Co-operative Bank profit hits Sh5.8 billion on revenue growth

Co-op Bank Group MD and CEO Gideon Muriuki during the previous AGM. [File, Standard]

The Co-operative Bank of Kenya has reported a net profit of Sh5.8 billion in the first three months of 2022, buoyed by non-interest income and cost management.

This was a growth of 65.7 per cent from a profit after tax of Sh3.5 billion in the first quarter of 2021. It means that shareholders of the listed lender get Sh24 return for every Sh100 that they have invested into the company.

Besides growing its income, the lender’s profitability also grew after it managed its operating costs, freeing up Sh760 million that had been set aside as insurance against possible loan defaults. Co-op Bank, Kenya’s third largest lender by asset size, picked up from where it left off at the end of 2021 with its revenues growing by 17 per cent to Sh16.8 billion in the first quarter.

In the same period last year, its total operating income was Sh14.4 billion as the banking industry continued to grapple with the effects of the Covid-19 pandemic. Non-funded income, which includes fees and commissions, increased by 41.7 per cent to Sh6.4 billion, in a period that saw Co-op resume charging fees for the use of its mobile app.

Net interest income—levied on loans—grew from Sh9.8 billion to Sh10.4 billion. Operating expenses declined by three per cent, or Sh300 million, as the bank freed up cash that had been set aside as insurance against possible loan defaults, technically known as loan loss provision.  

“The group prudentially provided Sh1.5 billion compared to Sh2.3 billion provided in 2021 indicating improving quality of our asset book as businesses and households continue to recover from the impact of Covid-19 pandemic,” said Co-operative Bank Chief Executive Gideon Muriuki.

The bank’s stock of bad loans, those that were not serviced for more than three months, also declined by five per cent from last year. Loan loss provisions reduced after customers who had defaulted on their loans, most of whom had been negatively affected by the Covid-19 pandemic, resumed paying their loans. Consequently, Co-op Bank’s ratio of non-performing loans (NPLs) to total loans improved to 13.3 per cent in the first quarter of 2022 against 15.2 per cent in a similar period last year.

“This affirms our credit quality and growth strategies and will continue to improve to single digit pre-pandemic NPL levels,” said Mr Muriuki.

The increase in revenues against a reduction in expenses has translated into a lower cost-to-income ratio—a measure of a bank’s profitability. Cost-to-income ratio declined from 59 per cent in the financial year ending December 2014 to 44.6 per cent in period under review.

“The strong performance by the bank is in line with the group’s strategic focus on sustainable growth, resilience and agility,” the CEO said.

Kingdom Bank, a recent acquisition of Co-op Bank, also saw its profit grow by 57.3 per cent to Sh199.3 million in the first quarter compared to Sh126.7 million in a similar period in 2021. Total assets grew to Sh597 billion, an eight per cent expansion from Sh552.9 billion in the same period last year.

The bank's loan book rose by nine per cent to Sh324.5 billion, as the economy recovered and firms looked for credit to expand their businesses.