INTEGRATED REPORT & 2019 FINANCIAL STATEMENTS Regulated by the Central Bank of Kenya 2 2019 Integrated Report & Financial Statements INTEGRATED REPORT & 2019 FINANCIAL STATEMENTS About this report he KCB Group Plc. Integrated Report and Financial Statement 2019 provides a balanced and Tcomprehensive view of the Group’s performance as part of our continuous efforts to enhance disclosure and keep our stakeholders well informed. The Report has been prepared for the period of January 1, 2019 to December 31, 2019 and covers the business activities of the KCB Group. Framework The report has been prepared in compliance with global best practice and prudent accounting frameworks for existing and prospective investors. It is aligned to the provisions of the Companies Act, 2015, Capital Markets Authority (CMA) guidelines, the Nairobi Securities Exchange (NSE) Listings Manual, and Central Bank of Kenya (CBK) Prudential Guidelines. This report is also in compliance with the International Integrated Reporting Council (IIRC) Guidelines. The Group’s Annual Financial Statements were prepared in accordance with the International Financial Reporting Standards (IFRS). The report is part of our commitment to be transparent and accountable to our stakeholders. Assurance The Annual Financial Statements for the Group, KCB Bank Kenya, KCB Bank South Sudan, KCB Bank Rwanda and KCB Bank Burundi were audited by KPMG. KCB Bank Tanzania was audited by PwC while KCB Bank Uganda was audited by EY. The Annual Financial Statements of National Bank of Kenya were audited by PwC. 2019 Integrated Report & Financial Statements 3 Contents Overview Overview 4 Group Perfomance Highlights 5 Our Footprint 6 Digital Channel Performance 7 Our Strategy Review 8 Our Value Creation Process 10 Our Capitals 12 Operating Environment 14 NBK - A Natural Fit 20 Risk Management 22 Who Governs Us Group Chairman’s Statement 32 Taarifa ya Mwenyekiti 34 Group Board of Directors 36 Group CEO & MD’s letter to Shareholders 38 Barua ya Afisa Mkuu Mtendaji wa Kundi na Mkurugenzi Mkuu 42 Executive Committee 46 Report from the Group CFO 48 Five Year Review 50 Value Added Statement 51 A Review of Our Strategic Themes 52 Our Sustainability Agenda 62 KCB Foundation 64 Corporate Governance Statement 68 Shareholding 77 Board of Directors’ Profiles 78 Financial Statements & Notes 81 To ensure that we report on issues that matter to our stakeholders please provide any feedback and questions to: [email protected] or visit www.kcbgroup.com 4 2019 Integrated Report & Financial Statements Overview stablished in 1896, KCB has Our Regional Presence evolved to be East Africa’s largest commercial bank. Headquartered E KCB Bank Kenya in Nairobi, it operates in Kenya, Tanzania, KCB Insurance Agency South Sudan, Uganda, Rwanda, Burundi KCB Foundation and Ethiopia (representative office). KCB Capital KCB Group Plc. is a registered NBK non-operating holding company that oversees KCB Bank Kenya KCB Bank South Sudan and all the regional subsidiaries. It also owns National Bank of Kenya (NBK)— acquired in 2019— KCB Insurance Agency, KCB Capital, KCB Foundation and other KCB Bank Uganda associate companies. Today, the Group has the largest branch network in the region with 342 branches, 1,055 ATMs, 23,302 point of sale (PoS)/merchants and agents KCB Bank Rwanda offering banking services on a 24/7 basis. This is complemented by mobile banking and internet banking services with a 24-hour contact center for our KCB Bank Burundi 22.8 million customers. The Group also has a wide network of correspondent relationships of over 200 banks across the world, thereby assuring our customers of a seamless facilitation of KCB Bank Tanzania their international trade requirements wherever they are. Our shares are listed at the Nairobi Securities Exchange (NSE), Dar es Salaam Stock Exchange KCB Bank Kenya Ltd (DSE), Uganda Securities Exchange (Ethiopia Representative Office) (USE), and Rwanda Stock Exchange (RSE). KCB Group has supported East Africa’s economic growth agenda; fulfilling customers’ ambitions in the region and linking them to opportunities 342 Branches on the African continent and beyond. 