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HF Group: Q3 Results and Rights Issue · The Mwango Capital Podcast

0:00
SPEAKER_00: Ladies and gentlemen, thank you very much for joining us this evening.
0:03
SPEAKER_00: It's an interesting start to December,
0:05
SPEAKER_00: the final month of what has been a very interesting year,
0:08
SPEAKER_00: pretty much across the board from both a macroeconomic and microeconomic
0:12
SPEAKER_00: perspective as well.
0:13
SPEAKER_00: For the next hour, we're going to have an interesting conversation with Robert Kipara.
0:17
SPEAKER_00: He's a group CEO of HF.
0:19
SPEAKER_00: Some people who are probably my age will probably remember it as housing finance,
0:22
SPEAKER_00: which for a very long period of time essentially built itself as an institution
0:26
SPEAKER_00: that focused on the property market.
0:29
SPEAKER_00: But as Robert will tell us a little later,
0:30
SPEAKER_00: that has changed quite a bit,
0:32
SPEAKER_00: especially over the last three years or so.
0:34
SPEAKER_00: We're going to be talking about two specific things.
0:36
SPEAKER_00: First, the third quarter results that came out fairly recently.
0:40
SPEAKER_00: Those make me interesting reading.
0:41
SPEAKER_00: And the rights issue that is still in progress at the moment.
0:45
SPEAKER_00: The plan for the organization after approval,
0:47
SPEAKER_00: of course,
0:47
SPEAKER_00: from shareholders a couple of months ago was to raise a better part of around $4.6 billion.
0:54
SPEAKER_00: Ken Shilling's interest capital selling around 115 billion ordinary new shares.
0:58
SPEAKER_00: And there will be a green true option over there as well.
1:01
SPEAKER_00: We'll see exactly whether or not that will be taken up and that money is going to
1:04
SPEAKER_00: be plowed back into the business.
1:06
SPEAKER_00: But exactly how that's going to happen,
1:08
SPEAKER_00: where the money is going to go,
1:09
SPEAKER_00: what's the investment case for putting cash into this right issue.
1:12
SPEAKER_00: We'll explore that and plenty more over the course of the hour.
1:15
SPEAKER_00: Robert, thanks for taking time for this conversation, but I want to start there, right?
1:19
SPEAKER_00: For a lot of people my age and older, right?
1:22
SPEAKER_00: When we think of housing finances in the name there,
1:25
SPEAKER_00: when you think of HF,
1:26
SPEAKER_00: we think of you as a mortgage institution,
1:29
SPEAKER_00: not necessarily as the full service bank that you are at the moment.
1:33
SPEAKER_00: How's that transition working out so far?
1:35
SPEAKER_02: First of all, thank you very much.
1:36
SPEAKER_02: I want to thank you and also for this invite and also all the people who have made to join today.
1:43
SPEAKER_02: My name is Robert Kibara, as I've been introduced.
1:46
SPEAKER_02: And the question you have asked then is how the transformation is going.
1:50
SPEAKER_02: And I want to say it's actually going quite well.
1:52
SPEAKER_02: It's going very well.
1:53
SPEAKER_02: Just as you said earlier, we started off many years ago as a company that focused on real estate.
1:59
SPEAKER_02: We had two companies that went by the name that you have just mentioned.
2:02
SPEAKER_02: And its main purpose was to do mortgage financing.
2:06
SPEAKER_02: Just mortgage financing, doing mortgages.
2:08
SPEAKER_02: And then, of course, we have the property development company.
2:10
SPEAKER_02: It's called HFDA.
2:11
SPEAKER_02: It used to be called Kenya Building Society those days.
2:15
SPEAKER_02: It's purposeful to build houses.
2:16
SPEAKER_02: So one side of the business built houses, the property business.
2:19
SPEAKER_02: The other side gave out mortgages.
2:22
SPEAKER_02: That has changed quite a bit, especially over the last three years.
2:25
SPEAKER_02: Like you said, we made a decision to transform the company.
2:29
SPEAKER_02: Significantly,
2:30
SPEAKER_02: if I can start with the bank has moved then from a single product bank that focused
2:34
SPEAKER_02: on only a single sector,
2:35
SPEAKER_02: which is real estate.
2:37
SPEAKER_02: And now it's a full service bank serving various segments and sectors of the economy.
2:43
SPEAKER_02: And I'll talk about that a little bit later.
2:45
SPEAKER_02: The property company, HFDI.
2:47
SPEAKER_02: has moved from a property development company or just a construction or property
2:52
SPEAKER_02: development sort of company to a full home ownership solutions provider.
2:57
SPEAKER_02: So we do now different services.
3:00
SPEAKER_02: Actually, we stopped building houses.
3:01
SPEAKER_02: We had built the largest number of houses in Kenya, 18,000 houses.
3:05
SPEAKER_02: The bank had given about 60,000 mortgages over the years.
3:09
SPEAKER_02: The bank still does mortgages a bit differently plus much, much more.
3:14
SPEAKER_02: And then we have got the HFDI, the property business that doesn't do houses anymore.
3:17
SPEAKER_02: And I'll talk about what it does now.
3:19
SPEAKER_02: But what we are doing now is making as much, much more money than we would ever make making houses.
3:25
SPEAKER_02: And we are still enabling people to own homes.
3:27
SPEAKER_02: Then we have got an insurance business,
3:28
SPEAKER_02: which has moved from a single product insurance intermediary that used to do mainly
3:33
SPEAKER_02: mortgage insurance to a full house insurance solution.
3:36
SPEAKER_02: So that has been progressing very well.
3:38
SPEAKER_02: If I can just go back a little to the bank,
3:40
SPEAKER_02: we have got now different businesses that are within the bank,
3:43
SPEAKER_02: what we can call SBUs.
3:45
SPEAKER_02: strategic business units.
3:46
SPEAKER_02: So we have got banking for individuals, what we call personal banking.
3:50
SPEAKER_02: We have got banking for businesses, standard businesses, what we call business banking.
3:54
SPEAKER_02: We have banking for large businesses, what we call commercial banking.
3:58
SPEAKER_02: We have banking for institutions, including government.
4:02
SPEAKER_02: and institutions such as churches, religious institutions.
4:05
SPEAKER_02: We have banking for diaspora customers, and that is non-resident Kenyans.
4:09
SPEAKER_02: We have banking for high net worth customers, and that is what we call ultimate banking.
4:14
SPEAKER_02: We have a custody business that was licensed a lot long ago.
4:17
SPEAKER_02: That is doing very well.
4:18
SPEAKER_02: We bank also financial institutions like circles and microfinance institutions.
4:23
SPEAKER_02: So we have got about 10 different businesses and what we can call propositions.
4:27
SPEAKER_02: And we have then taken an approach, what we call digital fast approach.
4:30
SPEAKER_02: So we are actually using technology to revolutionize.
4:35
SPEAKER_02: how banking is done in these businesses.
4:37
SPEAKER_02: As a result of that,
4:38
SPEAKER_02: as we'll see later,
4:39
SPEAKER_02: the bank now is on its third year of profitability,
4:43
SPEAKER_02: growing year on year,
4:44
SPEAKER_02: month on month,
4:44
SPEAKER_02: quota on quota.
4:45
SPEAKER_02: And the reason why the bank is profitable is because all these businesses are now profitable.
4:49
SPEAKER_02: So it's not just the mortgage business.
4:51
SPEAKER_02: Now we are seeing a lot more revenues coming from various areas.
4:54
SPEAKER_00: We'll get into the details of the property side in just a minute,
4:57
SPEAKER_00: but I'm curious about sort of manpower switch that you had to undertake in order to
5:01
SPEAKER_00: get this done because you're operating for all those years,
5:03
SPEAKER_00: right?
5:03
SPEAKER_00: With specialty, deep expertise, right?
5:06
SPEAKER_00: In property development, mortgages, etc.
5:08
SPEAKER_00: And then here you come along and say, actually, we need to diversify the business.
5:12
SPEAKER_00: We need to get into all these other different banking lines and bank assurance.
5:16
SPEAKER_00: How did you manage that culture and skillset transition?
5:18
SPEAKER_00: Because I imagine that switch over three years, over 36 months, wasn't exactly an easy one.
5:23
SPEAKER_02: It has been in the end of our life, especially because of what you've talked about, people and culture.
5:27
SPEAKER_02: So we obviously needed to bring in expertise in various areas.
5:31
SPEAKER_02: So if you look at,
5:32
SPEAKER_02: for instance,
5:33
SPEAKER_02: our executive team,
5:34
SPEAKER_02: the divisional directors,
5:36
SPEAKER_02: the team that has transformed the business is actually a different team from the
5:39
SPEAKER_02: team that was there before because we were just doing mortgages.
5:42
SPEAKER_02: So we have obviously maintained some of the capabilities we had before,
5:45
SPEAKER_02: but we have brought in over these five years a whole new team.
5:49
SPEAKER_02: What has worked very well for us is the executive team that came on board about
5:53
SPEAKER_02: four or five years ago have stayed with us.
5:56
SPEAKER_02: All experts in their own areas and have stayed with us.
5:59
SPEAKER_02: Actually, the average tenure of our executives is 4.8 years, which is actually quite good.
6:04
SPEAKER_02: We started this transformation about five years ago.
6:06
SPEAKER_02: We have accelerated the last three years.
6:09
SPEAKER_02: And the team has changed a lot.
6:10
SPEAKER_02: And of course,
6:11
SPEAKER_02: the support team below that,
6:12
SPEAKER_02: there has been a lot of transformations,
6:14
SPEAKER_02: relationship management teams,
6:16
SPEAKER_02: technical pit teams to handle,
6:17
SPEAKER_02: for instance,
6:17
SPEAKER_02: credit,
6:18
SPEAKER_02: people on the technology side to power the growth of the business from a technology perspective.
6:22
SPEAKER_02: It's been a huge change.
6:24
SPEAKER_02: We have moved actually from 400 staff
6:26
SPEAKER_02: to about 630, mainly to support the businesses that we have.
6:30
SPEAKER_02: Then there is culture and capabilities.
6:32
SPEAKER_02: So one of our strategic pillars is culture and capabilities.
