Family Bank’s CEO, Peter Munyiri, has a big ambition: to transform the former building society into a top bank not just in Kenya, or the region but in Africa. Focusing on becoming a leader in the local market he says, is aiming too low. With considerable confidence and enthusiasm, he says the bank has what it takes to rise to the top of the banking industry.
It is however set to be a tough journey. Family Bank was started as a finance building society in 1984 by Titus Muya, who served for many years as managing director and is currently the chairman of the Board of Directors. In 2007, it converted into a commercial bank with its main focus being microfinance and offering services to small and medium enterprises.
Five years (and three CEOs) later, the bank was yet to real-ise its full potential, and was ranked among “tier 2″ banks.
Meanwhile, peers like Equity Bank, had broken through to become one of the most profitable as well the largest in terms of number of bank accounts. The lack of momentum despite the bank’s relatively well established network pointed at lack of leadership and drive at its top ranks.
One of the astute decisions made by the owners was to bring in foreign strategic investors in the form of a consortium of private equity firms comprising AfricInvest, FMO and Norfund, which acquired a 22.3% stake in the bank for KSh 1.2 billion.
The entry of the new investors has catalysed change. One of the most dramatic was the hiring in June of Mr Munyiri from KCB, the largest bank by asset base, where he was deputy CEO.
An economist turned banker, he has worked with Barclays Bank, Standard Chartered and Cooperative Bank where he was general manager. Mr Munyiri was evidently the right man for the job. At KCB, he was credited with establishing and developing subsidiaries and new businesses and also headed a restructuring team that worked with McKinsey to develop the bank’s current organisational structure.
Before he accepted the position, he says he shared his ideas on the direction the bank should take with the board. This was important because the job would involve making large-scale, and sometimes painful changes. Once he had the board’s acceptance and approval, he was confident they would support the decisions he intended to make. “I think I am one of the luckiest CEOs,” he says. “The board has given me the space and latitude to operate and is in fact an enabler of what we are doing as management.”
Ready for change
Before he started on his new job on June 1, Mr Munyiri admits he didn’t know much about Family Bank. But he was not surprised to find “a fertile ground for change and a business with many areas that could be transformed.” Within three days, he had completed an initial diagnosis of the business and packaged his change programme. “As a change agent, you have to be able to immediately see what works and doesn’t work in an organisation,” he says.
A lot was not working. With 60 branches, 832,000 customers, an asset base of KSh21.9 billion, KSh17.3 billion in deposits and a loan book of KSh11.5 billion, Family Bank was performing below the industry average.
It was clear to him that the challenges it was facing had two root causes. First, it was not leveraging on its capital base to drive the business. For instance, the treasury and corporate businesses were weak. In addition, it was missing out on lucrative business segments like mortgages and trade finance.
Secondly, the organisational culture was wanting. “When I looked at metrics such as performance targets, transactions per teller, time it took to approve loans and other productivity measures, I could see we had major issues on our hands.”
Mr Munyiri’s choice of words suggests a deep involvement and study of change manage-ent. Terms like “deep dives” “non-regret moves” and “low hanging fruit” easily come up during discussions of his work. This understanding has defined the change programme he has implemented.
One his first initiatives aimed at boosting staff productivity and performance. He pushed the bank to put in place new performance measurement tools including balanced score cards. Employees have also been given targets and their work, as individuals and departments, is reflected in key performance indicators. The heavy focus on people is understandable. Banking, he says, is a “relational” and “people driven” business. “The people working in a bank shape customer perceptions.”
The measures, he says, are having an impact on service delivery and have injected a sense of urgency among the ranks. “Ultimately, what we want to establish is a culture of quick and efficient services,” he explains. “In addition, we want to evolve a culture that does not shy away from confronting non-performance.”
His second area of focus was organisational alignment. He has changed the organisation structure to make it “lean and efficient” In the process, over 24 senior staffers have left the bank. “Some people could not fit in the new organisational structure while some positions have become redundant,” he says. A new top team is slowly taking shape, with most chief managers having joined the bank this year.
The bank’s business model has also been reviewed. Since 2007, Family Bank has cultivated the image of a micro finance bank, with its main target being the low end of the retail market. The segment has grown rapidly over the years and has helped the bank build a large customer base. But focus on provision of basic “low value-high volume” banking services like savings and small loans has limited the bank’s ability to provide customers with more sophisticated financial products.
“This bank was started on a powerful dream but its growth has not match that of its customers,” he says. “As a result, it has been graduating customers to other banks while being left with residual accounts.”
Family Bank has ditched this model and today confidently claims to be a “universal” bank, offering the whole range of services from savings and current accounts to top end treasury management, forex trading and mortgage financing.
‘Within the first 100 days, we turned Family Bank into a universal bank. We can now do what any other bank in this market can do.”
In fact, the new managers’ key brief is to drive new business initiatives and strengthen the performance of existing ones.
Among those being keenly watched is Stephen Gakuya, who is in charge of personal and business banking, Timothy Kihikoh, chief manager, corporate banking, Ruth Murage, head of institutional banking, Kanini Kioko, the head of Treasury and George Laboso, the head of mortgages.
With the exception of Mr Gakuya who joined in June, these executives joined the bank in August and were all recruited from rival banks.
