Co-op Bank recommends Sh8.8bn dividend as profit hits Sh23.2bn

Co-operative Bank of Kenya Group CEO Dr Gideon Muriuki (left) with Treasury Cabinet Secretary Prof Njuguna Ndungu (Centre) and Central Bank of Kenya (CBK) Governor Kamau Thugge (right) during a past event. [Courtesy]

Co-operative Bank of Kenya (Co-op Bank) has recommended a dividend at Sh1.50 per share or an aggregate of Sh8.8 billion for 2023 after its net earnings grew by five per cent.

The Nairobi Securities Exchange-listed firm says its profit growth in the full year ended December has given it the confidence to issue higher dividends for the period. The Co-op Bank payout comes as a huge relief to investors amid yesterday's shock announcement by another banking giant KCB that they shall not be paying a dividend this year, the first time in 21 years that the bank voided dividends.

The increased returns to Co-op Bank shareholders came on the back of the jump in net profit to Sh23.2 billion driven by income growth and a significant 6.1 per cent drop in operating expenses equivalent to Sh2.5 billion, from Sh42.2 billion to Sh39.7 billion.

"The strong performance has led to a sustained increase in shareholder value as reflected in the competitive Return on Equity of 21.0 per cent," Co-op Bank's chief executive Dr. Gideon Muriuki said in a statement on Thursday.

The drop in costs came despite the lender expanding its staff count and branch network. Staff numbers rose by a notable 536, amid the lender's opening of eight new branches and an additional fifteen planned for this year. Further investments in digitization saw the bank successfully upgrade its core banking system to the latest version of Finacle from Infosys -rated among the best banking systems worldwide, said the bank. The bank said it managed to strike a healthy balance between investments in brick-and-mortar and staff growth, on the one hand, and cost containment on the other.

"The Group reports excellent efficiency gains from the various initiatives to record a cost-to-income ratio of 47 per cent in Financial Year 2023 from 59 per cent in Financial Year 2014 when we began our growth and efficiency journey," said Dr Muriuki.

The higher payout is a boon for income-focused shareholders to whom dividends form a critical lifeline as the cost of living crisis rages.

Co-operatives, whose majority 64.5 per cent stake in the bank will be among the big winners as this will see them receive approximately Sh5.676 billion in dividends.

The Saccos will receive the billions through their investment vehicle Co-op Holdings Co-operative Society Limited, which holds a 64.5 percent stake in the bank.

The holding company then distributes the dividend to the individual Saccos, including Harambee, Kenya Police, Afya and Masaku Teachers among others.

Co-op's total operating income grew by 0.6 per cent from Sh71.3 billion to Sh71.7 billion on the back of a jump in total non-interest income which grew by 2.8 per cent from Sh25.7 billion to Sh26.5 billion.

The lender's net interest income remained resilient to stand at Sh45.2 billion from Sh45.5 billion the prior year.

Its net loans and advances grew to Sh374.2 billion, a 10.3 per cent growth from Sh339 billion in 2022.

The lender said its digital banking which has 5 million customers recorded in the period registered loans worth Sh75.3 billion disbursed year-to-date, averaging over Sh6.3 billion per month.

Its South Sudan subsidiary that is a joint venture (JV) partnership with the Government of South Sudan (Co-op Bank 51 per cent and GOSS 49 per cent) returned a profit of Sh291.3 million last year compared to a profit of Sh132.7 million a year earlier representing 119.5 per cent growth.

MSME-focused Kingdom Bank Limited contributed a profit before tax of Sh1.08 billion compared to Sh792.6 million reported a year earlier representing a 36.4 per cent growth year-on-year.