Co-op Bank retains McKinsey after 12pc profit dip

Co-operative Bank has hired international advisory firm McKinsey to deepen its cost-cutting after announcing a 12 per cent profit dip.

The bank on Wednesday reported a drop in 2014 profit to Sh8 billion from Sh9.1 billion earned in the previous year, attributed to a one-off staff redundancy cost and the move to a higher corporate tax bracket.

Chief executive Gideon Muriuki said McKinsey will advise on further cost-cutting and improvement of the lender’s efficiency levels as it seeks to rebound from the profit slide.

“We want to retain the same growth path, but with a lower cost load,” said Mr Muriuki in an interview after announcing the results.

This will be the second time the bank will be consulting McKinsey on cost-cutting. Last year, the lender spent Sh1.3 billion on severance pay for 160 senior staff who were retired in line with recommendations made by the global consultancy.

The bank’s annual results show its loan book expanded by Sh42 billion, a 30 per cent rise, to Sh179 billion. Its deposit base jumped by 24 per cent to Sh217 billion.

Co-op’s interest expenses increased 36.5 per cent to Sh8 billion, with Sh6 billion being payment on customers’ savings. Its interest income grew at a slower pace, 19.6 per cent, with loans earning it Sh24.7 billion.

Mr Muriuki said the bank will put a lid on expenses while seeking to squeeze more business from existing customers.

McKinsey pointed out that 73 per cent of the bank’s 5.1 million customers use one product of the bank compared to an estimated 60 per cent by its rivals.

READ: Co-op bank posts 12pc drop in net profit on lay-off costs

The bank’s operating expenses and operating income grew at an equal pace, 15 per cent last year, following opening of new branches that were yet to break even. “It’s cost to income (CTI) ratio dropped by 0.5 percentage points to 59 per cent— still one of the highest CTIs in the industry,” said Standard Investment Bank.

The management said 23 branches opened last year posted a cumulative loss of Sh300 million. Eleven of them are said to have broken even in the year to February.

South Sudan operations posted a Sh500 million loss in its first full-year of operation.

Co-op bank owns 51 per cent of the South Sudan subsidiary, with the government holding the rest on behalf of the country’s co-operative society that is yet to establish its footing.

The group performance was lower than the bank’s after performances by other subsidiaries failed to wipe off the South Sudan losses.

Co-op bank owns stockbrokerage Kingdom Securities, advisory firm Co-op Trust and an insurance agency. It is also owns 26 per cent of listed insurer, CIC.

Co-op bank is in talks with Ethiopian and Ugandan governments to expand into their countries through a joint venture model similar to that in South Sudan by end of the year.

Last year, the bank paid Sh3.4 billion to Kenya Revenue Authority in taxes, up from Sh2 billion in 2013.

The lender moved to a higher tax bracket of 30 per cent from 20 per cent following expiry of a five-year tax holiday it was enjoying after listing through an initial public offering in 2008.

Co-op Bank’s management recommended a dividend pay-out of Sh0.50 per share, same as the 2013 rate. The company’s share price lost marginally in Wednesday’s trading to close at Sh20.25 per unit from Sh20.50 at the beginning of day, with 1,740,600 shares changing hands.