Co-operative Bank half-year net profit up 19pc to Sh7.41 billion

Co-operative Bank of Kenya Group CEO Gideon Muriuki. [PHOTO: DAVID NJAAGA/STANDARD]

Co-operative Bank of Kenya net profit for six months to June 30, 2016 has increased by 19 per cent to Sh7.41 billion premised on increased interest income during the period.

During the period, total interest income grew by 29 per cent from Sh16.7 billion to Sh21.5 billion. This pushed up operating income by Sh3.6 billion. However, interest income still formed the biggest chunk of the bank’s income (67.8 per cent).

The lender took advantage of the attractive interest rates on government securities during the period to make Sh16.7 billion, being an increase by more than half what it got in June 2015.

According to the Coop Bank Group CEO Gideon Muriuki, the growth in profitability reflects the impact of the ‘Soaring Eagle’ Transformation Project that the bank has been implementing since 2014. Through the project, the group’s four subsidiaries are anchored on cost optimisation, improvement in operating efficiencies and innovative customer delivery platforms.

The bank saw a 12 per cent growth in customer deposits to Sh278.3 billion and increased cost of borrowing pushed up interest expenses by 43 per cent to Sh7.01 billion.

Cash flows

Overall, total operating expenses rose marginally to Sh10.96 billion. The bank, which is the third largest bank by market capitalisation on Nairobi Securities Exchange (NSE) increased its loan loss provision by 96.4 per cent to Sh1.3 billion. In a similar period last year, the bank had made a provision of Sh667 million.

During the six months, gross non-performing loans (NPLs) rose by 23 per cent to Sh10.3 billion. In March, gross NPLs stood at Sh8.58 billion. On increased profitability, its liquidity ratio has moved more than twice the minimum statutory level to 41.6 per cent. At a similar time last year, the ratio was 33.7 per cent. This signals increased ability to service short term obligations.

However, its cash and cash equivalents dropped by 22.4 per cent to Sh21.4 billion. Its statement of cash flows as at close of half year indicate that cash generated from operating activities dropped by half to Sh11.12 billion. Total assets are up 12 per cent to Sh363 billion mainly on account of increased government securities. By end of June, the bank had Sh41.7 billion as government investment securities held for maturity. This is 45 per cent higher than what it had in June 2015.

Shareholders’ funds grew from Sh47.1 billion to Sh57.9 billion, being a growth of 23 per cent. Having failed to declare any interim dividend, the lender’s retained earnings grew by 23 per cent to Sh47 billion. Its cost-to-Income ratio, which is used to gauge efficiency and productivity for banks, improved from 58.8 per cent in December 2015 to 51.4 per cent in June 2016.

Muriuki said the bank is eyeing to enter more countries. Currently, it has a joint venture with the Government of South Sudan (Co-op Bank 51 per cent and GOSS 49 per cent), which made a profit of Sh29.22 million in second quarter of 2016. He said the bank’s regional expansion strategy will involve similar joint venture models in other countries such as Rwanda, Uganda, Tanzania and Ethiopia in the next five years.