Earlier this month Equatorial Commercial Bank (ECB) rebranded as Spire Bank. This was part of Spire Bank’s strategy to head in a new direction. New developments include opening new branches, restructuring operations, introducing a new core banking system and focusing on agency banking with Mwalimu National.
I was able to sit down for an interview with Tim Gitonga, Managing Director of Spire Bank to find out more about the new direction the bank is taking.
Why did the bank decide to rebrand to Spire Bank?
This is strategic. A couple of years ago Equatorial bank was positioned like a corporate bank. Then Southern credit came in and it was not very clear which market the bank wanted to attack. In January this year we revised our strategy and by looking at the market segments we wanted to play in, that advised the new position that we adopted.
With the arrival of new shareholders (Mwalimu), it energised our business scope and our mindset. Looking at what Mwalimu does with its members and the business potential we looked at how to take advantage of this opportunity. You know if you go to the rural areas, most of the guys who own businesses there, at some point they were teachers or they still are. The chairman and members of some of the main Nyahururu matatu Sacco’s are teachers and also members of Mwalimu. So again that advised us on what type of market is ripe for us.
Looking at the economy, who is really driving it? It is the SMEs. One of the most vibrant sectors in this market has been real estate. I mean if you look at the development even in this neighbourhood (Westlands), go down to Mlolongo, Thika Road, it’s the SME’s developing them. There is a lot of vibrancy in every SME that we needed or need to harness and that further advised the need for us to rebrand. To go out there with one singular message that is we understand what SME’s are looking for, we have built capability around solutions that can work for SME’s, and because of our size, we say nimble is good. We are able to turn around requests quickly, so a combination of those factors then advised the need for us to rebrand, reposition the organisation in terms of what we need to do.
We want to inspire businesses and teachers. Each of us was taught by a teacher right from nursery school, so we want to draw that inspiration. We want to inspire businesses to do better than they are doing and not just financially. There are many other factors that come into play for a business to be quite successful, and we want to tell the SME’s that we are the right partner for them because we understand the challenges that they are going through. We think we have solutions that can allow them to move their businesses to the next level.
What has the response been from the public so far?
It’s amazing! When we compare ourselves to people who have gone through rebranding, and in one way or another they were caught having not done one or two things or having not resonated with the market, we have been very lucky it has been very positive. In terms of customer feedback, we involved our customers from the beginning. We wrote personalised letters to all our customers and told them of the journey that we are planning to take and what the strategy was. The reason for this is we wanted them to be part of our change so ultimately when we are saying this is where we are going they don’t say no, we don’t understand what you are trying to achieve. So I think that is part of the reason why we have received very positive feedback from our customers.
How are you dealing with the real estate market bubble?
Luckily I have a background in real estate, for two and a half years before I came here I was in a mortgage house. We saw this coming and made a deliberate decision, because project financing was under me, one of the deliberate moves we took was not to finance high end unless one, you have a very good take out plan … if you are financing to take advantage of price changes you will be caught. So we made a decision- the market that is growing is between 3-7 million shillings but you can go up to 10 million shillings if the take out is good, so this was bound to happen because what naturally happens is that guys come and they say that I am putting up 50 units, so they start with ten then stop to pass time hoping to sell the other 40 at a premium. We saw guys who are doubling prices just because the demand was so high, you stop then you start selling at a particular price when you start feeling the pain from the bank. By that time in the neighbourhood, everybody has put up similar units at a lower price, so you get caught up and you can’t sell and even the ones who had given you a deposit want out. So that element will continue to haunt a couple of banks I can tell you, the whole of this year into the next.
How do you plan to move from a 3rd to 2nd tier bank?
So for us, what we have done is to look at the segments that are growing, and segments that have prospered. As much as the constitution was supposed to separate the economy from the political divide, they seem to be one and the same once again so the question is which are those segments that are good and will continue to grow. The growth may be a little bit slackened but is not impacted as heavily because of political intonation. So we have identified a couple of those segments and said within these segments there are sub pockets within a pocket, which are some of those we can’t get into and which are the ones that we can get into and get out successfully.
We asked now with this growth how do we then monitor the quality of business that is coming in? Then when you control the quality that is coming in at the gate into the house, how do you ensure on every other day, the quality is sustained? That’s where the aspect of monitoring and control comes in, strengthen that aspect of monitoring and control. Because if you look at the weight that we are carrying today in our banks, the problems are similar. We have learnt from these lessons and going forward we are very careful especially for debts which we have underwritten from January. We are monitoring them thoroughly, alongside of course others, to see whether there are behaviours that resemble the yesteryears behaviours, did we learn enough? As an organisation can we unlearn and relearn quickly? Those are fundamental questions for us.