Mr Munyiri is confident the team will deliver the new vision of becoming a leading pan-African universal bank. “We have the right people to drive this business to the top.”
Bringing in many new managers at top levels can create a disconnect with lower cadre staff. One of the tools Mr Munyiri and his team are using is regular communication with staff. Every week, for instance, he sends out a note to all staff updating them on progress and new initiatives.
For Family Bank, bringing in a new top team was inevitable. “Organisational change is challenging and you need people who can accelerate the momentum,” he says. “We have been making rapid changes and we needed people who were up to speed. The last thing you want when driving change is the wrong people in the bus.”
For Mr Munyiri, speed is critical to the success of the change programme and realisation of the bank’s vision. “Some people say we are moving too fast but I would like us to move even faster.”
Why? First, he says, Family Bank is in “catch up” up mode. Many of its peers did what it is doing years ago and are thus way ahead. They have built formidable competitive strengths and are not resting on their laurels.
Secondly, the banking industry is fiercely competitive and all players are fighting hard to protect their turf. “The industry is very dynamic with the big and the small players posing unique challenges.”
His goal is to turn Family Bank into an institution renowned for speed in all its operations. He observes that many banks are not alive to the need for speed in service delivery adding that the slogan of one of its mobile money services, “Pesa Pap” resonates “beautifully” with the new service proposition.
“We want to be known for quick turnaround times in terms of service, loan approvals and other engagements with customers. I know customers hate queuing for long periods in banking halls or to wait for days before they know if a loan has been approved. Our target is to process and communicate loan approvals within 48 hours and reduce the time it takes to serve a customer.”
Service delivery has been boosted by a major information technology project that has seen the bank migrate its operations to Oracle’s Flexicube, a revolutionary banking system that provides comprehensive solutions covering all areas of banking transactions. It will enable the provision of more customised services and lead to quicker and more cost-effective launch of future products and at lower costs.
Implemented at a cost of KSh 600 million, the IT platform is expected to reduce costs and drive efficiencies across the bank’s operations. The system can handle more than 10 million customers and will make it possible to roll out lternative channels such as mobile and Internet services as well as building of new strategic alliances.
“We have built a platform for growth,” says Mr Munyiri adding that innovations around information technology are likely to be the main drivers of efficiencies in the financial services industry.
One of the best examples of how investments in IT are giving forward thinking banks an edge is MPesa, Safaricom’s mobile money transfer service. Today, only a handful of the country’s 44 banks are fully integrated with MPesa, allowing customers to transfer money from their accounts to their phones and vice versa.
Customers are also increasingly attracted to banks that allow “self-service” through mobile phones and the internet.
“Today’s bank customer is very different from that of yesterday,” notes Mr Munyiri. “We are already seeing a lot of demand for phone-based and personalised services, which has strengthened the case for a platform that can meet these emerging needs.”
The change program coincided with a slow down in the economy. In the last six months, macro-economic indicators have deteriorated, with inflation, interest rates and key currency exchange rates hitting the roof. The Central Bank of Kenya’s monetary policies to control inflation, which in October rose to 18%, have pushed interest rates to unprecedented levels of over 25%,slowing down lending and increasing chances of default.
CBK’s monetary tools have an immediate impact on financial intermediaries like banks. Although we are dealing with a difficult trading environment, we have not lowered our ambitions,” he says.
A less experienced CEO could perhaps be thrown off track by such a dismal outlook but the CEO says the Kenyan economy has since 1969 experienced a “cyclical” contraction after an economic boom. “I think the key issue for any business now is to decide whether to put the brakes on investments or invest in readiness for the good days ahead.”
The changes in the economy are set to hit the bank’s bottom-line, which was already affected by the one off costs related to staff restructuring. It has also forced the bank to put on hold its planned listing until the stock market recovers. On August 5, the bank got a nod from its shareholders to list its shares at the Nairobi Stock Exchange through a private placement.
The bank plans to list 242 million shares in a process involving 7,000 of its current shareholders. The shares are presently traded through the “over the counter” window. “The listing will proceed but we have to ask ourselves if this is the right time given the state of the market and performance of recent listings.”
The delay in listing the shares is not expected to have a “significant” impact on investments, including a planned KSh 1 billion expansion of the branch network and entry into South Sudan, where it plans to make an acquisition by “June 2012″. This year, the bank planned to launch nine new branches of which five have been opened and four are “almost complete”
Although most investments are tied to availability of new capital, Mr Munyiri says this is not a major issue for the bank. “We have several options including a mix of debt and equity and I can confirm that we are in negotiations for new capital. There is a lot of money in the global economy looking for a home.”
To realise its ambition, Family Bank has to work really hard. With an asset base of KSh21.9 billion, it will take innovation, aggressiveness and unprecedented levels of growth to rise to the top ranks of the banking industry where KCB towers with an asset base KSh322 billion.
Mr Munyiri, an alumnus of the World Bank Training Institute in Washington DC and a holder of a Bachelor of Arts degree in Economics from the University of Nairobi and an MBA in Strategic Management, is confident it can be done. “When you look at the key success factors for any bank, it boils down to financial and human capital,” he says. “What we are working on is getting these factors right and building our culture around performance. I am sure we will win.”
By Alex Gichira
Business Post Magazine January 2012