Co-Op Bank suffers blip in profits in 2017 but counts on the positives

The Co-Operative Bank Group registered a gross profit of Sh16.4 Billion in the 2017 financial year, dropping from Shs 17.7 Billion recorded in 2016.

A statement from the Group CEO Dr Gideon Muriuki ties this blip to the challenging business environment encountered during the 2017 electioneering period.

His statement reads in part: “The Co-operative Bank Group notes that the environment for doing banking business has become progressively challenging, with the capping of interest rates and more lately the implementation of the IFRS 9 Accounting Standard.”

This is a terrific performance amidst a most challenging environment with interest rate caps and extended electioneering as Operating Efficiency continues to rise, with the cost-to-income ratio improving from a high of 59% in 2014 to 52% in 2017.

However, the Group has alleviated any alarms hinting that the 7.3% marginal drop in profit may have been even on the positive side given the tough circumstances over the period of the elections.

The Group made Sh11.4 Billion profit after tax, a figure which is lower from the previous year’s Sh12.7 Billion.

"We continue lending to customers, with loans growing by Sh17 billion to Sh253.9 billion. Customer deposits grew 9% to Sh287.7 billion. The bank retains a solid capital base, with total capital against total risk-weighted assets at 22%, 7.5% above the statutory minimum of 14.5%." read part of the statement

With 87% of all customer transactions migrated to alternative delivery channels, the Group now serves 7 million account-holders across all sectors with a key focus on digital banking, with the Mco-op Cash Mobile Wallet enrolling 3.6 Million customers and a grown partnership with 560 Sacco FOSAs which have so far issued over 1 million Sacco-Link cards.

Co-op Bank Foundation is also supporting 6,303 gifted but needy students from all regions of Kenya since the inception of the program in 2007.

Causes of profit blip

The financial glitch has been attributed to various sorts of reductions on certain interests. Statement notes that over the financial year, there was a 4% fall in total interest on income which was signified by reduction from Shs 42.3 Billion to Shs 40.4 on account.

Another financial hit emerged from the 3% fall in interest on income from government securities being Shs 8.5 Billion to Shs 8.2 Billion blip. Thirdly, it noted a drop in number of clients going for loans and advances thereby stifling revenue from such source.

Market approaches

Having suffered from adverse economic impacts during the last elections, Co-op Bank has embarked on customer retention strategy targeting their 7 million clients across the country and beyond. Such would include digital banking platforms and innovative financial solutions appealing to the clients.

The Group has also set its eyes on regional expansion. Co-Operative Bank of South Sudan is an instance of such initiative, where, South Sudanese government co-owns shares with the Group on 49% to 51% respectively. But a statement from the bank reveals unspecified degree of loss may have been registered out of the venture.

It is not a doom and gloom affair as the bank had some positives over the financial year. One of them being 10% increase in in assets, being Shs 35 Billion surge, from Shs 386.9 Billion to Shs 351.9 Billion over the two years.

Besides this, major milestones such as winning the Kenya Bankers Association Sustainable Finance Catalyst Awards 2017 as the leading banking institution with reliable sustainability strategies are masterstrokes to positive performance.

The Group was named Overall Winner at the Kenya Bankers Association Sustainable Finance Catalyst Awards 2017, for building a sustainability strategy that enables people, businesses and society to grow in a way that is most sustainable in the long-term.

In recent reports the bank has been able to secure a Sh15.2 bn line of credit from IFC which will significantly boost its war-chest for lending just at the time when rate caps are set for repeal.