Do you consider interest rates?
For us most of the people who have defaulted have not done so because of high interest rates. It is simply because some don’t want to pay or though that they will take a debt and get away with it; you know the usual bad behaviours. What we have done is look at case by case and talk to customers individually. At some point treasury bills hit something like 20% and even today we know with the skewed liquidity, I mean it’s only the top 4-5 banks who are enjoying that great liquidity, even tier 2 guys, some of them are struggling. so you find that for you to attract that money you still have to pay a premium, it may not be that high premium that you were paying last year but in comparative terms, looking at where the T-bill is, it’s still high. We tell customers come let’s sit tell us I can’t afford Sh. 10 but I can afford Ksh. 7, and for a number of our customers we have reached that agreement because the thing is we have no interest of getting them out of market, we also don’t want to suffer. We tell them let’s negotiate what is workable until things settle. Once the things settle then interest rates will fall then everybody is happy at the end of the day.
What is the maximum loan amount Spire bank can give to businesses?
We call it single exposure, to one entity it’s around Ksh. 700 million. This is also dictated by your capital, tier 1 capital; that’s shareholders direct funding. The more the money you have injected by the shareholder, the higher your capability and with all these bad debts beginning to haunt all the players in the industry, you find that the players in the industry beginning to shrink because its eating into the capital. Then you have a judicial system that thinks differently from the rest of the world, because how do you have a case in court for 10 years? It doesn’t make sense.
What is the strategic focus of the bank for the next 5 years?
We want to be a tier 2 bank and we are putting up our capabilities in all ways. We have to increase our growth rate especially on total asset and here we have much control on lending, so we have to look for all forms of capital to allow us lend securely without getting back to that madness that we are suffering from. If today, we can grow our assets from where we are 15 or so billion shillings to 50 or so billion shillings, we will be crossing that mark. We have every reason to believe that we can achieve that because not just lending, we look at other peripheral services that we provide to the customer to support your lending. Because a customer will come to you because you are making sense to them so the solutions you are providing them must connect with the need at hand.
We are substantially investing in technology, why is that important for us? Because when we come to you, let’s assume Potentash for example you have a company of 15 people, so we look at Potentash and say, what can we do for you to become who you want to become? That is where the discussion begins. So if we move your turnover from x to x+5 you see our turnover will also have grown by the same quantum. If we achieve this for each of our customer don’t you think we’ll have crossed over?
We are getting to a point where we are sitting with our customers and telling them look, we appreciate and thank you for the support you have given us and I am sure you are happy with the support we have also given you but it’s not enough. We have not supported each other enough, so tell us what is your growth plan this year into next year? So say you want to move from 200 million to 400 million, what do you need? The customer would say I need 1,2,3,4. So everybody signs up a target, the customer signs up to deliver 40 m worth of revenue and I sign to deliver a couple of composite solutions. Midway we ask, is everybody keeping their word? That way by taking interest of your business and holding you accountable on your own commitment then we are on the same trajectory.
I can tell you it has caused a lot of excitement in fact there’s a guy who was telling me initially he thought the relationship manager was mad, “How can you give me target on my own business?” Then he went on and talked with his co-director and he said I think these guys are making some sense, let’s go back and listen to them, so they came back and said, “just explain to us about that thing of targets!”. And they realized that we are not talking of normal relationship but about partnership, where every partner takes interest in what the other one is doing. We believe this is one way of changing the business landscape particularly for the SME’s.
Is regulation in the industry too high or low?
From a regulatory point of view, there is nothing really to say they are over regulated because some of those things that Central Bank is insisting on now, is about governance. It’s about ethical ways of doing business, they should have been done a long time ago. To be fair to the regulator, because for example one big animal is called insider lending…So I would say from a governance point of view, and this is very personal, every other bank may have a different opinion, I’m in total agreement with the regulation that issues around governance must be sorted out. Imagine putting your money in a bank because you imagine it is a bank that speaks your language, the next thing you find is a sticker on the door that the bank is under receivership. What are you supposed to do and it went under receivership not because the bank was doing something to help the community?