6:35
SPEAKER_02: And we have had a huge retraining program,
6:37
SPEAKER_02: huge thousands of hours of classroom time for us to bring people up to speed with
6:42
SPEAKER_02: what's happening in different areas.
6:44
SPEAKER_02: And then of course, the culture.
6:45
SPEAKER_02: We've been working with a company called Hosted,
6:48
SPEAKER_02: an international company to do what we call a culture immersion journey that has
6:52
SPEAKER_02: transformed us from a government-ish sort of institution to a company that now has
6:57
SPEAKER_02: become quite popular with many customers.
7:00
SPEAKER_02: Over the last few recent times, we've brought in about 180,000 new customers.
7:04
SPEAKER_02: So we have seen the popularity growing and it's just because of the culture of the way we serve people.
7:09
SPEAKER_02: We've had to run a whole program of culture change.
7:13
SPEAKER_00: Let's then extend to the question that I kept getting when I was talking about HF
7:17
SPEAKER_00: in my social circles,
7:19
SPEAKER_00: because yes,
7:19
SPEAKER_00: you made these changes,
7:20
SPEAKER_00: right?
7:20
SPEAKER_00: It's a full service bank now, which is well and good.
7:23
SPEAKER_00: And if you look at the results,
7:24
SPEAKER_00: especially for the third quarter,
7:25
SPEAKER_00: you can see that jump in net interest income on an annual basis.
7:28
SPEAKER_00: That's gone up at least at group level to a better part of a billing and shillings
7:32
SPEAKER_00: vis-a-vis 530 million in the nine months ending in September.
7:35
SPEAKER_00: I guess the challenge that some of us will have is,
7:38
SPEAKER_00: okay,
7:38
SPEAKER_00: all these changes have been made,
7:39
SPEAKER_00: but what then does that do for your revenue mix two,
7:42
SPEAKER_00: three years down the line?
7:44
SPEAKER_02: So we have actually been quite careful around the revenue mix because we were very
7:48
SPEAKER_02: clear about two things.
7:49
SPEAKER_02: Number one,
7:50
SPEAKER_02: we needed to diversify the sources of income,
7:52
SPEAKER_02: the sources of income themselves,
7:54
SPEAKER_02: so that then we can get income that is not tied to one specific sector.
7:58
SPEAKER_02: which is real estate and we are seeing now a lot of the income you're seeing for
8:01
SPEAKER_02: instance now is coming more from the new businesses that we have created and in
8:07
SPEAKER_02: fact we have also been very careful about the sectors that this revenue is coming
8:10
SPEAKER_02: from so you'll see that for instance the growth has been coming mainly from sectors
8:15
SPEAKER_02: such as education trade health agriculture we have a bit of manufacturing so we
8:20
SPEAKER_02: have diversified
8:22
SPEAKER_02: are the source of income.
8:23
SPEAKER_02: That's number one.
8:24
SPEAKER_02: But also, we used to rely a lot on just interest income, as you have said.
8:28
SPEAKER_02: Now we have seen a lot more of that changing.
8:31
SPEAKER_02: We have seen the share of fee income growing.
8:34
SPEAKER_02: In fact,
8:35
SPEAKER_02: now it's risen from about a low of 11% when we started the journey to 34% this last quarter,
8:40
SPEAKER_02: and we want to get it to 40%.
8:42
SPEAKER_02: So this income that you're seeing, the growth of interest income is quite sustainable.
8:46
SPEAKER_02: We wanted that to happen,
8:47
SPEAKER_02: both in terms of the sources of that income and how diverse that will be,
8:51
SPEAKER_02: how diversified that is,
8:53
SPEAKER_02: and also just not relying on only interest income growth and moving to other income sources.
8:58
SPEAKER_00: Indeed.
8:59
SPEAKER_00: Just a quick reminder to all of us,
9:00
SPEAKER_00: in the event that you will have any questions,
9:02
SPEAKER_00: any comments,
9:02
SPEAKER_00: please respond to the pin on Mungo Capital's account.
9:06
SPEAKER_00: Alternatively, send those questions in the DM either to my account or to Mungo Capital's account.
9:11
SPEAKER_00: We'll get to them a little later on in the conversation.
9:13
SPEAKER_00: Robert,
9:13
SPEAKER_00: going back to the question around where the loan book is at the moment in revenue diversification,
9:18
SPEAKER_00: because looking at the macroeconomic environments that Kenya is in at the moment,
9:21
SPEAKER_00: one of the things that has been relatively of interest to note is the fact that
9:24
SPEAKER_00: NPLs have been going up quite steadily,
9:27
SPEAKER_00: especially in the last 10,
9:28
SPEAKER_00: 15 years,
9:29
SPEAKER_00: give or take.
9:30
SPEAKER_00: We're now essentially at around 16.5% in aggregate across the sector.
9:34
SPEAKER_00: And granted, you do need to diversify to have buffers on the business along the way.
9:39
SPEAKER_00: But given that sort of adverse operating environment and a tax policy that keeps
9:43
SPEAKER_00: changing from one year to the next,
9:45
SPEAKER_00: there's really no stability on that front.
9:47
SPEAKER_00: Will you be able to maintain NPLs at current levels or are you looking to
9:50
SPEAKER_00: essentially gradually reduce them progressively?
9:53
SPEAKER_02: That's a good question.
9:53
SPEAKER_02: NPL have become a problem generally across the banking sector,
9:57
SPEAKER_02: averaging over 16% and that's quite high across the entire sector.
10:00
SPEAKER_02: What we have seen is actually a different story.
10:02
SPEAKER_02: We purposed earlier on to make sure that we can build a new bank that is in sectors
10:07
SPEAKER_02: of high growths that are also rewarding,
10:10
SPEAKER_02: but are also quite less risky from an NPL perspective.
10:13
SPEAKER_02: So what we've seen is that the last four years, we have booked loans of about 37 billion.
10:18
SPEAKER_02: Of those loans now, the NPL ratio is 4%.
10:22
SPEAKER_02: And even the loans that we booked,
10:23
SPEAKER_02: say that have been with us for about 60 months now,
10:26
SPEAKER_02: which is about five years,
10:27
SPEAKER_02: are settling at about 4.02.
10:29
SPEAKER_02: And what that tells you is that we are solving historical issues without creating new ones.
10:34
SPEAKER_02: And it's possible in this market,
10:35
SPEAKER_02: obviously we have been a bit picky because we didn't want to have a problem in our hands.
10:40
SPEAKER_02: Are we able to sustain that?
10:41
SPEAKER_02: Yes.
10:41
SPEAKER_02: Because of primarily that we,
10:43
SPEAKER_02: first of all,
10:44
SPEAKER_02: analyze sectors,
10:45
SPEAKER_02: do quite some research around the sectors,
10:47
SPEAKER_02: then of course the segments of the market,
10:49
SPEAKER_02: and then finally we create a co-credit policy that enables us to be able to bring
10:53
SPEAKER_02: in lending safely.
10:54
SPEAKER_02: And we really wanted to bring down this whole issue of NPLs.
10:57
SPEAKER_02: The old book that we had,
10:58
SPEAKER_02: which is basically the legacy book,
11:00
SPEAKER_02: what we did about that is we continue to reduce that significantly,
11:03
SPEAKER_02: but we also decided
11:04
SPEAKER_02: That for us to do a sustainable business into the future,
11:07
SPEAKER_02: we needed to take some steps to be able to ring fence that book.
11:11
SPEAKER_02: So we have taken provisions of up to 75%, actually 75% of that book is covered by provisions.
11:17
SPEAKER_02: And the book also has 100% security.
11:21
SPEAKER_02: And as we recover security over time, then we will write back that provision.
11:24
SPEAKER_02: So we made the decision that we will ring pens, the legacy book.
11:28
SPEAKER_02: We will create a new book that is very well calculated in terms of how we build it up at much lower risk.
11:34
SPEAKER_02: And that is working quite well.
11:35
SPEAKER_02: So that's how we want to scale.
11:37
SPEAKER_00: Correct me if I'm wrong, but the legacy book is mostly based on real estate assets, right?
11:41
SPEAKER_00: Or was it mixed with real estate assets and other things?
11:43
SPEAKER_00: It's just projects.
11:44
SPEAKER_02: If you look at the NPL ratio for mortgages for owner-occupier,
11:49
SPEAKER_02: even the old ones that we booked 10,
11:51
SPEAKER_02: seven years ago,
11:53
SPEAKER_02: the NPL ratio is less than 2% because people don't like losing their homes.
11:56
SPEAKER_02: So we continue to do owner-occupier mortgages.
11:59
SPEAKER_02: We have slowed down on is financing projects for sale.
12:03
SPEAKER_02: If somebody comes and says they want to build some projects somewhere for sale
12:06
SPEAKER_02: because we know how challenging that is from our own experience,
12:10
SPEAKER_02: then that we haven't done.
12:11
SPEAKER_00: Go into detail in that a bit more.
12:13
SPEAKER_00: If I come to you for the sake of argument,
12:14
SPEAKER_00: if I have,
12:15
SPEAKER_00: say,
12:15
SPEAKER_00: 50 acres in Kitengala and I want to put up an estate there,
12:17
SPEAKER_00: and I come to you and say,
12:18
SPEAKER_00: Robert,
12:19
SPEAKER_00: I need capital to essentially put up an estate here.
12:21
SPEAKER_00: Based on your history in dealing with these sort of projects, the off-tick tends to be a bit challenging.
12:26
SPEAKER_00: And even where I am now,
12:27
SPEAKER_00: I'm in the office in Kilimani and there are apartment blocks here that I've seen
12:31
SPEAKER_00: standing empty for three,
12:33
SPEAKER_00: four,
12:34
SPEAKER_00: in some cases,
12:34
SPEAKER_00: even five years or more.
12:36
SPEAKER_00: What exactly is the problem there with the offtake?
12:38
SPEAKER_00: Is it a pricing issue?
12:39
SPEAKER_00: Is it that there just isn't demand for specific kinds of projects?
12:44
SPEAKER_02: The market is much more responsive in projects that are a lot less expensive.
12:47
SPEAKER_02: For instance, what we call projects that are truly affordable.
