NIC Group2017 Performance Milestones

John Gachora Group Managing Director

John Gachora|Group Managing Director

2017 Investor Briefing

David Abwoga|Finance and Strategy Director

Page 2

Who we are

Macro-Economic Overview

Our Strategy

Financial Performance

Closing Remarks

Page 3

• NIC Group PLC was approved as a non-operating holding company following the transfer of Kenyan banking business and net assets to NIC Bank Kenya PLC ( The new bank) . This was on completion of the group reorganization effective from 1st September 2017.

• The holding company oversees the banking subsidiaries NIC Bank Kenya PLC, NC Bank (Uganda), NIC Bank (Tanzania), and non bank subsidiaries NIC Insurance, NIC Securities, NIC Capital, NIC Leasing and NIC Ventures.

• The holding company was set up to support the Group’s medium and long term strategy through a structure that facilitates optimal use of capital, better strategic management, more effective risk management, and improved governance of the subsidiaries.

Who we are

NIC Group

PLC

NIC Bank Kenya PLC

NC Bank Uganda

NIC Securities

NIC Bank Tanzania

NIC Insurance

Agents

NIC Capital

NIC Leasing

LLP

NIC Ventures

Page 4

NIC Bank Kenya PLC: Appointment of new Directors

WakiniNdegwa

Jonathan Somen

Philip Lopokoiyit

• Wealth of experience in Banking, governance and strategy having worked in various capacities in the banking, environmental and property sectors and in the management of other private companies.

• BA (Hons) in Geography from the University of Oxford, England.

• IT expert and well-known entrepreneur in Kenya.

• Founder and former GMD of AccessKenya Group Limited

• Founder and director of various companies in the technology industry

• BSc in Economics and Accounting from the University of Bristol, UK.

• Wealth of experience in Financial management, risk management, internal controls and corporate governance, having worked for over 20 years in various senior management capacities in MNCs both locally and abroad.

• BCom (Hons), Accounting Option, from the University of Nairobi

• MBA from Warwick Business School, UK.

• Fellow of the Institute of Chartered Accountants in England and Wales

• Member of ICPAK and ACMA

• BA in Economics from MoiUniversity

• MBA (Strategic Management) from the University of Nairobi.

• CPA (K) and CPS (K)

David Abwoga

• Joined NIC Bank from Citibank N.A where he was the East Africa Cluster CFO

• Prior to this he held various executive management positions at Citi, Marshalls (EA) Ltd and Deloitte & Touché.

Bank

Group

Bank

Group

Bank Group

Page 5

Who we are

Macro-Economic Overview

Our Strategy

Financial Performance

Closing Remarks

Page 6

Kenya and Regional Overview

• The Kenyan economy advanced 4.4% y/y in the third quarter of 2017 (the lowest since 2013), affected by the prolonged electioneering period. Kenya GDP had grown by 5.6% in 3Q16. Output growth for financial services plummeted to 2.4% from 7.1% in Q3 2016 due to a constrained uptake of domestic credit. Agriculture retreated to 3.1% from 3.8% in Q3 2016 mainly due to dry weather that affected food production. In addition, output for manufacturing increased at a slower pace of 2.1% compared to 4.4% in the preceding year; transport and construction recorded 5.4% and 4.9% compared to 6.2% and 7.8% respectively while accommodation and food services slumped to 7.3% against 13.5% the same period last year. We estimate Kenya’s economy to have grown at 4.8% in 2017 down from 5.8% in 2016

• Tanzania's gross domestic product advanced 6.8% y/y in the third quarter of 2017, slowing from a 8.5% growth in previous period. Output rose less for agriculture, transport and storage; while output increased faster for construction, manufacturing, mining, trade and repair and information and communication. We estimate Tanzania’s GDP to have grown at 6.8% in 2017, slightly weaker than the 7% recorded in 2016.

• Uganda’s real GDP growth for FY 2017/18 is projected to pick up to between 5 and 5.5 per cent, supported by the current accommodative monetary policy, increased activity in the agricultural sector due to improved weather conditions, fiscal stimulus as outlined in the national budget for FY 2017/18, recovery in external demand and foreign direct investment (FDI) especially into the oil sector.

Kenya

East Africa

Page 7

Inflation Curve (%)

6.99

9.04

10.28

11.48 11.7

9.21

7.478.04

7.06

5.72

4.73 4.5 4.83

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18

• Inflation went up for the first time in five months in January 2018, rising to 4.8% from 4.5% in December 2017.

• It remained below the mid-point of the Central Bank’s medium-term target range of 2.5%–7.5%.

• The CPI variance (1.32%) is attributed to increased prices for basic commodities.

