Co-op Bank defies South Sudan forex hit to post 46pc increase in net profit

Co-operative Bank has announced a 46 per cent increase in net profit in the year ended December despite suffering a Sh1.8 billion foreign exchange loss from South Sudan that devalued its currency by more than 100 per cent.

The lender’s net profit in the period stood at Sh11.7 billion, rising from Sh8 billion the year before.

Kenyan banks took a major hit from the devaluation of the South Sudanese pound, with Co-op’s forex losses pushing the total to Sh14.5 billion.

KCB booked a Sh6.1 billion loss from translating its South Sudan’s subsidiary into Kenya shillings while that of Equity and CfC Stanbic stood at Sh5.7 billion and Sh1 billion respectively.

The losses, which could be realised if the banks opt to sell some or all of their assets in the neighbouring nation, have seen their comprehensive incomes drop significantly in an indication of the potential exposure.

Co-op raised dividend payout to Sh0.80 per share, up from Sh0.5 per share in the previous year.

“The performance by the group is on the back of gains from improving operational efficiencies, reduced operating costs and improved customer delivery platforms,” said chief executive Gideon Muriuki.

The bank’s loan book grew by 16 per cent to Sh208 billion resulting in an increase in interest income to Sh36.7 billion.

Customer deposits rose to Sh268.8 billion from Sh220.8 billion a year earlier.

The bank paid out interest of Sh13.5 billion on the deposits, leaving it with net interest income of Sh23.3 billion.

Its total operating income grew by Sh4.3 billion to Sh36.3 billion with non-interest expenses rising at a slower pace of Sh1.3 billion to Sh21.3 billion.

READ: Higher lending, cost management propel Coop net profit to Sh11.7bn

This left it with a Sh3 billion expansion in operating income to Sh15 billion.

Co-op bank hired McKinsey & Co in 2014 to advise on cost cutting measures and improve its operations. It incurred a one-off cost of Sh1.3 billion in laying off staff in 2014.

Absence of the one-off cost boosted the lender’s financial performance while the restructuring saw its cost to income ratio improve to 53 per cent from 59 per cent.

Co-op’s South Sudan unit recorded a profit of Sh849 million from a loss position of Sh600 million in its first year of operation, 2014.

The bank operates as a joint venture with the Bank of South Sudan which owns 49 per cent of the subsidiary.

The two own 31 per cent of CIC Insurance South Sudan which contributed Sh100 million to the subsidiary’s profit.

The partnership has seen Co-op Bank contracted to collect revenue on behalf of the government giving it cheap deposits.

Co-op Consultancy, a subsidiary of the bank under which it offers bancassurance services, posted a profit of Sh176 million while its fund management arm recorded Sh80 million and brokerage Kingdom Securities Sh5 million.

The improved performance saw Co-op rise above international lenders Barclays and Standard Chartered in the profitability ladder to rank third.

Barclays Bank’s profits remained flat at Sh8.4 billion while Standard Chartered which is yet to release it full year results has issued a profit warning indicating its earnings will shrink by at least 25 per cent.

The bank stock at the Nairobi Securities Exchange has gained 3.7 per cent over the past one year to trade at Sh21.