CEO’s Letter to shareholders

Dear Shareholder,

Reflecting on last year, the Group’s performance to a large extent mirrors what was happening across the East African region with a general rebound of most economies and the strength witnessed in an otherwise difficult operating environment. This positive performance is a reflection of the business model that we employed to serve our customers, a highly motivated staff, a visionary Board and continued support from you, our esteemed shareholder.
As you read this report, you will gather more details on our detailed performance. Allow me for a moment to highlight the significant outcomes of this performance: 15% market share in customer deposits and 17% market share on loans and advances. Some call this banking 101. In the context of the basics and fundamentals of banking,
we remain the strongest player, able to attract and retain deposits and from this, offer affordable loans to our customers.
It therefore follows that our earnings remained strong with approximately 20% market share and a growth of 24%.
Looking back to 2018, the sector encountered significant challenges. The interest rates we are permitted to charge for offering loans in Kenya were reduced twice within the year thus impacting the key revenue lines for the Bank’s, interest income.

The impact of the tough environment did not spare businesses in other sectors, probably some in which you work for or own. From a financier’s point of view, we witnessed a number of businesses going into administration during the year while several others issued profit warnings. This reinforces my earlier observation that the operating environment was quite challenging. Notwithstanding these setbacks, I am glad our business teams across the markets we operate in found ways and means to support our customers. Gladly, all was not doom and gloom; we
witnessed businesses recover and grow in line with, and at times ahead of, the economy’s growth trajectory.

Business Operations

You have tasked me and my team to deliver a strong return and grow the capacity of the Group to continually remain at the top. If we take a quick look at how we performed during the year, you will observe the profit after tax grew to KShs 23.9 billion. Our costs were well managed and grew below average rate of inflation while the stock of non-performing loans reduced and the non-performing ratio dropped to 6.9% compared to an industry average of 12% . To fast-track the turnaround of the asset quality, we introduced a special assets unit to address the sticky and large
non-performing loans that require a different approach to resolve.

Overall and what I believe is of priority, this enabled us to increase the dividend per share by 17% to KShs 3.50. As a business, we have realized that the only way to remain relevant in a space where the product has become standardized is a renewed focus on customer experience. Our customers are the pillar that have propelled us to become the biggest bank in the region. That is why we have purposed to refocus our efforts in ensuring that we not only retain our customers, but we expand the customer base by engaging them with a bouquet of products that suits their needs.

Our focus is to proactively support our customers to be where growth is, enabling businesses to thrive and economies across the East African region to prosper, and ultimately helping people to fulfil their hopes and realise their financial and investment ambitions.

Regional business with global outlook

A significant part of our shareholder base has remained on the register for decades and will remember when we opened our first subsidiary in Tanzania in 1997. Since then, our regional businesses have been a big part of the plan with the broader East African Community, South Sudan and Ethiopia introduced as part of our grand strategy more recently. The Ethiopian market bodes well for the future considering the growth rate within the market and the size of the addressable population. We are keeping a close eye on the discussion from the regulators and government agencies on the possibility of amending the laws to permit foreign banks to operate within the market.

As of December 2018, the regional businesses grew over 65% year-on-year. Despite this seemingly significant  growth, the contribution to earnings remained below 10%. The circumstances for the low contribution are known and the management team is addressing them both from a country level by appointing in place a Group Regional Business Director, whose mandate is to guide the achievement of a 20% contribution to earnings by 2022.

We realise that developments abroad and the global economy will impact our operations. The regional businesses have individually faced numerous challenges ranging from political crises to macro-economic uncertainty. Collectively, the global economies are affected by the actions of the larger economies such as the more recent trade war between the United States and China and the looming deal on Brexit.

Combating financial crime

KCB Group recognizes the significant role that the financial system plays in tackling financial crime. As a regional bank with global outlook, we are building a strong reputation for fighting money laundering through ingrained KYC
practices. We continue to strengthen our ability to safeguard customers and ourselves against financial crime. I believe this will be advantageous to our customers as well as enhancing our reputation and relationship with other global partners including correspondent banks.

Despite our efforts, KCB Bank Kenya was penalized by the regulator under the AntiMoney Laundering / Countering the Financing of Terrorism (AML/CFT) framework. We have taken measures to reacquaint our staff on all the regulations and processes to be followed in the event of suspicious transactions. We support the measures aimed at strengthening and securing the financial sector within the region.


Your Group was among the first organizations in the region to integrate sustainability into its operations, a decade ago. Our attitude is hinged on creating a better tomorrow for future generations; there can be no compromise on this. As part of our input, we play a leading role in the Sustainable Finance Initiative, a United Nations effort aimed at shifting banks’ focus towards sustainable finance in our operations. Internally, we are pulling all stops to ensure that we are continuously striving to reduce our carbon footprint. In this report, we have gone into some detail demonstrating the activities and outcome of adopting the tenets of sustainability, which can be read on page 68.To scale our sustainability agenda, we continue to engage our customers and suppliers on the need to operate sustainably.

“KCB is a firm believer in using technology to
promote sustainable development, to reduce
socioeconomic inequalities, to give everyone
access to digital opportunities. That is why
we have made digital an integral part of our
strategy to help stimulate access to credit.”

Amongst other initiatives, we held a sensitization workshop for our suppliers, training them on Sustainable Development Goals (SDGs) implementation in their organizations and through the entire value chain. We will continue to help businesses act in a socially responsible way by;supporting businesses as they cut their carbon emissions and make the transition to the green economy; financing innovation and developments in green
technology; encouraging businesses to operate in a way that supports local communities, respect human rights and encourages inclusive growth. I believe we are way ahead of the pack in these efforts. As part of this agenda, KCB has adopted the Environmental Social and Governance (ESG) standards and working with various partners trained and certified over 250 credit staff on the application of the principles and applied ESG screening to over 90% on loans. We publish a Sustainability Report separately and annually where details of our initiatives and outcomes of these activities are provided.

