The banking sector’s general performance this year is favorable with an expected improvement in economic conditions and a pick-up in investments across the East African region, Joshua Oigara, the Kenya Commercial Bank Chief Executive Officer (CEO) has predicted.
“We are optimistic and looking forward to a more dynamic year in 2018 across East Africa as 2017 was a relatively tough year with a prolonged election period in Kenya but now we expect a leap in economic activity in the next 12 months,” Oigara said.
Speaking on Tuesday in Nairobi on the occasion of a banking sector forum dubbed ‘the Re-imagining Banking in 2018 and Beyond,’ Oigara said two things would define the financial services sector this year that included a new regulatory environment and increased investments in the financial technology (Fintech) space and the International Financial Reporting Standards 9—(IFRS9) under the new regime in the Global Financial System which took effect, January 1st this year.
“We do not anticipate shrinkage in credit or any major shock to our business as this is something we have over the years been preparing for and making the necessary adjustments. KCB is adequately capitalized to fit in under the new guidelines,” he said.
He acknowledged that 2017 was uncertain, changing and challenging and that looking at the East African region in the last year, economic conditions deteriorated largely in Kenya and South Sudan, with the rest of the countries closing the year with unfavourable story to tell.
“Instability remained a major threat to the region’s near-term economic growth. A prolonged electioneering period in Kenya brought a slowdown in expansion across the East African region. We however see some recovery coming through during the first half of 2018,” he said.
He noted that the full effect of the law capping interest rate in Kenya marked by a slow business environment on account of the general election negatively hit businesses and the economy at large.
The rate-cap, he added, subdued private investment owing to the drop in lending rates and as such, overall credit growth to the private sector reached its lowest levels in mid-2017.
“Since the introduction of the caps, credit to the government has increased significantly with growth in credit to the government averaging about 15 percent compared to the 2.3 per cent to the private sector,” Oigara said.
He noted that the regulator has indicated a willingness to reassess the interest cap position and that they were optimistic that all actors would reconsider the caps in the best interest of customers when the time comes to re-look at the regulatory environment.
“It has been a difficult year financially, with headwinds in all of our markets. However, it was also a year when we decided to substantially transform for the future,” he added.
The CEO further said they expected to see the industry move deeper into the financial technology space with the future lying in leveraging technology to drive efficiencies in their operations in order to serve customers better with relevant products that meet their expectations.
He added that given the technological and market changes rolling the industry, the coming two to three years may well bring even greater disruption to banking thus organizations needed to determine which developments to prepare for and how in the long term based on its assets, profit pool, business model and operating model.
Oigara said KCB would continually manage their capital and risks to keep the business growing while delivering on targets.
The CEO said they were also focused on funding innovation which gives banks an opening to devise new forms of financing for long-term corporate projects, or new forms of financial structuring that benefit SME’s.