Trading Environment The economy is estimated to have grown by 7% in 2007 compared to 6.1% in 2006. Until last year, the mood was upbeat that a growth target of over 7% was within grip with a further projection of rising to 10% by 2012. But following the post-election crisis experienced at the beginning of the year, the Government cut its 2008 growth forecast to 6%. In the worst case scenario, the government expects the growth rate to even drop to between 4% and 4.5% contrary to the ambitious targets set previously. The major economic sectors hurt most were tourism, agriculture and transport. This not withstanding, the banking sector was also adversely affected to a certain extent.
The government had managed to reduce the inflation rate to a single digit in the last five years. In just three months, January to March 2008, the inflation rate has increased from 9.67% in January 2007 to an alarming historic high of 24.6% in January 2008 due to the rising commodity prices. The increase is mainly because of increased prices of basic foodstuffs, which arose from food shortages created by disruption of supply networks following the crisis, as well as power, transport and communication services and high international oil prices.
The 91-day and 182-day Treasury bill rates were at 5.9% and 8.1% respectively as at the beginning of year 2007 to close at 6.9% and 7.9% respectively as at the end of year 2007. In the first quarter of 2008, the rates increased but have stabilized at the same rates of 6.9% and 7.9% respectively. In 2007, the Kenya shilling strengthened against all major and regional currencies. But it was however, adversely affected during the first quarter of 2008.
Financial performance Family Bank, which commenced operations on 1st May 2007, recorded a profit of Ksh 267.7 million for the eight months period (May – December 2007). Before conversion, Family Finance Building Society made a profit of Ksh 137.3 million for the four months period (January – April 2007), the net of which was transferred to the retained earnings of Family Bank on conversion on 30th April 2007. The combined profit before tax for the entire year 2007 therefore amounts to Ksh 405 million compared to a pre-tax profit of Ksh 264 million achieved in 2006, which represents a growth of 53.4%.
This performance was driven by growth in key business sectors. Gross income grew by 48% from Ksh 1.12 billion to Ksh 1.65 billion compared to a lower expenditure growth of 45%, i.e. from Ksh 855 million to Ksh 1.24 billion.
Loans to customers grew by 59% from Ksh 2.57 billion in 2006 to stand at Ksh 4.10 billion in 2007. Deposits went up by 45% from Ksh 4.16 billion in 2006 to Ksh 6.02 billion in 2007. The growth was driven by aggressive marketing and opening of new branches. The total assets of the bank grew by an impressive 57% from Ksh 5.47 billion to Ksh 8.67 billion. This was attributable to increase in lending, investments in treasury bills & placements with other banks and rollout of new branches. Finally, the shareholders funds grew by 41% from Ksh 907 million to Ksh 1.28 billion.
Conversion of Family Finance Building Society to Family Bank Limited Family Bank commenced operations on 1st May 2007 after conversion of Family Finance Building Society to a fully fledged commercial bank on 30th April 2007. The conversion involved a transfer of the assets, liabilities, capital, staff, undertakings and the entire business of Family Finance Building Society, which had been operational for over 23 years, to Family Bank Limited. The road and the process of conversion has indeed been challenging with the conversion team working tirelessly through numerous sleepless nights to make the process a big success. The institution submitted its application to convert to a commercial bank on 19th May 2006. The application was approved by the Minister for Finance on 4th April 2007. The delay costed the institution dearly in terms of lost business opportunities which the competition gladly exploited. We thank our customers and other people of good will for their understanding, patience and moral support. We also acknowledge the critical role that Central Bank of Kenya played in facilitating, guiding and ensuring the successful transition to a fully fledged commercial bank.
Upon conversion, the bank became a member of Kenya Banker’s Association. Our clearing house was completed and commenced operations in September 2007.
On the local and international money transfer scene, we installed the requisite software and became members of SWIFT (Society for Worldwide Interbank Financial Telecommunication) thus enabling us to send money anywhere in the world. We have also joined KEPSS (Kenya Electronic Payment Settlement System) which has enabled the bank to transact online with other banks and CBK through the RTGS (Real Time Gross Settlement) system. We have also partnered with correspondent banks in Europe and America to further enhance customer service beyond the Kenyan borders.
On conversion, the bank started offering additional services like personal and corporate cheque books, current accounts, trade finance, and foreign currency dealings, among others.
Business growth The bank continued to expand its outreach by opening five new branches, namely; Gikomba, Kapsabet, Githurai, Nyahururu and Busia in addition to one mobile unit in Nyamira. The number of outlets stood at 34 branches by the end of year 2007.
The ATM project which was started in 2006 in partnership with Kenswitch, has so far achieved a roll-out of 44 ATMs across the branch network. This brings to over 150 total number of Kenswitch member ATMs installed as at the end of 2007 which are accessible to our customers and Kenswitch bank member customers throughout the country. Family Bank so far has the highest number of ATMs on the Kenswitch network. We also plan to introduce other value adding services like SMS banking, internet banking and other Point of Sale services. The bank is also in the process of procuring a robust core-banking software to replace the current one in order to cope with the current business growth. This will not only improve efficiency and customer service delivery, but will also enable the introduction of new products in addition to the existing line of quality products and services.
Staff complement To support this growth, the bank increased its staff numbers by 33% from 458 in 2006 to 607 in 2007. During the year, the bank also employed an additional 125 temporary direct sales staff (translating to 27%) thus bringing the total additional staff recruited in 2007 to 274, representing an increase of 60%. Staff training and development was also a major investment during the year to enhance knowledge and skills, and build reliable in-house capacity.
Future plans The bank will continue to expand outreach to reach the unbanked Kenyans by opening additional strategic branches in 2008. Additional ATMs will also be installed in strategic locations to make cash and other services easily accessible to our customers. We will also explore the possibilities of introducing other value adding services. This will not only improve efficiency and customer service but also enable us introduce new products and services.
Conclusion The successful conversion of the institution to a fully fledged commercial bank has been an impressive milestone. Conversion to Family Bank has indeed been the turning point of this great institution and will open up new opportunities in terms of product and service offering to our clients.
I take this opportunity to thank our customers, shareholders, the Board, staff, our regulators and all other stakeholders for the continued support, goodwill and for making year 2007 a big success. Thank you and God bless
Trading Environment
Bankers Cheques