Flat Growth on NIC Bank Bottom Line

Flat Growth on Bottom Line of 2.9%; Impacted by the 51.5% Rise in Operating Expenses…

• NIC recorded a flat growth of 2.9% in after- tax profits to KES 2.31Bn throttled by 51.5% growth in operating expenses to KES 5.01Bn. The lender increased its provisioning for bad loans by 267.9%, thus causing the huge rise in Opex.
• Interest income was up 27.5% to KES 9.86Bn, on account of a modest increase of 3.6% on its loan book. A major boost however came from the government securities, owing to the high interest rates regime on treasury papers.  Interest expense rose by 17.9% to KES 3.78Bn, driven by a 21.3% uptick in cost of customer deposits to KES 3.09Bn. Overall, NIMs improved to 8.3% from 7.1%.
• Of concern is the downward spiral observed on the banks’ non-funded income contribution to total operating income.  The contribution fell to 26.2% from 30.6%, on the back of a flat growth on fees and commissions on loans and advances.

Impressive Cost-to-Income Ratio of 35.3% Relative to HY15 (41.9%)…

• Operating expenses (inclusive of loan loss provisions) surged by 51.5% to KES 5.01Bn, largely driven by a 267.9% rise in loan loss reserves. The banks’ expansion plans also partly contributed to the rise in operating expenses. They managed to open six new branches in the period, in what led to the hiring of more staff. 
• Worth noting, is that the bank has remained cautious on the cost implications, thus adopting a cheaper option through setting up “mini-branches” (capacity of 5-10 staff members) with an estimated cost of KES 10Mn per branch. This is 3x less than a typical branch which incurs a cost of between KES 30-50Mn.

Read: The Kenyan Banking Sector: The Interest Rates Debate

Book Quality Worsens; Total NPL’s Rose by 90.6% to KES 12.0Bn…

• Gross NPLs to gross loans ratio stood at 11.2% (HY16) compared to 8.1% (HY15), attributable to the increase in NPLs over the period. We tend to believe that majority of the exposure is still being drawn from the Imperial bank’s debacle, due to their interbank operations and some of the debt hasn’t been written off yet.
• The bank is however keen to recover through various ways such as: 1) Restructuring of the facilities 2) Business performance 3) Realization of security.

Outlook: SME, Retail Focus Strategy

• The bank targets to increase its footprint both locally and regionally, in order to support more retail and SME customers across the region. 
• NIC is also in the process of creating a non-operating holding company as part of its reorganization. This shall help them address operational complexes, seal risk management gaps and overcome restrictions on capital allocations. We believe this move shall bring to table, better efficiency in their business operations.