KCB Group PLC (KCB) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the KCB full year 2019 financial performance results. [Operator Instructions] Please note that this call is being recorded. I'd now like to turn the conference over to David Kitheka. Please go ahead.

Thank you so much. Good day, everyone. This is David Kitheka. Today, we have the KCB team. They are with us in physical and others are here remotely. We have our group CEO, Joshua Oigara; we have our Chief Risk Officer, John Mukulu; we have our Marketing Director, Angela; our Treasury Director, Shalin; and our Credit Director, Apollo; [ the one who ] works with me in the Investor Relations. The teams are here and others have joined from different locations on mobile. At this point, I'll hand it to Joshua, who is online, and he will give us the opening remarks for this presentation. Joshua, over to you.

Thank you very much, David, and good morning and good afternoon to you all for joining this conference call. Obviously, we recognize that it's unprecedented time that we are at the moment with a global challenge, not just in our markets, but [ at all ] global market. And we thank you. Hopefully, you are keeping safe and well. What we are doing are, obviously, our plans, and we see that much done, during the call on what we see with unfolding developments in our markets where we operate. But I wanted to take a few minutes to highlight the presentation that we sent earlier, which is available and circulated already about last year. So overall, as we see, in our last conference call, we closed the year quite strong, based on what was our ambition in our business across our markets. Our main markets in Kenya, the key piece there was the interest with interest rate card, which have been with us for a long time. And I'm glad to note that, that has been in the last -- in September, that has been address. And obviously, banks are now coming back with a new plan and a new model on how to price the risk in the credit model and the pricing models at the moment, and we should see that impact coming through in the first quarter of this year. Now obviously, there is a lot of work that we are doing with the same to bank with the works we call the banking [ temperature ], and I could take some questions about how far we are progressing. And the second important one is to say that we continue to see strong growth on our fees and commissions last year, thanks to the investments we continue to make in our mobile banking platform that we call [ book ], our mobile loans, our transaction fees last year, and that showed a 20-plus growth on a year-on-year basis. We also did complete the acquisition of one of the local banks that we -- you probably know as National Bank. That is now likely being completed last year by December. We had a very strong first -- in the first 3 months. We see good upside even coming to this year. In terms of the integration already at this stage, we're just looking at the opportunities with the NBK transaction. And then the activity of market integration and business is an issue we anticipate to pass this year and the next year. And then as you look at our own other markets, outside the Kenyan market, we had strong performance in all our businesses across the region, starting with Tanzania, Rwanda, smaller business in Burundi. We see a rebound in recovery in our business in South Sudan. We had some difficulties last year in anticipated [ it was not real ] in Uganda. We have a strong team now, which has looked at the progress. And remember last year, we had appointed a new regional director to look at all our international businesses. And so overall, from a performance point of view, looking at the macros of all the markets, I would say nothing was exceptionally different than last year. We continue to see stability in most of our markets. The situation we see, because of the global health challenges is a new area we watch, and that's why we've asked our Chief Risk Officer to join us in this conference call. He also doubles up as the leader of our business continuity plan for the group, and we can take over some questions as we progress. [ If I speak much ] earlier to allow you answer some questions. What you see now in -- as we speak, is the response in our markets, particularly in Kenya and Rwanda, in Tanzania, on some of the key actions the government are taking across the world now. I would say, for us, it's a bit early to say what the impacts will do with our business, but I'm glad to see that there is strong action already from -- either from our health providers or from our ministries of health or from government, and we would like to see more of those going forward, particularly this week and the coming weeks. So it's every day we're looking at the activities of our business. I will then not go into the details of the presentation that we shared. I will hand over back the presentation to David, and we can then be able to take over some questions [ that you may have ]. Back to you, David.

Thank you very much, Joshua. Everyone, welcome back. At this point, I think it's best to spend the rest of the time just having a discussion with the KCB team. So we can go straight into the question and answers. The KCB team will be happy to give you the responses you need. So we can start the questions now.

[Operator Instructions] Our first question is from Adesoji Solanke of Renaissance Capital.

Yes. This is Soji Solanke. I have 3 questions I would like to know. The first of all how do you intend to resolve the capital shortfall at NBK. And what impact does it have on your capital ratios at the group level for KCB? The second question is, I noticed in your slides that you modeled for a decline in margins. Can you run us through, how you're thinking about this, how far are you with respect to the removal of the rate caps. And is this the -- just like the impact should come through in Q1. What impact are you referring to? Because in [ funding is ], no one has increased interest rates. Then my third question is, I know you can't really speak about the impact of the coronavirus on your business today, but it would be helpful if you can run us through some of things you would be thinking about. What should we be thinking about in terms of how this could impact KCB?

I just want to clarify, David, on the first question [ can you give it very clearly? ]

Joshua, I believe he is asking how we seek to resolve the capital shortfall for NBK, and what the likely impact of that would be on KCB.

Okay. Thank you very much, Adesoji, for the question. So if I look at what you referred to on NBK, the reality is the capital debt was going to be KES 7.5 billion. And that's what initially anticipated. By the December 1, we had done KES 5 billion, which is more likely what we saw as the first significant investment of capital. The KES 2.5 billion was significant recoveries of some of the loans that we knew were on track, and that's [ already in the country, ] the $2.5 billion. Our view is that, that [ at best, the reversion ] happen by June will be the last time we have with the [indiscernible] Central Bank to meet the capital requirement. So if there is going to be any additional capital, it's KES 2.5 billion, which in my view, will not have any significant impact on KCB's capital in this case. If I look at the question you asked me about -- the less NBK-specific questions, and you can follow back if they're not clear. So KES 7.5 billion was the capital that has not changed. KES 5 billion was already injected in December. KES 2.5 billion, NBK will recover the loans that are already on track in this quarter, and we value the regulators gave us until June to close that process. So that's the current plan, which is very much on top of our capital ratio for NBK. Going forward, the last quarter 4 was okay, was very strong. NBK's performance was more than 1 billion into the quarter on a pretax basis. The investment was to continue this year. And yes, we don't need to put in capital [ everyday ]. You asked me about what we see on our kind of loan substation or mobile, if I got the question correctly, in last year. So what you see is this level of risk or the cost of risk has increased, largely because we have increased our portfolio for the loans that we have underwritten last year because the new platform came in, in October 2018. We had a full year growth in terms of the price of portfolio, which we do. So I think we have optimized our core discovery model last year, and [ currently ] in the call, he can clarify that. If we look at by our vintage analysis for the last 6 months, so those loans were a little bit on track, we are coming back to where we were before the upgrade of our platform, which we call [indiscernible]. I do not see -- we're in a very good position now for this year if you look at the performance of this particular quarter. So we'll continue to grow. Do we see a huge impact for what we are seeing of the new COVID-19 in our businesses? So the way we think about that is likely our anticipation is a lot of our transactions within our bank are already moving on the digital channel where we are pushing our customers into. So our participation today will be, in terms of loan growth, we'll see some challenges in terms of repayment or some of the loan facilities, particularly what we have at our small businesses, which is not a big portfolio in our balance sheet, large businesses restructure. For check off, our check off for life would be on public sector enterprises, whether they are teachers or public sector employees. And there we see less impact in terms of their performance. So we are going to see more volume already happening on the digital side. It's already happening today. And therefore, it's much more from a loan quality issue for cost of risk, perhaps, and we are already working with customers today in terms with the plan on the repayment that we are scheduling or some kind of [indiscernible]. But we have in our early assessment, which are completed in this week, we don't see -- I can't give you a clear impact, whether it is the market change of our business. If its 10%, I'd actually call it dramatic, but it is well within a lower range than that. And we will give you some feedback once we understand it fully by the end of this month minus the impacts.

