National Bank of Kenya Limited ( 2018 Annual Report

We have extracted below the Chairman’s Statement from the 2018 annual report of National Bank of Kenya Limited (, listed on the Nairobi Securities Exchange:

Welcome to our 3rd edition of our Integrated Annual Report!

This report combines our financial and sustainability reporting with the aim of showcasing the interactions between financial, societal and environmental factors and how they influence our company’s long term development. As a brand we exist to enable economic growth and societal progress by creating positive impact for our clients, our people, our investors and our communities. We also seek to assure that the market served by National Bank remain productive, meaningful and sustainable. 2018 was a remarkable year for National Bank, having celebrated 50 years of exceptional service to our customers. Born in 1968, the Bank was formed to help Kenyans get access to credit and control their economy having gained independence.

Over the years we have and continue to experience growth, evolving into an important player in the banking industry and a major revenue earner for the ex-chequer whilst creating value for our stakeholders.

Overview of the Banking Industry

The country’s economy in the year under review remained buoyant shaking off the shocks caused by the severe drought experienced in the previous year, the long electioneering period we went through and the constraints posed by the interest rate capping law. Despite the challenging operating environment the banking sector remained fairly stable in 2018, posting strong liquidity as a whole, boosted by the development of recovery and resolution plans as well as stable political environment post-elections.

Globally, the banking sector is considerably healthier now than it was 10 years ago, at the start of the global financial crisis. A number of uncertainties though have continued to blemish the industry with respect to the Brexit resolution, escalation of trade and geopolitical tensions, US trade policies and effects of normalisation of Monetary Policy in the advanced economies. Back at home, the Monetary Policy during the year retained a stable price ensuring the financial services Industry increased its capacity to support the fiscal growth agenda. To further support this agenda, the Central Bank of Kenya continued to improve on its Monetary Policy Framework through sharpening of its forward-looking tools and indicators, particularly the macro-economic forecasting framework and the use of market perception surveys which effectively guided the implementation of the monetary policy.

Stakeholder Value

For National Bank of Kenya, conducting business responsibly means serving the interests and meeting the needs of all our stakeholders. To this end the Board has taken an active approach to address some of the issues that could have raised concerns among our shareholders and stakeholders. I have highlighted few of the issues but the full report will offer a more comprehensive look at how we conducted our business. Our capital provision philosophy remained unchanged as we continued to focus on the long term value improvement for our shareholders with the aim of attaining regular return on investment.

In our previous Annual Report, I had mentioned that in the beginning of the year 2018 the Bank’s major shareholders – the Government of Kenya through the National Treasury and National Social Security Fund (NSSF) – had made commitments to address our capital requirements by committing to provide a comprehensive and long-term capital solution to bridge compliance, support business growth and meet ICAAP requirements.

The talks geared to this issue, although delayed beyond the committed dates continued in earnest, and I want to assure all our shareholders and stakeholders that the principals remain committed to help with our capital requirements should circumstances dictate so.

Equally in the year under review, data security remained a key deliverable to our business continuity.

As a Board we take cognizance of today’s customer expectations, technological capabilities, regulatory requirements, demographics and economics which together create a vital change. This new philosophy has led to us to work harder and smarter to get ahead of arising challenges by adopting a proactive approach to data security. As a Group, we have taken a continuous approach to invest our resources in putting up efficient controls complemented with an effective IT-governance structure and supported by relevant policies into our management framework. In addition to a system based approach we have leveraged on a continuous educational tactic to both our staff and customers on the business risks and threats related to our network and the macro ecosystem to ensure alertness and general protection. As a Board we also take note that sustainability of our business is also pegged on the achievement of a Sound Risk Management structure. Defining our credit risk, market risk, liquidity risk as well as other certain unquantifiable risk cannot be isolated from the overall quality of corporate governance. It is undeniable that risks associated with the banking sector have increased in recent years, making the financial markets more volatile.

Our dear shareholders, to this end I am pleased to inform you that the Board and Management have taken an active involvement in defining the risk appetite for the Group and we continuously work on improving and approving policies that ensure this appetite is reflected in activities and decisions undertaken by the Group and the risks which we operate in. Our objective in management of risk is to ensure we align with regulation whilst taking care of customer expectations in the face of changing technology. Further on Corporate Governance, let me conclude by addressing how the management team and the Board of Directors work together to advance the Bank. I want to assure all our shareholders that you are represented by a strong independent Board, which holds regular meetings with management, regulators and shareholders to review progress of your Bank. Throughout the year, the Board meets with management to oversee risk management and governance and carry out other important duties directly and through Board Committees that have strong and experienced chairs and members. Furthermore, the management team and the Board meet to review in detail ongoing results and issues towards deeper discussions. Indeed toward the end of the year, we held an extended session to review our strategic milestones and plan for 2019 based on the operating environment, market and other opportunities.

Looking Forward

2019 will be a year of heavy lifting for the whole banking sector as the market stabilises to recover from market shocks experienced in the previous years. In the last two years, we have seen banks take blow after blow due to the recognition of bad loans and increased provisions required to comply with new accounting standards. While this initial recognition part is over, we appreciate that now the resolution of long outstanding bad debts holds the key for realising benefit. As a Bank, we will focus our resources on putting forth effective resolution plans backed by efficient co-ordination among different stakeholders.

To back our recovery plans and truly have an impactful bottomline we will also endeavour to revamp our retail space by redefining and improving our physical foot print, digital maturity, share of voice and customer experience. As promised in 2018, we will continue to improve our business model to adopt one that puts the customer at the heart; based on traditional attributes such as prudence and a long-term view whilst making the most of emerging digital channels. In conclusion and on behalf of the Board of Directors, I would like to thank our committed and hardworking staff for their dedication to serving customers. I would also like to appreciate our customers who have over the years stood by us and ensured our doors remain open. As we settle into the New Year we pray for peace in our country to enable us run our businesses seamlessly.

Chairman, Non-Executive Director