Marambii exit heralds new era for National Bank

By James Anyanzwa

Talk about masters of turnaround strategies in the corporate world and to some quarters the name of Reuben Marambii, the out-going managing director for the National Bank of Kenya (NBK) would feature.

Though his earlier initiatives may have faltered towards the end tail of his career the bank, he is, however credit to have revived the then struggling State-owned bank.

At the end of this year (December) Mr Marambii will be hanging up his gloves after more than a decade fighting to return the bank back on its feet.

The University of Nairobi trained accountant has, indeed, been instrumental in returning NBK to the profit making territory, which culminated in the bank paying its first dividend in 12 years in 2010 and the second dividend last year. The last time NBK paid dividends to shareholders was in 1997.

Marambii joined NBK in 1999 after being seconded from Central Bank of Kenya where he served as manager in-charge of banking operations.

Upon taking up his new job he realised that his immediate challenge was to rescue NBK from crumpling under a bad loans weight of Sh36 billion associated with politically connected individuals.

The bank’s books equally told a frightening tale with customer deposits having fallen by almost a half, from Sh25 billion to Sh14 billion.

Bad debts

The bad debts associated with politically connected individuals pushed the bank into massive losses in the late 1990s and early 2000.

Although NBK started making profits in 2003, accumulated losses in previous years denied shareholders the chance to earn dividends as the lender was still in a negative capital position.

However, under Marambii’s leadership the Government in June 2007 issued NBK with four special bonds with maturities of between three and 15 years worth Sh20 billion to clear debts it had guaranteed to State-owned institutions in the 1990s.

The bad debts in NBK’s portfolio were largely linked to government institutions and well-connected politicians.

To save the bank from collapse, Treasury converted the non-performing loans to a bond worth Sh20 billion in 2007.

Marambii took over the managing director position at NBK from John Simba in January 1999, with the approval of the then Finance Minister Simeon Nyachae to turn around the bank.

Improved status

Today, NBK boasts of a solid deposit base worth Sh56.7 billion, with loans and advances to customers standing at Sh28 billion, while gross non-performing loans and advances stand at Sh1.2 billion, according to the bank’s audited financial statements for the full-year ended December 31.

The National Social Security Fund (NSSF) has a 48.05 per cent stake in NBK, while the Treasury owns 22.5 per cent and it has been running as a State-owned company on the strength of the combined stake, which is 70.55 per cent.

Lately, however, the trading environment has not been too rosy for Marambii. While other rival banks minting hefty cash, including the CBK, which returned a staggering Sh39 billion profit, NBK earnings continued to dwindle and there is growing fears that it could slide back to its trouble times unless there if renewed vigour to change its conservative growth plan.

His exit comes at a time when the bank’s level of profitability appears to be shrinking, bad debts reverting on an upward trend, while expansion programmes moving at a snail’s pace with branch network staggering at 50 despite the bank’s 44 years of operations.

NBK expects the incoming managing director to be a high calibre, result oriented and self-driven professional with capacity to spearhead growth and diversification strategies in order to accelerate the bank’s profits, dividends and shareholder value.

The bank, with 65,000 shareholders and 1.3 billion shares, posted a profit before tax of Sh2.6 billion in 2010 compared to Sh2.1 billion in 2009, while last year profitability dropped by nine per cent to Sh2.4 billion because of what the management said was due to taxation on realised bond earnings and increased provisions for bad and doubtful debts.

"The year was not good for everybody. All indicators show last year was not as good as 2010," explained Marambii, who chose to ignore the fact that other banks still made sizeable profits under the same environment.

"We expect our performance this year (2012) to be better than last year because the issue that arose about taxation is not likely to recur and provisions for bad and doubtful debts are now under control."

Last year, NBK reduced government securities held for trading purposes from Sh10.7 billion to as low as Sh828.8 million.

During the third quarter of 2011 NBK profits went down nine per cent on the back of rising interest rates that pushed the values of its bonds down.

The lower values of government securities held by the bank raised other operating expenses due to rising interest rates, which made the bonds previously bought at lower interest rates to be at a loss position when marked to market. Heavy exposure to the bonds is said to be the undoing of the bank

Market concerns

In line with other banks, NBK in the third quarter sharply reduced its investment in government securities to Sh1.88 billion, up from Sh11.18 billion, to avoid further revaluation losses as yields rise.

Yields on government securities were on a steady rise last year, due to higher inflation and tight liquidity in the market, with the 91-day Treasury bills hitting a high of 19.91 per cent in the week ending December 30, last year.

NBK is among state-owned banks, which have the lion’s share of cash deposits belonging to the central Government and parastatals, guaranteeing them a steady source of funds for lending.

All government ministries have an account with the CBK, but they are allowed to open accounts with commercial banks where they can transfer their budgetary allocations.

The Government’s efforts to resuscitate NBK and KCB in the 1990s saw it direct its departments to hold accounts with these two lenders.

Initially, this policy approach worked well for the bank and helped cushion the bank from the impact of mass withdrawals experienced during the trouble financial period of 1998. This period saw Trust Bank, City Finance, Bullion and Reliance banks all came down tumbling with hundreds of millions of shillings of depositor funds.

NBK and Kenya Commercial Bank - the two big State-owned banks - only survived the meltdown with heavy government support that involved appointment of professionals such as Gareth George and Mr Marambii as chief executives and ordering parastatals and other government agencies to hold their accounts with the two.

Rescue plan

The banks also benefited from the government’s decision to finance the big bad debts provisions that had to be made to keep the banks afloat.

The Government has for years influenced the appointment of the bank’s head on the strength that the lender is a State corporation.

In January last year, NBK’s board renewed Marambii’s contract as managing director for two more years, in what was widely seen as a move to reward his turnaround efforts at the institution and to use his experience to prepare it for privatisation.

"We want to increase lending to customers because right now we have lent a lot to Government and we think we should move to the other side," said Marambii.