KBA CEO CHAT - Market Competition & the Cost of Credit

CEO | John Gachora, NIC Group, Group Managing Director
MONTH | September 2014
Chat Admin
Good morning and welcome to this mornings "My Chat with a Bank CEO" session
Chat Admin
Our topic this morning is Market Competition and the Cost of Credit and our host this morning is Mr John Gachora the Group CEO of NIC Bank
Chat Admin
We welcome you all to our chat this morning. As we await the start, please update your profiles and add in a picture of yourself.
Chat Admin
In addition, to enable us to get going straight away please feel free to post your questions before we start so that we can get going prompt at 10am.
nuru mugambi
Good morning everybody...thank you for joining the session today morning...
nuru mugambi
hi angela
Angela Nyabera
Hi Nuru
Suzzanne Muturi
Good morning Nuru
nuru mugambi
Good morning Suzzanne
nuru mugambi
good morning john
nuru mugambi
Admin...please note a tweet has come in...Good morning @nicbankkenya @JohnGachora @KenyaBankers what's your opinion do established firms accomodate competition from innovative firms
Chat Admin
Hi Nuru. Note the question. Thanks
Tony Shilako
Morning Guys ..why do banks charge customers exorbitant loan processing fee's(in %) while sacco's dont,when both are in the same business of lending?..
Chat Admin
Thank you Tony. We have logged your question and will put to Mr Gachora when he joins us.
nuru mugambi
morning donald...
Tony Shilako
Thanks Admin.. will be waitin
KENNETH NJERU
Good morning, bold step to chat with customers either to get a feedback or improve services. why have hidden charges but when signing forms no indications Two, how best can you handle my first home and car.let me know
Chat Admin
Mornign Kenneth and thank you for your question. We have logged it and it will be addressed once the chat gets underway.
Chat Admin
Sorry... Morning!
nuru mugambi
Njeru thanks for joining...it is a bold step...but it is important to have a productive dialogue
KENNETH NJERU
Morning Nuru, will try to make it productive.
karimi nthiga
Morning, do you think it would be a good strategy for financial institutions to offer business mentorship services especially to customers who have accessed credit for their first business venture in a move to encourage more people to take up credit for enterpreneurship ventures?
Angela Ngethe
Morning, great way to interact with bank CEO- my question is similar to Kenneth's on how best to handle my first home loan, however in my experience over the last 2 years I have found owning a home is still too expensive for middle income earners. Is NIC bold enough to come up with a more affordable mortgage facility? What justifies these high rates anyway?
nuru mugambi
Angela...welcome back...good to see you
Angela Ngethe
Nuru, hello there and great to see you too - after a long time
Chat Admin
Morning once again. We are about to start. Reminder to upload your profile picture to make things more interactive.
Chat Admin
Thank you Karimi and Angela for your questions. They have been logged
Chat Admin
Thank you to everyone that has logged in and especially to those that have posted questions already.
Chat Admin
We look forward to an informative chat and please continue to post your questions and comments as we progress.
Chat Admin
Ladies and Gentlemen, allow me to welcome Mr John Gachora to the CEO Chat session this morning.
Chat Admin
Ladies and Gentlemen, we welcome Mr John Gachora Group CEO NIC Bank to this mornings KBA CEO Chat Session
John Gachora
Good morning, welcome to the KBA organised CEO Chat.
John Gachora
I see already we have received a number of questions which we shall be addressing shortly...
John Gachora
...we shall try to restrict ourselves to the main topic at hand, which is competition in the banking industry and how that relates to the cost of credit
John Gachora
but certainly any other questions will be welcomed
John Gachora
Hi Kenneth
KENNETH NJERU
Morning, Mr Gachora.
John Gachora
the good thing about the new APR regime is that it creates full transparency for all charges relating to your loan whether those charges are from the bank or from other third party service providers such as lawyers, and government offices
John Gachora
...going forward you will be able to see all these hidden charges reflected in the rate so called APR or annual percentage rate that should be disclosed to you by your bank...
KENNETH KATIECHI
What prompted you to choose banking over Engineering yet you had a Masters degree from the great MIT?
John Gachora
as for your first home and car...please contact us customercare@nic-bank.com
John Gachora
Morning Tony
KENNETH NJERU
Thanks for the ARP hint
John Gachora
welcome Kenneth
John Gachora
To answer Tony's question about SACCOs versus banks...
John Gachora
...SACCOs and banks are fairly different in the type of loans they are able to issue
John Gachora
for instance...whereas SACCOs will often require you to have up to 10 co-signers, banks will typically not ask for co-signers but will need therefore to spend a bit more money to protect the bank in the legal and security documentation process upfront
John Gachora
Morning Karimi...
