Co-operative Bank Thursday said it has taken up a 51 per cent stake in its South Sudan subsidiary as it posted a 21.7 per cent net profit growth in the first half.
This is the first time the bank has ventured outside Kenya in a deal that will entail a greenfield joint venture worth Sh1.2 billion ($15 million) with the government of South Sudan, which holds the remaining 49 per cent stake.
“The majority stake gives us control of the subsidiary and we will be responsible for the management of the bank,” Co-op Bank Managing Director Gideon Muriuki told Business Daily.
He added that the government of South Sudan will hold the stake in trust for three years before handing it over to the co-operative movement that is being developed in that market.
The bank will initially open five branches in the capital Juba by December with plans to replicate its strategy of working with co-operative societies in the newly independent state.
In Kenya, Co-op has leveraged on the 10,000 co-operative societies with eight million customers to marshal deposits, expand lending and transaction-based income.
Mr Muriuki said experience in South Sudan will guide its plans to further expand into Tanzania, Uganda, and Rwanda.
The venture into the new market comes after the bank’s net profit rose to Sh4 billion in the six months to June from Sh3.3 billion a year earlier. This was driven by increased lending and higher net interest margin.
Its loan book grew 18.3 per cent to Sh112.6 billion from Sh95.1 billion, raising interest income 78.4 per cent to Sh12.9 billion from Sh7.2 billion. Mr Muriuki said interest income grew faster than the loan book because of the higher rates in the review period.
Co-op’s interest expenses rose 318 per cent to Sh5.5 billion from Sh1.3 billion but it grew its net interest income by 25 per cent to Sh7.4 billion.
Base lending rates more than doubled to 25 per cent in last year’s fourth quarter after the Central Bank raised its signal lending rate to 18 per cent to tame inflation and support the weak shilling. The lending rates more than tripled the deposit rates, which averaged seven per cent, though large depositors were able to negotiate for up to 20 per cent for their money.