Oral East Africa>Co-op keeps growth steady with pivot to state and peers At the hut of the story

Written by Oral East Africa

Cooperative Bank Kenya posted net profits of Kes17.5 billion for the nine months to September as the bank managed to stay ahead of high costs by deploying more funds to government and peer lenders fishing for liquidity.

Co-op Bank Kenya saw a 6 percent jump in net profits from Kes16.4 billion, by managing to keep lending to customers stable at a time when the banking sector experienced shrinking loan books.

Credit to the private sector has tumbled to 3.7 percent in July from 13.9 at the end of last year.

The lender instead deployed more money to government paper and increased its deposits with local and international banks six times.

Price of money

Kenyan banks are witnessing heightened costs after a period of high local and global interest rates, that have raised the cost of money.

While Co-op Bank attracted lots of customer deposits which increased by 17.6 percent to Kes488.3 billion, the cost of money jumped from Kes12.7 billion to Kes20.2 billion as savers demanded higher returns on their funds.

High rates have also meant higher dud loans requiring banks to set aside more provisions which eat on incomes. Cooperative Bank chose prudence and has had to set aside Kes5.4 billion up from Kes4 billion in a similar period last year to cater to non-performing loans.

To deal with the high costs banks have either had to cut costs elsewhere or target faster revenue growth in charging higher interest on customer loans, boosting services to increase non-funded income and tapping growth in subsidiaries to underwrite the bottom line.

Cooperative Bank sweated its assets more and saw interest income rise 23 percent to 37.9 billion despite the bank loans to customer remaining flat at Kes365.7 billion.

Subsidiaries

Income from investing in government paper was up from Kes14.7 billion to Kes17.8 billion as the National Treasury paid a premium on bonds on fiscal constraints.

Subsidiaries were also lucrative and helped lift the Group's net profits 4.4 percent to Kes19.2 billion and grow total assets 13.5 percent to Sh750.8 billion.

Kingdom Bank, which is 90 percent owned by Co-op Bank, saw pre-tax profit rise 14.5 percent to Kes897.7 million while Co-op Consultancy & Bancassurance Intermediary Limited posted a pre-tax profit of Kes824.3 million on increased penetration of its bancassurance business.

Co-operative Bank of South Sudan returned a pre-tax profit of Kes434.7 million before adjusting for hyperinflation, compared to Kes246.9 million in the preceding similar period.

Co-op Trust Investment Services Limited contributed Kes254.9 million in pre-tax profit, as the subsidiary’s funds under management grew by 52.8 percent to Kes299.6 billion.