Co-operative Bank secures Sh5.5bn World Bank loan for SMEs

Co-operative Bank of Kenya managing director, Gideon Muriuki. He says growing the bank’s loan book is priority. Photo/File
Co-operative Bank of Kenya managing director, Gideon Muriuki. He says growing the bank’s loan book is priority. Photo/File 

Co-operative Bank is set to receive a Sh5.5 billion ($65 million) loan from the World Bank’s private lending arm, IFC, to increase lending to small businesses and farmers.

The seven-year loan consists of Sh5.1 billion ($60 million) for onward lending to SMEs and agri-based businesses and another Sh425 million ($5 million) under the International Finance Corporation (IFC’s) global trade finance programme.

“The primary objective of the project is to support the bank’s growth, address its balance sheet maturity mismatch, and help it meet its dollar funding needs,” says the IFC in disclosure notes on the intended loan disbursement.

Co-op Bank is Kenya’s third largest bank accounting for 8.2 per cent of total assets in the banking industry.

The bank was listed on the Nairobi Securities Exchange (NSE) in 2008.

Co-op Bank has its roots in the cooperative movement having been established in 1965 by agricultural co-operative marketing societies.

Like most Kenyan lenders that mainly hold short-term customer savings, Co-op Bank’s capacity to give long-term loans is limited by the mismatch of its loan book and deposits.

“Long-term funding to address the existing maturity mismatches will offer a lower risk funding approach to the bank’s business,” said the IFC.

Co-op Bank’s managing director Gideon Muriuki had not responded to our queries on the pending loan disbursement by the time of going to press.

In an investor presentation in March, Mr Muriuki said growing the lender’s loan book was a priority.

“Co-op Bank remains focused on balance sheet growth and transaction based income as a key driver of our performance,” said Mr Muriuki in the presentation.

Small and mid-size enterprise (MSE) lending makes up 5.3 per cent or Sh6 billion of Co-op Bank’s lending portfolio, while agribusinesses accounts for 3.10 per cent or Sh3.5 billion.

Corporate lending, mortgages, personal loans and asset finance make up the remainder of the bank’s Sh114.6 billion portfolio as at the end of last year.

Francis Mwangi, a research analyst at Standard Investment Bank, said that lending to SMEs, asset and trade finance is the next frontier for Kenyan banks as uptake of personal loans slows down.

With a relatively small debt load of Sh228 million, the Co-op Bank has the capacity to take up more debt, said Mr Mwangi. The loan will make up roughly 3.4 per cent of the lender’s liabilities.