The Kenya Commercial Bank (KCB) has for the past several weeks been making headlines for its push to cut costs in an exercise handled by business consultants McKinsey & Company. In a simplistic exercise, I tried to project what its performance would be like in 2 years if KCB delivered on its promises.
In the first quarter of 2011, KCB had a growth of 21.86% in Total Operating Income. Let’s assume that KCB will grow by 20% in the 2011 and 2012 full years. Note that the average growth for KCB for the last 3 years in Total Operating Income is 28%, but I decided to use a more conservative figure
Total Operating Income in 2010 was Kshs. 30.67 Billion
| YEAR | PROJECTED TOTAL OPERATING INCOME (Kshs. Millions) |
| 2011 | 36,793,664 |
| 2012 | 44,152,397 |
If KCB were to attain its target of a 50% Cost:Income Ratio, Profit Before Tax at the end of the Full Year 2012 Results would be in the region of Kshs. 22 Billion
Compare that to the Kshs. 9.8 Billion the bank realised in the Full Year 2010 Results. This shows just how much costs are eating into KCB’s bottomline.
Subtracting 30% as Corporate Tax, its Profit After Tax should be in the region of 15.4 Billion. Assuming no more Rights Issues, this will give an Earnings Per Share of 5.2/=. Current EPS is 2.7. This represents a growth of nearly 93%
But the key issue is whether KCB will actually be able to cut its Cost:Income Ratio from 68% (As at Full Year 2010) to 50%. This 18% difference represents cutting back on a whooping 3.8 Billion in expenses, no easy task at all!
Though KCB has shown it means business by recently sending home both high ranking executives and middle level management.
Could they pull it off? And more importantly, would you put your money on it?
I bet the house on it..just to add (spice to the conservative :-)..the 2010 PBT was inclusive of a whooping Kes 2B loss from the EAC subsidiaries. As of Q1 2011 all EAC subsidiaries made money thus if the profitabilty is maintained all year 2011 then we could see KCB making an estimated 15B PBT for 2011. This is being outside of KCB's keen focus on the mortgage business all through its reach while at the same time leveraging on oppurtunities in the individual EAC countries e.g oil in UG, gas & mining in TZ, the "nothingness to somethingness" in South Sudan e.t.c Oh my! Oppurtunities abound for KCB Group. Rgds: Comrade (Cde) Monomotapa!
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