Co-op Bank raises Sh19.2bn to fund regional expansion
Oumar Seydi, Director IFC East and South Africa (left), exchanges documents with Co-operative Bank Managing Director Gideon Muriuki during the signing of a loan agreement for SMEs in December 2012. Co-op Bank is set to expand to South Sudan. Photo/FILE
What you need to know:
The bank has deliberately decided to avoid rights issues that have been a favourite form of fundraising among lenders.
Its strategy of maintaining a large profit retention means its dividend payouts will remain flat or grow marginally in the medium term as investors wait for the investments to yield higher earnings in the future.
The Co-operative Bank has raised Sh19.2 billion from retained earnings and international financiers to fund its expansion plans in the medium term.
The amount includes retained earnings from the bank’s financial year ended December and concessional loans from the French Development Agency, International Finance Corporation, and European Investment Bank.
Chief executive Gideon Muriuki did not disclose how much money was kept from its profits last year, citing regulatory constraints. The bank had however earlier indicated that it would retain Sh6 billion of its earnings in 2012 to fund growth.
“We have raised a total of Sh19.2 billion from retained earnings and financiers,” Mr Muriuki said.
“We are continuing with our strategy of raising cash internally and from cheaper sources to invest in our growth. We are now receiving financing from the agreements we had signed with international lenders.”
Co-op Bank had signed a financing deal with the International Finance Corporation worth Sh5.2 billion, European Investment Bank (Sh7.9 billion) and the French Development Agency for an undisclosed amount.
The bank has deliberately decided to avoid rights issues that have been a favourite form of fundraising among lenders like Standard Chartered, KCB, Family Bank and Diamond Trust Bank.
Its strategy of maintaining a large profit retention means its dividend payouts will remain flat or grow marginally in the medium term as investors wait for the investments to yield higher earnings in the future.
It will Thursday announce its results for the year ended December and shareholders will be keen to see what level of dividend the bank will pay after boosting its reserves which stood at Sh11.6 billion in December 2011.
Its share has gained 11.8 per cent in the past one year to trade at Sh13.1, trailing Standard Chartered, Equity, and Barclays whose stocks have gained 61.5, 40.4, and 24 per cent in the same period to trade at Sh265, 26.7, and 16.2 respectively.
Mr Muriuki said Co-op Bank would open a total of 25 branches in Kenya this year to expand its footprint in the counties where it sees increased opportunities from devolution of resources and establishment of new governance structures.
The 47 counties are set to share 15 per cent of all national revenues annually besides charging local taxes, a move that is expected to stimulate economic activity at the grassroots and raise demand for banking services.
The new branches will also enhance support to the bank’s 5,000 agents who are offering basic services like deposit taking and withdrawals, thereby decongesting banking halls.
Co-op will open its first branch in South Sudan in April, marking its first regional expansion in the footsteps of its rivals such as KCB and Equity. It plans to open a total of four branches in that market by June.
The bank’s aggressive expansion plans are expected to drive up its costs in the short term as its rivals KCB and Barclays implement cost-cutting measures including staff retrenchments.
Mr Muriuki said the financier was keeping a lid on costs by freezing new hiring and relying on existing staff to run the new branches.
Its South Sudan ambitions come at a time when the economy has been hit by suspension of oil production over security and economic disputes with its northern neighbour.
Oil accounts for 98 per cent of South Sudan’s government revenue and 71 per cent of the country’s gross domestic product (GDP).
The bank plans to replicate its financial supermarket model in South Sudan, a strategy that will see it seek a piece of the corporate and retail market including the development of a co-operative movement.
