Mr Paul Russo. FILE PHOTO | NMG The transformation going on at the National Bank of Kenya is an interesting study on how to execute bank turnarounds. We must not forget that several past attempts to change the fortunes of the bank through expensive State-funded bailouts yielded zilch.
So, when I met the managing director of the bank, Paul Russo, recently, we agreed we would restrict our conversation to discussing tangible action by the new management: what, exactly, had been implemented to improve the fortunes of the bank and whether the bank was indeed on a recovery path.
I was not there to listen to pipe dreams and business school jargon on how to implement bank turnarounds. As you examine the results of the bank’s second year under the ownership of KCB #ticker:KCB even the most strident of cynics will admit that the finances of the bank are on the mend.
My reading is that in terms of the tangible measures, most of the action has been in the area of managing non-performing loans. In retrospect, it seems to me that the reason past attempts to revive the bank did not succeed is that management continued to make unprofitable loans.
The bank would receive billions of shillings in State-funded bailouts only to continue to make loans to unreliable borrowers. Managing the bad book, reining in in bad lending practices, and stopping the making of risky new loans were difficult because of the symbiotic relationships that existed between insiders and favoured customers.
Russo explained that in order to kick off an aggressive loan recovery process, the new management tasked PricewaterhouseCoopers with digging up data on the loans and pledged securities to inform an independent assessment of the non-performing loan problem.
The next stage was to execute a deft disruption of the relationships and the cronyism that had bedevilled loan approval processes in the bank for a long time and was hamstringing aggressive recovery.
In a matter of months, the new management had moved to overhaul its panel of lawyers, dropping those who had for a long time been representing the bank in cases involving the biggest problem borrowers.
A key part of this strategy has been the reopening of the written-off book through aggressive and ruthless tracking of problem borrowers in the old list of defaulters.
But where is the evidence of the green shoots of recovery on NBK’s non-performing loan book? According to audited accounts the non-performing loans […]