Q&A with NCBA Group General Manager John Gachora
John Gachora, NCBA Group Managing Director, spoke with Global Finance about NCBA Bank’s consolidation-driven growth strategy amid global and local shocks.
Global Finance: NCBA has become a powerhouse in Kenya. How?
John Gachora: NCBA is the creation of a merger between CBA Bank and NIC Bank. The journey began in December 2018 when the boards of directors of the two former banks authorized the start of discussions regarding a possible merger, which was completed in October 2019. The integration of the two banks during this period was quite difficult because it involved bringing systems and people together and supporting customers, while being wary of cybersecurity threats. Despite initial start-up problems, we have grown into a strong brand, driven by the trust of our loyal customers. Today, we are the third largest bank in Kenya and among the largest asset financiers, digital leaders and wholesale banks in the region.
GF: Has the bank managed to bounce back from Covid-19?
Gachora: At the height of the Covid-19 pandemic, we restructured approximately $744 million in loans. We also took a provision of approximately $165 million, one of the highest in the market. Our credit policy has also become slightly more cautious. This year, our provisioning has normalized, while almost all restructured loans have returned to normal. Only a few customers, mostly in the hotel and restaurant sectors, are still asking for moratoriums.
GF: Why are you opening branches while others are going digital?
Gachora: Digital channels are important and our transactions on digital platforms remain high. Our app is the highest rated banking app in Kenya, and we are also the number one bank for digital credit. That said, we have an elaborate expansion plan. Since the merger, we have opened 26 new branches. Physical branches are designed more as points of sale than points of service. They do not primarily target individuals but small and medium-sized businesses, which are local and need outlets nearby. The other reason we decided to establish additional branches was due to feedback from potential customers. We still have many customers who prefer to go to a branch to solve their banking problems. We haven’t reached a point where people fully trust non-physical interactions.
GF: What is the bank doing to be competitive in the corporate sector?
Gachora: We are one of the largest banks for businesses and also serve many multinationals. We approach our clients from a relational perspective. With a large balance sheet and a network of correspondent banks, we are able to support most exchanges around the world. Our financial strength also allows us to support large loans for capital expenditures and meet all of our clients’ working capital needs. Finally, we have been the largest provider of currency to businesses in the region. Our strong investment banking franchise offers advice for raising capital, mergers, acquisitions and listing. We also manage pension funds and investments for various companies.
GF: How is the economic environment affecting the banking sector?
Gachora: We expect 4.9% growth this year, down from the 5.2% we had forecast, due to the elections and the war in Ukraine. This is excellent growth after growth of 7% last year. There are some challenges due to high inflation and rising food prices. We have also seen shortages of hard currencies, particularly the dollar. But we are seeing growing demand from customers in sectors like construction and trade, and government spending is increasing. Generally, the industry is having a good year and will continue to grow, depending on several factors, such as the new government paying suppliers. Kenya is also getting richer when it comes to individuals. This means greater demand for specialized products like wealth management products.
GF: What is the impact of the increase in the key rate of the central bank on the use of credit?
Gachora: They raised the policy rate to 7.5% in May in response to rising inflation. The idea is to make money more expensive. A number of bank rates have gone up, but we haven’t changed yet. We want to continue supporting our customers for a while, but we will continue to evaluate. That said, I have not seen a decline in the use of credit. I think it’s because there was a lot of pent up demand during Covid-19.
GF: What are you doing to increase your share of regional markets?
Gachora: We are currently present in five markets: Kenya, Uganda, Tanzania, Rwanda and Côte d’Ivoire. We do not intend to venture into new countries but plan to invest heavily in these markets as we see great potential there. Outside of Kenya, we are small in other markets. However, all are profitable except Tanzania.