5% YOY growth for NCBA as they entice customers with no monthly fees

This was NCBA's week; they announced earnings on Thursday and treated us to some golf at Vetlab over the weekend. Can it get better than this?

As you can tell from the title, the group recorded 5% YOY¹ growth in post tax profit (KES 11.7B in pre-tax profit). Okay numbers if yoou ask me, but not good enough for the new era, the no monthly fees era. According to the group CEO Mr Gachora, these were strong financial results considering the headwinds presented by the current operating environment. I do agree with him to some extent; the high interest rates have certainly affected the group's banking business, which is their bread and butter. However, as an investor, I will always have high expectations for Mr. Gachora and his team. Here's how they performed for the first half of 2024.

The bank recorded growth in a couple key areas: customer deposits were up 2.4% at KES 528.89B - this is fair, again considering the tough operating environment. Total assets increased by 4.35% to KES 689B - they are holding some high risk assets on their books, more on that later. Earnings per share are up 5.1% at KES 5.96, and most importantly, investors will receive an interim dividend of KES 2.25. The digital loans disbursed stood at KES 478B, a 4% increase YOY¹. NPLs² decreased by KES 1.2B, a 6.8% drop year-over-year, underscoring improved risk management by the firm. The group's non-banking subsidiaries including bancassuarance, investment banking and leasing contributed KES 600M to the firm's profitability.

Other important areas weren't as positive: although total interest income increased by 25.4%, a more significant increase in the total interest expense(64% increase) dragged the net interest down, the group saw a 4% drop in net income interest. Total operating expenses increased by 2.9% to KES 19.2B, staffing costs grabbing the spotlight after going up by more than a billion shillings - highlighting the firm's probable push for expansion into new frontiers. Pre tax profit didn't grow and would've dropped significantly if it weren't for a lower tax bill, it stood at KES 12.16B.

These were Gachora's remarks on the near future -

The economic outlook for the latter half of the year presents a nuanced blend of optimism and caution. In Kenya, we have observed positive trends with inflation easing to 4.6% and the local currency stabilizing against major currencies. We are encouraged by the Government’s commitment to support sustainable growth, to maintain fiscal discipline, and to continue fostering a favorable financial environment. These efforts will be key in driving economic progress and supporting the ongoing success of the private sector.

Conclusion

For a bank that recently completed an acquisition and with the current operating environment in consideration, the 5% growth was good. The future certainly looks bright, the aforementioned non-banking subsidiaries grew 56% YOY¹. Phenomenal numbers that give us a glimpse of what the future might look like as the group continues to unlock value for the customer through integrating these subsidiaries' offerings. As a technologist, I'm happy with the work NCBA is doing with their digital loans, leading the industry with KES 478B in digital loans disbursed.
The cherry on the cake is how valuable the brand is, putting the customer at the heart of what they do is a simple yet powerful strategy that's creating both customer and shareholder value. This has seen the bank get recognised at both the national and continental levels for their customer experience, a highlight of their exceptional customer experience is their ranking in the top 5 most loved banks by Kenyan women.
There's one thing I'll be watching keenly, their exposure to government securities. With the recent downgrade of the bank by Fitch, due to their exposure to the downgraded national government through bills and bonds, the message from Fitch is that they should hedge their exposure.

Resources

NCBA Group HY '24 earnings , NCBA Group HY '24 financial results press release , Investor relations , Fitch downgrade action commentary

YOY - year over year ↩ ↩² ↩³
NPLs - non performing loans ↩

NOTE : These are personal opinions and aren't shared by the firm, our shareholders and/or associates

Conclusion

Recommended reads

Resources

Footnotes