Co-op Bank gives sacked staff new terms for soft loans

Co-operative Bank has offered the 160 employees sacked last week a redundancy package that includes an option to repay outstanding loans at concessionary staff rates, a document obtained by the Business Daily has showed.

The lender has offered the retrenched employees, most of who were in senior management, the option to repay their outstanding loans at rates of between six and 10 per cent.

“The remaining loan balances will remain at staff rates for the repayment period specified in your letters of offer,” reads a memo sent to the affected staff members.

Like other banks, Co-operative Bank offers its staff soft loans at below-market rates. Secured loans attract lower interest rates compared to unsecured credit.

Terminated staff who, however, fail to service their loan for over three months will see their interest costs automatically rise to the prevailing market rates, currently at about 16 per cent.

“In the event, however, the said loans falls into arrears for a period of 90 days, the loan will immediately revert to commercial rates of interest without further reference to you,” reads the letter.

Co-op Bank, the third-largest lender in the country by assets, last week announced that it was sending 160 employees home beginning December 22 in a cost-cutting drive aimed at trimming its Sh8 billion wage bill.

READ: Co-op sends 160 workers home to arrest wage bill

The retrenched staff will receive a lump sum send-off package that includes a one-and-a-half-month’s salary for every year worked, a month’s consolidated salary in lieu of notice and payment for any outstanding leave not taken by Monday, December 22.

The bank undertook the retrenchment based on recommendations of consulting firm McKinsey & Company.

The sacked staff are allowed to offset 50 per cent of their outstanding loans using this sendoff package, provided the payment does not consume over half of their severance pay.

Those who still want to offset the remaining loan balance by January 22 next year will only be required to pay 60 per cent of the outstanding amount, with Co-op Bank committing to write off the balance.

“If you wish to clear the loan balance remaining after the minimum required curtailments, a discount of 40 per cent of the balance remaining will be offered if you clear the accounts within 30 days of retrenchment,” the bank further stated.

Co-op Bank had 4,177 employees at the end of last year, having employed an additional 810 during the year when it opened 20 new branches.

The hiring spree resulted in a Sh2 billion jump in the bank’s wage bill to Sh8 billion compared to a Sh500 million increase the previous year. The lender, seeking to reverse this trend, engaged McKinsey & Company to undertake a growth and efficiency review that has resulted in the retrenchment, mostly in management staff who have worked at the bank for as long as 15 years.

Gideon Muriuki, the bank’s managing director, noted that the restructuring will see the bank, among other things, implement a flatter management structure, reduce reporting layers and eliminate duplication of roles.

“Based on the above restructuring, some of the roles in the organisation have been re-aligned while others have become redundant,” he said.

Mr Muriuki noted that the bank is yet to calculate how much the retrenchment exercise will cost, but expects it to bring down the bank’s cost-to-income ratio to below 55 per cent from current 58 per cent.