Barclays Bank of Kenya announced their results last week in which they reported a growth in their revenues but a dip in their net profit. This was on the back of a challenging business environment in which they had to contend with an interest rate cap and a slow down in the economy.
We had a chat with the Barclays Bank of Kenya CEO Jeremy Awori on the challenging business environment, political risk and his outlook for the bank moving forward.
Barclays Bank just like other banks has been operating in a difficult business environment, what has the bank done to mitigate this?
As you can see from the results our diversification strategy seems to be working which has seen a growth in revenue. Barclays intends to accelerate this revenue growth by investing in other areas that have opportunities like Bancassurance, Fixed Income, agriculture, asset finance, mortgages among others which are core to the economy.
Part of the bank’s 5 year strategy is to grow the non-funded income component because it gives the bank shocks against interest rate volatility. The bank will continue investing in such as we move forward.
Banks have generally moved to the digital platforms especially the mobile platform and you will see a lot more new things coming up on the mobile space. Barclays will soon be launching their own mobile banking platform with new and innovative products and services. This will offer convenience to the customer and cost effectiveness to the bank as it delivers services. Bank’s basically should be ready to evolve their distribution channels as customers evolve.
Continued focus on where the bank takes its risks that is determine where the bank lends, where it doesn’t lend and also ensure that it gets a return on the lending. With the passing of the interest rate cap this has become a bit of a challenge as one cannot price for the risk due to the fact that bank’s are capped on how much they can price the risk. This has seen riskier customers missing out on loans due to the fact that bank’s cannot price for the delinquency and impairment which might come about by banking that segment.
Being an election year, there is bound to be political risk. What is Barclay Bank’s strategy to mitigate it?
Elections is definitely a factor that will affect the way people run their businesses. We are however working with different groups to try and ensure that we have peaceful elections, this I believe will help build confidence in Kenya as an investment destination. We simply cannot be working with a five year investment horizon where you basically make your money between now and the next election as you don’t know what will happen after. In other markets elections come and go but businesses continue to operate as such we are looking at the leaders on both sides to be responsible during this period because in the end it will be better for the economy. Elections is one of the many factors that affect the industry and as such Barclays will stick to its five year plan.
Corporate Banking which experienced a 33% growth seems to be a good growth segment for Barclays. What is the bank doing to grow and retain this segment?
Growth in that segment has been due to the investments that the bank has made since 2013. This involved the bringing of new skill sets on board to form a great corporate banking team, understanding their customers to be able to determine their needs and delivering products that meet those needs. The bank also reactivated the Barclays Financial Services Ltd which gives us a investment banking arm, we have opened a stock brokerage arm, investment in technology like the KRA tax payment solutions. This has made the customers realize that they can get a total banking solution from us hence they are more than willing to give us more business because it is cheaper and more effective. The bank also intends to make more of such investments.
The bank has invested a lot in the digitization of the bank’s processes, does this mean that we will be seeing staff redundancies?
The bank intends to digitize the more mundane and routine transactions like cash deposits and withdrawals and perform them in a more cost effective way. I say mundane because it is not a value adding transaction as compared to talking to an adviser on the right mortgage to take or the right investment product which add value to the business.
We see an opportunity in performing the mundane transactions in a cost effective way and trying to redeploy the resources in the areas that can actually add value, grow revenue and improve customer experience.
Barclays banks head count has gone down by about 600 people in the last three to four years without major restructuring programs. In the last year alone the head count came down by about 171 people so we have no plans to letting people go. We believe that with natural attrition, we will start seeing some of the cost efficiency coming through. However, we keep all options open depending on how the market will evolve.
Finally, what is your outlook for 2017 given the elections and the interest rate cap
This year has a lot of unpredictable factors and we should be able to see the full effect of the interest rate cap as each quarter passes. However, we have strategic initiatives that will see us deliver decent results for our shareholders and as such we remain optimistic that 2017 will be a good year.