Top investor in Co-op opts to retain stake as lock-in expires

What you need to know:

Co-op Holdings Co-operative Society says its decision is based on the lender’s strong performance that guarantees it a steady flow of dividends.
The society was barred from selling its shares in the bank for five years as a condition for the bank’s listing on the NSE in 2008.

The top investor in Co-operative Bank has opted not to cut its stake following the expiry of a ban that prohibited the anchor shareholders from trading in 2.7 billion shares.

Co-op Holdings Co-operative Society, which owns 65 per cent of Co-op Bank, says its decision is based on the lender’s strong performance that guarantees it a steady flow of dividends.

The society, made up of a group of 3,800 individual co-operatives, was barred from selling its shares in the bank for five years as a condition for the bank’s listing on the Nairobi Securities Exchange in 2008.

The move is expected to boost investor confidence and allay fears of a share slump on a flood of shares had the society opted to trade it’s holding at the Nairobi bourse.

“Considering the excellent performance of the bank ... Co-op Holdings Co-operative Society has resolved not to dilute its shareholding in the bank in the foreseeable future,” the society said in a statement.

The bank’s share price has gained 27.9 per cent in the past six months to trade at Sh16.4, valuing the holding of Co-op Holdings Co-operative Society at Sh44.37 billion.

The society noted that Co-op Bank has grown to become the third largest lender in terms of assets over the five-year period, recording profit growth.

The investor is set to receive Sh1.3 billion in dividends for Co-op Bank’s performance in the year ended December when it announced a dividend pay-out of Sh0.5 per share.

Co-op Bank’s net profit grew 45.2 to Sh7.7 billion in the period compared to Sh5.3 billion the year before, helped by a higher interest margin and transaction-based income.

Its interest income from lending increased 60.6 per cent to Sh21.2 billion from Sh13.2 billion. The fast growth in interest income came as the bank’s loan book rose at a slower rate of 8.7 per cent to Sh119 billion. This means that the rise in interest income was driven by a higher interest margin — the difference between deposit and lending rates.

Analysts at Standard Investment Bank said Co-op enjoyed an interest margin of 10.6 per cent last year, up from 9.3 per cent in 2011.

Commercial banks raised their lending rates to above 20 per cent last year compared to an average of 14 per cent in 2011, helping them to earn higher returns on new and old loans which were re-priced upwards.