Co-op profit drops to Sh3.2bn on rate cap

Co-operative Bank CEO Gideon Muriuki at a past event. PHOTO | SALATON NJAU
Co-operative Bank CEO Gideon Muriuki at a past event. PHOTO | SALATON NJAU 

Co-operative Bank #ticker:COOP has recorded a six per cent drop in quarter one net profit, joining lenders that are counting the cost of reduced interest income on customer loans following rate caps.

The bank’s net profit for the quarter stood at Sh3.2 billion, compared to Sh3.4 billion in the first quarter of last year.

Co-op Bank’s net interest income from customer loans shrunk by 7.2 per cent to Sh7.7 billion, while interest earnings from government securities also fell by 17.8 per cent to Sh1.76 billion.

The lender attributed the fall in profit to a tough operating environment, citing the rate caps on customer loans and problems in the South Sudan market.

“It is a commendable performance against the backdrop of a tighter operating environment especially with the capping of interest rates and currency devaluation and hyperinflation on our operations in South Sudan,” said Co-op Bank CEO Gideon Muriuki in a statement.

Co-operative Bank South Sudan made a loss of Sh34.7 million in the period under review owing to hyperinflation occasioned by devaluation of the South Sudanese currency.”

Total non-interest income also retreated in the period under review to Sh3.39 billion compared to Sh3.46 billion in quarter one 2016.

The lender was, however, able to cut its interest expenses by 28 per cent to Sh2.8 billion, cushioning itself against fall in income. The top-tier lender recorded a 15 per cent or Sh32 billion growth in its loan book to Sh245.9 billion during the quarter.
Its non-performing loan portfolio, however, rose at a faster pace than that of the loan book, rising by 30.9 per cent to Sh11.23 billion.

Fellow top-tier lender KCB #ticker:KCB that released its results last week also blamed the rate cap and operating environment in South Sudan for its lower quarter one profit.

KCB’s profit fell by 1.9 per cent to Sh4.54 billion during the period. The lender earlier this month announced it would temporarily close some of its South Sudan branches, terming them unsustainable.

Inflation in South Sudan hit 830 per cent in late 2016, while the South Sudanese pound is exchanging at about 108 units to the US dollar compared to 2.95 units start of last year.