John Gachora
...I fully agree with Karimi in that banks need to do more to enhance financial literacy
John Gachora
in fact, through KBA we have a number of programs, including this one (CEO Chat) that is aimed at engaging with customers to educate them at all levels of their engagement with banks
John Gachora
Also many banks have business clubs for small business owners...through which they disseminate training, and facilitate networking. For example, at NIC we have the Entrepreneurial Club through which we hold training conferences to educate our clients.
John Gachora
I see a question that came up on Twitter...regarding competition.
Patrick Opiyo
Morning John, what do you forsee happening in the banking landscape with Equity's entry in the mobile space with the acquisition of an MVNO license and potential rollout? Paradigm shift in the way we transact with banks?
John Gachora
There are 44 banks operating in this market, seven micro finance banks, and over 150 SACCOs. Clearly this demonstrates that we have the right level of competition and a lot of room for any new, innovative solutions.
John Gachora
Kenneth...i see your question about my career choice...its a long story! ...maybe we will touch on it as we wrap up
John Gachora
Morning Patrick...good to see you online
Meredith Njenga
Hello John,
ADAM muthama
Morning John, Competition among banks has increased...making consumers choose a bank based on benefits. My question is the banking industry facing unfair competition...and what are the implications on Kenyans? What are the stake holders doing to address this unfair competition?
Kelvin Mbaabu
Dear Mr. Gachora, kindly advise whether the KBRR rate shall have an effect in reduction of interest rates in the long run?
John Gachora
Kenya has been ranked as one of the most innovative countries when it comes to mobile money. I view the entry into the MVNO business as just another step in this journey of giving customers more choices in the mobile money business.
John Gachora
Hi Meredith
John Gachora
Morning Kelvin
John Gachora
The idea of KBRR is to create more transparency and enable comparison of pricing across banks
Meredith Njenga
One important thing about Market Competition is on how one define the market size: in the Kenyan context, the banking sector can be grouped into three tiers : large, midsized and small banks . Given that the number of banks in the large sized tier are few , what are your thoughts on these banks abusing their dominance to charge unfiar credit rates?
STEPHEN MUSUNGU
Good morning John, KBA together with various stake holders have introduced various pricing mechanisms that were thought to bring the cost of credit down. However this has not happened. what really constitutes the cost of credit?
John Gachora
KBRR alone will not reduce interest rates because pricing depends on a number of factors, including macroeconomic environment, government borrowing, inflation, and customer credit risk
John Gachora
Currently, macroeconomic indicators support a long term reduction in interest rates
Lena Sitoyo
Morning John, Should we expect to see banks merging owing to the increased competition?
STEPHEN MUSUNGU
Secondly what are the likely implications on the cost of credit, interest rates by the proposed or rather anticipated increase by all banks of their capital reserve from the current 12% to 14.5% by 31.12.2014
John Gachora
Hi Adam, i see your question...but can you please clarify? From whom is the unfair competition? Thanks
Tony Shilako
Banks are required to provide loan applicants with a breakdown of the Total Cost of Credit , has ths started already ?
KENNETH NJERU
sorry having an adhoc meeting to discuss budget in the office, will follow later
Chat Admin
No problem Kenneth. The full transcript will be posted in the Archives section of the chat platform after the chat has concluded.
JACKSON OKOTH
hallo sir, i have always wondered why with 43 commercial banks, cost of credit remains high with little product differentiation between the players. Why is this so
John Gachora
Morning Stephen, the cost of credit is made up of a number of factors, namely, cost of funds, operational costs, cash reserve cost, third party costs and credit risk costs. A number of these also depend on the macroeconomic situation as well as inefficiencies in terms of third party services, for example legal costs, judicial costs, government process, etc.
JACKSON OKOTH
How do factors like cost of living index or inflation and the exchange rate position, feed into cost of credt?
John Gachora
Regarding the point on capital reserve, while it adds pressure on return on capital, it also creates the need to lend more or to deploy the capital more urgently...The two should, in my opinion, balance out and therefore should not have a significant effect on the interest rate
John Gachora
Dear Meredith...That is a very insightful question. There are six banks that are considered to be large tier banks...six is still a large number of banks given our market size. And the rest of the banks are very aggressive, therefore, I dont particularly think that the large banks can abuse their dominance.
John Gachora
Hi Lena...
JACKSON OKOTH
Hallo Sir, more than 50 per cent of all profits made by the entire banking industry is generated by only the 5 top banks while the rest scramble for the remaining crumbs? What doe this say about state of competition in Kenya's banking sector?