Okay. I think just 2 -- very -- 2 quick follow-ups. My other question was on net interest margin. In your model, in your slides, you assumed a reduction in net interest margins for 2020. Can you run us through how you are thinking about this? You also mentioned that the mid caps, you should see the impact in Q1. What impact are you referring to? Because my understanding is no one has increased interest rates. And then my second question is, the Central Bank has cost fees on [ pet care ] transactions less than [ 1,000 ]. Have banks implemented this? And how significant is this for KCB?

Here. So let me answer those 3 questions as I heard you. So on the net insurance margin, what we see in the Central Bank is still very keen to adopt an accommodative stance this year. And they have had late last year, if you remember, by 50 basis points. So what we see even in the coming NPC, which is coming up this month and next, but I think what we understand from the governor is that they are seeking to provide a risk cost. So that's what we see and that is what has been forecasted on the [ drop of next mention ]. So as in the first quarter or the first half of the year. So we don't know when it will happen, but absolutely see the deals in the Central Bank. [ Fee ] from the governor is that the rates are still high. So even after the retail of the interest rate, while we have not now that we say the interest will increase by 200 to 300 basis points. But we need to work on our new base rate, which was there in 2015. And though we have a pricing model, the new requirement is that requires the approval by the Central Bank, and we've already engaged with them at advanced stages. So we expect that by [indiscernible] those models have now been approved just like ourselves. And if that comes in place, then you'll see the benefit as we go into the second quarter of the year. Now the model showed that the rates today -- the base rate today will be more or less, where it is today. So more or less, like [ 13% ] and 14% without a risk premium for customer that we are not seeing before. So when I estimate a 2% to 3% growth on the rate, that's what we said earlier after the rate cut. Lastly, you asked me about the fees in terms of the transactions for mobile, so yes, the bank implemented it today, very effective by 18th of March. It is largely from transactions from bank to mobile wallet where we charge between KES 30 and KES 60 depending on which bank for us we transfer the shillings. And then from the mobile wallet to the bank, it's already generated. Banks don't have that thing today. Ideally, I would say, from a revenue point view, the impact is less than KES 0.5 billion. It will run for 90 days for now. So I would say that the impact will not be significant. And KES 500 million is annual the revenue, again, on this, what you have implemented today. And I don't think it will be significant according to our revenue.

Our next question is from Ronak Gadhia of EFG Hermes.

A lot of my questions are just -- really a follow-up from Soji was asking. Firstly on NPLs. If we were to take out the effect of NBK last year, it seems like the underlying growth rate is NPLs for KCB, particularly KCB Kenya, was quite significant. Could you just highlight where -- what sectors were driving these NPLs? And what we should be expecting this year? I mean in terms of your presentation, I see you're forecasting an NPL ratio of around 8% and relatively high cost of risk. So it seems like the underlying pressure in asset quality is still high. So if you could just highlight where that's coming from. My second question is on the NBK merger. Could you just highlight where you are in terms of bridging the 2 units in terms of branch closures, streamlining costs, putting the 2 banks together, et cetera? And finally, like you said, it's very hard to really give an assessment of what the impact on KCB, and Kenya could be from the current disruption. But I'm not sure if you've done any sensitivity analysis historically that you could share with us in terms of what's the impact on your NPLs, if you see a 10% devaluation in the shilling, or if you see a slowdown in economic growth, that kind of stuff.

Apollo, you can begin with the NPL question and the we'll pass [indiscernible]. Apollo?

Yes, Joshua. Thank you. I think from an NPL perspective, I wouldn't say that it wasn't looking at KCB Kenya position in the south because we closed up around 7.4%. That's still well within industry norms, industry at around 12%. If you look at it, I think NBK portfolio, as it came in, then the total we are looking at NPL for the end was 11%, yes? So Joshua...

Yes, but -- but Apollo -- sorry, Apollo, if I look at the level of provisions you made in KCB Kenya, and there is roughly the amount of loans you may have written off. Your actual provisions, net NPS rather, went up from KES 26 billion on a gross basis to maybe as high as KES 34 billion, KES 36 billion before the write-off. That seems quite significant for an economy that's growing at 5%, 6%.

No, actually, the NPL amount went up for [indiscernible] to KES 34 billion. So it was about 26 billion to 34 billion. And if you look at the gross NPL amount.

Okay. KES 30 billion to KES 34 billion, but that's at the net basis after the write-offs. If you include the write-offs, I think the figure would have been as close to as high as KES 40 billion.

No, write-offs last year, we had was just around KES 4 billion we are talking about.

Yes. So that goes from 13 billion to 38 billion...

[indiscernible]

Yes, that's still quite significant, wouldn't you say?

Yes, yes, compared to product [indiscernible] that impacted that one more, personal, these mobile loans [indiscernible]. So last year, we had the unusual heat in that segment as the CEO mentioned. We've reduced our forecast in the course of the year, which have improved the position. So our highly [indiscernible] performance of that portfolio is back to the month that we expect ranges of around 3% to 4%, 6 months on book, okay? So I would say that big, but also on the corporate segment, we had quite some stream areas such as transport, manufacturing and a bit of trade. So those are the segments where we show strength in Kenya, yes.

Next question is from [indiscernible].

This is [indiscernible]. Couple of questions. The first is still on NBK. So I'm going to ask some more questions there that Ronak already started. It's -- what exactly have you done already in terms of integrating NBK or making changes that you desire so far? And sort of what is next for you to do for this year? And more importantly, the media report at some point that the competition authority of Kenya ordered you have to retain 90% of the employees at NBK. Is that true? And if that is, how would you then bring down the very high cost of income ratio at NBK down if you have to absorb or have to force to retain all of those staff even after the acquisition? So that's my first question. The second one is on the bank charter that Joshua sort of highlighted earlier. If you don't mind going into a bit more detail on that particular framework. Because I notice you mentioned things like working on a pricing model with NBK, what does that entail? Are they allowing you to price? Or not allowing price? I'm not sure I got that clearly. So if you can please spend a little bit more time on that, that would be helpful. And then lastly for me is, if you have any view on currency and FX. I don't know what sort of impact you think this whole global crisis we have on touring and what you're seeing on ground? Are there demand/supply mismatches in the FX market? Or what your views are? And that will be helpful.