Page 8

Interest Rates Curve (%)

CBR was 10% for all of 2017; adjusted to 9.5% in March 2018• Increased liquidity that has kept short term

rates • Lending to Government continues to crowd

out private sector lending

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

91 - Day

182 - Day

364 - Day

Inter Bank

Page 9

103.8103.6

102.9

103.3103.3

103.5

103.9

103.6

103.1

103.4

103.6

103.1

102.7

101.3

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

KES / USD Exchange Rates (%)

• Foreign exchange stability against the US Dollar. The USD shed 12% of its value last year, flattering KES performance

• The shilling gained against the US Dollar to close the year at 103.2 units. It however underperformed significantly against the GBP and Euro, shedding 7% and 11% respectively.

• The gain against the USD, achieved despite a widening of the Current account deficit to 6.2% from 5.5%, was due to USD weakness as measured against a basket of other major currencies

Page 10

21.2%21.0%

20.8%

19.5%18.7%

18.0%

17.0%

16.0%15.5%

13.5%

11.1%

8.6%

7.1%

5.4%

4.4% 4.6%4.2% 4.1% 3.9%

3.5%3.0%

2.3%1.9%

1.5% 1.4% 1.6% 1.7% 2.0%2.7%

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-15

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-16

Dec

-16

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

No

v-17

Private Sector Credit Growth Trend

• Deceleration blamed on poor asset quality in the banking sector, subdued credit demand due to tough business environment and rate caps

Page 11

Kenya borrows USD 2bn in fresh Eurobond

Two papers issued

• USD 2bn/KES 206bn borrowed/ raised by issuing two papers; a 10 year and a 30 year bond.

• Each paper raised USD 1bn/KES 103bn. Investor interest was apparently high with both papers attracting total bids of USD 14bn.

Purpose of funds

• Liability management which we infer to mean settling the maturing 5 year Eurobond due next year (2019) of USD 750m.

• To finance capital projects

Interest rate

• The 10 year (2028) was offered at a coupon rate of 7.25% while the 30 year (2048) was offered at 8.25%

• The 10 year can be termed as expensive given the existing 10yr Eurobond (2024) was offered at 6.875%. Despite lower yields on the existing issues, it appears the Moody’s Downgrade and concerns on Kenya’s debt sustainability were weighty enough to result in a higher yield

Page 12

Growth Outlook

• The economy is expected to pick up strongly in 2018 supported by – Stable macroeconomic environment– Favourable weather conditions– Improved business environment and investor confidence– Continued public investment in infrastructure– Expected direct flights to the U.S.– Political stability

• Global growth recovery is expected to continue in 2018 however uncertainties remain particularly with regard to– Recent U.S. trade policy developments– Post - Brexit resolution– Pace of monetary policy normalization in advanced economies

Page 13

Who we are

Macro-Economic Overview

Our Strategy

Financial Performance

Closing Remarks

Page 14

Brand Positioning

Target Market Talent War

Scale

Return on

CapitalStep Change Reposition Grow• Most innovative Bank in East Africa

• Retain market leadership in Asset Finance

• First choice bank for Local Corporates

• Expand selected Retail and SME

• Employer of Choice

• Substantial contribution from our subsidiaries • Branch expansion

• Achieve an acceptable Return on Capital

We had a clear Strategic Roadmap for 2015 - 2017

Page 15

Over the last couple of years our strategy has been affected by a number of developments, to which we have had to course correct

Flight to safety (following Chase and IBLIR)

Banking (Amendment) Act 2016

Increased regulatory scrutiny

NIC Response

Growing NPLs

Developments

• Embarked on growth strategy • Supported IBLIR resolution• Strengthened customer relationships

• Increased focus on cross-selling/ NFI • Executed a reduction in workforce program• Slowed down on unsecured lending

• Embarked on Group reorganization which allows for flexibility to enhance non-banking offering

• Increased focus on collections• Established a Credit Advisory Group (CRAG) division

Rapidly evolving digital landscape

• Established NIC Ventures, a subsidiary focused on investing in/ partnering with Financial Technology Firms

• Digital solutions (NIC NOW App, NIC SASA, BillsBoss)

Page 16

Strategy Update: Digitization Focus

First Video Teller Machine in East Africa

Mobile based solution for buying/ selling FX

Mobile Lending Solution for Suppliers/ Distributors

SASA

Page 17

Strategy Update: Digitization Focus

Page 18

22

45

68 6972

2015 2017 Netflix Amazon Apple

Brand Positioning: Net Promotor Score

We want to enhance our market leading Customer Service

Proposition over the next few years

NIC 2015 NIC 2017

While we have done well to double our NPS from 22 in 2015 to 45 in 2017…

… we still have some work to do to reach our target NPS of > 60

X2

Page 19

Brand Positioning: 2017 Industry Recognition

Institute of Pension Management

Custodian Bank of the Year (2017)

