Co-op Bank rakes in Sh12.1b profit as lenders change tack

Co-op Bank Group Chief Executive Gideon Muriuki. [File, Standard]

In a highly competitive environment amid rising operating costs and a stagnating market, tier-one lenders are looking for new sources of growth.

Co-operative Bank of Kenya (Co-op Bank) is the latest tier-one lender to announce it will increase strategic partnerships and investments to grow new income streams.

Co-op Bank announced the plans as it posted a 5.22 per cent jump in net earnings to Sh12.1 billion for the first six months of the year.

“The Group continues to pursue strategic initiatives that focus on resilience and growth in the various economic sectors,” said Co-op Bank Group Chief Executive Gideon Muriuki in a statement on Thursday.

Kenyan banks have generated substantial growth in non-interest income in recent years as they look to diversify their fee-based revenue streams. Over the past two years, another tier-one bank - Equity Bank - has facilitated several trade missions in regional countries to promote investments.

The trade missions have been conducted in partnership with countries like the Democratic Republic of Congo. KCB Bank Kenya and Swedish International Development Cooperation Agency (SIDA) also recently inked a Sh1 billion guarantee scheme deal towards de-risking Small and Medium Enterprises (SMEs) in efforts to provide credit and support their growth ambitions.

Co-op Bank says it plans to garner fresh momentum on the digitisation front from its recent successful transition to a new core banking system named Finacle, which the lender says offers robust new capabilities.

Co-op Bank recently won the race to handle billions of shillings that pass through the now-regulated coffee exchange market annually, boosting the tier-one lender’s non-funded income streams.

Coop Bank will under the new deal provide the Direct Settlement System (DSS) technology platform on which the clearing and settlement of coffee trades will henceforth be conducted as provided for in the new coffee trading regime supervised by Capital Markets Authority (CMA).

Co-op Bank was selected as the DSS service provider following a competitive bidding process undertaken by Nairobi Coffee Exchange and approved by CMA, which saw nine financial institutions submit their bids.

Underlining the fruits of the strategy, Co-op Bank said its jump in earnings was driven by growth in both interest and non-interest income, with total operating income rising three per cent to Sh35.4 billion.

Mr Muriuki pointed out the lender’s non-interest-funded income grew at the fastest pace, increasing by four per cent to Sh13.8 billion from Sh13.3 billion in a similar period last year.

The lender’s net interest income also grew by 2.3 per cent to Sh21.5 billion from Sh21.1 billion in 2022, he said. This came as total costs recorded a modest drop to Sh19.1 billion, offering relief into the lender’s bottom line.

Co-op Bank, which has a network of 191 branches including four in neighbouring South Sudan, has bucked the trend of branch closures by opening seven new branches around the country.

They include branches at Kimana; Matuu; Thika, Kwame Nkrumah; Greenwood Mall, Meru; Kenol, Makuyu; Hindi, Lamu and Bamburi, Mombasa; all opened in 2023.

It opened an additional five branches last year in Kabarnet, Iten, Kasarani, Kamakis and Chwele.

Co-op Bank said it had established a dedicated capacity-building fund with an initial injection of Sh100 million aimed at offering technical support and digitisation to farmers’ co-operatives throughout the country.

The lender said it has carried out capacity-building for 30 co-operatives in six agriculture sectors - coffee, dairy, potatoes, poultry, cotton and cereals. The initiative will impact over 50,000 individual farmers.

In collaboration with other partners, the bank recently launched a potato value chain programme in Nyandarua County intended to assist farmers to produce and deliver potatoes with standards consistent with the requirements of key food retailers and restaurants such as KFC.

Co-op Bank says it has set aside a Sh12.6 billion war chest for affordable loans to small businesses. The bank signed the long-term credit agreement with global institutional investors led by the German fund, Deutsche Investitions – und Entwicklungsgesellschaft (DEG).