So thanks for the question. So let me respond. It's Joshua. Sorry, I missed you earlier. But let me answer the NBK question straight forward. So the media is inaccurate. So that's with no basis. What the competition authority authorized is that of the combined size of organization, which is around 8,000, we should not be able to reduce that by much more than [ 50% ]. So that really -- at the end of the day, we have enough [indiscernible]. So we can act up to 1,500 staff, which is more than the staff of NBK to date. The media report was inaccurate. I would say that you [indiscernible] if you got it. In terms of the integration, so we haven't done much yet in the past -- we took on the [indiscernible] end of September. So we have reorganized the senior management team. We have a new Board today. We [indiscernible] a back-end systems in terms of whether their payment systems, their processing system, the banking solution. We looked at some of the common services. Bancassurance today, our lending platform that we have. So that is actually running through. And what we want to do -- what we did now in the past quarter is looking at the entire organization structure to align it with KCB and optimize the organization side. We indicated -- we identified close to 300 people. They have [ 1,200 ] staff almost -- and I would never have identified they wanted to exit from the organization. So that, we run. We expect that by the end of June, those actions are already completed, and we added in this year to bring in the cost-to-income ratio from the 90% down about 60% just by taking away cost integrated backend but also to increase the revenue. NBK deposits are up by 15% from quarter-to-quarter. The revenue is up 10% on quarter-to-quarter. So again, I think you can see there some activities in there [indiscernible]. Those are the 2 issues that we have not limited the actions. It will take a bit longer for us to implement all the items we want to do, but we're already on track. And we have our team. I actually do get a chance to see from the Board of NBK. So there is a huge upside. We see a number of volumes coming from customers. We see a number of deposits that are coming from a lot of [indiscernible] center clients. NBK has a chance to increase its market share before the full integration from the [ $0.01 or 205 basis ] points, that's what we are pushing for from taking away from other leaders in the industry and optimizing the total for KCB, for them in terms of what they have. So overall, I see an upside for our business [indiscernible]. I'm not sure what is Ronak's question on capital, question about the efficiency. And we want to measure to the back end is too, integrated with KCB by the end of the 24 months that we have. If I look at [indiscernible] the banking sector...

Joshua, if you don't mind if I step in on NBK, just for the -- just sort of make it close into that one. On the deposit side, right, where it has a lot of government deposit, are those deposits staying, or do they plan to stay with NBK even after your acquisition?

So what we have seen is a number of customers who had already taken their come around last 2 years, they have come back and provided so -- because it's coming back. So if I look at September 2019 and December 2019, they're already up by close to [ KES 16 billion ] in income deposits. Just same clients who are already multibank to other industry players, and they are now consolidating. People like [indiscernible] authorities, the port authorities. So the fact -- so I see adjusted them to improve their market share today. The largest because of average, which is revenue authority, is actually full time bringing oil businesses back to [ educate ] with NBK. So this is in line with strategies of us for the acquisition of NBK in that period. So let me answer the question you asked about banking sector charter. And John Mukulu , if you want, can add on. So there are many issues that the bank is asking us to do, but the real critical issue, the real issue is having a pricing model, which is risk-based. And the elements need to be presented for approval by the Central Bank. I think that's, for me, the most critical issue. It does not stop you from pricing, you putting a risk premium. What I want to understand is how you designing the elements, your cost of funds, your cost of risk, your return on the assets and the risk premium based on the customer that you're actually lending risk to. As long as you're happy with those elements, you don't have an issue with the pricing model. Now it has taken a bit longer to get them to create the pricing model. But John, you have been leading this whole little lending business. John Mukulu, on the call, can actually explain to you whether we have any limitations. John, over to you.

Thank you, Joshua. I think we finalized developing the pricing model as required by the regulator. I think they're looking at it from a trend point of view, where all the parameters should be [indiscernible] with the regulator, in terms of the component that there is the pricing model. That has been approved by the Board and is awaiting approval from the regulator, Central Bank.

If you're asking [indiscernible] whether -- are we going to find another -- a different type of a price cut through this kind of model, the answer to you is, no. But I assume that the essence has become more clear about what elements going to the price coming and trying to benchmark back to all players in the industry, but every bank has a [indiscernible] model. So what we are setting up now is a new business. And I said earlier that what we've seen from our model today, for the customer that we are lending to for the last 3 years, the average prime rate is remaining at, I think, 14% without us putting in a risk premium for any customer. So there is a chance to be able to price correctly in the market today. And lastly, on the FX, I don't have a very clear view today in terms of either supply shock, which today, which we see some difficulty. And so I will not give a clear view at the moment of how we see the ForEx playing in our market. Maybe I would say that perhaps, in a period of another 2 to 3 weeks, when we understand clearly what the challenge will be, then we can give you a view. Shalin, perhaps, another comment on what we see under the short to medium term.

Yes. I guess where we are not leaning into what's happening in the global macro. So we have seen actually income over the last few days, and the market has become quite liquid. It's more flow driven, but of course, depending on which side, import sales will be coming down and interest are down [indiscernible] of the year were down nearly 30% over previous year and likely to be lower. And also oil prices are much, much lower, less than 50% of where we were a few months back or just a couple of months back. So that's going to help reduce import bill, but on the other side, export, tourism industry and horticulture will be impacted as well. So we're seeing both sides coming down. And like Joshua said, which one will be more prevalent over the other one. So there is also a Central Bank presence in the market on both sides. They had spent a certain -- a few weeks, a couple of weeks back to buy dollars, and they have been also supported in the market the other way. So it's -- I guess, we have to wait and see which plays out more over the other, but with the general global bias of dollar strength, that has been playing really well.

Yes, great. Just a last follow-up for me, please, if you don't mind. I followed up with David at some point, but there is still some sort of lack of clarity for me in terms of what different players in the market are doing regarding the monitoring policy, rate transmission into your own sort of lending rate. So given that the rate cap has been sort of a node or repeal, my understanding is that the back book will still be -- because you're not allowed to adjust that effectively, that whatever action the Central Bank does on the policy rate, you have to follow through that on the back book. Is that correct? Or is that not correct at this point in time, given that we've had policy rate case from the Central Bank? Have you had to adjust your existing back book because of that or no?

That's correct, I would say that for loans that were there before the repeal, the pricing model was a [ a bit of ] CBR plus 4%. The CBR gets adjusted, all of us are just lending it because that's why we can't give the pricing model. That's right. And that's what we're actually doing even in the first part of this year. Now to answer what is the impact for us, a lot of our loans because [indiscernible] is also on the check-up, both overall reprice because of the top-up and the short-term nature of our loan book. We rewrite that every 3 years. So this is a balancing thing that new loans are being written at a new price and all loans are being adjusted based on the [indiscernible] of the CBR. And much of what we are seeing, that this year, we will require half of our book, even if the recent enterprise steel drops its rate in this year. That is the only I wanted to add on, but general, at industry level, the prices have been adjusted as the bank rate is being priced for the CBK.

