Companies

Co-op Bank to focus on local expansion

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Co-operative Bank of Kenya group MD Gideon Muriuki. FILE PHOTO | NMG

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Summary

  • The lender, which operates in Kenya and South Sudan, had previously expressed an intention to venture into additional countries such as Uganda, Ethiopia and Rwanda.
  • The bank says in its new five-year strategic plan that it is yet to maximise opportunities in the Kenyan market which remains the most profitable for homegrown lenders.
  • The regional expansion strategy is driven by a quest to diversify and get a presence in markets where uptake of banking services is low compared to Kenya.

Co-operative Bank #ticker:COOP will invest aggressively in the Kenyan market over the next five years, putting on hold earlier plans to expand into new markets in East Africa.

The lender, which operates in Kenya and South Sudan, had previously expressed an intention to venture into additional countries such as Uganda, Ethiopia and Rwanda.

The bank says in its new five-year strategic plan that it is yet to maximise opportunities in the Kenyan market which remains the most profitable for homegrown lenders.

“We realised we are strong here and even as we are looking at opportunities in other countries within the region, we appreciated that (adding more branches in various parts of Kenya is of greater priority),” chief executive Gideon Muriuki said at the company’s annual general meeting on Thursday last week.

“We have done very well in terms of being able to deepen ourselves in market segments that we are already in.”

Mr Muriuki said that Co-op Bank’s recent acquisition of Jamii Bora Bank is part of the ongoing local expansion, adding that the new subsidiary is expected to return to profitability from next year.

The regional expansion strategy is driven by a quest to diversify and get a presence in markets where uptake of banking services is low compared to Kenya.

KCB Group #ticker:KCB, Equity Group #ticker:EQTY, DTB Group #ticker:DTK and I&M Holdings #ticker:I&M are among the most geographically diversified banks.

A wider footprint offers the prospect of reduce reliance on the local market besides positioning for future growth opportunities in the upcoming economies.

The strategy, however, has risks including political instability, currency devaluation and hyperinflation (South Sudan) and adverse policies (a Ugandan court ruling recently put at risk syndicated loans provided by subsidiaries and their Kenyan parent firms).

While some regional subsidiaries have been profitable, multinational Kenyan lenders still derive the bulk of their earnings from the local market.

Co-op Bank, for instance, has not been penalised for a smaller regional footprint relative to other big banks.