Co-operative Bank is well placed to weather interest rates capping as loan volumes soar, according to an investment bank.
The bank, which was first to cut lending rates after President Uhuru Kenyatta signed the Banking Amendment Bill into law, reported an immediate spike in loan applications as clients found it more affordable to borrow.
Before the rate caps, the bank processed 250 loans a day but currently processes 1,250-1,300 loans across the business spectrum.
Most of these (70 per cent) were borrowers seeking to refinance their loans while 30 per cent were new requests, with over half of them being approved.
“Added volumes in loans disbursed supported by the rising demand for credit and operation efficiencies is expected to partly compensate,” Sterling Capital said in a note to investors.
The bank is not worried about the increase in clients as its system is able to serve up to 20 million clients and is currently servicing 6 million accounts.
The analysts point out Co-op Bank, which was charging an average of 16.2 per cent, only took a marginal haircut of Sh539 million monthly on the net interest margins, even as it set all loan facilities at 14.5 per cent.
The bank is currently charging the full lending fees where it had previously allowed clients negotiation space.
Even with the Central Bank of Kenya (CBK) decision to bring down the Central Bank Rate (CBR) to 10 per cent, the analysts say it may only hurt the bank’s fourth quarter results especially since banks have 30 days to implement the fresh squeeze.
“Management remains optimistic on next year’s earnings indicating that the rate capping won’t affect the bottom line as it will only impact four months of operation,” Sterling Capital said.
The analysts see the bank missing its 20 per cent year-on-year growth by only 1.2 per cent, translating to Sh18.3 billion in profit before tax.
They forecast the bank will opt to focus on NFI (Non-funded income) to cover for the shrinking interest earnings.
The market researchers at the Sterling Capital say that for banks to compete in the market, they are bound to differentiate themselves using their products, facilities and how they are willing to negotiate with clients.