1st Runners Up

The Banker East Africa Awards

Best Customer Service –Kenya (2017)

Winner

COG AwardsFinance and Investment

Sector (2017) Winner

The Banker East Africa Awards

Best Customer Service –East Africa (2017)

Winner

COG AwardsOverall Champion of Governance (2017)

Winner

Africa Technology Innovation Awards

Best Branch Automation Project (2017)

Winner

Page 20

Return on Capital: Key investments made in Retail Banking last year

• Opened 6 new branches (Parklands, Nanyuki, Watamu, Malindi, Kilifi and Diani

• Deployed new cash recyclers in 13 branches

• Introduced first VTM in East Africa

• Decommissioned unprofitable ATMS and Sales Offices

• Commenced the journey to green and paperless branches

• Reduced TAT across all branch processes

• Developed a faster bid-bond process.

• Adopted key credit monitoring and management templates

• Entered into a partnership with Strathmore Business School to support our SME customers

• Held SME Summits in Machakos, Nairobi, Mombasa & Eldoret

• Organized a business trip for customers to Thailand and China.

• Held various platinum customer conferences

• Launched the GOLD CVP• Introduced concierge

services for our platinum customers

• Introduced new products

Grow the Base“Scale”

Reposition the Base “Efficiency”

Reposition the Base “Engagement”

Page 21

Who we are

Macro-Economic Overview

Our Strategy

Financial Performance

Closing Remarks

Page 22

Group Financial Performance

PROFIT BEFORE TAX 2016 2017 % Growth

NIC Group (Company) - 1 -

NIC Bank Kenya 5,925 5,676 (4%)

NIC Capital Ltd (23) (8) 65%

NIC Securities Ltd 73 11 (85%)

NIC Insurance Agents Ltd 52 68 31%

NIC Leasing LLP (4) 5 >100%

Kenyan Subsidiaries Profit Before Tax 6,023 5,753 (4%)

NIC Tanzania 125 (156) (>100%)

NC Uganda 19 3 (84%)

Group Profit Before Tax 6,167 5,600 (9%)

Group Profit After Tax 4,330 4,144 (4%)

Page 23

Contribution by Market (Geographical)

Total Assets, KES billions

156.8 161.8 192.9

6.8 5.4 8.3

2.2 2.3 5.6

2015 2016 2017KE TZ UG

169.5 206.8165.8

Loans and Advances, KES billions

111.4 113.1 119.7

4.7 4.5 4.5 3.8 3.0 3.5

2015 2016 2017KE TZ UG

120.6 127.7119.9

Customer Deposits, KES billions

105.2 104.2 130.8

5.3 5.4 5.2

1.9 2.2 2.9

2015 2016 2017KE TZ UG

111.8 138.9112.4

Profit before Tax, KES millions

6,299 6,005 5,753

100 90

2015 2016 2017KE Other

6,167 5,6006,399

Page 24

Net interest income impacted by interest cap and customer deposits growth whilst supported by growth in government securities

KES ‘000 2016 2017 % Growth

Interest Income 17,509,527 16,989,933 (3%)

Interest Expense 6,329,902 7,138,832 13%

Net Interest Income 11,179,625 9,851,101 (12%)

Foreign Exchange Income 1,030,462 1,092,920 6%

Net Fees and Commissions 1,828,065 2,079,880 14%

Other Income 634,389 471,199 (26%)

Total Non Funded 3,492,916 3,643,999 4%

Total Operating Income 14,672,541 13,495,100 (8%)

Total Operating Expenses (5,035,329) (5,039,150) 0%

Total Operating Profit 9,637,212 8,455,950 (12%)

Net Provisions for Bad Debts (3,711,702) (2,779,913) (25%)

Profit Before Tax 5,925,510 5,676,037 (4%)

Page 25

Lower margins on LCY loans impacting net interest margin

17,510

3,951

8,091

12,419

16,990

6,330

1,469

3,154

5,069

7,139

FY16 1Q17 2Q17 3Q17 FY17Interest Income Interest Expense

11,180 9,851

2,482

4,937

7,350

12%

Net Interest Income, KES Millions

• Interest income from loans and advances down year on year due to Rate Cap impact.

• This was offset by an increased investment in Government securities.

• Interest expense increased 13% year on year mainly on account of increased customer deposits that rose by KES 26 billion in the year.

• Net loans and advances increased 5% year on year.