12:50
SPEAKER_02: And as you go up higher, we are finding that there's a lot less demand.
12:54
SPEAKER_02: And we've been there ourselves.
12:55
SPEAKER_02: When we started this journey, we had 1,500 with keys and sold.
13:01
SPEAKER_02: And so we sold those houses through COVID.
13:04
SPEAKER_02: 1,500 of them.
13:04
SPEAKER_02: We had huge debts.
13:05
SPEAKER_02: We paid off.
13:06
SPEAKER_02: And we are now down to 21 houses only from 1,500.
13:10
SPEAKER_02: So we have been there.
13:11
SPEAKER_02: We've seen what you're saying.
13:12
SPEAKER_02: But also the other thing about it is how Kenyans build houses.
13:16
SPEAKER_02: Kenyans build houses mainly through what we call incremental housing.
13:20
SPEAKER_02: If you take estates like Utawala or Shokimau or Membley or these new estates that
13:25
SPEAKER_02: have just come up the other day,
13:27
SPEAKER_02: those houses are not being built through mortgages.
13:30
SPEAKER_02: They have been built through what we call incremental housing.
13:32
SPEAKER_02: People bought a plot.
13:33
SPEAKER_02: They started building.
13:34
SPEAKER_02: They probably borrowed money here and there and they set up their home.
13:37
SPEAKER_02: And that's exactly what we are doing now on our property business.
13:40
SPEAKER_02: We are working with land owners.
13:42
SPEAKER_02: For instance, the client you have talked about was 50 acres.
13:44
SPEAKER_02: We would advise them not to build houses themselves.
13:47
SPEAKER_02: We would advise them that they bring the property to us.
13:50
SPEAKER_02: We will master plan the property.
13:52
SPEAKER_02: We will design the infrastructure.
13:53
SPEAKER_02: We will supervise the construction of the infrastructure.
13:55
SPEAKER_02: We will also do the titling.
13:58
SPEAKER_02: We will subdivide.
13:59
SPEAKER_02: We'll create nice controlled communities, a whole beautiful estate.
14:03
SPEAKER_02: And then we will sell on behalf of the plots themselves.
14:06
SPEAKER_02: And after that,
14:07
SPEAKER_02: our bank would finance the people to build the houses themselves slowly,
14:11
SPEAKER_02: incrementally the way they normally do.
14:13
SPEAKER_02: So that model, we started it last year in our property development company.
14:17
SPEAKER_02: And in our first year of operational loan, we made 600 million in revenue.
14:20
SPEAKER_02: More than we would ever make building houses.
14:23
SPEAKER_02: We have enabled people, clients who have large parcels of land to be able to offload the land.
14:28
SPEAKER_02: And because we have a large sales force, we have credibility in this area.
14:32
SPEAKER_02: And we are able to finance the buyers.
14:33
SPEAKER_02: And we have got a very large database of clients who have ever bought properties with us.
14:37
SPEAKER_02: That's how I would advise clients not to build houses themselves.
14:40
SPEAKER_02: They'll put in their capital.
14:41
SPEAKER_02: They are going to cost them a lot.
14:43
SPEAKER_02: And eventually they are probably not going to make money.
14:46
SPEAKER_00: Just before I jump to the rights issue,
14:47
SPEAKER_00: from your experience,
14:48
SPEAKER_00: what does an affordable house,
14:50
SPEAKER_00: quote unquote,
14:51
SPEAKER_00: look like in terms of if we say we're going to price this house,
14:53
SPEAKER_00: let's say,
14:53
SPEAKER_00: for the sake of argument,
14:54
SPEAKER_00: 4 million Kenyan shillings,
14:56
SPEAKER_00: right?
14:56
SPEAKER_00: Because I know the median number in the average number, rather, among
14:59
SPEAKER_00: The entire mortgage portfolio is closer to nine, in some cases, even 10 million shillings.
15:03
SPEAKER_00: But what is actually an affordable,
15:05
SPEAKER_00: quote unquote,
15:06
SPEAKER_00: housing unit that will essentially know if you put this in the market,
15:09
SPEAKER_00: you build this to a budget,
15:10
SPEAKER_00: you price it at four or five million shillings,
15:12
SPEAKER_00: it's going to go off the lot.
15:14
SPEAKER_02: If you're looking for a number, that would be about 8 million.
15:17
SPEAKER_02: And I'll tell you the reason.
15:18
SPEAKER_02: If you built a 5 million house today,
15:20
SPEAKER_02: that house is likely going to be about 30,
15:22
SPEAKER_02: 40 kilometers from the center.
15:25
SPEAKER_02: So people also do the math of fair rent and all that calculation and quality of life.
15:30
SPEAKER_02: Like you are living very far away.
15:32
SPEAKER_02: So we had to spend a lot on fuel or fair.
15:35
SPEAKER_02: The reason why people rent is because you can get a house that is close to work.
15:39
SPEAKER_02: and then you don't have to pay a lot of cost.
15:41
SPEAKER_02: But if you have a house of an 8 million sort of house,
15:43
SPEAKER_02: it's good to be in a location that is a good balance between living too far away
15:47
SPEAKER_02: from work and also having some decent house that you can call your own.
15:51
SPEAKER_02: But we have seen of course there are properties that have come at lower than that price.
15:55
SPEAKER_02: There are those houses where they are affordable ones that are coming from government.
15:58
SPEAKER_02: They are priced lower and they fly off the shelves.
16:00
SPEAKER_02: If you do houses over 12, 13, 14, 15, 17 million, then you start seeing a demand is a lot lower.
16:07
SPEAKER_00: Yeah,
16:07
SPEAKER_00: which pretty much tracks with the sort of income data that we have as well,
16:10
SPEAKER_00: because it's about the average gross monthly income for people in the formal sector.
16:15
SPEAKER_00: So it's around 50, 60,000 shillings a month.
16:18
SPEAKER_00: But let's get to the right issue, right?
16:19
SPEAKER_00: You're putting 1.15 or so billion shares on the market,
16:22
SPEAKER_00: price at about four shillings a share,
16:24
SPEAKER_00: trying to raise 4.6 billion in total.
16:27
SPEAKER_00: Where do we stand now in terms of the uptake of these new shares?
16:31
SPEAKER_02: We took the decision at the start of this rights issue that we are going to have a
16:34
SPEAKER_02: conversation with all the shareholders.
16:35
SPEAKER_02: So we've been calling shareholders.
16:37
SPEAKER_02: We've seen very positive uptick.
16:40
SPEAKER_02: I was looking at numbers on Friday evening and from the conversations we've had
16:43
SPEAKER_02: with the shareholders,
16:44
SPEAKER_02: the commitment to invest was about 86%.
16:46
SPEAKER_02: We think, of course, that Kenyans are last minute people.
16:50
SPEAKER_02: We think that this week we can be able to push it across the line.
16:53
SPEAKER_02: And actually,
16:54
SPEAKER_02: even just today,
16:55
SPEAKER_02: the sheer number of new applicants that we have seen is actually quite promising.
16:58
SPEAKER_02: So I can say that we are going to have a good rights issue.
17:01
SPEAKER_00: And I know that in the information memorandum,
17:03
SPEAKER_00: you indicated that the principal shareholder,
17:05
SPEAKER_00: Britam,
17:05
SPEAKER_00: has committed to taking up all of its rights.
17:08
SPEAKER_00: All the others, you said, were all supportive of the measure as well.
17:11
SPEAKER_00: So can we safely say at this point,
17:13
SPEAKER_00: pretty much all the main shareholders have agreed to exercise all their rights?
17:16
SPEAKER_02: Yeah.
17:16
SPEAKER_02: So most of the shareholders from the conversations we have had, of course, Britam has actually just...
17:21
SPEAKER_02: gone ahead and their rights already as we speak.
17:23
SPEAKER_02: We have other,
17:25
SPEAKER_02: other major shareholders who had already said that they are not only supportive,
17:27
SPEAKER_02: but they'll take up their rights.
17:29
SPEAKER_02: The one that we are not totally sure is government, government of Kenya.
17:32
SPEAKER_02: They have a small shareholding of 2.4%.
17:34
SPEAKER_02: The processes of government investments are long.
17:37
SPEAKER_02: So we don't anticipate that the government will come in, but it's a small shareholding.
17:41
SPEAKER_02: But the rest of the major shareholders have all said in the past that they are
17:44
SPEAKER_02: willing and looking forward to participate in the rights issue.
17:46
SPEAKER_02: VTAM has already booked their rights as we speak.
17:48
SPEAKER_02: And many other of the large shareholders,
17:51
SPEAKER_02: I think I would say the top 10,
17:52
SPEAKER_02: if you ask me about eight,
17:54
SPEAKER_02: seven or eight,
17:55
SPEAKER_02: I've already confirmed participation.
17:57
SPEAKER_00: And unless I'm mistaken,
17:58
SPEAKER_00: I think I remember seeing there was a cabinet resolution to actually sell down stakes,
18:02
SPEAKER_00: these minority stakes in a bunch of firms.
18:04
SPEAKER_00: And I believe I could have mistaken,
18:06
SPEAKER_00: but because I'm going off memory here,
18:07
SPEAKER_00: but I believe HF,
18:08
SPEAKER_00: that 2.4% stake that you're referring to was also one of the ones I wanted to sell down.
18:12
SPEAKER_00: One of the other questions that came up in talking about HF and the rights issue
18:16
SPEAKER_00: was for the sake of argument,
18:17
SPEAKER_00: if someone has 500,000 shillings and they're trying to look at where they can
18:21
SPEAKER_00: essentially park this cash,
18:23
SPEAKER_00: they could just as easily go into the T-bill markets,
18:25
SPEAKER_00: even with rates coming down at the moment.
18:27
SPEAKER_00: park their money in there for about a year,
18:29
SPEAKER_00: buy the 364-day note,
18:31
SPEAKER_00: get a real return of around 10%,
18:33
SPEAKER_00: maybe 9%,
18:34
SPEAKER_00: and get their money back without putting in a lot of due diligence into it in
18:38
SPEAKER_00: December next year.
18:39
SPEAKER_00: What's the argument you would make to that sort of person to say,
18:42
SPEAKER_00: actually,
18:43
SPEAKER_00: it might be a better investment for you to put cash into HF?
