Co-op Bank secures Sh4.3 billion loan to boost borrowing
Co-op Bank chief executive Gideon Muriuki at a past company function. The bank is set to sign a financing deal with DEG within two months. Photo/File
What you need to know:
The money will boost the Sh14 billion that Co-op Bank has raised from other international financiers.
The scheme will fund exporters with hard currency receipts including coffee and horticulture sellers.
Co-op Bank recorded a 45.2 per cent growth in net profit last year, helped by a higher interest margin and transaction-based income.
Co-operative Bank is set to receive a concessionary loan of Sh4.3 billion from a German development finance institution, DEG, for forex-based trade financing.
The money will boost the Sh14 billion that Co-op Bank has raised from other international financiers as it pursues a mix of profit retention and soft loans to fund expansion.
Co-op Bank said it has retained Sh5.2 billion from its profits last year, adding that it will continue to keep a significant portion of its earnings in the medium term to avoid resorting to rights issues to raise funds.
“DEG has concluded its due diligence on our bank and we expect to sign the financing agreement within two months,” said Gideon Muriuki, the chief executive.
The scheme will fund exporters with hard currency receipts including coffee and horticulture sellers.
Local banks are increasingly opting for loans from the international financiers who usually charge interest less than seven per cent, way below the double-digit interest on wholesale customer deposits or corporate bonds.
The development finance institutions are particularly keen on banks that lend to small businesses in line with their goals of making profits while alleviating poverty in developing countries.
This has seen banks such as Co-op, Equity, and Ecobank receive billions of shillings from the DFIs for onward lending, helping the institutions to reduce their reliance on expensive customer deposits.
Mr Muriuki said Co-op Bank was building its capital base to open more branches, expand its retail business and strengthen its lending capacity.
The bank recently installed a new core banking system at a cost of Sh2.5 billion to help expand services to its customers, including credit cards, online and agency banking.
The move and the DEG loan is a bid by the bank to grow its transaction-based income such as fees and commissions from its 3.2 million customers.
“Most of our customers are currently taking one banking service. The new core banking system gives us an opportunity to cross-sell multiple services,” Mr Muriuki said.
The lender is set to double its agent network to 10,000 by year-end as it seeks to reach more customers in remote areas. Its current network of 5,000 agents collected deposits worth Sh6.1 billion last year.
Mr Muriuki said the bank would open a total of 30 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. It will open its first branch in South Sudan in April.
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 retrenchment. Mr Muriuki said the lender was keeping a lid on costs by freezing new hiring.
Co-op recorded a 45.2 per cent growth in net profit last year, helped by a higher interest margin and transaction-based income.
The bank’s net profit stood at Sh7.7 billion compared to Sh5.3 billion in 2011 as interest from lending increased 60.6 per cent to Sh21.2 billion from Sh13.2 billion.
The fast growth in interest income came as the bank’s loan book rose at a slower rate of 8.7 per cent to Sh119 billion. This means that the rise in interest income was driven by a higher interest margin—the difference between deposit and lending rates.