Yes. So how did this -- how fast did you say your book is going to reprice? Just if you can provide any sense on it, that would be helpful.

Yes, so that we can get -- we can get from -- what we have from [indiscernible] modeling overall from our total loan book, and also as proportionate of consumer loans it has priced much faster. The loan for the corporates, which are more like 40% of our book, repriced much slowly. So I think now we can share that with you, just where this is.

Our next question is from [indiscernible] of Franklin Templeton.

I've got a few questions. I think 1 or 2, just a follow-up from some of the other questions that the other participants asked. I just want to make sure I understand this. Regards on the interest rate post the rate cap repeal, I thought that only new loans could be priced at the new rate and all the existing loans had to remain at the old rate. But it sounded like you said that's not quite true, and it looks like over the course of the year, there will be some sort of repricing. Has the law changed? Or has the CBN (sic) [ CBR ] sort of given some allowance for repricing of the book? I just want to understand that.

So on the interest income, I think -- so that's correct. What we -- so that every time loan -- so the loans will be repriced downwards. So existing loans will be repriced downwards. That doesn't change because they are [ best with ] the CBR. But a lot of our loans, which are old loans are maturing quite fast because they are short-term loans. As they mature, new loans have been issued, especially for our [ usage ] of loan portfolio. And for those, the pricing model is actually our new base rate. It's no longer the CBR. This is a difference that we wanted to clarify. But we have issued new loans as old loans are being replaced, as the facilities are coming to an end, for check off loans, that then you can issue a new agreement. So old ones, they are not.

Okay. And on average, you're saying that over the course of the year, roughly half the book should be repriced to the new rates. Is that right?

Absolutely, absolutely.

And indicatively, only sort of roughly -- would it be like sort of 1.5% higher than the average interest yield last year?

No, as of today, no. Today, I think the pricing book loans are 13%. So it's not 1.5%. So right now, and as soon as we get our pricing model, I think that the increase is between a 1.5% to 2%, once the [indiscernible] model...

Okay. 1.5% to 2%, okay. All right. And then just some questions on the agricultural exposure. And given the sort of the issue, regards the swarm of locusts, it seems to sort of be moving ever closer to the agricultural region. Can you maybe just give us a sense of the sort of direct agricultural exposure? And I guess, there would be an indirect exposure through a whole lot of business support in those agricultural SMEs. If you can just sort of share some insight on that, please.

So -- and I'm going to ask Apollo to please follow up and -- but our overall exposure in assets, the loan book, overall, the group at corporate level, and excess of SMEs is less than 4% to 4.5%, if you combine all the portfolio that we hold. So I do not think that is that significant. But Apollo can add on if there's anything on that 4.5%.

Yes. Actually, the structural exposure is in that range, 4%. Indirectly, for other entities that are in agro processing, they are clustered manufacturing. I suppose that's what you are looking at. So if you factor in that elements, right?

Yes.

Yes. If you factor in that element, to bring it to the range of, say, 8%, 9% in my estimation, right?

Yes, yes.

Okay. And one last question, if I may. Just regards with sort of NBK book that has now come over in terms of the deposit book. It -- when we spoke last year, it sounded like the cost of funds were a lot cheaper than what they are within KCB, but they seem to sort of come out very similar, I think, around about 2.9% is what I compute, if I use the fourth quarter numbers. Can you share with us what's the strategy on that? I mean do the deposits sort of stay at that level? Can your average deposit -- cost of deposits go down? Or should we just sort of expect to some other number going forward?

And that's -- I mean, it's correct actually. So by the time we had acquired NBK, their deposit base had jumped by close to KES 25 billion to KES 30 billion. So -- and this is largely your cheaper current accounts and transactions. So what you see is 2.9% cost of funds less [ equity ]. And as we build, we bring in the confidence, which is what we have done in the past quarter, we should say that the cost of funding should be more or less 30% for NBK. And we should achieve that way for this year 2020.

The next question is from Anne Kahure of SBG Securities.

So same here, a number of my questions are follow-ups. If we can start with base rate, is there discussion with NBK extends to the risk premium level?

Not today. John, you can answer that question. They are based on the elements of the pricing model. And what is the magnitude or what is the size of the estimate of the bank, it's not something Central Bank is concerned about. They are concerned about what grows the book. So the risk premium can be [indiscernible] near prime rate or minus, or can be 5% or 10% that the customer is concerned in there. But they do not have any guide on the resilience and the cost of funds, on the return on assets and on the -- and also the cost of the risk.

Yes. I think we have -- we developed internally rating models. On the corporate side generating models, right? We're able to generate our [ PDs ]. We develop our own PDs internally. And that then, on the corporate side, we are going to derive the risk premium. On the retail side of the Cuba side, again, the corresponding models, which is used to be able to be to move them to PDs, to be able to, again, drive the PDs for the portfolios, right? So for the risk we have, those [indiscernible] market. I think what is important to the regulator is basically to be able to compute the [indiscernible] the risk models, to be able then to compute the risk premium.

So let me just follow up on John's comment, that if you do not size the model to return the risk premium then the [ second ], you then say that you can't put an arbitrary price point or margin or your price for that customer. And they will then ask for, I would say, one singular premium for the customer. So the more you can differentiate your risk bucket, the more you have some data analytics to give you the total of the PDs. We have no problem in terms of defining and defending a pricing model. So I think it's [ innate ] to the bank, and we are in a position to defend that with Central Bank.

Okay. That makes sense. And if we move on to -- so the new facilities, KCB's writing cost, the repeal of the interest rate cap. Would I be correct in assuming that once the new base rate does come in, these facilities will reprice accordingly?

Absolutely. You are right.

Okay. Okay. And if we cross over to NBK, so if I look at gross NPLs, they actually improved down to KES 25 billion from about KES 33 million. I'm just wondering what drove this. If it's part of NBK's commitment towards last year to auction some of the collateral that they had -- that they held against these facilities.

I mean, Anne, if I give some color on the portfolio on NBK, the stock of the back book, we are talking about a couple of means so that's significant, but we are in the various stages of recovery. So some of them are in transport, manufacturing in steel industry, some of them are in real estate and some of them are in hospitability. So what we've actually done is -- and we haven't done as much. NBK had a steel industry below KES 20 billion by the end of December. And we were confident that we could have been able to achieve it. Ultimately, this year, we want to be able to recover in addition to KES 10 billion. So when we say we want to bring in the NPL to 20% of NBK by December this year and 10% to next year, 2021, we see those recoveries. I don't think there is anything NBK is doing that is out of the ordinary, just a very robust team. Remember, we do have a special asset group, very dedicated investments and recovery. And I will ask Apollo to add on, but you see the traction that we can recover this loan today. Some are of a pay, which is quite interesting. So there initially, we have that the back book was systemic, it was high core, with no chance of recovery. That don't seem to hold water. But Apollo, you can add on from our last review of the last 3 months.

