In September 2014, NMB Bank Limited, made a strategic decision to change its business model by expanding its customer reach, to a much broader market segment.
This was a significant shift from its traditional model — more of a DNA — which targeted high net worth individuals as a niche market.
Speaking then, chief executive officer Benefit Washaya, said the bank’s strategic focus had moved to focusing on the broader market segment with key differentiators that will include service excellence, technology leadership, agility and quick response time which will be supported by strong human capital.
He said on top of retaining the bank’s traditional markets, NMB was going to fully transition into other broader market segments.
At that time though, the economic environment had not yet deteriorated to what it is now. The current cash shortages, were also unheard of, while phrases like nostro accounts were only known by bankers and those well-read — unlike now when it’s a common phrase in national discourse. While non-funded income made significant contributions to banks’ income streams, it was not as outstanding as it is now.
But NMB’s decision to change strategy seem to have been foretold as banks now tussle for the lower end of the banking public. One can only wonder how long NMB would have kicked the can down the road had it not changed its model. Banking is now a numbers game, with financial institutions making the bulk of their income from transactional charges.
Financial director Benson Ndachena said the decision to transition into the broader market segment was now paying off following the revolution in banking which is now dominated by transactional revenues.
For NMB, there has been a significant shift on the profile of both borrowers and depositors. Individuals now make up 39 percent of borrowers, the biggest portion of loans and advances, while funding has also shifted from wholesale towards retail.
Reflecting the shift, interest income for the year to December 31, 2017 came out 5,32 percent lower at $32,061 million but fee and commission income, largely from retail banking, was up 23,6 percent to $18,8 million. The contribution from non-funded income is now much higher at 43,4 percent from 39,2 percent prior year comparative.
This helped the group grow its total revenue to $43,3 million from $38,7 million.
Total comprehensive income jumped 98 percent to $10 million from $5 million prior year comparative. Basic earnings per share were up 95 percent to 2,58 cents from 1,32 cents. A dividend of US 0,36 cents was declared.
Management attributed the strong performance to increased transactional revenues as well as a significant drop in impairment losses on loans and advances to $3,8 million from $8,1 million.
Ndachena attributed the 52 percent reduction in impairment losses on loans and advances to management’s efforts to clean the loan book the previous year, as well as stricter credit underwriting standards and loan monitoring.
A drop in interest expenses to $9,1 million from $11,0 million coupled with increased net foreign exchange gains to $1,6 million from $0,7 million also contributed to both revenue and profits.
The top line as well as the bottom line are not the only areas where NMB got it right. The bank embarked on an aggressive loan collection process and strengthening of credit systems that resulted in the reduction of NPL ratio to a single digit figure of 7,98 percent from 10,69 percent prior year comparative.
This was despite a three percent growth in gross loans and advances to $211 million as well as a 32 percent growth in total assets to $422,5 million.
NMB also showed a growing appetite for treasury bills and bonds, with the asset profile increasing by 273 percent to $92,2 million from $24,7 million with Ndachena saying the bank does not believe the Government will default on its obligations.
The shift to the broader market segment is still bearing fruit with the bank growing deposits by 34 percent to $348,9 million from $260,5 million as a result of what it said is a significant improvement in market liquidity and deposit mobilization strategies.
Ndachena said on top of retaining the bank’s traditional markets, NMB has now fully transitioned into other broader market segments adding that the transition has gone on well. And it’s a strategy they plan to leverage on into the future.
Washaya said efforts to broaden the target market have continued to be accelerated with a nationwide blitz to acquire low cost accounts. The bank will also continue to drive the roll out of low cost POS machines to both formal and informal sectors.
Whether the strategy will continue to work into the future is a question for another day, but for now it’s a strategic shift that has worked.