Number two, from a size point of view, I think both Chase and Imperial bank were not small banks. I buy to the thought that when a bank is big the higher the systemic risks associated with it. Flashback to 2008, Lehman brothers was the fourth largest bank in US, 639billion dollars in terms of assets, bigger than ourselves as an economy, but they came down tumbling and there are all these case studies why Lehman brothers and all these other guys went down, so there are lessons to be picked there in terms of governance.
Coming back to our market, do we need 42 banks? Possibly not, possibly yes, as long as the ground has been evened so that you don’t go to sleep worried whether the bank will be there tomorrow and you are not worried about governance issues. If you look at all the banks that went down, they went down because of governance. So if we address this issue, Central Bank will not have a problem as long as you and I are not setting up a bank to steal from the rest. Are there benefits of lesser numbers? Certainly we can’t overrule that as well, but the point is, even on social media you see some people complaining that they have been in a queue the whole day waiting to open an account. That now is unacceptable, and the issue of these banks serving specific niches will come into play. So there is a guy who wants my bank, probably I will charge a little bit more, but they will get everything they need within the requested timeline, maybe these others I will wait for a week but I will be charged 50%. So there’s an issue around niche that needs to be looked at but what really should determine ultimately how many players we should have? It’s about giving confidence to the market that this bank will be there you don’t have to worry about the bank collapsing.
How do you deal with managers moving from one bank to another as soon as problems arise?
For us what we have done is to strengthen the quality assurance side. I can guarantee you that’s where you will be hit. A few years ago one of the big banks had such an incident in a branch in Eldoret, a salesman who was doing extremely well booked 40 million shillings, which then was a miracle because its personal loans, so in one month he did that and there was a party for him, he even met the group CEOs. Two months down the line, they started seeing signals of default, by the time they started looking at all the portfolios, the guy had jumped. They found that all the loans were fraudulent.
So we have to balance between quality and growth. But I can tell you what we have seen in the last few days, when you have the right solutions there is a market. There is a market that values quality service, there is a market that values totality of the solution, don’t just give me this, then this I have to buy from my neighbour and that I have to buy from the other county. Try to consolidate, give me one solution for all my requirements. That market is there, and if you can make your decisions, quickly, reasonably and price the solutions reasonably, you will grow.
What are you doing to reassure your customers that they can depend on you?
Our business is about trust; I can’t believe in you I can’t put my money with you. So what are we doing? First of all, the coverage out there through the media has been that if you are a family bank, then decisions can be made at a dinner table to my detriment. This is very interesting. As you have noted from our shareholding, we used to be owned by one group though it is a very respected group, the market wants to see more, that is why we have brought in a new corporate entity in the name of Mwalimu, combine it with this other one so that you have two very strong partners and nobody will doubt the strength of the teacher.
Now Sameer group has other companies that are listed in the Nairobi Securities Exchange (NSE), Yana, Sasini…again the world will look at us from a position of strength so one way of going to the market and telling them that you are not flying by night is who owns you. Are the owners like you and me, who will decide let’s take a flight to Dubai to make one or two decisions, by the time we land in Dubai decisions are made. For us these are entities that require to go through certain approvals before they make certain decisions that will impact the bank. So that gives a lot comfort and actually I think that is why we have received a lot of positive response following our rebrand because people see us from a point of strength.
What strategies do you have in place to ensure that you win in this space?
Every bank in this market will say that they are experts in SME, but from our point of view, we have taken a different dimension in the sense that it’s like a doctor patient relationship, we are not prescriptive, so tell us where the shoe is pinching then lets design solutions that fit your situation with you. Of course there will be the familiar offering but of course it will be tailored to meet your requirement. And bringing in this issue of partnership, telling you that we need you to take target, if your business is going to survive, and bread that old adage of 5 years lets go on a growth trajectory that is measured.
Some of our customers are entrepreneurs and they don’t see that perspective, like having a good succession plan and good organisation structure that goes beyond you. We know of guys that walk with the cheque book in the pocket. And woe unto him if he collapses there, that is the end of that business. We are giving advice on how to grow your business and put in structures.
You know they say one of the strategies that banks use is stealing! You go look at the guys that are doing well in another bank and target them. Many of them are doing that by price undercutting, not knowing that it’s not just about price, there are many other things around that relationship. Because you don’t know those things so you probably might be lucky because you quoted 400 business points below what I was able to do, after a few months the customer realizes “I’m missing something here” and starts diverting banking back to where the relationship was.
Are you looking to get into providing Investment banking solutions?
