Group Chairman’s Statement

KCB Group delivered on its promises for 2018 on the back of a sustained and managed lending strategy, coupled with the step change in our digital offering. My assessment of the Group’s performance is good and within the overall budget. This success was not without headwinds such as the aftermath of the 2017 electioneering period in Kenya and changes to the regulatory landscape, both somewhat redefining the business growth trajectory.

Despite this, economic growth chugged along at a healthy average of 6 % across the countries we operate in, driven by ICT, manufacturing, services and construction sectors. The Kenya business played an anchor role, contributing substantially to the Group’s profitability. The international businesses, together with KCB Capital and KCB Insurance Agency also helped push up the bottom line. The target is for the subsidiaries to contribute at least 20 % of the Group’s profit by 2020, from the current 6%. The priority and significance of this focus led the Board to appoint a seasoned executive, Paul Russo, as the Group Regional Businesses Director with effect from January 1, 2019. The mandate given to him is to drive the agenda from the Group strategy perspective to ensure that the subsidiaries are operating at the optimum and are well integrated with the Group’s aspirations. At the same time, his appointment will ensure that the Group CEO has an improved span of control to concentrate on strategic initiatives that enhance shareholder value.

We expect the subsidiaries to have a return on investment equal to or greater than the Kenya operation. We however appreciate that each subsidiary operates in a unique environment and any strategic changes in terms of the direction
each business will take would have to take this into account in addition to obtaining local regulatory approvals. As part of our regional footprint strategy, we are excited to see increased momentum towards liberalization of the key economic sectors taking place in Ethiopia. The Group has a representative office in Addis Ababa which has been
operational for 3 years now. We feel that we are well positioned to make an entry into this market which has over 100 million people when the opportunity arises.

The Board appreciates the ever increasing role KCB plays in the wider environment. To aptly deliver on the responsibility placed upon us by the shareholder, the engagement with the regulators, customers, the community
around us and our staff form a significant part of our strategy.

This translates to:

-Supporting customers to grow their businesses, meet their financial needs and generally improve their lives.

-Adoption and adherence to legislation and regulatory requirements.

-Offering opportunities to customers to invest their funds in prime assets

-Providing jobs to 6,220 staff

-Investing in impactful programmes aimed at solving problems and uplift the lives of communities around us.

Future Outlook

The Kenyan banking sector has witnessed some consolidation in the past few years. However, for the sector to remain strong and competitive at the regional and continental level, there is a need for a faster pace of consolidation to take place. Whichever way you look at it, Kenya is over-banked compared to continental peers such as Nigeria and South Africa. Economies like Rwanda and Tanzania have demonstrated the capacity for higher returns in the financial services sector. KCB remains open to opportunities to further grow the financial sector.

Digital transformation

Our digital transformation has had a profound impact on the economy and directly to our business. In current day environment, factors such as dynamics of time to serve, cost to serve, do-it-yourself, product differentiation, and churn are changing dramatically. As such, we have continued to invest in Fintech, and it has paid off. Today, we are among the top players in terms of digital loans. We will remain focused on providing policy guidelines to the management to ensure that we remain agile in an evolving digital landscape.

Corporate Governance

The Board recognizes that we must continue to strengthen and enhance our oversight and risk management practices. From an operational perspective, Anti-Money Laundering (AML) and Know Your Customer(KYC) requirements are essential cogs in the banking sector. As such, we have strict AML and KYC guidelines that serve as an early warning system, raising early red flags and ensuring that appropriate action is taken. We are committed to meeting the expectations of our regulators and protecting and serving the interests of our stakeholders. To support these efforts, we have made significant changes to Board composition, reconstituted the number of committees from six to five, and worked with the Group management to improve on the reporting and analysis provided to the Board. We are confident that with these changes, the Board will remain laser focused on the things that matter most to the business. We also reconstituted our various subsidiary Boards to bring in new perspectives while tapping into the experience of existing members. The new Board members bring a broad range of crucial capabilities and skills. I am happy to report that throughout this transition, the Board has maintained its focus on diversity in line with global best practices and in-country laws.

Sustainability

We recognize that our shareholders have placed their trust in KCB Group and we are focused on managing the business to achieve long-term value. This is through a diversified business model, strong risk discipline, efficient execution, a solid balance sheet, and a world-class team. More importantly, we recognize that we can only be successful and have optimal impact if the principle of sustainability is ingrained in our business. Our focus must go beyond financial returns to also give due attention to the economic, social and environmental pillars of development.
KCB has been operational for more than 120 years. We hope to be around for much longer. For us to achieve this feat, we must put in place measures that will not only ensure the Bank continues to grow but also operate within social and environmental expectations. We intend to continue lending responsibly, reducing our carbon foot print,mainstreaming the Sustainable Development Goals (SDGs) and playing a leading role as one of the regional anchors of the UNEP Finance Initiative Principles on Responsible Banking. With KCB 2Jiajiri – our youth empowerment and entrepreneurship programme – we have shown that with the right focus, we can create a dynamic environment for the youth to be successful entrepreneurs.

Big Four

The Kenya government has identified four pillars on which the country’s development will be pegged on in the coming years: universal healthcare, affordable housing, manufacturing and food security. KCB Group has over the
years supported all these pillars in one way or the other but we now see bigger opportunities. Governments in all the other markets too have set out the specific growth ambitions. We will continually roll out initiatives to support the
agenda.

Looking ahead

We expect higher growth and new opportunities in 2019, driven by renewed investor confidence and a rebound in the economies. The banking sector is expected to grow in tandem and therefore, we are optimistic we will maintain
our positive growth trajectory. As a Board, we appreciate the invaluable efforts by the management,in ensuring that the Bank remains a key pillar in the development of the countries which we operate in. Our customers and shareholders have extended to us invaluable support and we are grateful to them too.
I would also like to record my appreciation to my fellow Board members for providing strategic guidance to the running of the business. However, we cannot rest on our laurels; there is more work to do if we are to reach our stated ambition of being a trillion-shilling company over the coming two to three years.

Andrew Wambari Kairu
Group Chairman