18:47
SPEAKER_02: In fact,
18:47
SPEAKER_02: you should ask me,
18:48
SPEAKER_02: because I'm one of the smaller investors of the group as a person,
18:52
SPEAKER_02: why have I taken up my rights?
18:53
SPEAKER_02: And why have I invested in the company?
18:55
SPEAKER_02: In fact, I applied for more shares of my rights and why is that?
18:58
SPEAKER_02: I'll say a few things.
18:59
SPEAKER_02: Number one, HF group, the group itself and all the subsidiaries are approachable.
19:03
SPEAKER_02: And if you just think about the new capital,
19:06
SPEAKER_02: the new incremental money that is coming,
19:08
SPEAKER_02: it is coming to power the growth of the business.
19:10
SPEAKER_02: Now,
19:11
SPEAKER_02: today,
19:11
SPEAKER_02: the costs of the business,
19:13
SPEAKER_02: the establishment costs of the business,
19:14
SPEAKER_02: what we call overheads are all taken care of.
19:17
SPEAKER_02: So we are not going to double the technology of the company.
19:19
SPEAKER_02: We are not going to double the number of staff.
19:22
SPEAKER_02: So that entire cost is already taken care of.
19:24
SPEAKER_02: So the marginal or incremental capital that is coming in will power the growth of the business.
19:29
SPEAKER_02: And it's going to accelerate the growth of the business and the rewards to
19:32
SPEAKER_02: shareholders are going to be sooner.
19:34
SPEAKER_02: Also, if you look at our journey, we have been growing in profitability year on year.
19:37
SPEAKER_02: If you just look at when we started, even just three years ago up to now, we've actually been growing.
19:42
SPEAKER_02: So it's just a matter of when, not if, the rewards to shareholders would be a lot more pronounced.
19:47
SPEAKER_02: Then if you look at the valuation of the company,
19:49
SPEAKER_02: so if you look at the net book value of the company today,
19:51
SPEAKER_02: net book value per share,
19:52
SPEAKER_02: you find that net book value per share is about 21.
19:55
SPEAKER_02: And what that means is that the current share price is grossly under values HF,
19:59
SPEAKER_02: actually about 0.2 or 20%.
20:03
SPEAKER_02: Which is pretty low.
20:04
SPEAKER_02: And it's just a matter of time before the market actually realizes that there is
20:08
SPEAKER_02: actually a gem in this company called HR.
20:10
SPEAKER_02: The other thing is that it's going to happen with this rights issue is that in banking,
20:14
SPEAKER_02: there is something called capacity.
20:16
SPEAKER_02: Just like in manufacturing, there's something called capacity.
20:18
SPEAKER_02: That a bank can be able to do a lot bigger ticket sizes,
20:22
SPEAKER_02: a lot bigger business,
20:23
SPEAKER_02: and there will honestly be business that you'll be able to do that is a lot more
20:27
SPEAKER_02: than what we have done before.
20:28
SPEAKER_02: So capacity in banking is also quite a big matter.
20:30
SPEAKER_02: On that basis,
20:31
SPEAKER_02: therefore,
20:31
SPEAKER_02: and just given the growth that we have talked up,
20:33
SPEAKER_02: I believe that this company is going to grow significantly.
20:37
SPEAKER_02: I think we'll be one of the largest companies here, and you'll remember this conversation one day.
20:41
SPEAKER_02: And therefore,
20:42
SPEAKER_02: the possibility that the share price eventually will go up and follow the growth of
20:46
SPEAKER_02: the company.
20:46
SPEAKER_02: And also that this company is going to be able to reward its shareholders,
20:50
SPEAKER_02: obviously,
20:50
SPEAKER_02: with dividends sooner.
20:51
SPEAKER_02: In fact,
20:52
SPEAKER_02: we did a projection that shows that with this investment,
20:54
SPEAKER_02: how much forward can we bring dividends?
20:57
SPEAKER_02: And we actually saw that after 2025,
20:59
SPEAKER_02: We should be able to get into good dividend space,
21:02
SPEAKER_02: just given the trajectory and the projects that we have established.
21:05
SPEAKER_02: So in my view,
21:07
SPEAKER_02: the reason why I would encourage somebody to invest in this business is just the
21:10
SPEAKER_02: fact that we can be able to grow with the business as it grows.
21:14
SPEAKER_02: And in my view, it's a very good opportunism.
21:16
SPEAKER_00: I know we haven't gotten there yet,
21:17
SPEAKER_00: but what's the dividend policy for the firm going forward into fiscal 25,
21:20
SPEAKER_00: fiscal 26?
21:22
SPEAKER_02: So it's a good dividend policy today is to pay 40% of the profits to shareholders.
21:27
SPEAKER_02: That obviously the policy that is subject to change,
21:30
SPEAKER_02: but that's the current dividend policy that we have to pay 40% of profits to shareholders.
21:35
SPEAKER_02: We make a billion, we pay $400 million.
21:37
SPEAKER_02: We make $5 billion.
21:38
SPEAKER_02: Of course you do the math.
21:38
SPEAKER_00: All right.
21:39
SPEAKER_00: What about the demand side of things?
21:41
SPEAKER_00: Just looking at where the housing market is at the moment.
21:43
SPEAKER_00: Someone would essentially look at the market and the environment in which you're
21:46
SPEAKER_00: operating and say,
21:46
SPEAKER_00: here we are in a situation where the state is trying to push very aggressively into
21:50
SPEAKER_00: expanding the available supply of houses into the market through the affordable
21:55
SPEAKER_00: housing program that they're running.
21:56
SPEAKER_00: Now, whether or not they'll be able to execute that at speed, that's a separate discussion.
21:59
SPEAKER_00: But let's assume for the sake of argument that the state manages to put this vast
22:03
SPEAKER_00: volume of houses into the market as soon as it can.
22:05
SPEAKER_00: From your perspective at HF,
22:07
SPEAKER_00: I know you've said we're not getting into the business of developing large-scale
22:10
SPEAKER_00: projects on the bank's books anymore,
22:12
SPEAKER_00: but is that a competitive threat?
22:14
SPEAKER_00: Is it a risk to the business, at least to the mortgage side of the business?
22:18
SPEAKER_02: No, it's not.
22:19
SPEAKER_02: In fact, we complement.
22:20
SPEAKER_02: To us, it's been a very big opportunity what the government is doing.
22:23
SPEAKER_02: So we figured,
22:24
SPEAKER_02: first of all,
22:24
SPEAKER_02: that we don't want to build the houses ourselves,
22:26
SPEAKER_02: but we actually finance a lot of the players in that sector.
22:30
SPEAKER_02: For instance, there are people who are contractors.
22:33
SPEAKER_02: We do a lot of performance bonds, advance payment guarantees, and also working capital sort of financing.
22:38
SPEAKER_02: We have people,
22:39
SPEAKER_02: smaller businesses that supply to the affordable housing space,
22:42
SPEAKER_02: the people who make doors and windows and the hinges and things like that.
22:45
SPEAKER_02: We have also financing for the end user.
22:48
SPEAKER_02: So we have funding from KMRC,
22:49
SPEAKER_02: Kenya Mortgage Finance Company,
22:51
SPEAKER_02: today that we are using to finance the end buyers of all these houses.
22:55
SPEAKER_02: And in fact,
22:56
SPEAKER_02: the government itself is mooting an idea where they can work with banks to see how
23:00
SPEAKER_02: they can also support the buyer side,
23:02
SPEAKER_02: which is basically the demand side of housing.
23:04
SPEAKER_02: Then we also have in our property business,
23:06
SPEAKER_02: we have got advisory services for companies that are coming into Kenya to do
23:09
SPEAKER_02: affordable housing.
23:10
SPEAKER_02: So we are seeing a huge business flow and we are actually realizing a value earlier.
23:15
SPEAKER_02: So if you finance a contractor,
23:17
SPEAKER_02: we start earning interest from day one rather than building a house and waiting for
23:21
SPEAKER_02: the house to be sold so that you can make money.
23:23
SPEAKER_02: So we are actually quite happy about what the government is doing.
23:25
SPEAKER_02: We are making significant business opportunities for us.
23:28
SPEAKER_02: But also, as I say, this is just now one of 10 revenue streams in the bank.
23:33
SPEAKER_02: It's a good opportunity, but so are the other 10 nights.
23:37
SPEAKER_02: that are driving the growth of the bank.
23:38
SPEAKER_02: So the bank is now much more diversified.
23:40
SPEAKER_02: If one sector has a problem,
23:42
SPEAKER_02: it doesn't mean a problem for the bank because you can be able to offset that from
23:46
SPEAKER_02: the other business.
23:46
SPEAKER_00: Can you give us a sense of the group exposure to the affordable housing program or
23:50
SPEAKER_00: government contracts in general?
23:52
SPEAKER_00: Because if you look at,
23:53
SPEAKER_00: say,
23:53
SPEAKER_00: for example,
23:54
SPEAKER_00: whether the net loan position was at the end of September,
23:57
SPEAKER_00: that's roughly 39 or so billion Kenyan shillings.
23:59
SPEAKER_00: What percentage of that would you say is directly linked to the state?
24:04
SPEAKER_00: It's a very small number.
24:05
SPEAKER_00: Directly to the state is a very small number.
24:07
SPEAKER_00: It'd be less than 5%.
24:08
SPEAKER_00: All right.
24:09
SPEAKER_00: Fair enough.
24:09
SPEAKER_00: Less than 5%.
24:10
SPEAKER_00: On balance,
24:11
SPEAKER_00: there's a fair bit of diversification in there built into the way that the business
24:14
SPEAKER_00: is structured right now.
24:16
SPEAKER_00: The target is to raise 4.6 billion shillings.
24:18
SPEAKER_00: Let's assume for the sake of argument, right, because we already are well past the 85% mark.
24:22
SPEAKER_00: Let's say you hit the 100% mark.
24:24
SPEAKER_00: Maybe there's an oversubscription as well.
24:26
SPEAKER_00: where's the money going to go into the business?
24:28
SPEAKER_00: Because you say that the business as it is now, it's profitable, the operating costs are sorted.