Yes. I think that's very right for NBK portfolio, again, improvements. As CEO has said, it was because of recovery of a full [ regimen ]. I think when we moved in, we saw opportunity in those cases. There was work already some 15 moving and just executed on closure. So that helped a lot in that movement that is noted for that last quarter of the year. And that same pace of work is continuing into the new year. So our expectation is to recover much more from the nonperforming loans portfolio for NBK, yes. So corporate type of exposure and big growth is what we are targeting to recover, yes.

Okay. So we are not at the point where we are chasing the collateral just yet?

Do you mean for closure? No.

Yes.

No. I think we are not [indiscernible] discussing with those clients, objectively, some restructure involved but not going to the direction of closure, yes.

Okay. And maybe my last question on the announcement by Safaricom and the banks to reduce fees on certain banks to [ emphasize ] transactions and also on value less than KES 1,000. My question is in relation to deposits and whether you are worried, even from a sector level that it could impact deposits because they've increased the float to 300,000 from 140,000. What's your view on that, both from a KCB perspective and maybe just overall?

So a few things I would say, are we concerned -- so we've been monitoring this. It's not the first time that we assume [indiscernible] the limit. And remember that the banking sector has brought us to [indiscernible] fall peeling tools [indiscernible] million on a daily basis. Really to the average balance on the press release is not more than KES 80,000 or KES 85,000 a month, which is very close to KES 70,000 that [indiscernible]. So we don't see the risk for us in terms of moving the deposits from the bank at a higher level into enter wallet. What we see the impact is that we will lose the fees, which we are charging on those transactions, and I gave a figure earlier. For us, it does look like the risk is KES 0.5 billion for the period that we will see. And I think that, that, we are committed to put on the table. We don't -- we're looking at ways of recovering that. But naturally, we don't see. And then #2, when the money goes into enter the wallet, money actually does come back into the bank, into our own bank account. And that's why we already accelerated those transaction charges from beginning, what we call, from customer to bank, or a C2B. So I see a bigger impact, but Angela, who also look at our digital financial services, clearly -- she is on the call, will actually give some views. So my answer to you is that, no, we don't see a [indiscernible] issue at all.

Yes. Thank you, Joshua. Yes, we expect that there shouldn't be a significant hit because those levels of deposits have been available even through other players, other banks that have them. And there is not expected to be much of a significant shift because today, we do about KES 12 billion, about half of that coming back into the bank. So even as it grows, the money must circulate and come back to them. So the question is just what levels we can expect the group to be. But it's not expected to be as significant.

Sorry, just to confirm that, you're saying you do about KES 12 billion in bank to M-PESA on a monthly basis?

Yes. And then around half of that comes back again from the market in bank accounts. And that has always been generated. And so it's only the charge which we were earning from sending from bank to M-PESA.

Our next question is from Samuel [indiscernible] Investment Bank.

Well, the first one is a follow-up on the growth NPLs from NBK. So there was a reduction of about KES 7.8 billion. Were all those recoveries? Or were some write-offs? The second one is around the provisioning. So there was a very big jump in the fourth quarter. On NBK's provisioning, was it a matter of a [ positive ] review? Maybe was NBK and providing and -- yes.

Let me -- so the reduction of NPL was -- Apollo has mentioned, additional recovery for additional [indiscernible] customers have some with a different payments planned for the loans that we have. We didn't have any right of last quarter with NBK loans. So that's a restructure for the facilities, for repayments, for a recovery, which is already at end stages. With respect to the provision in the quarter 4, so what -- we have a specific issue here with NBK, which we are addressing. And it has to do with the treatment of just one name. And this is a [ member ] we discussed in the past, which is Kenya [ Airways ] that you probably are aware about. And you remember, there was a banking sector structured in Kenya Airways 2 years ago. They say there is enough activity today to transition Kenya Airways away from our shareholding structure. We are whole owners in the old cost structure, and the government is trying to -- is the plan of transitioning that into a completely [ stable ] enterprise and pay us back our debt. Now the valuation model adopted by NBK is one of the initial disagreement at last quarter, and we have aligned that to the group's policy. And that is really their own adjustments, and it is significant for NBK books for quarter 4. But that will -- this year, be announced this year once we get either paid by the state with the takeover the business of NBK, which is what we are [indiscernible]. So just [ KES 1 million ] on the accounting statements.

Okay. Okay. My last one is -- okay, given all that is happening, do you still stand by your outlook, especially around the loan book? You are projecting 14% growth in your loan book. Do you still stand by that?

I mean I would say that as we form today, we are getting more information. So it's a very difficult question to answer today. We -- what we [indiscernible] a clear view is the -- call it the global situation in terms of the response of economy. We definitely will see an impact, no doubt, on our growth projection. So I will not say 13% will be realistic at all for this year. What we [indiscernible] do, but we see some slowdown from a few factors have been impacted dramatically like tourism, hotels, restaurants, we're already seeing that at early stages in the transport sector. So what I would say is that when we have given you our -- what the figure will be, is that by the end of this month, as we review in our relation make, we should come back to you [ pay the debit ]. This is what we [indiscernible] [ 114% ]. This is the date that changed because of the impact of COVID-19. This is our recovery plan to deliver double-digit growth in our performance. So allow us until, let's say, end of March, and we could come back to you before the first and second quarter today. In our first quarter results, we're going to give you a full forecast of the 2020 revised, based on the COVID-19.

The next question...

Do we have any further questions?

Apologies. Yes, we do. The next question is from Kevin Harding of Investec.

Just one question and hopefully, to round it up on NBK. But just to get a sense around your long-term plans for NBK, is there an expectation that you'll continue to run the brand into perpetuity? Or will you, at some stage, be absorbing it into the wider KCB structure?

Thank you, Kevin. What our plan is at the moment is what we announced to our shareholders before. We will spend the 2 years building the integration framework and collecting the benefit of NBK to make it ready, for it to be fully into KCB. That model has not changed. That's what we're working on today. We have a 2-year window. Now what we -- and I think as we go into this year, there's been a lot of conversation that NBK will run by itself, but that is the [ intent ] period which we have. As we get more benefits from the businesses of investing within NBK and focal about the integration of the back end, the customer [indiscernible] from the rest. We then should be able to see that NBK cost income is down to [ 50% ]. They have increased their non funded income. They reduced the overall total cost, improved their revenue from what it is today and the deposits have increased by 20% on a year-on-year basis from 2019, '20 and '21. If those are delivered, I think we should be in a position then to say, do we see NBK as a stand alone strong business or do we just let it down? But my focus today is to build a synergy to create a value we estimated between $70 million to $100 million in the next 3 years, and that's what we are pushing for the interim period. So we haven't been in a position where we can say what is the 5-year goal or 10-year goal. But I've also given you today [indiscernible] my 2-year and [indiscernible] for NBK. This is what we are delivering.

We have a follow-up question from Ronak Gadhia, EFG Hermes.

