NIC Bank Group Ltd. has reported a KES3.6bn profit before tax for the year ended 31 December 2011, an increase of 38% from the KES2.6bn registered in the previous year.
Announcing the results today, the Group Managing Director, Mr. James Macharia, said: “Our 2011 financial results reflect the continued growth of the franchise within a robust risk management framework that guided the group to effectively mitigate risks arising from persistent inflationary pressures, high interest rates, and increased volatility in the exchange rates”.

Net interest income grew by 26% to KES4.3bn, an increase of KES880m, attributable to the growth in the loan book by KES15.9b or 39% from KES40.7bn to KES56.6bn by December 2011. To fund this growth in advances, the deposit base increased to KES66.3bn as at December 2011, reflecting a 37% growth from KES48.5bn reported in December 2010.

Total non-funded income grew by KES513m or 27% to KES2.4bn for the year ended 31 December 2011, up from KES1.9bn in the previous year. Non-funded income contributed 36% of the total operating income. The Group Managing Director noted that the growth in non-funded income was in line with group’s long term strategy to diversify its revenues sources.

Total operating income grew by 26% to KES6.7bn, an increase of KES1.4bn, underpinned by the expansion of the balance sheet by KES20.0bn or 34%, and the growth in non-funded income.

The group’s total assets were at KES79bn as at 31 December 2011.

Total operating expenses excluding provisions for loan losses increased by 19% to KES2.8bn, driven by a planned branch expansion program and increased staff complement to support the growth in the business. The group MD noted that despite the increase in expenses, the group’s cost income ratio declined year on year from 50% to 46%, as a result of additional revenue generated from the investments made in the business.

The provision for loan losses reduced by 18% from KES317m in December 2010 to KES258m in December 2011. “Our credit selection, appraisal and approval processes, complemented by strong relationships with our customers have ensured that potential credit delinquencies are identified and managed at an early stage. This focus on risk management has proven to be beneficial to the bank and our customers, especially in light of the prevailing challenges in the business environment,” commented Mr. Macharia.

In line with the group’s regional expansion strategy, the Board has approved the expansion of the bank’s operations into Uganda, and the Bank of Uganda has given the requisite approval for the banking licence. The establishment of the new commercial banking subsidiary is, however, subject to approval by shareholders at the Annual General Meeting. “Our expansion into Uganda marks a key strategic milestone for the group as it endeavours to diversify its revenue sources and serve its regional customers seamlessly.” said Mr. Macharia. The capital injection required for this investment is at least KES960m (UGX 25bn).

Service Delivery Outlets and Products
The bank is committed to availing convenient financial services within its footprint, and has therefore continually improved its technological service delivery platforms, i.e. NIC Mobile Banking and NIC Online Banking, by enhancing service features such as M-Pesa connectivity in both channels. In addition, the bank increased its physical presence regionally by opening seven additional branches in 2011: six in Kenya (Eldoret, Village Market, Sameer Business Park, Galleria Mall, Karen Office Park and Taj Mall/Embakasi), and one in Ilala, Dar es Salaam, Tanzania.

With a view to further increasing accessibility, the bank has received regulatory approval and subsequently adopted an agency banking model which enables the provision of cash collection services to customers through Postbank’s network of 96 branches nationwide.

Mr. Macharia also added that the bank was in the process of implementing a new core banking system, T24, provided by the Temenos Group, which will be rolled out in all the banking subsidiaries of the group. “The implementation of the new system is on schedule and is expected to go live by June 2012. The cardinal objective of this project is to enrich the customer experience of the bank being a ‘One Stop Shop’ that avails the same high standards of service quality to customers with a regional presence.” said Mr. Macharia. In addition to facilitating the introduction of new products and services, T24 is expected to lead to increased operational efficiency and substantial cost savings.

NIC Subsidiaries
Diversification, both by geography and business lines, remains one of the pillars of the group’s strategy, with the overall objective of achieving significant and sustainable earnings in each business line in the medium term. The growth and development of the subsidiary companies is aimed at broadening both the range of financial services offered to customers and ensuring diversity within NIC Group.

The group subsidiaries, NIC Bank Tanzania, NIC Capital (investment banking), NIC Insurance Agents (Bancassurance) and NIC Securities (Brokerage) contributed 7% or KES244m of the group’s profit before tax in 2011. NIC Bank Tanzania is now firmly on a growth path and, in 2011, recorded a profit equivalent to KES157m, compared to KES135m in 2010.

All the local subsidiaries reported profits in 2011. NIC Capital’s profit rose to KES60m, up from KES32m in 2010, and it continues to be recognised as an innovative and significant player in both the equity and debt capital markets, having been retained as a transaction advisor in a number of key mandates. Notwithstanding the sluggish securities market, NIC Securities recorded a profit of KES11m (2010: KES20m), while NIC Insurance Agents posted a satisfactory profit of KES17m (2010: KES5m).

Dividend Payout and Rights Issue
The Group Managing Director reported that the Board of Directors has recommended for approval at the Annual General Meeting an increase in the authorised share capital of the bank, and the payment of a bonus issue of one share for every ten ordinary shares held. This is in addition to a final dividend of KES99m, which, together with the interim dividend of the same amount paid earlier, brings the total dividend payout to KES198m. The high profit retention is aimed at building up sufficient reserves in the group to finance future expansion.

In addition, the Board of Directors has recommended for approval at the upcoming Annual General Meeting the raising of additional capital of KES2bn through a rights issue. These funds, together with the recently approved USD21m credit line from Proparco, the French development finance institution, will be applied to finance the future growth of the group, both locally and regionally. The bonus issue and the rights issue are subject to the necessary regulatory approvals.

Outlook
“The external and domestic economic shocks which have resulted in high inflation and increased volatility in the financial markets are expected to slow down the growth momentum of the Kenyan economy,” noted Mr. Macharia. However, he emphasised that management would endeavor to grow the business through prudent lending and the provision of financial services to the key and productive sectors of the economy.