond process. Adopted key credit monitoring and management templates Entered into a partnership with Strathmore Business School to support our SME customers Held SME Summits in Machakos, Nairobi, Mombasa & Eldoret Organized a business trip for customers to Thailand and China. Held various platinum customer conferences Launched the GOLD CVP Introduced concierge services for our platinum customers Introduced new products Page 20

21 Who we are Macro-Economic Overview Our Strategy Financial Performance Closing Remarks Page 21

22 Group Financial Performance PROFIT BEFORE TAX % Growth NIC Group (Company) NIC Bank Kenya 5,925 5,676 (4%) NIC Capital Ltd (23) (8) 65% NIC Securities Ltd (85%) NIC Insurance Agents Ltd % NIC Leasing LLP (4) 5 >100% Kenyan Subsidiaries Profit Before Tax 6,023 5,753 (4%) NIC Tanzania 125 (156) (>100%) NC Uganda 19 3 (84%) Group Profit Before Tax 6,167 5,600 (9%) Group Profit After Tax 4,330 4,144 (4%) Page 22

23 Contribution by Market (Geographical) Total Assets, KES billions Loans and Advances, KES billions KE TZ UG Customer Deposits, KES billions KE TZ UG Profit before Tax, KES millions ,399 6,167 5, ,299 6,005 5, KE TZ UG KE Other Page 23

24 Net interest income impacted by interest cap and customer deposits growth whilst supported by growth in government securities KES % Growth Interest Income 17,509,527 16,989,933 (3%) Interest Expense 6,329,902 7,138,832 13% Net Interest Income 11,179,625 9,851,101 (12%) Foreign Exchange Income 1,030,462 1,092,920 6% Net Fees and Commissions 1,828,065 2,079,880 14% Other Income 634, ,199 (26%) Total Non Funded 3,492,916 3,643,999 4% Total Operating Income 14,672,541 13,495,100 (8%) Total Operating Expenses (5,035,329) (5,039,150) 0% Total Operating Profit 9,637,212 8,455,950 (12%) Net Provisions for Bad Debts (3,711,702) (2,779,913) (25%) Profit Before Tax 5,925,510 5,676,037 (4%) Page 24

25 Lower margins on LCY loans impacting net interest margin Net Interest Income, KES Millions 12% 11,180 9,851 6,330 7,139 7,350 Interest income from loans and advances down year on year due to Rate Cap impact. This was offset by an increased investment in Government securities. 17,510 2,482 1,469 3,951 4,937 3,154 8,091 5,069 12,419 16,990 Interest expense increased 13% year on year mainly on account of increased customer deposits that rose by KES 26 billion in the year. Net loans and advances increased 5% year on year. FY16 1Q17 2Q17 3Q17 FY17 Interest Income Interest Expense Page 25

26 Increased volumes, new products and customer growth has driven NFI Non Funded Income, KES Millions 3, (9%) (26%) 3, Trade Finance Other 1,030 6% 1,093 FX 1,422 20% 1,710 Service and Transaction Fees FY 16 FY17 Page 26

27 Increase in total assets driven by customer deposit mobilization KES Millions % Growth Net Loans and advances 107, , % Cash & Balances with Banks 16,540 21, % Government Securities 27,287 51, % Investment in Subsidiaries 5, Other Assets 5,566 7, % Total Assets 161, , % Customer Deposits 104, , % Borrowed Funds 21,655 28, % Other Liabilities 5,744 4,738 (17.5%) Total Liabilities 131, ,909 24% Shareholders Equity 30,288 28,962 (4.3%) Total Liabilities and Equity 161, , % Page 27

28 Marginal increase in lending across segments with KES 25bn increased investment in Government securities Total Assets, KES billions Other Cash Balances Total Assets grew by KES 30Bn from Dec 2016 mainly funded by a KES 25.5Bn growth in customer deposits and mainly deployed in Government securities Gov. Securities Net loans and advances grew marginally by KES 4 billion as a result of low economic activity following a prolonged electioneering process. Perceived demand for credit remained largely unchanged, impacted by political risk Net Loans & Advances Higher margins on Government securities coupled with the increased investment contributed positively to net interest income. FY 16 FY17 Page 28

29 Growth in customer deposits drives funding whilst Group re-organization impacts equity Total Liabilities & Shareholders Funds, KES billions Other Shareholder Funds Borrowed Funds Customer deposits up KES 26 billion Current and savings accounts contributed KES 9 billion to this growth. More emphasis on LCY deposits contributing KES 15 billions Interbank borrowing utilized to bridge funding gap Customer Deposits Borrowings include MTN Bond and DFI borrowings Decline in shareholders funds as a result of Group re-organization FY 16 FY17 Page 29

30 Significant growth in customer deposits Number of Accounts Currency, KES billions Product Type, KES billions 86.6k 91.9k k (34%) (30%) (32%) 104 2,(2%) 4, ( 4%) 39, (38%) , (41%) 130 4, (3%) 52, (41%) (66%) (70%) 89 (68%) 63, (61%) 57, ( 55%) 74, (56%) LCY FCY Term Deposits Current Accounts Savings Accounts Page 30

31 Gross NPL holds steady as coverage increases Total Assets, KES billions 24% 43% 46% Coverage Ratio NPL by Business Area, KES billions Retail, % 11.2% 11.1% NPL Ratio SME, 2.88 Corporate, 8.99 NPL by Industry, KES billions Other Transport Social/ Personal Services Other Enterprises Foregn Trade Manufacturing Wholesale/ Retail Trade Page 31

32 Capital Adequacy maintained with sufficient buffers Core Capital / Total RWA Total Capital / Total RWA 17.2% 21.6% 19.9% 16.7% Regulatory Minimum = 14.5% Regulatory Minimum = 10.5% Page 32

33 Who we are Macro-Economic Overview Our Strategy Financial Performance Closing Remarks Page 33

34 We have maintained a stable to rising dividend each year Dividend Payout, KES 2017 Dividend Proposal 3.50 Bonus Share Equivalent Payment of a first and final cash dividend of KES 1 per share Issuance of one (1) fully paid up bonus share of par value KES 5 each for every ten (10) shares of par value KES 5 each Cash Dividend Page 34

35 Our Strategy is multi-pronged and consists of six major themes Scale Up Adjust our business mix Drive Efficiency Enhance Effectiveness Build a sustainable franchise Culture and Capabilities Step up by increasing share of wallet, cross-selling fee-generating products and advisory services; and acquiring new customers Drive critical mass in mid-corp, affluent, mass affluent and SME business to build a less concentrated, stable lower-cost funding base and increase exposure to segments with higher risk-return characteristics Expand investment in new growth opportunities while maintaining cost management Enhance sales effectiveness to increase loading of sales force and deepen relationships with existing customers (cross-selling) Prepare the bank for the future by investing in digital customer intelligence, digital ecosystems, and an optimized distribution network Create an engine for execution and delivery, by building the people capabilities required to ensure sustained performance Page 35