Yes we do but it’s in year 3 of our strategy, because there are certain fundamentals that we need to clean up because if you attack everything, you end up losing everything. One of the things that we have purposed to do is investment in technology, because we want to clear up the inefficiencies within ourselves, improve efficiencies between us and the rest of the world through the various platforms that we are creating. Then at year 3 we are able to talk about investment, both onshore and offshore. I can tell you even for anybody doing this the bulk of it is offshore so again the way we see it is through partnership with certain institutions, some of which we have already had discussions with but we told them hold on.
How is Spire Bank intending to leverage technology to increase its efficiency and reduce risk?
From different points of view. One is internally, there are certain things that you can do automation, our internal processes for example loan origination, A customer can be able to originate that loan either on mobile or online and approval process should be done within a couple of hours, in fact in some other instances, customers should be able to lend themselves that money because it’s a matter of certain parameters that you have built, you meet these criteria and you to lend yourself that money.
Two is there are certain other non lending attributes, what we call straight through processing. so a transaction is initiated from the branch it need not be supervised by anyone if you have built the right metrics in place, so what we find is that we have less people in the back office and more in the frontline trying to assist and challenge customers.
Three, when you work with partners like Mwalimu is our partner on agency basis, I want when a customer goes to Kisii and banks money in an agency account it is reflected almost instantaneously in the core banking systems so that if they want to do an RTGS an hour later nobody tells them that you don’t have adequate money whereas they know that they banked that money in our agency in Kisii, so technology will enable us achieve that.
Fourth is in terms of new business. When you want to attack a particular market you need yourself plus your technology to deliver on that segment. In this case we are looking at certain areas where we can be able to collaborate with others. There are other aspects between us and Mwalimu that we are able to exploit and given that we are likely to have a bigger platform than they have then we become their anchor and they use our platforms. So you can’t be able to exploit those synergies if your technology base isn’t sound enough.
How do you improve the response rate from customers seeking loans and other products?
A while ago, all banks could not even accept Mpesa statements. Now if say someone needs 50,000 to do a particular job and pay within a limited period of time, all they need to do is to demonstrate that look these are my transactions, it doesn’t have to be a bank statement. Today I can tell you, in the last four or so months we have approved a couple of facilities based on Mpesa statement and I can tell you in all those I haven’t seen any where there is a problem so far.
Have you invested in digital banking, how has the growth been and what are the challenges?
Digital banking is broad and we are taking it in steps, what we started with is our mobile platform. I think we have the best mobile banking platform in this country; anything you want to do you can do it on your phone. Now the idea is we want to see how can we take this one to the next level? From the teachers’ side, we are talking about how we can reduce the wait for loans. Because for emergency they tell us guys will be looking for 10-20,000 for emergency, so do they really need to go to a branch for that? So apart from that, where can we scale this further? We want to arrive at a point where we have integrated all our channels, and that is why it is important to look at the back end. But today I can tell you mobile is one of the best solutions we have ever had.
From the challenge point of view, you know technology keeps on evolving. Sometimes you find that you are out of network (it’s a web solution) so when you are online there are some people that feel like it’s too costly…”my bundles are getting swallowed quickly”, simply because the connectivity between where you are and the bank, it has nothing to do with the bank but the connectivity is slow so you end up spending a little more. So we are hoping at some point we will be able to overcome some of these challenges, like in Nakuru there is WI-FI everywhere. So if we can achieve that, we see that people will be enticed to use technology because they are not worried about the bundles. So I’d say the cost is a big issue and of course the gadget that you have becomes also the other limitation.
Along the way we are hoping that we can come up with something that will be different for our customers from a gadget point of view. Again working with other people with a common mindset as ours, to improve that digital experience. Our vision is that as time moves, our branches will have less transactions, customers will be coming to discuss about their targets, because they will have the gadgets which allows them to make all these transactions without necessarily increasing cost of operations.
You are introducing co-banking system this year, how much will it cost and what benefits will it come with?
Co-banking systems are expensive; we think in the initial stage, depending on how many subsystems we will add, anything between 3-5million dollars will be the cost. But we may not incur the entire 5 million on the spot because again you go in steps, so we look at what is critical, building that attain efficiency, start adding subsystems along the way. Ultimately, is that all those subsystems, should be able to speak to the core from one standpoint, that is the highest level of efficiency where you have put up a bridge.
There are many benefits; improving cost income ratio and increasing employee productivity because of removing manual tasks. When you talk of product development, you can do it yourself or with partners rapidly as you are not limited by technology.
What is the interest rate for lending to businesses and SMEs?