1,055 ATMs | 23,302 Agents & POS / Merchants Our focus remains on areas where we believe we can make a significant difference in fulfilling customers’ ambitions and driving financial inclusion while supporting businesses to grow. We provide a broad range of financial products and services in retail banking, 7,584 Staff corporate banking, investment banking 22.8 million customers and insurance. The Bank also offers mortgages and Shariah-compliant products. KCB has over the years continually invested in deepening its sustainability agenda that is anchored on building a responsible business for the future with KShs. 129,741,108,000 special focus on environmental, social, Total Equity financial and economic pillars. Overview 2019 Integrated Report & Financial Statements 5 Group Performance Highlights Financial 2019 2019 2019 2019 Net Loans Non Profit Customer 36,897 and 535,371 Performing 63,396 686,583 Before Tax Deposits Advances Loans (KShs. (KShs. 2018 (KShs. 2018 (KShs. 2018 2018 Million) Million) 33,859 Million) 455,880 Million) 32,692 537,460 2019 2019 2019 Dividends Market 11,099 Total debt / 16.6% 173,527 (KShs. Capitalization Total equity Million) 2018 2018 (KShs. 2018 Million) 10,731 19.8% 114,822 2019 2019 Return on 20.7% Cost to 45.9% Average Income Equity 2018 Ratio 2018 22.0% 48.3% Non-Financial 2019 2019 2019 2019 42% 980,443 19,459 7% Net Promoter 2018 Customer 2018 Total Employ- 2018 Reduction in 2018 Score Complaints ee Benefits Greenhouse 43% 972,439 (KShs. M) 17,007 Gas emissions 23% 2019 2019 2019 58,611 142M litres 3.26 Electricity Reams of 2018 2018 Consumption at 2018 paper used Water use Kencom Head Office 60,625 187M litres (Million Kw\h) 3.35 2019 2019 44:56 4 Number of staff Female/Male 2018 health and safety 2018 Ratio 43:57 incidences (in 9 the work place) Overview 6 2019 Integrated Report & Financial Statements Our Footprint South Branches 11 Branches 15 Uganda Sudan ATMs 3 ATMs 18 Agents 25 Agents 522 Merchant outlets 7 Merchant outlets 266 Staff 117 Staff 330 Rwanda Branches 14 Branches 6 Burundi ATMs 25 ATMs 7 Agents 522 Agents 185 Merchant outlets 211 Merchant outlets 33 Staff 253 Staff 127 Kenya Branches 282 Branches 14 Tanzania ATMs 454 ATMs 15 Agents 14,493 Agents 144 Merchant outlets 5,573 Merchant outlets 289 Staff 6,469 Staff 287 Ethiopia (Representative Office) Staff 1 Branch vs Non-Branch Transactions Branch 2017 2018 2019 Transactions 23% 12% 3% 2017 2018 2019 Non-Branch Transactions 77% 88% 97% Overview 2019 Integrated Report & Financial Statements 7 Digital Channel Performance 2019 212.1billion billion 2018 54.4 Mobile Loans Mobile (KShs.) Advanced billion 2017 29.6 billion 2016 14.0 billion 2015 8.5 Number of Channel Transactions (millions) Agency Mobile ATMs Merchant POS Branch Teller Internet 2019 2019 2019 2019 2019 2019 45.3 281.3 14.0 6.7 12.5 1.6 2018 2018 2018 2018 2018 2018 34.7 62.1 15.4 7.9 16.2 1.3 31% 353% -9% -15% -23% 38% Overview 8 2019 Integrated Report & Financial Statements What drives us Strategy Pillars •Net Promoter Score – 42* •Customer Satisfaction Score – 77% •Customer Satisfaction Score – 83% Corporate BSC Customer Centricity •Number of customers – 4.14M •Number of customers –22.81M Financial Customer Experience -PBT •Brand power - 15% •Brand power - 29% -Efficiency •Agents & Merchants - 26,102 •Agents & Merchants - 23,302 -Shareholder Value Customer Digital Financial Growth in Digital •Non-Funded Income – 38.0% •Non-Funded Income – 33.4% Perspective Services Financial Services •Loans Disbursed on Mobile – 0.4B •Loans Disbursed on Mobile – 212.1B -Market Share -Shared Value -Brand Position •Net Loans & Advances - Kshs 282.7B •Net Loans & Advances - Kshs 535.4B Network Spread Business Growth while 2015 - 2019 Internal Business •Customer Deposits - Kshs 377.4B •Customer Deposits - Kshs 686.6B Processes Youth Agenda addressing the Women and -System Reliability Youth agenda •Yield - 12.8% •Yield- 10.9% Strategy -Sustainability New Business -Control Environment (Transformative •Average loan TAT - 18.3 days •Average loan TAT - 7.3 days partnerships) Learning and Growth Robust IT Plartform Operational Efficiency •Cost-to-Income Ratio - 50.2% •Cost-to-Income Ratio - 45.9% -Staff Productivity •NPL - 6.3% •NPL - 10.9% (7.4% Excl. NBK) -Staff Development -Culture change •No. of Staff - 5,532 •No. of Staff - 7,584 Strategic Partnerships Talent Management •Staff cost to income ratio - 24.1% •Staff cost to income ratio - 22.8% •Revenue/Staff - 10.0M •Revenue/Staff - 16.2M •Social Capital - Kshs 201.2M •Social Capital - Kshs 479.5M •Dividend per share - Kshs 2.00 •Dividend per share - Kshs 3.50 Drive Shareholder Value •ROE - 24.2% •ROE - 20.7% Our Purpose Our Vision Simplifying your world to To be the preferred •Inua Jamii Beneficiaries - 450,000 •Inua Jamii Beneficiaries - 563,121 enable your progress financial solutions provider in Africa with global reach. Overview 2019 Integrated Report & Financial Statements 9 How we achieve it 2014 Performance 2019 Performance •Net Promoter Score – 42* in 2017 started *tracking Our 6 themes •Customer Satisfaction Score – 77% •Customer Satisfaction Score – 83% Customer Centricity •Number of customers – 4.14M •Number of customers –22.81M Financial Customer Experience -PBT •Brand power - 15% •Brand power - 29% -Efficiency •Agents & Merchants - 26,102 •Agents & Merchants - 23,302 -Shareholder Value Customer Digital Financial Growth