24:33
SPEAKER_00: And in terms of scaling the business up, that's not going to significantly ramp up the operating costs.
24:37
SPEAKER_00: So there's this extra $5 billion that you may end up with by the end of December.
24:41
SPEAKER_00: Where's it going to go?
24:43
SPEAKER_00: This is how banking works.
24:44
SPEAKER_00: When you bring in these funds,
24:45
SPEAKER_02: this money will be invested in the bank itself because the other two subsidiaries
24:49
SPEAKER_02: have sufficient capital.
24:50
SPEAKER_02: This is the bank that we want to ramp up the capital levels.
24:52
SPEAKER_02: And how banking works is,
24:54
SPEAKER_02: if you have one shilling of core capital,
24:56
SPEAKER_02: which is what this money is coming to be,
24:58
SPEAKER_02: you can lend eight types depositors funds.
25:01
SPEAKER_02: And the same shilling of core capital, you can collect
25:04
SPEAKER_02: 12 and a half shillings of deposits.
25:05
SPEAKER_02: That's basically summarizing the ratios very simply.
25:08
SPEAKER_02: What that means then is this,
25:10
SPEAKER_02: is that if we bring in 5 billion shillings or say 4 billion times 8,
25:14
SPEAKER_02: we can be able to book loans of 30 billion and we can be able to collect deposits out.
25:19
SPEAKER_02: It does multiply by 12.5.
25:21
SPEAKER_02: That will be a large number.
25:22
SPEAKER_02: So to answer your question directly then, where will this money go?
25:25
SPEAKER_02: It is going straight to power the growth,
25:28
SPEAKER_02: to create the multiplier that will power the growth of all these new businesses
25:32
SPEAKER_02: that we have created.
25:32
SPEAKER_02: Personal banking lending to individuals,
25:34
SPEAKER_02: business banking lending to businesses,
25:36
SPEAKER_02: diaspora banking lending to diaspora customers,
25:38
SPEAKER_02: commercial banking lending to large businesses,
25:40
SPEAKER_02: ultimate banking lending to high net worth clients.
25:44
SPEAKER_02: And the amount that will go there is 85%.
25:48
SPEAKER_02: 85% will just go to power those new businesses.
25:51
SPEAKER_02: Then 15% of the money will come in also to enhance the digital propositions that we
25:55
SPEAKER_02: have to make it easier,
25:56
SPEAKER_02: faster,
25:57
SPEAKER_02: better,
25:57
SPEAKER_02: more efficient for customers to be able to consume services with us.
26:01
SPEAKER_02: So we want to revamp the channels people use to access services to us and do
26:06
SPEAKER_02: innovations that will basically digitize most of the operations we have to make it
26:09
SPEAKER_02: a lot more efficient.
26:11
SPEAKER_02: And that will show up in the costs.
26:13
SPEAKER_02: that obviously the company will be carrying.
26:15
SPEAKER_02: So long story short,
26:16
SPEAKER_02: we'll invest in the bank primarily to power the growth of the new businesses we
26:19
SPEAKER_02: have created.
26:21
SPEAKER_00: So if we have this conversation,
26:22
SPEAKER_00: say,
26:22
SPEAKER_00: in late Jan,
26:23
SPEAKER_00: early Feb,
26:24
SPEAKER_00: when four-year numbers start to come out,
26:26
SPEAKER_00: what changes should we expect to see in that core capital line?
26:29
SPEAKER_00: Because for the bank, by end September, we had, what, 1.7 or so billion in core capital.
26:34
SPEAKER_00: Is that double going to go up by a multiple?
26:36
SPEAKER_02: Yeah, if that number, say, for instance, comes to 1.7 billion plus, say, about, say, 4.2,
26:42
SPEAKER_02: then we'll be closer to about 7 billion of capital.
26:45
SPEAKER_02: I think we are going to go higher than the 4 billion.
26:49
SPEAKER_02: That's what I suspect.
26:50
SPEAKER_02: Obviously, we have to see how that goes.
26:52
SPEAKER_02: And that gets us closer to 7 billion.
26:55
SPEAKER_02: And therefore, we can be able to book a significant number of new business.
26:58
SPEAKER_02: Plus, the business is profitable.
26:59
SPEAKER_02: So it's also creating its new capital every day, every month.
27:03
SPEAKER_00: And that also gets you a step ahead in terms of complying with these new capital
27:07
SPEAKER_00: requirements that are coming into effect from Treasury and the central bank as well,
27:10
SPEAKER_00: doesn't it?
27:11
SPEAKER_02: Yeah, it does.
27:12
SPEAKER_00: Actually,
27:12
SPEAKER_02: by the way,
27:13
SPEAKER_02: once we get to that,
27:14
SPEAKER_02: say,
27:14
SPEAKER_02: 7 billion we are talking about,
27:16
SPEAKER_02: we also have,
27:17
SPEAKER_02: I mentioned to you that we have taken 75% provisions on the legacy book.
27:23
SPEAKER_02: We just got a ruling,
27:25
SPEAKER_02: a couple of rulings,
27:25
SPEAKER_02: positive rulings,
27:27
SPEAKER_02: one of them at the Supreme Court,
27:28
SPEAKER_02: allowing us to recover some of the very large names that we had taken full
27:31
SPEAKER_02: provisions for.
27:32
SPEAKER_02: And we anticipate we are going to get
27:34
SPEAKER_02: about a right back of another $3 billion once we complete the recovery of those assets.
27:39
SPEAKER_02: Given that we have completed the legal process of that recovery,
27:42
SPEAKER_02: one of them was actually,
27:43
SPEAKER_02: as I said,
27:43
SPEAKER_02: that the Supreme Court got a ruling and this facility is holding capital of about
27:48
SPEAKER_02: $2 billion.
27:48
SPEAKER_02: So we don't see a problem in getting to the $10 billion that is being anticipated.
27:53
SPEAKER_00: Speaking of the legal issues in terms of asset recovery,
27:56
SPEAKER_00: because the court system is fairly gummed up,
27:58
SPEAKER_00: right?
27:58
SPEAKER_00: The backlog of cases has been going up significantly year after year.
28:02
SPEAKER_00: Better part of 100,000 cases is a backlog that comes to mind.
28:05
SPEAKER_00: And what we've seen in the banking sector is that there are institutions that are saying,
28:08
SPEAKER_00: look,
28:09
SPEAKER_00: we can't always go to courts and try and kickstart the process of recovering the
28:13
SPEAKER_00: asset because that essentially puts things back five,
28:15
SPEAKER_00: six,
28:15
SPEAKER_00: seven years.
28:16
SPEAKER_00: Based on your experience, how are you guys navigating that problem?
28:19
SPEAKER_00: Are you sitting down with clients saying,
28:21
SPEAKER_00: look,
28:21
SPEAKER_00: we're going to reprice this,
28:22
SPEAKER_00: or we're going to try and figure out how to restructure the facilities that we have
28:26
SPEAKER_00: with you?
28:26
SPEAKER_00: Because putting the asset into the market might not also necessarily yield the full
28:30
SPEAKER_00: value of that house or land.
28:32
SPEAKER_02: I think that's a really good question.
28:34
SPEAKER_02: In fact,
28:34
SPEAKER_02: part of the reason why we have achieved this growth and recovered most of that
28:38
SPEAKER_02: legacy book is because we took that approach.
28:40
SPEAKER_02: I can say 80 to 90% of the recoveries that we make in cash terms is normally
28:45
SPEAKER_02: achieved through just conversations with customers and saying,
28:48
SPEAKER_02: look,
28:49
SPEAKER_02: we are happy to help you sell.
28:50
SPEAKER_02: We can sell together.
28:51
SPEAKER_02: You can get back part of this,
28:53
SPEAKER_02: your investment from this,
28:54
SPEAKER_02: and then you can obviously be out of debt,
28:56
SPEAKER_02: especially where business has not gone the way a client anticipated.
28:59
SPEAKER_02: And we just have sober conversations around
29:03
SPEAKER_02: How do we resolve this matter jointly and in a win sort of way?
29:07
SPEAKER_02: And that has been quite good.
29:08
SPEAKER_02: I must say that we have had very good outcomes.
29:12
SPEAKER_02: In fact,
29:12
SPEAKER_02: some of the properties that we've seen in the past that we have advertised have
29:16
SPEAKER_02: been mainly jointly with our customers.
29:19
SPEAKER_02: And in fact, we have even created sales teams in the past that help customers
29:23
SPEAKER_02: to sell the properties, especially where a customer has built houses to sell.
29:27
SPEAKER_02: They are not able to sell the houses or office space.
29:30
SPEAKER_02: They are stuck with office space.
29:31
SPEAKER_02: They are not able to sell.
29:32
SPEAKER_02: We have a good sales team.
29:34
SPEAKER_02: We sell on behalf and we support the customer to recover their money.
29:37
SPEAKER_02: And they recover the money.
29:38
SPEAKER_02: Of course, the money comes back to us.
29:40
SPEAKER_02: So we have seen most of what we have achieved basically through that.
29:43
SPEAKER_02: And we will continue to do the same.
29:45
SPEAKER_02: We don't get happy when we are auctioning people.
29:47
SPEAKER_00: No, I don't think anyone does.
29:49
SPEAKER_00: But given the macroeconomic environment in which we're in,
29:52
SPEAKER_00: there's a significant amount of assets and we see it every day.
29:54
SPEAKER_00: You open a newspaper, there's five, six, seven pages of assets going up under the hammer.
29:59
SPEAKER_00: On the digital side,
30:00
SPEAKER_00: because 15% of the proceeds from the right issue,
30:03
SPEAKER_00: like you said,
30:03
SPEAKER_00: 15% of that is essentially going to go into enhancing the tech tools that the bank
30:07
SPEAKER_00: has in hand at the moment.
30:09
SPEAKER_00: How's that going to translate into a more interesting cost to income ratio?
30:13
SPEAKER_00: Do you have a specific target that you're looking for with respect to these tech investments?
30:17
SPEAKER_02: Yes, we are investing part of the money, as you say, through to the digitization of the business.
30:22
SPEAKER_02: And so far, have you seen, I'll just give you an example.
