K-Rep Bank, a subsidiary of Centum Investments (67.54% equity stake), plans to increase its branches from the current 37 to 50 branches. According to management, the move will mainly be targeting to create presence in counties where the bank does not have any. Similar to the current trend in the industry, K-rep plans to have the satellite branches supported by alternative channels –agents, mobile and online banking platforms. As part of its expansion programme, supported by Centum’s recent capital injection of KES 1.2bn, the bank plans to develop a new banking platform to support the alternative channels. We view the expansion plan positively and we expect Centum to focus on reducing the lender’s reliance on expensive sources of funding while at the same time deepening its microfinance capabilities to support NIM’s (In 1H15, though NIM declined 210bps y/y to 11.4%, it remained above industry average). As at 1H15, PAT was up 6.2%y/y, though there was notable weakness in NPLs (NPL ratio rose 420bps y/y to 11.8%) and cost of funds (+60bps y/y to 6.4% – one of the highest in the industry). In the upcoming 3Q15 numbers, we do not expect much improvement given the high interest rate environment, tight liquidity conditions as well as the receivership placement of Dubai Bank and Imperial Bank which dented customer confidence in small banks. (The Star, Standard Investment Bank).