The people that make it possible

To run the Group, we have employed 6,220 staff from different countries, background and experiences. It is through the team that we are able to deliver what I call stellar performance consistently. Our people strategy has remained consistent over the years and this has been tied well with the adoption of technology. On upskilling, our training programmes are both in class and online, with the 2019 requirement for all staff, including myself, comprised of eLearning courses on sustainability, health and safety, ethics, anti-money laundering, business continuity, IT security and additional content available to the job and for personal development.

The demand for new capabilities in the development and maintenance of systems has never been as high as it is today. Competition for the scarce expertise is high yet we have been able to maintain a good balance of developers who have delivered on the products and services enjoyed within the markets we operate in. Additionally, we have invested in people specifically to secure our network and platform from the now common threat of cyber-attacks. The security of our systems and network is pivotal to the protection of customer information. This remains a top
priority in our day to day operations as a single event has the potential and capacity to undo years of hard work.

During 2018, there were several senior management changes aligned to the strategy and progression of the bank. At senior management, we appointed a Group Regional Businesses Director as mentioned earlier, and also the Director Corporate Banking. Within 2018, 155 staff were promoted to new roles after demonstrating capacity to handle greater responsibilities and the desire to derive the Group’s strategy. Recruitment for some key positions is targeted for closure within this year. These include the Group Human Resources Director (previously held by our Group Regional Businesses Director), Director Operations, Chief Technology Officer, MD KCB insurance Agency, MD KCB Bank South Sudan and MD KCB Bank Uganda.

Employee relations and engagement have proven instrumental in maintaining the balance of motivation and commitment. It is with this in mind that the labour relations case, outstanding from 2017, was approached and resolved. The team further increased the employee engagement penetration to 142% with over 130 staff engagements across the Group including branch manager leadership sessions, women and men in leadership forums, town hall forums and team building and finally concluding the year with the Simba awards ceremony to recognize the  exemplary performers across the Group.

Fintech strategy

One of my strong beliefs is the delivery of banking solutions through a simple and accessible platform. I have  observed and I am a proponent of using technology to promote sustainable development, reduce socioeconomic inequalities and give everyone access to life changing opportunities, specifically financial services. That is why we
have made “digital first and fast” an integral part of our strategy to help stimulate access to credit and enhance our customer experience.
In 2018, our biggest achievement was the launch of a new digital platform. This has enabled us broaden access to financing, while improving customer service and lowering the cost of service delivery to our customers while yielding positive returns to you, our shareholders.

Through the use of technology, we have applied differentiated pricing levels and improved credit scores for customers. This has been made possible by the use of data scientists to accurately model scores and specific limits based on behavior and patterns. I am sure you have used or had some exposure with our mobile lending products. Our average lending is closer to KShs 5,000 per customer, but we have customers with limits in excess of KShs
100,000 – demonstrating the variety of the customer’s base and capacity of the platform. The higher limit has revealed the appetite for credit by owners of businesses and the opportunity to score enterprises for similar products as have been delivered on mobile to the individual. These are the first of a series of innovations towards simplifying your world. In supporting business growth through this model, we are today faced with unprecedented competitors that hitherto did not exist. Our customers have exposure beyond the traditional risk parameters in pricing loan facilities. Price transparency and individual credit scores are increasingly as significant to the speed with which the product or service is delivered to individuals or enterprises. We therefore are relentless with our innovation. With the constantly shifting environment, future returns are unlikely to all be delivered from existing modes of business.It is our ingenuity and speed to market through alternative channels that will deliver our ambitious target of 40% contribution of total revenues from non-interest income activities.

The opportunity ahead of us

The Government of Kenya has identified four pillars which economic growth will hinge on: affordable housing, universal healthcare, food security and manufacturing. In as much as we have a footprint one way or the other in all these pillars, we are rededicating ourselves to looking at how we can play an expanded role in realizing these goals. Consumer, agriculture/horticulture, manufacturing and trade will for the foreseeable future remain the growth engines for the region primarily driven by small and medium sized enterprises. In all the markets, our strategy is
aligned to the need to support the economic ambitions of each of these countries. We are committed to explore partnerships with various local and international players to support the sectors and the entrepreneurs including the
use of technology to address the issues of pricing and credit scoring.

Our pride remains the traction the mobile lending channel has generated, targeted to disburse over KShs.100 billion annually in small loans across the country and the opportunity to take this regional. Further, we will enhance the capacity of the platform to make payments. The Group has boldly made steps towards enhancing shareholder value through the proposals leading to the transfer of selected assets of Imperial Bank (IR) and the offer to purchase the National Bank of Kenya (NBK). The benefit of these transactions will be enjoyed for years to come through the strengthening of the combined entity’s deposit franchise, competitive pricing and ability to generate transaction revenue from synergies the increased customer base will provide.

Having addressed the milestones, the challenges and the plans we have in place, the common denominator remains the staff using resources to deliver products and services to our customers. I have had an opportunity to interact with numerous staff and met many customers as part of my duties: I wish to thank all our staff and customers for their
engagement with the brand. As a fellow shareholder, I’m not only confident but also excited at what the future holds for the Group. I call upon your continued support to elevate the overall contribution and impact the Group makes.

Joshua Oigara, CBS
Group Chief Executive Officer & Managing Director