30:25
SPEAKER_02: So in 2018, we incurred about $3.1 billion in costs.
30:29
SPEAKER_02: In 2023, five years later, we incurred the same cost.
30:33
SPEAKER_02: And part of that difference, there's the fact that obviously there has been inflation over the years.
30:37
SPEAKER_02: We have increased the number of staff.
30:39
SPEAKER_02: We have refurbished branches.
30:40
SPEAKER_02: We have invested heavily on technology and digitization.
30:43
SPEAKER_02: So part of that growth
30:46
SPEAKER_02: Part of that sort of reduction of cost has been because obviously we have taken
30:50
SPEAKER_02: costs from non-productive areas to productive areas,
30:52
SPEAKER_02: but also we have heavily digitized our business.
30:55
SPEAKER_02: So we have customer journeys, what we call customer journeys.
30:58
SPEAKER_02: For instance, if you order a card, that's a journey.
31:01
SPEAKER_02: If you set up a standing order, that's a journey.
31:03
SPEAKER_02: So we have 54 journeys and we are back on enabling customers to be able to consume services of the bank.
31:10
SPEAKER_02: through the digital channels, pretty much as if they would come to the bank.
31:14
SPEAKER_02: And now I can see 80% of our transactions, as I said earlier, through digital channels.
31:19
SPEAKER_02: And our banking app has been voted the best banking app in Kenya.
31:23
SPEAKER_02: Now I can tell you this digitization work has really pulled down our costs.
31:28
SPEAKER_02: It has really pulled down our costs by removing manual processes,
31:32
SPEAKER_02: both in the back office and in the customer impacting channels.
31:37
SPEAKER_02: So this will remain key, a key pillar to our transformation.
31:40
SPEAKER_02: We intend to continue to create efficiency through this and bring down the cost.
31:45
SPEAKER_02: We think that we can be able to,
31:46
SPEAKER_02: in the coming years,
31:47
SPEAKER_02: bring down our cost income ratio to about 50% in line with everyone in the market,
31:52
SPEAKER_02: largely driven by digitization.
31:54
SPEAKER_02: and the work we are doing to transform both the core services of the bank,
31:58
SPEAKER_02: like the core banking system,
32:00
SPEAKER_02: and also the frontline systems,
32:02
SPEAKER_02: such as the channels like online banking,
32:04
SPEAKER_02: mobile banking,
32:05
SPEAKER_02: international money transfers,
32:06
SPEAKER_02: and just that whole data work,
32:08
SPEAKER_02: which helps us to be able to do a lot more in the clients.
32:12
SPEAKER_00: Slightly unrelated question because I occasionally see this debate showing up in
32:15
SPEAKER_00: investment groups and financial analyst groups before I just get into questions
32:19
SPEAKER_00: from our audience.
32:20
SPEAKER_00: With respect to the fact that if I look at your transaction volumes and if I look
32:23
SPEAKER_00: even among tier ones,
32:25
SPEAKER_00: we often see this in presentations.
32:27
SPEAKER_00: 80, 90% of our transactions are taking place either online or on mobile, ECDC.
32:32
SPEAKER_00: And then the question always comes, we see these same institutions opening up.
32:36
SPEAKER_00: bank branches in specific areas.
32:38
SPEAKER_00: What's the value argument you'd make to shareholders who say,
32:41
SPEAKER_00: look,
32:41
SPEAKER_00: hang on,
32:41
SPEAKER_00: if I can apply for a loan,
32:43
SPEAKER_00: apply for a mortgage or handle a transaction online,
32:45
SPEAKER_00: why do you need to expand and add an extra branch in location X,
32:49
SPEAKER_00: Y,
32:49
SPEAKER_00: Z?
32:50
SPEAKER_00: Walk us through the calculus there.
32:52
SPEAKER_00: It's very interesting.
32:53
SPEAKER_02: And I think it's Michael Joseph who once said that Kenyans have a peculiar habit.
32:58
SPEAKER_02: So I can tell you something about branches.
33:00
SPEAKER_02: If you want to bank people in Kitalis,
33:02
SPEAKER_02: for instance,
33:03
SPEAKER_02: or take in the other town in Kenya,
33:04
SPEAKER_02: it could be Bungoma,
33:05
SPEAKER_02: it could be Kilipi.
33:07
SPEAKER_02: If you want to bank customers there,
33:09
SPEAKER_02: if you don't have a branch,
33:10
SPEAKER_02: even if you want to use digital channels,
33:12
SPEAKER_02: they are not going to open accounts with you.
33:14
SPEAKER_02: But if you have a branch,
33:15
SPEAKER_02: they will open accounts with you and start doing banking with you,
33:18
SPEAKER_02: but they will not come to the bank.
33:20
SPEAKER_02: So branches have an optical value.
33:22
SPEAKER_02: And I think people feel the confidence of knowing that if I have an issue, my branch is not far away.
33:27
SPEAKER_02: So that's the first reason.
33:28
SPEAKER_02: The second reason is branches have become conversation centers.
33:30
SPEAKER_02: So people use branches less for transactions and more for conversations,
33:35
SPEAKER_02: especially business customers like to come and have a conversation with the
33:38
SPEAKER_02: relationship managers or relationship managers go to them.
33:42
SPEAKER_02: And thirdly, branches are also advisory centers where then you can be able to advise clients.
33:47
SPEAKER_02: And then also finally scale.
33:48
SPEAKER_02: Sometimes people want to see that the company they are banking with also has many branches.
33:53
SPEAKER_02: I'll give you an example.
33:54
SPEAKER_02: Recently, we had a branch in a place called Gill House and we relocated it to Harambe Avenue.
33:59
SPEAKER_02: The branch at Gill House didn't look good at all.
34:01
SPEAKER_02: We have built a really beautiful branch on Harambe Avenue.
34:04
SPEAKER_02: And customers used to send messengers before to the old branch.
34:07
SPEAKER_02: Now they are coming themselves because they want to come and have conversations in this nice space.
34:12
SPEAKER_02: And obviously we are able to do much more banking there.
34:14
SPEAKER_02: So there's a business case actually for branches.
34:16
SPEAKER_02: That's the reason why you're seeing branches opening up.
34:19
SPEAKER_02: But even the way the branch looks is different.
34:21
SPEAKER_02: You'd have a long line of tellers.
34:23
SPEAKER_02: Now tellers are less.
34:24
SPEAKER_02: It's much more conversation centers.
34:27
SPEAKER_00: So in short,
34:27
SPEAKER_00: this is one of those interesting situations where it's not just a straightforward
34:30
SPEAKER_00: matter of just keeping costs under control,
34:32
SPEAKER_00: but it's also a question of what the customer experience is like as well.
34:35
SPEAKER_00: I want to get to questions that have been coming in.
34:37
SPEAKER_00: And I want to start with one here from Justin Wangi.
34:42
SPEAKER_00: He's talking about this really loops back to the conversation we had around capital requirements.
34:45
SPEAKER_00: And his question is this,
34:47
SPEAKER_00: will the new capital requirements force HF to retain more capital and therefore
34:51
SPEAKER_00: have a knock-on effect on that 40% dividend payout ratio that we spoke about earlier?
34:55
SPEAKER_00: Not really, actually not really.
34:57
SPEAKER_02: Let me explain.
34:58
SPEAKER_02: So HF actually is not raising capital because of mainly the cash.
35:01
SPEAKER_02: Today we are holding 16 billion in casual cash equivalent, a huge pile of cash.
35:07
SPEAKER_02: How capital works is once you bring in the capital, it sits with you as capital.
35:11
SPEAKER_02: So if you bring in 7 billion, it will remain 7 billion.
35:14
SPEAKER_02: And then what happens is that then you start now generating the loans,
35:18
SPEAKER_02: but that does not reduce the capital.
35:20
SPEAKER_02: The capital remains, the capital is just a multiplier.
35:22
SPEAKER_02: Obviously,
35:23
SPEAKER_02: from a regulatory point of view,
35:24
SPEAKER_02: you just multiply the loans by eight,
35:26
SPEAKER_02: deposits 12 and a half,
35:28
SPEAKER_02: as I said.
35:29
SPEAKER_02: And as we do make profits,
35:30
SPEAKER_02: these profits,
35:31
SPEAKER_02: because we are already making profits over the last three years,
35:34
SPEAKER_02: these profits then can be deployed to paying dividends.
35:38
SPEAKER_02: Because the company is already capitalized.
35:39
SPEAKER_02: We don't have to hold the profits we make because the capital ratios are okay.
35:44
SPEAKER_02: Therefore, we can be able to pay dividends.
35:45
SPEAKER_02: In fact,
35:46
SPEAKER_02: that is the discussion we had some time with Britain and said,
35:49
SPEAKER_02: how can we accelerate the journey to payment of dividends and held the dividends?
35:54
SPEAKER_02: without having to bother about the issue of capital.
35:56
SPEAKER_02: Why don't we,
35:56
SPEAKER_02: capital is a business,
35:58
SPEAKER_02: accelerate its growth,
35:59
SPEAKER_02: accelerate its profitability,
36:00
SPEAKER_02: and then we can be able to accelerate the payout of the dividends earlier rather
36:04
SPEAKER_02: than later.
36:04
SPEAKER_00: There's a second question that also has come in, looking at the buffers that you have, right?
36:08
SPEAKER_00: On your liquidity ratios,
36:09
SPEAKER_00: for example,
36:10
SPEAKER_00: core capital to total deposit probabilities,
36:12
SPEAKER_00: there's about 400 or so basis points above that.
36:15
SPEAKER_00: as of September this year.
36:17
SPEAKER_00: And if you look at similar comparative ratios,
36:19
SPEAKER_00: capital rates to,
36:20
SPEAKER_00: let's see,
36:21
SPEAKER_00: total risk-weighted assets,
36:23
SPEAKER_00: that's around 600 basis points above.
36:26
SPEAKER_00: And the question essentially here is,
36:27
SPEAKER_00: what are your thoughts on the draft guidelines from CBK on liquidity coverage ratios?
36:32
SPEAKER_00: Would you like to answer that, Chikabe?
36:34
SPEAKER_00: Just go ahead.
36:35
SPEAKER_01: Please introduce yourself.