It is between 16% and 21%. I have been one person who has been a proponent of a single digit and I can tell you I sat in one of the meeting of cross functional teams before I joined this bank where the government was very keen to see the interest rate come down. Majority of the banks support the idea of a low interest regime because it’s good for us and the economy because if I can lend you at 8% and you triple your turnover this year I also benefit. But look at it this way, we talk and talk about single digit, tomorrow, the government comes with a 5-year bond at 12 and a half percent without any withholding tax. So the idea we were pushing for was Mr. Government, can you stop your appetite for big money? How does this stop? Leverage on other things so that you don’t put undue pressure on private sector looking for this money.
How are you recovering your bad debt?
From a collection perspective we have taken a number of steps, key among these is alternative dispute resolution, and as you know we are a highly pretentious nation, every time you demand your money from a customer they run to court and serve you with an injunction. So we tell the customers, look it’s good you have brought a court injunction but no court will tell you not to pay. Can we talk about it now and let’s agree? What is it that you are disputing? So we look around the area that there is dispute and say if I can take a hit, if you can take a hit and settle on a position where none of us loses, then we are in business otherwise we wait for the court to decide. This will take two or three years and meanwhile your burden is still growing which the court will still tell you to pay.
What are you doing to draw the youth to your bank?
Some of the products that we have just brought and which are going through regulatory approval are actually targeted at the youth, especially those doing business. Because this is a generation that will be going corporate at some point, so we have products lined for the kids, through to high school and university, and now to you setting up your own outfit. . And more of it will be you are coming with an idea, it may not have been tested, but when you look at it makes business sense.
An amazing story is one young man who holds a diploma in architecture. After graduating he worked for three months then realized he can do the job better than his employer, he went to DOD and got a contract to do four gates, he came to us for a loan on condition that they pay directly. He did a good job and got paid. He got another contract in Kiambu which he also did well and lately, he got another contract for the KNH playground, he came to us said he has 3M and needed 2M, why would we deny him, such a smart 23 year old?
So those are the kind of things we’d really want to do. Now he has employed someone and he came to ask for permission to get a car to move around. Why would he ask that? Because along the way we have had conversations with him about the do’s and the don’t. If you look at his savings you will admire it, out of 5 contracts so far. So if we can be able to bring more of these guys on board and give them the kind of capital that they require and they deliver, I mean you are building the nation a day at a time.
The big problem with the youth which I’m sure when we start our capacity building program we will try to address it; is how do you make sure these guys don’t misallocate the funds or don’t divert the payments? The reason why products like invoice discounting and LPO financing have always faced hindrance is because of dishonesty of our own people. So if we could have more of this crop of honest young guys and employers who don’t accept countermand instructions to change bank details, which mean there’s something fishy happening. If that is sorted out, the issue of security will never be an issue, so we move away to collateralised lending to ability to deliver on your commitment.
How do you deal with young people who are looking to venture into providing non-tangible services?
My first question would be to understand who the ultimate takers of that service would be. Has there been something you have done in the past even if it has been one major deal you carried out? Is there demand for this service? Can you show me there’s demand? If you can show me there is demand, then surely it should be financeable. Remember the guys who did software first, it sounded like something very abstract but if one can explain their idea and eventual output after incubation then it brings some tangibility to the service then it makes sense.
What are you doing to institutionalise this for the youth who can’t access government funds?
It takes more than money. I’d say let us set up a platform against which whoever is getting this money will go through some kind of induction then monitoring thereafter to see how well they are doing. Because if you give money and someone goes on saying I did X, Y and Z it is highly unlikely that its actually what they did, that is why youth fund has such a huge unpaid portfolio. So I think the government needs to consider its position, yes they have the money but they can’t do everything. They need to work with partners, and not just banks but also with trainers, and remain as the agency to rally around partners to deliver results.
Are banks moving towards using the CRB as a means of lending people money, your bank in particular?
First of all CRB is mandatory, you must report and now we are reporting both good and bad. The idea behind CRB was to avail material information to the lenders and curtail this growth of guys who keep on hopping from one bank to another. But primarily, it was supposed to influence the cost of credit when it is entrenched, that is why we have the positive reporting. Because we are saying if your record is so good surely why can’t you borrow at 10%? Because the risk of non payment has been reduced substantially out of a history of a good repayment.
Are we using CRB ourselves? Yes 100% and some of those guys borrowing at 16% is because of CRB. Some of them have a very good history so much as our cost of funds may be high you cannot price them the same way you price any other person because that history is there and they are benefitting from that.