John Gachora
...to Lena's point about banks merging due to competition...in the short term i believe there are enough opportunities for the banks in this market. In the long term, we may certainly see a number of banks deciding to merge or align to go after larger opportunities.
Angela Nyabera
Hi John, thanks for conducting the chat. I’m a big fan of the current direction of competition and diversification in credit services. Do you think the level of competition and diversification will affect stability of the market? And is the play ground level for everyone involved to participate freely and market forces determine overall performance?
benjamin muli
Morning Mr. John,very many changes have been witnessed in the banking industry in the recent past,do we expect the to see the small banks exiting the industry due to the increased competition and is the consumer likely to benefit from the same?
John Gachora
Hi Jackson...
John Gachora
...To answer your question about inflation and exchange rate...
Joan Wairimu
Hello., anybody here or my chat page has issues?
Chat Admin
Hi Joan, yes we see your comment. Have you clicked the green bar to load old messages?
John Gachora
...on inflation, that determines where the central bank sets the monetary policy, the CBR, and where the market trades the T-bills. Today, KBRR is determined by these two factors directly. And therefore that translates into the industry base interest rate. As for exchange rate, it is a good indicator of inflation, not to mention a number of banks have funded themselves using foreign currency (an exposure that they must cover).
JACKSON OKOTH
thank you for the insights
JACKSON OKOTH
with inflationary pressure on the upward trend over the last four months, do you think this might force monetary policy commitee to adjust the CBR at their next meeting?
John Gachora
Thanks Jackson, you also make a good observation about the top 5 banks...but one must reflect, only a few years ago we talked about only the top 3 banks...and the landscape has changed, we now talk about top 6, and there is good reason to believe other competitors are closing in on these top six. Luckily this situation is not unique to Kenya. As in most countries, there is always the top four or top 5 banks that control the market share.
John Gachora
Hi Angela...thanks for joining us...i believe the current competition augers well for the stability of the financial markets. An efficient market also creates a level playing field for everyone involved.
John Gachora
Hi Benjamin, the good news is that the Kenyan banking market as a whole has been expanding therefore I believe there is enough opportunity, even for the smaller banks, to find their right niches.
John Gachora
Welcome Joan.
John Gachora
Jackson, you are right. Inflation and short term rates have been on an upward trend in the last couple of months. However, the MPC will certainly consider the fiscal position of the government, and its contribution towards monetary tightening before they can decide on the direction to take on the CBR.
JACKSON OKOTH
interesting views i must say from a conservative banker
Chat Admin
Ladies and Gentlemen, our time is almost over so if there are any more questions please send them through now. Many thanks for your contributions thus far.
John Gachora
I think Jackson, to address your question on cost of credit it is worth noting that interest rates overall have been coming down in the last many years. Except for the spike that we saw in 2012, interest rates have generally trended downwards. Between 2012 and today, average loan rates have dropped from over 20 percent to the current 15 percent. On the other hand, deposit rates have actually gone up. For savvy customers, fixed deposit rates offer a very good investment option. And generally high rates. A lot of this has been aided by the stiff competition among banks, Micro Finance Institutions and SACCOs.
JACKSON OKOTH
good stuff
John Gachora
I saw Tony's point from earlier about the new disclosures. Banks are eager to do so but as with anything new, it is a continuous process.
John Gachora
Thanks everyone who joined us this morning.
Tony Shilako
Thanks Sir for the insight
JACKSON OKOTH
Thank you sir for the insightful comments
FREDRICK YUAYA
Thank you.
John Gachora
We at KBA are eager to engage to ensure that we are continuously improving the banking sector.
John Gachora
While competition remains stiff, we are aware that the only way to survive is to partner with you our customers.
John Gachora
Please continue to engage with your bank to ensure that your concerns are addressed and more importantly, to continue building on financial literacy.
John Gachora
I thank KBA for organising this session.
KENNETH NJERU
I thank your for the insights
John Gachora
I wish all of you a great weekend.
Chat Admin
Ladies and Gentlement allow me to take this opportunity to thank Mr John Gachora for being with us today and for his insights. We would also like to thank you all for your questions and interaction that has made this session a success. This is our third and final chat session in this series on the Cost of Credit. You can however get copies of the transcript, podcasts and other information relating to this and all past chats in the Archive page of the chat.kba.co.ke website. Please also visit http://www.costofcredit.co.ke/ for more information on the Cost of Credit and dont forget to download the mobile app!!
KENNETH NJERU
Too short, Nice weekend too. A branch in Marsabit will offer competition
Chat Admin
Kindly note that the chat room closes in 5 minutes
Chat Admin
Thank you all for participating and see you next time.
Angela Ngethe
that was great, thanks for your time Mr Gachora and KBA for this chat - highly insightful