Co-operative Bank of Kenya #ticker:COOP net profit retreated to Sh3.46 billion in the first quarter of trading despite growth in interest income as the lender increased provisioning for loan defaults in a pandemic environment.
The net earnings for the three months to March 2021 were 3.6 per cent lower than the Sh3.59 billion posted in a similar period last year.
Net interest income—which is income from the mainstay business of lending—grew by 31 per cent to Sh9.8 billion as the bank expanded its loan book.
However, the lender raised provisioning for loan defaults 2.5 times to Sh2.3 billion to reflect the difficulties facing businesses and individuals in servicing loans in the Covid-19 environment.
The increased provisioning for loan defaults saw total operating expenses rise by 27 per cent to Sh9.3 billion, weighing down the bottom-line.
“The Group prudentially increased loan loss provisions to Sh2.3 billion in the first quarter of the year in appreciation of the challenges that businesses and households continue to face due to the economic effects of the ongoing pandemic,” said Gideon Muriuki, the chief executive.
New subsidiary Kingdom Bank, in which Co-op owns 90 per cent stake, returned to profit zone, contributing Sh126.7 million pre-tax profit compared to Sh76 million loss in the full year ended December 2020.
Co-op’s non-interest income declined by nine per cent to Sh4.52 billion on account of fee waivers on transactions and the general economic slowdown.
Total operating income grew by 15 per cent from Sh12.5 billion to Sh14.4 billion, highlighting strong earnings from the mainstay business of lending amid the disruptive environment.
Co-op loan book grew by eight percent or Sh22 billion to Sh298.2 billion during the review period.
The lender ramped up investments in government securities by 43 per cent to Sh166.2 billion.
Customer deposits grew by 16 per cent to Sh393.8 billion, mostly being non-interest bearing deposits, giving the lender a rich pool from which to issue credit.
The lender had by close of the loan restructuring window in February supported customers’ Sh49 billion loan book through flexible repayment options such as longer repayment periods.
“We continue to actively engage our customers to support them through this period, by re-aligning the servicing of facilities, funding and transactional needs as the situation unfolds,” said Mr Muriuki.
Its Mco-op Cash mobile wallet with over 5.1 million registered customers disbursed loans worth Sh16.3 billion in the review period. The wallet has over 4.6 million customers.
The South Sudan joint venture, in which it owns 51 per cent stake, returned a monetary loss of Sh89.1 million due to hyperinflation accounting to reflect devaluation of the South Sudanese pound.
Co-op Consultancy & Insurance Agency posted a Sh262.6 million pretax profit on the back of strong penetration of bancassurance business.
The period saw Co-op Trust Investment Services contribute Sh21.3 million pre-tax profit as funds under management grew by 21 percent to Sh128.4 billion.