I think I got cut off when I asked my previous questions. But just a couple of follow-ups. Firstly, at various stages last year, management indicated that they're in the process or they're seeking for potential acquisition targets in DRC, Tanzania. Does that still remain the case? And could you update us on that? And the second question is on -- surprisingly, on your NPLs, or what the problematic factors are. And one of the factors that has been prominently mentioned of late is the real estate segment. Clearly, we've seen a lot of supply within that space, rents are coming off, property prices are coming off. Could you just tell us what your exposure is to that segment? And what kind of pressure are you seeing from that?

Thank you, Ronak. I will take the first question on the regional expansion and then Apollo, our Credit Director will speak about the NPLs, specifically, the real estate. So we're still going more on the plan for the 2 markets. Actually, we are looking at the same region. For the DRC, we still -- we do not have anything yet at this moment, which we can conclude. We continue to look at that market for opportunity. And our entry in that market will be a bank that is similar value opportunity to scale it up. So it will not be a billing service. It will be a bank that we can see. But as we stand today, we have nothing at hand. So there is no plan at the moment in DRC, for any in the conversation. In Tanzania and in Rwanda, the market will continue to see opportunities. But as I speak, at the moment, we do not have any plans or any conversations with any kind of investor in this market. So the DRC remains a priority, and I spent much time there last year. We're still talking to a number of players in that market, 1 or 2, that we may have [indiscernible] for the margin. But at the right time, we can -- if we get something specific, we will definitely let our investors through a similar call about the opportunity. Apollo?

Yes. On the NPL question, if you have noticed, our real estate exposure has remained fairly flat. It's around 18% of the portfolio. That's our exposure to real estate. NPL is at around 7% for that segment. And we took proactive actions, I think, looking 3, 4 years back, and that's why there has been little activity in terms of growth. So we've been dealing with selective customers, established developers who know the markets tightened our criteria, LTV criteria and such like. So NPL has been contained, I would say, for that segment and activity also has been now just looking at what is going on, [ the fracturing ] in the market, yes.

Yes. Let me just add on back to the question about the -- so it is true that you have supply and commercial pay -- you have supply to all residential units, especially for what you call as the median, which is properties more than $25,000. But majority of them are not funded by mortgage, by buying. I mean we have less than 20,000 mortgages today. And so I would say that the reason why they are today, that is, I would say, excess, is because as the government paid very strongly in terms of the flow of money and enhancing the strength on your anti money laundering in the last 2 years. A lot of those were cash purchases and cash sales in the market. So we don't see much exposure for us in terms of the quality of the portfolio, but what you will see, that there is a lot of excess talk, and it does talk about the future. So you may not see a -- we're not as optimistic on the growth on that business. In fact, our appetite has been a negative growth now on our mortgage business for the last 3 years.

Okay. And just sort of a follow-up to that. I mean one of the things I've noticed on your financials is that your net NPL is actually positive. So your NPL's less value of collateral is a positive number. Is that what it used to be historically? So in an environment where we're seeing so many properties under auction, value of real estate is coming down, is there a possibility that you might have to write down the value of the collaterals, which may further increase your net NPL exposure and require further provisioning?

So I don't -- I mean, in our main market in Kenya, we already adjusted our loan-to-value in 2016 to more or less, 50-50, yes? And that is a 50-50 value in 2016. If the market corrects itself, we don't anticipate it to drop by more than 25%. Even if it is at 50%, we still will keep the same level of provisions we have today. So the risk, in my view, will be much less in the properties we have invested in. So it cannot drive action in 2015 at a risk [ cap ] level.

We have a follow-up question from [indiscernible].

Just one more follow-up. On the bond portfolio, can you give us a sense of the average duration on the securities and bonds, given that rates are ticking up, coming out of the rate caps?

Perhaps, Shalin? Shalin can respond to that question.

We're looking at about 5 to 6 year average duration. We have shortened it considerably in the last one year. And based on those same expectations, so we're much towards the [ portfolio ].

Thank you for that, Shalin.

Our next question is from [ Kushan Bhopal ] of Kestrel Capital.

I just had a few questions with regards to distribution of loans under normal watch of standards. Could you give us any percentage split? And then the second -- my second question relates to the press release by Central Bank regarding emergency measures to mitigate the adverse economic effects under coronavirus. Within that, point #4 says, banks will meet all the costs related to the extension and restructuring of loans. Could you shed some light on what this means? Does it mean that banks don't have interest. It's kind of ambiguous on that? And then what would you expect the impact of, let's say, an economic shutdown? What -- if Kenya came to that, what sort of scenario are you looking at and kind of liquidity pressures? Have you had any discussions with the Central Bank in terms of any liquidity support if it [ seems all that bad ]?

Can we just clarify on your first question? I heard the 2 on the CBK emergency actions and the likelihood of a total shutdown. But the first question please?

It was the distribution of normal, large [ sub domain ] -- kind of the distribution of loans and age classification.

Okay. I don't have it today, but I'll ask Apollo to give a little color on the distribution of the watch and normal loan. But on the -- as I answer that, let me answer the 2 questions. On this action, I would say that the costs are not significant. It's normally an obligation team that we will charge, which is equivalent related to 1% of the fee of the structure. For large loans and for SMEs, is [ man for jack of loans ] or consumer loans. The income level is not as significant, I would say, for us because it is [indiscernible] for the year. And then if you look at the likelihood of a total shutdown and the impact, so that's the model we are looking at today and the worst-case scenario is not to have any total support from a liquidity point of view from the Central Bank, or emergency cash support from banks to the entire industry. If you assume you don't have both, then we are moderately down for a reduction in our liquidity and light increase in our corporate fund. But I am aware that by next week [ within KCB ], these are issues we anticipate that the Central Bank will address specifically on the short-term liquidity. Would they have some kind of specific action targeting more businesses, the micro enterprises, individual customers to the market, just like other Central Banks in the world? We don't know at this stage, but I believe that the Central Bank will definitely really need to wait into the market to assess and assist the economy in this particular period. But before Apollo answers, let me ask Shalin. Perhaps, he may have some additional views. So we have discussed it with the Central Bank, but they don't have an announcement yet. We are waiting for that at the next [indiscernible]. Shalin?

Joshua, I think just to agree with what you said, we really need to see what's behind -- what the regulators are thinking about. At this stage, we've just been speculating what response would be. As we said today, market is quite liquid, and we're not facing any difficulties in funding or any funding strat at all. And we have a lot of [ present day ] maturities in the coming weeks. So we expect the liquidity to remain in the market as well. So I think at this stage, there is nothing urgent, but, of course, we see what such regulated...

Apollo?

Yes. So the split of the book in terms of the CBK classification guidelines, we have 74% normal, 18% is under works category. That was at December, and 1% from standard; 2% doubtful; and around 4.7% of loss.

Thank you, Apollo.