Page 26

Increased volumes, new products and customer growth has driven NFI

1,422 1,710

1,030

1,093

634

471

406 369

FY 16 FY17

3,4923,643

Non Funded Income, KES Millions

Service and Transaction Fees

FX

Trade Finance

Other

(9%)

(26%)

6%

20%

Page 27

Increase in total assets driven by customer deposit mobilization

KES Millions 2016 2017 % Growth

Net Loans and advances 107,097 112,322 4.9%

Cash & Balances with Banks 16,540 21,308 28.8%

Government Securities 27,287 51,495 88.7%

Investment in Subsidiaries 5,358 - -

Other Assets 5,566 7,746 39.2%

Total Assets 161,847 192,871 19.0%

Customer Deposits 104,160 130,561 25.3%

Borrowed Funds 21,655 28,610 32.1%

Other Liabilities 5,744 4,738 (17.5%)

Total Liabilities 131,559 163,909 24%

Shareholders Equity 30,288 28,962 (4.3%)

Total Liabilities and Equity 161,847 192,871 19.0%

Page 28

Marginal increase in lending across segments with KES 25bn increased investment in Government securities

• Total Assets grew by KES 30Bn from Dec 2016 mainly funded by a KES 25.5Bn growth in customer deposits and mainly deployed in Government securities.

• Net loans and advances grew marginally by KES 4 billion as a result of low economic activity following a prolonged electioneering process.

• Perceived demand for credit remained largely unchanged , impacted by political risk.

• Higher margins on Government securities coupled with the increased investment contributed positively to net interest income.

107 112

27

52 17

21

11

6

FY 16 FY17

162

192

Total Assets, KES billions

Net Loans & Advances

Gov. Securities

OtherCash Balances

+25

+4

Page 29

Growth in customer deposits drives funding whilst Group re-organization impacts equity

• Customer deposits up KES 26 billion

• Current and savings accounts contributed KES 9 billion to this growth.

• More emphasis on LCY deposits contributing KES 15 billions

• Interbank borrowing utilized to bridge funding gap.

• Borrowings include MTN Bond and DFI borrowings

• Decline in shareholders funds as a result of Group re-organization

104

130

22

29 30

29

6

4

FY 16 FY17

162

192

Total Liabilities & Shareholders Funds, KES billions

Customer Deposits

Borrowed Funds

OtherShareholder Funds

+7

+26

Page 30

Significant growth in customer deposits

Number of Accounts Currency, KES billions Product Type, KES billions

103

69 73

89

35 31

41

2015 2016 2017

LCY FCY

63, (61%)

57,( 55%)

74, (56%)

39, (38%) 43,

(41%)

52, (41%)

2,(2%) 4, ( 4%)

4, (3%)

2015 2016 2017

Term Deposits Current Accounts Savings Accounts

104104

104

130

86.6k

91.9k

101.7k

2015 2016 2017

104

130

(66%) (70%)(68%)

(34%) (30%)

(32%)

Page 31

Gross NPL holds steady as coverage increases

13.19

12.65

13.26

2015 2016 2017

Total Assets, KES billions

11.6% 11.2% 11.1%

24% 43% 46%Coverage Ratio

NPL Ratio

Corporate, 8.99

SME, 2.88

Retail, 1.39

NPL by Business Area, KES billions

NPL by Industry, KES billions

3.87

2.38

1.46

1.21

1.02

1.01

2.31

Wholesale/ Retail Trade

Manufacturing

Foregn Trade

Other Enterprises

Social/ Personal Services

Transport

Other

Page 32

Total Capital / Total RWACore Capital / Total RWA

Capital Adequacy maintained with sufficient buffers

2016 2017 2016 2017

Regulatory Minimum = 10.5%

Regulatory Minimum = 14.5%

17.2%

16.7%

21.6%19.9%

Page 33

Who we are

Macro-Economic Overview

Our Strategy

Financial Performance

Closing Remarks

Page 34

2017 Dividend Proposal

• Payment of a first and final cash dividend of KES 1 per share

• Issuance of one (1) fully paid up bonus share of par value KES 5 each for every ten (10) shares of par value KES 5 each

We have maintained a stable to rising dividend each year

1.25 1.25 1.00

3.50

2015 2016 2017

Dividend Payout, KES

Cash Dividend

Bonus Share Equivalent

Page 35

Our 2018 – 2022 Strategy is multi-pronged and consists of six major themes

Scale Up1

Step up by increasing share of wallet, cross-selling fee-generating productsand advisory services; and acquiring new customers

2Adjust our business mix

Drive “critical mass” in mid-corp, affluent, mass affluent and SME business to build a less concentrated, stable lower-cost funding base and increase exposure to segments with higher risk-return characteristics

3Drive Efficiency

Expand investment in new growth opportunities while maintaining cost management

4Enhance Effectiveness

Enhance sales effectiveness to increase loading of sales force and deepen relationships with existing customers (cross-selling)

5Build a sustainable franchise

Prepare the bank for the future by investing in digital customer intelligence, digital ecosystems, and an optimized distribution network

6Culture and Capabilities

Create an engine for execution and delivery, by building the people capabilities required to ensure sustained performance