Cost cutting lifts Co-op Bank's half year net profit 32 pc
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The lender’s operating income for the period grew 10 per cent to Sh17.7 billion while net interest income from its loan book went up by 19 per cent to Sh11.8 billion.
Net profit for the six months to June has increased 32 per cent to Sh6.24 billion compared to Sh4.72 billion posted during a similar period last year.
Co-operative Bank’s net profit for the half year to June jumped 32 per cent helped by cost cutting which has seen the lender’s labour and operational expenses drop by four per cent.
The bank said yesterday its after-tax profit for the six months to June had risen to Sh6.2 billion from Sh4.5 billion reported during a similar period last year.
Co-op Bank hired McKinsey & Co to advise on cost cutting measures, which saw the exit of over 160 senior staff at a cost of Sh1.3 billion.
The absence of this one-off cost in the period under review and the resultant lower labour costs saw the bank’s total expenses and staff costs each drop by four per cent to Sh9 billion and Sh3.86 billion respectively.
“The benefits that we are getting from the transformation exercise are immensely surprising to us as a bank and beyond the projections that we had,” said Gideon Muriuki, the bank’s chief executive officer.
“We closed the year with a cost to income ratio of 62 per cent and we have managed to bring this down to 51 per cent as at June. This is despite the bank growing both its loan book and assets.”
The bank, which has frozen staff recruitment, now has 3,824 employees compared to 4,078 in June 2014.
The “Soaring Eagle” restructuring saw the bank implement a lean structure, automate key processes, optimise staff performance, set up a shared services centre and innovation office, among other changes.
Co-op’s operating income for the period grew 10 per cent to Sh17.7 billion in the period while net interest income from its loan book went up by 19 per cent to Sh11.8 billion.
Customer deposits grew by Sh49.1 billion to Sh248.3 billion while total assets increased by 22 per cent to Sh325.1 billion, boosting its balance sheet.
Net loans and advances to customers grew by a quarter to Sh204.8 billion with fees and commissions earned from this portfolio increasing eight per cent to Sh1.11 billion. Other fees and commissions dropped eight per cent to Sh3.6 billion.
“There was an extraordinary income last year during the change from debit cards to smart technology where we made a one-off income of over Sh500 million,” said Mr Muriuki.
Despite the ongoing political and business challenges in South Sudan, Co-op’s three branches in the country returned a profit of Sh122 million for the six month to June, compared to a Sh168 million loss in 2014.
Limited foreign exchange in South Sudan has seen multinational brewer SABMiller contemplate closing its brewery while CfC Stanbic yesterday reported a 42 per cent drop in half year net profits to Sh1.96 billion.
Co-op has also absorbed the effects of a higher corporate tax of 30 per cent (from 20 per cent) it started paying last year, after the expiry of a five year tax holiday it was enjoying since listing in 2008.
The higher tax bracket saw it pay Sh3.4 billion to Kenya Revenue Authority in the year to December, up from Sh2 billion in 2013, but these sunk costs did not impact it this year.
The lender is the third of six top-tier banks to announce its half-year results.
Equity Group posted an 11.8 per cent half year net profit growth to Sh8.5 billion while KCB’s grew 13 per cent to Sh9.2 billion during the same period.
Barclays Bank of Kenya is expected to release its half-year results today while Standard Chartered and Commercial Bank of Africa are yet to announce their six-month earnings.
