Despite turmoil, South Sudan remains lucrative for Co-op Bank

Co-op Bank CEO Gideon Muriuki says customer queue time has reduced by 50 per cent in the transformed branches - increasing product sales performance by 40 per cent.[PHOTO:FILE/STANDARD]

NAIROBI: Co-operative Bank’s transformation agenda has seen the financial institution post improved profitability, despite challenges it faced in the war ravaged South Sudan. Chief Executive Gideon Muriuki attributed this to the optimisation of alternative banking channels, performance based on reward culture and robust customer relationship management.

Others are sales force effectiveness, digitisation and automation. Muriuki said the strategy dubbed ‘Soaring Eagle’ focusing on lean functional structure, a competitive cost to income operating model and innovative customer delivery platforms has seen the bank reap the benefits early.

Co-op Bank’s profit grew at 30 per cent to Sh8.75 billion. Equity Bank’s profit rose by 12 per cent to Sh12.1 billion, while KCB’s rose 13 per cent to hit Sh13.2 billion.

CFC Stanbic Holdings pre-tax profit fell 34 per cent to Sh2.87 billion from Sh4.33 billion, while Barclays Bank profit rose five per cent to Sh6.43 billion.

CFC Stanbic’s decline in profitability was on account of South Sudan woes, which is faced with civil war since December 2013.

However, Co-op Bank made a Sh122 million profit in the same country.

The Central Bank of Kenya (CBK) Annual Supervisory Report for 2014 shows subsidiaries registered combined profit before tax of Sh5.5 billion compared to Sh5.2 billion the previous year, with Tanzania accounting for 32 per cent of the earnings.

Exchange rates

According to the report, South Sudan crisis led to a hard currency shortage with wide discrepancies between official exchange rates and black market exchange rates. “Subsequently, this affected Kenyan customers of subsidiaries in South Sudan as they were not able to fully draw on their South Sudan Pound-denominated accounts after fleeing back to Kenya at the height of the crisis,” noted CBK report.

CBK report says subsidiaries operating in South Sudan accounted for 26.3 per cent of the total profits, although only KCB, Equity Bank and Co-op Bank have operations there.

Muriuki said the bank’s net interest income increased to Sh11.8 billion, a 19 per cent rise from Sh9.9 billion declared in 2014, while its return on equity was up 23.88 per cent.

Releasing the Co-op Bank results last week, the chief executive said cost to income ratio, a measure of efficiency, came down to 51 per cent from 62 per cent in December 2014.

This is attributed to the increased use of alternative channels and the McKinsey restructuring that took place last year. “This ration of 51 per cent means that for every shilling made, 51 cents goes to expenses down from 62 cents.

Cost Management is a strategic pillar of the ‘Soaring Eagle’ Transformation agenda. He explained that despite a 22 per cent growth in the asset base of the bank to over Sh325 billion, its operating expenses reduced by four per cent.

He said the strategy to re-direct customer traffic to alternative channels saw the bank record 65 per cent of all transactions being handled at alternative channels away from bank branches.

“Co-op Bank use of cheaper alternative channels resulted in a two per cent drop in transactions in branches but a 17 per cent, 23 per cent, 34 per cent increase in ATM’s, agents and Mco-op cash respectively. Collectively, alternative channels contributed to 65 per cent of transactions,” noted Muriuki.