KCB Bank Rwanda Ltd targets to make its products and services more convenient and accessible to everyone through technology, as it aims to become the best bank in the market. Hope Magazine met with the bank’s CEO, Maurice Toroitich.
The Central Bank recently lowered its policy rate from 6.5% to 6% to support the economy and encourage commercial banks to increase lending to the private sector; what is KCB Rwanda’s reaction to this, what is your loan target this year?
There are three things that drive lending generally. The key repo rate is a policy rate that is used by the Central Bank to implement its Monetary Policy stance. It is the rate that the Central Bank defines based on its Monetary Policy objectives which is either to increase or decrease liquidity in the banking sector hence driving an increase or decrease in lending activity by banks.
If the Central Bank reduces the rate from 6.5% to 6%, firstly it means it is optimistic about the status of inflation in the market and so encourages banks banks to move liquidity from the repo window of the Central Bank to private sector lending which is more lucrative. In other words, it would make more profitable for banks to lend to the private sector than to place funds with Central Bank and earn interest based on the Repo rate.
Secondly, the status of demand and supply in the market is important for the banks I.e the demand for credit and supply of liquidity is important in setting the price of credit in the market. Presently, the demand for loans is huge: there is demand for credit from agriculture, construction, energy, individuals, etc. Whether money will go to all those sectors at reduced prices depends on the liquidity available in the banking system. Thirdly, the appetite for banks to lend to the private sector also depends a lot on a bank’s perception of risk (probability of default) of a particular economic segment or individual customer.
KCB Rwanda is an active lender to the private sector and we have been instrumental over the years in the development of key commercial and manufacturing facilities in Rwanda. We shall continue to lend to the private sector in accordance with liquidity available in our hands and also depending on the quality of the overall loan portfolio that we also already have. On average, we expect to grow our loan book by 13% to 15% on an annual basis.
Local and regional banks have registered lower net earnings in the last two years; what is KCB doing to return to bigger profit margins?
KCB operates in all East African countries and each one of these units operates under different economic conditions. In Kenya there is rate-capping, which is impacting banks’ profitability.
We don’t have that here in Rwanda, but we have high operating costs and an elevated rate of non-performing loans which affect the performance of banks. In Uganda the challenge is high interest rates and high NPLs. In Tanzania, liquidity in the banking sector following a change in government policy on where public funds are held has had a negative effect on bank earnings.
Overall, KCB in Rwanda and in the whole region seeks to reduce operating costs through the application of technology and remaining vigilant to manage high risk credit.
How do you see the future of the banking sector in the country and in the region?
It is common knowledge that the banking sector is going through a lot of transformation because of disruptive technologies. Banking will always be there, but how banking will be done will change quite dramatically in the coming years. Much closer home, there is a moral responsibility on the banks in the region to invest more in the productive sectors of the economy i.e. agriculture, manufacturing, mining, hotel and services – things that create value to the underserved populations and support exports.
In the last 10 years, banks of necessity have invested in infrastructure which is good but we can’t continue investing in the same field all the time without overlaying production and service on the newly developed infrastructure.
As commodity prices are getting back to normal and inflation is declining in the region, how is KCB taking advantage of this situation?
It’s very important to look at the business of the bank in the context of the customers of the bank. We can expect they will get more revenue and more cash flow generated by our commodity producing and trading customers which will give the bank more liquidity.
We shall therefore be looking to capture customers in the export market much more than we have done before. When inflation declines, it means that potentially, interest rates will also decline and make loans more affordable. This will stimulate increased demand and will be good for the bank as loan portfolios will increase.
Are there any products or services that KCB is currently putting in the spotlight?
One thing we are trying to do is to make our products and services more convenient and accessible through technology. So we are doing more on the mobile platform; recently, we launched m-Visa which enables payments with a mobile phone, and we are also doing mobile lending.
Basically, we don’t want to make people come to the bank anymore, we want them to do banking operations wherever they are; so we are putting more of our products and services into the mobile phone.
What is KCB Rwanda’s outlook in the next 1 to 5 years?
We are very optimistic about the market, the economy and the region in general. Commodity prices have started picking up, inflation has started slowing down; all the infrastructure investments that governments in the region have made in the last couple of years, including the standard-gauge railway, are going to start generating new value which should be good for banks.
Recently KCB Rwanda embarked on downsizing; what was the reason and what is the outcome for the bank?
One of the challenges that many banks including KCB have in Rwanda today is a high cost-to-income ratio. Typically, up to 50% of a bank’s operating costs relate to staff. Given that customers are not willing to pay any much more for services consumes in the bank than what they are already paying, its only reasonable that an optimal staff cost ratio is achieved to ensure banks remain competitive.
The staff lay-offs were the outcome of a refitting exercise to keep in line with the status of our business and to align with new realities such as that most of our customers now use non-branch channels like mobile banking, which means the demand for a high number of staff in a branch is not there anymore.
For example, in the past we might have had 5 tellers in a branch, but with the number of transactions being done physically today, maybe three tellers are enough. This means that we are becoming more of a sales and services organization that is technology and innovation oriented. The outcome of the exercise has been positive many fronts including a higher employment rate and upskilling of our existing staff.
Where do you see KCB Rwanda in 5 years?
We hope to have become the best bank in Rwanda in the creation of value for all our stakeholders.
Read this article and more in issue n° 76 of Hope Magazine.