Maybe I can just ask a follow-up question. So I have some exposure to the travel industry in terms of kind of my family side of things. And we've seen a complete shutdown of kind of business. Of course, 4% of your book is exposed to the tourism trade and restaurant industries. And then, of course, from that, the following impact in terms of personal lending to employees of travel agents, things like that. What sort of problem in trade, transporters -- what sort of -- if you're looking at the book today and you were to classify them as potential or potential warning area, what other NPLs are you already starting to see? Is it still very small? Is it starting to become meaningful? And then in terms of the second question is, if there was this economic shutdown, in terms of IFRS 9, what sort of impact -- I mean, would you have to classify the next worse economic scenario and therefore, increase your provisions substantially? Maybe you could shed some color on that.

Right. So this is what we are working on today. I don't have a clear answer for you, but we have a little bit of different perspective on hospitality, hotels because remember that we have faced crisis of this nature -- not at this nature, but our hotels have been shut down before for a long time because of security situation and terrorism, all right? And this is the initiative we started in 2015 and we started with that issue again recently. And a number of our hotels are going through the same cycle. We've had some advisories coming through for years in our market. As [indiscernible] shared, that is not something that is impossible, and we've seen that before in our economy. I'm actually a little bit more positive about the resilience in terms of our sales recovery because this has nothing new to do with [indiscernible], nothing to do with what I see as a security issue. So we believe that we have some models before that we can apply in predicting the recovery benefit per year in this business, particularly our big hotels in Mombasa and the big hotels for conferences in Nairobi. I don't think these are [ brick ] case. I don't think it's a significant or catastrophic case for us to improve. We changed the ratio recently from 4%. Maybe it's on a 2%, 3% change overall, but let me come back to you the next call, just with the data because we can do some modeling, give you some information based on the experience before. And on that basis, we think we can argue the case for IFRS 9 because at least, for the Kenyan market, there is an empirical evidence for shutdown, for recovery and for customer [indiscernible]. None of the sales that was shut down in the fourth case of the [indiscernible], and there are many, today, are a part of the 4%. So if you allow us more time, we can be able to give you some information with Apollo in our next call.

Our next question is from [ Timothy Wambu of Epsa ].

Joshua and Tim, my question really just revolves around NBK. I just want to get a sense as to what the rationale is for running -- but I mean, for running the NBK brand separately for the next 2 years as opposed to simply consolidating it. I think I just need to get your rationale behind that. And tied to that is also -- I mean, it's highly unlikely NBK will be profitable. It was 2 years, just by looking at how bloated it is and also the asset quality of that book. So assuming it's not profitable, it's still undercapitalized. How do you see it running for those 2 years? And I think just lastly, just to comment on the recoveries that you're making. So you're talking about possibly making KES 10 billion in recoveries in 2020. We are possibly aware that some of these loans are legacy loans, going back for a couple of years. So I just want to understand, because it sort of backs the industry trend, where we've seen asset quality remains sticky, at above 10% for quite some time. What's so different at NBK? Even from KCB, what's so different that you're able to make this recovery so quickly and improve asset quality so significantly?

Tim, that is a very good question that you raised. And I will answer that in our view, a 10% to 12% share ratio is very sticky and is a bit normal. But our [ 50% ] NPL ratio, is just enough sticky and is just no more. So -- and number of the names, we are looking at NBK, are not old loans. They are absolutely [indiscernible] good within the industry, in the transport sector, the manufacturing sector today, some of them are in hospitality. So -- and therefore, that's really for the [indiscernible] opportunity to be able to rebase the NPL ratio from the 50% to 44% or 43% in quarter 4 to 20% this year and then finally, to 10%. We have no -- we don't see -- once it's around [ 23% ], I think it's sticky. So that is one model that we see. And they are not really old loans. All this loans came from 2016. They are not very old [ name ] [indiscernible]. I haven't seen any name in NBK at the top 10 that is more than 5 years old. They were refinancing from different banks. But just to clarify, so we see some positivity in that area. Number two, to answer the question specifically on the -- [indiscernible] yes, go ahead.

Just to take you back, I mean, if you go back as far back as 2010, 2012, we've seen NBK rise historically, very high NPL ratios. They are north of 40%, yes? So I mean, such loans, one will still think they are still on the books.

I -- we want us to give you more color on the -- I won't give you the name of the client, but in reality, I've followed this story myself from 2012 on NBK. In the past, we are not -- the main, I mean which are -- remember, [indiscernible] market changed and the management team in NBK in 2014, 2015. A number of loans, we have refinanced, loans recovered from Barclays, from SunTrust, from KCB, from other banks, and that's really where the issue, in my view, started from. So they have got systemic problems, I have no doubt about it. They understand the problem we're facing. But the best answer we can give to you is as we look at the quarter-to-quarter, you will see a consistent reduction on the NPL ratio and it's part of the name that we already put into action. Some of [indiscernible] recoveries are not happening is that the [indiscernible] was lagging for 5 years, 6 years. And obviously, we did not employ strong [ concern ]. We were not adding our cases to conclusion with net [indiscernible]. So this is your management failure, if you ask me. For the last 2 weeks, from January, we've gotten [indiscernible] to be able to restructure on the injunction. I don't think there is any magic there, Timothy, [indiscernible] point recently, the worst case would be that. And then Apollo, who is our Credit Director, can tell you that is [indiscernible]. So you have to give us credit on what we do well in KCB has been implemented in NBK. In quarter 4, NBK is profitable. So with the issue about low '18 is something that we don't see for NBK going forward. And the reason how we are keeping NBK for the next 2 years is, we see a gap of building market share for customers who disappear, not from KCB, but they disappear to other players in the industry and that the customers are going back. So we grow our deposits. We grew our assets in both banks. If we're going for 1.5% market share, so then it is below 1%. I think we have a good [indiscernible] of businesses to combine with KCB. Those are the only 2 reasons at the end of the day.

But just my question on that was, also given that at NBK, you remain undercapitalized for now, and knowing very well that you have to clean up the asset quality and probably not make -- you probably won't be able to recover all, you probably have to write-off some more. And also given that it's bloated, with the cost-to-income ratio roughly at -- I believe, it was close to 90%. So in the next 2 years, I think the odds are that [indiscernible] means post baking. Isn't it, yes? I think that's the -- my view from where I see it. So simply just -- so just rebrand everything and just happen to the KCB as opposed to running separately for those 2 years. Yet, I think given its outlook, I don't know how that spells customer confidence if it doesn't turn around its case, which I think will be difficult in the next 2 years. Why not simply just follow it up and rebrand it from the outset, and just -- I guess just move on from there?

[indiscernible] remember that -- the second question too much. And maybe the initial concern is to give you more data because I think what you're lacking is the information about what we see. The view you have is the view the market has generally from the media, at NBK as a business and a franchise. Now what is [indiscernible] about our deposit NBK [indiscernible] [ KES 18 billion ] quarter-to-quarter. So 10% on end December. You can see the numbers. That's [indiscernible] about confidence for customers and those deposits do not come from KCB, correct? And I think this is what we are trying to build, strengthen the institution of the organization by the knowledge we have, we will deal with the cost income ratio. We will deliver a cap issue. If you start where expensive only, we also have systems with the NBK was [indiscernible] localization and systems deploy KCB information. And the other consequence is also that we don't want to do ourselves if it disrupts our KCB operations today. We're trying to integrate immediately. That model is a model [ development ] will not approve. We have progressed to dramatic integration and we continue running a profitable business at KCB and being able to get NBK to the positioning. And what I was saying, as I said many times on the call is, I have to get a [indiscernible] because we know how to get you with [ debit], to get all the detailed information from quarter 2 to quarter 4, and perhaps, by the end of 2020, you can see the January.

