K-Rep Bank's Business Model
Basically target low-end market client who will walk into a bank,present a group of ten fellow commoners as loan guarantors to borrow a few hundreds of Kenya Shilling. No other security,just use individuals to secure one another when seeking a loan of a few hundreds.



Strategy Shift
After 10 years of steady growth,management felt in 2007 it was time to introduce top-level changes to engineer the next phase of growth for the micro-finance bank and address internal weaknesses.



Loss- The Mistakes & Weaknesses
1. They poached close to a whole dept of staff from a high-end bank. These staff were ineffective largely due to their previous background. A lot of changes including the hiring have had to be reversed.



2. Hiring of these purged top managers led to a near doubling of staff cost,from Ksh. 388M in 2007 to Ksh. 617M in 2008 with nothing in performance to cover for this.



3. The loan structures,groups of slum residents guaranteeing one another,was dismantled very early into the tribal based PEV...



4. K-Rep were stuck with a huge non-performing loans portfolio..with no security for it. Non-performing loans tripled from Ksh. 430M in 2007 to 1.1Billion in 2008 against a net book loan of Ksh. 5.9Billion. The bank's provision for doubtful debt increased from Ksh. 65M to a high of 337M in 2008.



5. Record inflation driven by sky rocketing food prices negatively impacting to the low-end market.



The Future
1. In what could also be a vote of confidence in the current management,shareholders have committed to inject over Ksh. 1 Billion as new capital to help recapitalise the banks balance sheet. Ksh. 400M has already been paid up.



2. Ksh 30M worth of technical assistance has been provided via seconding consultants to help the bank in its turnaround strategy and management training.



3. A move to also target the middle and high-end market in order to reduce operational risk is underway. The bank's HQ was already relocated to Kilimani from Kawangware as part of this pre-loss strategy.



4. The resilience of the lower end customer is noteworthy despite current economic conditions. K-Rep has decided to retain this as its bedrock as it moves further into the upper classes. A return to profitability is expected in 2009.



According to Mr Kimathi Mutua,K-Rep Group MD,these problems combined to result in a loss of KSh. 472M,its first since inception but as indicated above,he is optimistic about the future.



Ref: Summation of feature article,Daily Nation,Tuesday March 31st 2009.

To me,there is no future there; the only thing left is just a shell of micro-finance business. The strategy is simple: overhaul of its leadership and bring in fresh ideas.



Failure is an event and not a person

Very nice ecstacy,now it seems to me that except for the increased staff costs,those other events are not exclusive to K-Rep. In fact,I dare say that Equity is more exposed to the stated issues than K-Rep is,simply because Equity over-extended.

It seems to me Equity and co have been doing what Citi and co did in the US,loan out cheap money to every Wanjiku,Atieno and Kiptoo without serious due dilligence. For example,Equity dishes out loans secured by payroll,what's gonna happen when the govt and the private sector starts laying off these loan holders? Oh and did I mention that farmers who received loans from Equity are experiencing drought and a drop in commodity prices. How about that little incidence in Machakos whereby a competitor's rumor made created a run on the bank.

I think most SK are yet to learn a very fundamental investment lesson, you dont buy the best companies,you buy the best priced company. Equity might be the best bank in Kenya,but it sure aint the best priced when it comes to value. It is way overpriced.

But is Equity the only bank with this type of exposure to the Kenyan economy? Nay,in its case,it now has revenue generation from Ug unlike BBK,Stanchart and kadhalika.
Btw,i fear that some of the wajuaji on this forum are so guilty of overanalysis and a spouting BS of the most unadulterated kind. Imagine somebody who bought Eb at Ksh93 a month ago reading this thread. Or take my case,I bought the share in Dec 2006,and word for word the naysers (probably same characters),were saying the same thing about EB's strategy in Dec 2006. While I've not always been happy about some of its corporate actions (e.g. the spilt),I've never doubted its strategic superiority. If other so-called great banks were going to eat into its market,si they've had 5 yrs?

My advice,buy and eat from EB or shut up and go buy your boring Ebay shares or whatever.

www.mjengakenya.blogspot.com

True ..Gen. i view model of commercial bank of africa superior than most local banks,it's efficiency and flexibilty has attracted better rewarding clients and would sustain itself in the market longer despite the melt down.

Smooth