End of five-year tax holiday eats into Co-op Bank of Kenya profits

The Bank has posted a Shs 6.8 billion profit for half-year 2014, and launched a mobile wallet dubbed M-Co-opcash to up its game in the mobile payments area and better serve its 4.6 million customers and the over 10 million members of the co-operative movement.

 

NAIROBI: Co-operative Bank has reported a 12 per cent drop in net profit for the financial year ended December 31, 2014 after the lender moved to a higher tax bracket following the expiry of a five-year 'taxation holiday'. This overshadowed a strong loans growth.

The bank has since going public in 2009 enjoyed a lower corporation tax rate of 20 per cent that granted to encourage firms to list their shares on the stock exchange, against 30 per cent which is now effective.

Group Managing Director Gideon Muriuki attributed the profitability slump to the higher tax rate, coupled with a one-off staff expense of Sh1.34 billion spent to pay off 160 top managers retrenched within the year.

"The bank expects to save at least Sh500 million annually out of this (staff) rationalisation," Mr Muriuki said in a statement Wednesday.

He projects a 30 per cent growth in 2015, driven by high demand for credit facilities and enhanced cost-to-income management. Last year's retrenchment of senior level managers followed recommendations of staff rationalisation by global management firm McKinsey and Company.

Muriuki had said while announcing staff rationalisation that 'some of the roles in the organisation have been realigned while others have become redundant', before the employees were retired last December.

Each of the retrenched staff member cost Co-op an average of Sh8 million in the staff sendoff, closely comparing to the Sh10 million on average spent by KCB in its 2011 restructuring. KCB had also sought the services of the advisory firm in restricting its business, which resulted in the retirement of 15 directors.

Mr Muriuki said the bank has an ambitious target of cutting it cost to income ratio to no more than 53 per cent this year, down from 70 per cent reported in 2014.

TOTAL EXPENSES

Co-op reported total expenses at Sh28 billion, versus total income of Sh40 billion. Of these, fees and commissions outpaced interest income with new products such as its agency banking paying off. The bank is now eyeing an even bigger share of its total revenues to be generated from fees and commissions, in an industry-wide shift from over-reliance on interest income.

"The bank is aggressively pushing commission incomes with the launch of our mobile wallet, M-co-opcash that is on all telco's and all products capability, allowing customers and non-customers to make cash and utility payments from their mobile phones and also borrow," Muriuki said. Payable dividends were unchanged at Sh0.50 a share, however, even as net earnings dropped by over a billion to Sh8 billion.