Just lastly, on KCB. I think you mentioned that the interest in your NPLs. Could you just maybe -- last, just speak about that book, KCB [indiscernible] I believe, mobile lending and the kind of challenges that you're experiencing there, lastly.

So I've explained earlier, that's correct. So we increased the volume in 2019 by almost 50%, 60% or -- more than 50% actually. And we -- because of the volume and -- we did see that we brought in new customers. Now we have more than 5 million customers qualifying, 10 million customers already registered for this build. So that was almost 100% growth year-on-year. A number of customers who came into borrow did not meet the -- in terms of their risk profile, was slightly higher and what we have done now is to remove -- we look at the current model or the price -- the modeling for the customers down to the risk buckets they're going to have. So our cost of risk increased because we brought in new customers. So perhaps, we have good quality credit customers in terms of the mobile loans. Now we discussed later on that in the '15, lastly in September, we reorganized the scoring engine. We've been able to look at the customer to really a bit of credit. And for that, we don't look at our asset product. So the fast growth we saw in 2020 will moderate now for half of last year. And John Mukulu, who is in terms of our lenders with model, can actually comment, but we see a better vintage. We see a reduction in our cost of risk. And therefore, we see fewer customers who have good quality for the [ forever ]. But John, you can share whether we see that improvement on last year from September.

Yes. We did tackle some of the rules, the business rules on the product. And if you look at how development performed for May, when we expect to make many changes, the 12-month on book, basically [indiscernible] roughly around 6%. Now at the end of the year, so that number will come down to about 3% for 12 months per book as explained by the asset credits. So the question of the levels not being booked sales in [ second end of the ], group, right? We've actually seen good performance in terms of equity.

So let me also add [indiscernible] that we also now have a better price, okay, to be in test for the product offering from last year in July -- from August. So if we're [indiscernible] given level of risk, our price for the product moves from 3% last week. We are now [indiscernible] from last week, 7.5% last week [indiscernible] for every single month going for the product. So if we are in a better position in terms of price and that is something we've been able to get approval from the Central Bank. So to that [indiscernible] in terms of the higher loss we had in the past of last year.

Our last question is from Adesoji Solanke of Renaissance Capital.

This is Soji from Ren Cap. I just had a few follow-up questions. The first one, Joshua, you mentioned that -- you mentioned if you go KES 0.5 billion for the impact from peer-to-peer transfers. Is it just for the quarter? Or is this for the year? My second question is the [ gains made ] from Treasury. You mentioned something about the average duration of your securities holdings of 5 to 6 years. You also said something about being at the short end of the curve. Could you explain what exactly you are describing here? My third question is, perhaps, just to get some color on potential relations around digital lending? What are you expecting and when? Then finally, Joshua, you mentioned about KCB M-PESA. You said you have x number of customers and a particular number of stand-up for KCB M-PESA. Can you just clarify those numbers again?

So let me answer the question, Adesoji. And then Shalin will come last. So the KES 0.5 billion is for 4 quarters. Generally, we do 3 months, is between KES 100 million to KES 150 million. That is what is at risk for us for the next 90 days for the field -- for it -- for slightly from KCB to KCB M-PESA. So lately, KES 100 million to KES 150 million at maximum. KES 500 million is annually if we were to [ rearrange ] the prices until December, which I don't anticipate in my view. I think in the [ main day ] program, worst case, Adesoji, will be an extension by another 90 days, which will take us all the way maybe to sometime in July. But I don't expect us to go beyond that kind of beyond that. Number two, in terms of the regulations on digital lending, I mean, our view is this is something we need the Central Banks to be coming. We don't know yet what direction they will take. What I can guarantee is the mobile loans from the banks like KCB M-PESA; and the Mobi; and Fuliza; and [indiscernible]. Those are approved and regulated by the Central Bank of Kenya. So whether they go back to the other digital lenders, we don't know. And we don't have our deal yet [indiscernible]. We will profile for them to regulate it, but it's the Central Bank that will make that decision at this stage as I told you. So I don't have -- and we like the Central Bank is growing before to provide some regulation. But at this stage, they have not given any clarity whether they're already priced, whether they last registered with the Central Bank, and whether they will be able to determine the approvals of the owners of those entities by lending to do what we can [indiscernible]. There are many things that the regulator can do. There are a hundred digital lenders in the market today who are not buying. And that will tell you that [indiscernible]. But in terms of the numbers -- and before I give, the numbers are small, I mean between the National Bank, which is ourselves, NBK and the 2 others, the corporate bank and maybe the [indiscernible], we will be 90% within the lending business in the market. If you ask me about KCB M-PESA, so we have [indiscernible] million customers, who -- so we have 20 million, for which 10 million customers have a limit -- have a credit limit, right? They have been given a limit today. Some of those limits have kind of fallen out because either the customers have delayed in payments. They have -- they've not paid a full loan. So the customers, I already say, who are active today and can go any time is half of the 10 million, correct? But 20 is the full [ universe ] of the customers who are registered, but only half of those were qualified. [indiscernible] The other half is a lot of work for them. They don't qualify. They don't meet the criteria. The credit rating doesn't score them. So it is now the 3 million to 5 million, which we are asking around. And if I can increase them, but it brings more risk, you need a better price. We need better rich analytics, which is what we have invested today, strongly in our new platform. And I think this [indiscernible] improves our business at this. So if we are able to work with current prices we have. Your last question was around the maturity profile and I'll ask Shalin to answer the question.

I guess, it's exactly what we said, average life is with the weighted average life of the bonds that we are holding in our portfolio in between 5 to 6 years. I mean when you ask about shortening, either we exited longer end and not more shorter end, or our growth in our portfolio would have been through more shortened purchases, which decreased the average life of our holdings.

Okay. I didn't get the last question clearly, but I'll check with David later on.

I would now like to hand it back -- the call back to Joshua for closing remarks.

Thank you very much for the questions and joining us on this call. As I said earlier in my beginning of this conference call, we continue to learn and build our information on a global challenge, which is coming much more strongly in our market now. So we've spoken a little bit about what we see. We didn't give as much color. We do believe that in the next 2 weeks, by end of the quarter, we should able to give some information in our next conference call about our own scenarios, in terms of the response that we have. We still have our ambition to be able to grow our business this year despite the global challenges. The downside risk is what we are putting together as a team, and we shall share that with you during the conference call at the end of the quarter. Thank you very much. You keep safe, and all the very best. Thank you, and have a good day.

Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.