36:36
SPEAKER_01: My name is Joseph Shikove.
36:38
SPEAKER_01: I'm the Director of Treasury and Custody at HFC.
36:41
SPEAKER_01: So in terms of liquidity,
36:42
SPEAKER_01: so if you look at our liquidity ratios today,
36:44
SPEAKER_01: they are well above the regulatory requirement of 20%.
36:49
SPEAKER_01: Now with the new guidelines, so these ones are not yet in the prudential or statutory ratios.
36:55
SPEAKER_01: We are still discussing them and for sure we know they are going to come.
36:58
SPEAKER_01: But today, as we see it, the bank is compliant with them.
37:01
SPEAKER_01: So one of them is,
37:02
SPEAKER_01: of course,
37:02
SPEAKER_01: the net stable funding ratio,
37:04
SPEAKER_01: which today,
37:06
SPEAKER_01: as we've computed,
37:07
SPEAKER_01: we are already compliant with the same.
37:09
SPEAKER_01: And the liquidity coverage ratio, which requires you to have 100%.
37:13
SPEAKER_01: We are also complying with them.
37:16
SPEAKER_01: And Robert had mentioned earlier,
37:17
SPEAKER_01: if you look at our liquid assets,
37:20
SPEAKER_01: basically sufficient enough to cover for any outstanding obligations or as they
37:25
SPEAKER_01: call due.
37:25
SPEAKER_01: Thank you.
37:26
SPEAKER_01: Thank you, Jeff.
37:27
SPEAKER_00: Thanks for that.
37:27
SPEAKER_00: And of course,
37:28
SPEAKER_00: just to remind our listeners in the event that you do have questions that you'd
37:31
SPEAKER_00: like us to cover with Robert and his team,
37:33
SPEAKER_00: you can send them off to the Mungo Capital account,
37:35
SPEAKER_00: either respond to the pinned tweet on the account,
37:38
SPEAKER_00: send it on DM either to them or to myself,
37:40
SPEAKER_00: and we'll certainly get around to sharing them in the course of the conversation.
37:43
SPEAKER_00: Robert,
37:44
SPEAKER_00: looking at the sort of gross numbers that we looked at for pretty much many lines
37:49
SPEAKER_00: in the business,
37:49
SPEAKER_00: we're seeing a lot of double-digit numbers on a year-on-year basis,
37:52
SPEAKER_00: especially with respect to 2023.
37:54
SPEAKER_00: Total interest income, for example, is up by around 23%.
37:57
SPEAKER_00: Non-fund income up by a similar amount.
37:59
SPEAKER_00: Operating income was up 20%.
38:01
SPEAKER_00: 2023 was an interesting year.
38:04
SPEAKER_00: 2024 has been relatively challenging on a macroeconomic front.
38:06
SPEAKER_00: Will you be able to maintain double-digit growth rates across those business lines into fiscal 2025?
38:12
SPEAKER_02: We believe we can.
38:13
SPEAKER_02: We believe we can.
38:14
SPEAKER_02: There's obviously always risks.
38:15
SPEAKER_02: It's uncertain, obviously, around the macros.
38:18
SPEAKER_02: Something happening across the other side of the world can affect what we do.
38:21
SPEAKER_02: But we believe there is a lot going for us.
38:23
SPEAKER_02: For instance, we have seen that the economy has remained quite resilient.
38:28
SPEAKER_02: largely down, currency is stable.
38:30
SPEAKER_02: We've seen now actually interest rates are coming down.
38:32
SPEAKER_02: So we believe that we can be able to sustain that.
38:35
SPEAKER_02: I think the other thing is that we also focus on sectors of the market that are not
38:40
SPEAKER_02: very susceptible to these things.
38:42
SPEAKER_02: For instance, I'll just give you an example, education.
38:45
SPEAKER_02: If your child is sent out of school for lack of fixed school fees, you're going to pay it.
38:49
SPEAKER_02: That's one of the sectors we focus on.
38:51
SPEAKER_02: Health, if somebody is unwell, they have to go to hospital.
38:53
SPEAKER_02: Real estate value chain, if somebody is staying in a rented house, they have to be rent.
38:58
SPEAKER_02: And we catch a value addition, people have to eat.
39:01
SPEAKER_02: So we have also carefully chosen sectors that we focus on that are a lot less
39:05
SPEAKER_02: sensitive to changes in the macroeconomic environment.
39:09
SPEAKER_02: And that has helped.
39:10
SPEAKER_02: The other thing I'd like to say is that we have continued this transformation.
39:15
SPEAKER_02: Through COVID, we started this journey actually pre-COVID.
39:19
SPEAKER_02: We have been able to grow and transform the business through COVID.
39:22
SPEAKER_02: In fact, we achieved significant growth during that time.
39:25
SPEAKER_02: We believe that we can be able to do this.
39:27
SPEAKER_02: As we say, it's a difficult environment.
39:30
SPEAKER_02: But also I think the other thing is just the propositions that we have built.
39:32
SPEAKER_02: We have seen our customer numbers have been growing.
39:35
SPEAKER_02: Over time, we have brought in about 179,000 customers as I said recently.
39:38
SPEAKER_02: Transaction numbers have been growing.
39:40
SPEAKER_02: So we believe that we can be able to sustain.
39:43
SPEAKER_02: And the other thing I think that comes to mind is just that,
39:46
SPEAKER_02: as I said earlier,
39:47
SPEAKER_02: our reels for growth are already in place.
39:49
SPEAKER_02: We have already cracked this holding of NPLs.
39:52
SPEAKER_02: We are bringing in business for NPLs than the market by far.
39:56
SPEAKER_02: And that will serve us very well.
39:58
SPEAKER_02: We also are digitizing propositions.
40:00
SPEAKER_02: Usually this comes at a much lower cost.
40:02
SPEAKER_02: So keeping an eye on the cost,
40:04
SPEAKER_02: focusing on the target sectors that are fast growing,
40:07
SPEAKER_02: less risky and less stable to macroeconomic forces,
40:10
SPEAKER_02: we believe that we can be able to sustain this growth.
40:13
SPEAKER_00: The insurance business, and we haven't covered that in a lot of detail.
40:16
SPEAKER_00: And granted, the Kenyan market, if you look at insurance penetration here, it's not exactly top of mind.
40:21
SPEAKER_00: Arguably,
40:22
SPEAKER_00: Kenyans,
40:22
SPEAKER_00: if we are not compelled in some ways,
40:24
SPEAKER_00: for example,
40:24
SPEAKER_00: like without vehicles,
40:25
SPEAKER_00: to actually buy insurance for that,
40:26
SPEAKER_00: some Kenyans probably would not actually opt to do it.
40:29
SPEAKER_00: So what's the gross potential there,
40:31
SPEAKER_00: given the constrained income levels that we've discussed at all times over the last hour,
40:35
SPEAKER_00: but also be that general consumer distrust of insurance?
40:40
SPEAKER_00: Granted, you're not, as HF, you're not underwriting the risk yourselves.
40:43
SPEAKER_00: But if you have a bank assurance unit that you're trying to grow and expand rapidly,
40:47
SPEAKER_00: those attitudes towards insurance are going to be an inhibitor to growth,
40:50
SPEAKER_00: aren't they?
40:51
SPEAKER_02: Yeah.
40:52
SPEAKER_02: As I said earlier,
40:52
SPEAKER_02: when insurance business has transformed significantly,
40:55
SPEAKER_02: we used to do just a single line of business in insurance.
40:57
SPEAKER_02: Now we do a lot more.
40:59
SPEAKER_02: One of the areas that had not benefited a lot from innovation is the whole insurance industry.
41:04
SPEAKER_02: Sometimes ago I visited a company in China where I saw a business that is just
41:08
SPEAKER_02: doing insurance very different.
41:09
SPEAKER_02: Like for instance, I saw that they have infused the insurance into normal life.
41:14
SPEAKER_02: Go to Java, get a cup of coffee.
41:15
SPEAKER_02: And within that coffee, you have some insurance, small amount that goes to your insurance.
41:19
SPEAKER_02: So what we are doing currently is that we are working with the insurtechs companies
41:24
SPEAKER_02: that are doing innovation in insurance.
41:26
SPEAKER_02: The same way we are innovating within the bank,
41:28
SPEAKER_02: we are actually working on the insurance side to be able to drive business,
41:32
SPEAKER_02: to generate business through our customers and others.
41:35
SPEAKER_02: and drive that business to the insurance companies.
41:37
SPEAKER_02: And we have seen even just from what we've done, our premiums have been growing.
41:40
SPEAKER_02: We started off at just over 300 million.
41:42
SPEAKER_02: Now we are going to touch 700, 800 million of gross written premiums this year.
41:48
SPEAKER_02: So we believe that there is a big opportunity in insurance.
41:51
SPEAKER_02: We want to be at the forefront of that innovation around insurance.
41:54
SPEAKER_02: We have trained,
41:55
SPEAKER_02: by the way,
41:55
SPEAKER_02: our branch teams,
41:57
SPEAKER_02: frontline staff to be able to speak about insurance as well as they speak about the bank.
42:01
SPEAKER_02: And we have got teams across all of our branches who are speaking about insurance.
42:04
SPEAKER_02: We
42:04
SPEAKER_02: Because the customers who bank with us have cars,
42:06
SPEAKER_02: have children,
42:07
SPEAKER_02: have health needs,
42:08
SPEAKER_02: have houses and property to protect.
42:10
SPEAKER_02: So we can be able to deliver a lot of business on the insurance side.
42:14
SPEAKER_02: And we don't take the risk.
42:15
SPEAKER_02: We just forward that business to an insurance company and we get our margin.
42:19
SPEAKER_00: To use that China example that you've given us,
42:21
SPEAKER_00: what are you experimenting with in terms of layering insurance payments into
42:26
SPEAKER_00: day-to-day activities?
42:27
SPEAKER_00: Because I know if I get hit,
42:28
SPEAKER_00: for the sake of argument,
42:29
SPEAKER_00: my annual insurance premiums on the car comes in and they tell me,
42:32
SPEAKER_00: you've got to hand us a check of
42:34
SPEAKER_00: the better part of 85,000 shillings.
42:35
SPEAKER_00: There's a bit of sticker shock, right?
42:37
SPEAKER_00: When it comes to that specific amount of money that covers you for a whole year.
42:41
SPEAKER_00: But in terms of layering it into daily transactions, how do we do it?
42:44
SPEAKER_00: Do we schedule it as a specific payment over 12 months embedded into banking fees?
42:51
SPEAKER_00: Or do we schedule it as mobile money payments?
42:53
SPEAKER_00: What are you tinkering with?
42:55
SPEAKER_02: I think this would be subject to regulatory approval, but let me give you an example.
42:59
SPEAKER_02: For instance,
42:59
SPEAKER_02: when you're consuming banking services,
43:01
SPEAKER_02: as you go,
43:02
SPEAKER_02: for instance,
43:02
SPEAKER_02: you have applied for a loan facility,
43:04
SPEAKER_02: there is already insurance that is baked into it.
43:06
SPEAKER_02: I'll give an example.
43:07
SPEAKER_02: For instance, if you are withdrawing cash from an ATM or moving money, what do we say that's
43:11
SPEAKER_02: X shillings from that would go to financing insurance.
43:14
SPEAKER_02: What if we say, for instance, that a savings account will come with a life insurance policy up to X?
43:20
SPEAKER_02: What if we say that if you save for a child money every month,
43:24
SPEAKER_02: then we can have some insurance component that will also ensure that the child go
43:28
SPEAKER_02: to school when they achieve XH?
43:30
SPEAKER_02: So the possibilities are limitless.
43:32
SPEAKER_02: Think about...
43:33
SPEAKER_02: For instance, an app like Little Cub app, you find they have got a lot of solutions there.
43:37
SPEAKER_02: You can order coffee, you can order food, you can order carbs, whatever it is.
43:41
SPEAKER_02: What if under a similar arrangement,
43:43
SPEAKER_02: the bank had similar,
43:44
SPEAKER_02: for instance,
43:44
SPEAKER_02: you get into a banking app and you can be able to order coffee as well as banking,
43:48
SPEAKER_02: can be able to order for your carb right there.
43:50
SPEAKER_02: And what if you can be able to,
43:51
SPEAKER_02: as you consume that coffee or carb services,
43:54
SPEAKER_02: you can be able to have a small component of that money,
43:58
SPEAKER_02: go to an insurance policy for your child or something like that.
44:02
SPEAKER_02: So the opportunities are limitless.
44:04
SPEAKER_02: What if,
44:05
SPEAKER_02: for instance,
44:05
SPEAKER_02: when you're driving,
44:06
SPEAKER_02: if you drive less,
44:07
SPEAKER_02: you get less cost of insurance if you drive more,
44:10
SPEAKER_02: and you can use technology to determine how much you drive,
44:13
SPEAKER_02: whether you drive more or less.
44:14
SPEAKER_02: Today, we pay the same amount, all of us.
44:17
SPEAKER_02: So I believe there is a big opportunity for innovation in the insurance sector.
44:20
SPEAKER_02: Our insurance business is working with InsurTechs to be able to derive those.
44:24
SPEAKER_02: There's obviously some I can't be able to talk about here in terms of the progress
44:27
SPEAKER_02: we are making,
44:28
SPEAKER_02: but this is an opportunity that we have seen as an opportunity for our group.
44:32
SPEAKER_00: I've got one last question for you, Robert, just before we close.
44:36
SPEAKER_00: With respect to the cost of funds,
44:38
SPEAKER_00: because one of the interesting things looking at your numbers is that you've
44:40
SPEAKER_00: managed to drop it by a better part of around 200,
44:43
SPEAKER_00: 210 basis points between 2018 and 2022 from around 7.3% to 4.8%.
44:50
SPEAKER_00: Will you be able to maintain that cost of funds at a relatively low level, sub 6% perhaps?
44:56
SPEAKER_00: And what should we expect with respect to net interest margin for the business going into 2025?
45:02
SPEAKER_02: We have worked on this journey at that time.
45:04
SPEAKER_02: First of all, our borrowing was at a very high rate, 7.1% cost of funding was quite high.
45:09
SPEAKER_02: And what we did is that we have over time substituted some of the expensive first
45:14
SPEAKER_02: borrowings or deposits with savings and current accounts type business.
45:18
SPEAKER_02: And also just finance our business from much less expensive sources.
45:21
SPEAKER_02: Obviously,
45:22
SPEAKER_02: the last one year,
45:23
SPEAKER_02: two years,
45:23
SPEAKER_02: actually 2020,
45:24
SPEAKER_02: 2024,
45:25
SPEAKER_02: we have seen a bit of an increase in funding costs due to higher interest rates.
45:28
SPEAKER_02: But we believe we can be able to keep this down.
45:30
SPEAKER_02: We just need to make sure that we have float money, what is called float money.
45:35
SPEAKER_02: When you bring in,
45:35
SPEAKER_02: for instance,
45:37
SPEAKER_02: customers who are operating their businesses on a day-to-day basis and keep their
45:40
SPEAKER_02: monies in current accounts,
45:42
SPEAKER_02: then you always have a float amount of money that then brings down your total cost
45:47
SPEAKER_02: of funding significantly.
45:48
SPEAKER_02: So that's possible.
45:49
SPEAKER_02: We think that we can be able to keep it quickly.
45:52
SPEAKER_02: We are getting a lot of funding from our property business supporting the bank.
45:56
SPEAKER_02: So most of the people,
45:57
SPEAKER_02: for instance,
45:57
SPEAKER_02: the landowners we work with on what we call landowner wealth management solutions,
46:01
SPEAKER_02: they bank with us,
46:01
SPEAKER_02: they keep their money with us.
46:03
SPEAKER_02: We also have been involved a lot in banking government that has helped as well.
46:08
SPEAKER_02: Government institutions are providing,
46:10
SPEAKER_02: for instance,
46:10
SPEAKER_02: mortgages for government employees on a funded basis.
46:13
SPEAKER_02: So there are multiple ways that we are able to finance and lower our cost of
46:17
SPEAKER_02: funding and be able to give that benefit to our customers.
46:21
SPEAKER_02: So we have preferred our net interest margin largely at the levels of 5.4, 5.5 levels by September.
46:29
SPEAKER_02: And we think that we can be able to grow that to about 6% or so,
46:33
SPEAKER_02: the difference between the deposit side and the loan side.
46:37
SPEAKER_00: All right,
46:38
SPEAKER_00: then,
46:38
SPEAKER_00: Robert,
46:38
SPEAKER_00: your closing thoughts as we wrap up the conversation,
46:40
SPEAKER_00: because the right issue closes on the 9th of December.
46:43
SPEAKER_00: You're already 85% of the way there to that 4.6 billion shilling target.
46:49
SPEAKER_00: Hopefully, there might be a green shoe option that gets exercised as well along the way.
46:53
SPEAKER_00: When we're having this conversation,
46:54
SPEAKER_00: say,
46:55
SPEAKER_00: second week of December or on the 24th,
46:57
SPEAKER_00: actually,
46:57
SPEAKER_00: when these new shares start trading.
46:58
SPEAKER_02: What do you hope to see?
46:59
SPEAKER_02: We are encouraging our shareholders to invest in the company.
47:02
SPEAKER_02: This is a good franchise.
47:04
SPEAKER_02: The business the shareholders invested in some years back is very different from what it is now.
47:08
SPEAKER_02: This is a very diversified business.
47:10
SPEAKER_02: It's very sustainable into the future as we see it today.
47:13
SPEAKER_02: And we believe it's a good opportunity for them.
47:16
SPEAKER_02: The flip side is the shareholders who stay out do get diluted, which is not a good thing.
47:20
SPEAKER_02: Especially the fact that a lot of people have held this share for a long time.
47:23
SPEAKER_02: And when now the company is picking up, it will be sad to see all our shareholders participate in this.
47:28
SPEAKER_02: Personally, I think that this is a huge opportunity for us.
47:31
SPEAKER_02: This company is going to become a big company.
47:33
SPEAKER_02: And we have gotten the steps right so far.
47:36
SPEAKER_02: Even through difficult times when rate cuts or rates were capped,
47:39
SPEAKER_02: when there was COVID,
47:40
SPEAKER_02: we have survived through that and right.
47:43
SPEAKER_02: And we see a lot of opportunity into the future.
47:45
SPEAKER_02: Just encouraging our shareholders to participate.
47:47
SPEAKER_02: That's the best we can do, obviously, to encourage.
47:49
SPEAKER_02: Our mission is to be a top 10 banking group by being the most dependable and loved
47:54
SPEAKER_02: financial institutions.
47:55
SPEAKER_02: So in some years to come, this company will be among the top 10 banking companies in Kenya.
48:01
SPEAKER_00: If you're going to get into the top 10s, are you looking at acquisitions somewhere along the way?
48:05
SPEAKER_00: You can't talk about that now, but I can tell you, you'll remember this conversation.
48:08
SPEAKER_00: All right.
48:09
SPEAKER_00: We'll leave it there for the time being.
48:10
SPEAKER_00: Robert Kibara, Group Chief Executive Officer at Housing Finance, HF.
48:15
SPEAKER_00: Thank you very much for your time.
48:16
SPEAKER_00: And of course,
48:17
SPEAKER_00: I'd like to just remind our audience,
48:18
SPEAKER_00: everything we've been discussing about that the numbers that underpin this rights issue,
48:23
SPEAKER_00: you can find that on HF's website.
48:25
SPEAKER_00: The Information Memorandum is there.
48:27
SPEAKER_00: It does make for very interesting reading,
48:28
SPEAKER_00: certainly worth a read later on as you think about investing in this particular
48:33
SPEAKER_00: rights issue.
48:34
SPEAKER_00: That's it for me.
48:35
SPEAKER_00: Thank you very much, everyone, for your time and attention.
48:37
SPEAKER_00: Thank you, Robert, for your time.
48:38
SPEAKER_00: Best of luck with the rights issue.
48:40
SPEAKER_00: Looking forward to seeing the final numbers when the offer closes on the 9th of December.
48:44
SPEAKER_00: Thank you.
48:44
SPEAKER_00: Thank you very much.