Capital Markets

Salary advances raise Co-op phone loans to Sh91bn

coop

A Co-operative Bank of Kenya branch in Nairobi. FILE PHOTO | NMG

alushula

Summary

  • The lender discloses that its mobile platform M-Co-op Cash loan book surged from Sh34.58 billion at the end of June last year to Sh91.14 billion at the end of last June.
  • The number of customers taking the e-credit, mostly for short term goals such as buying food and paying rent, has also tripled from 2,982 to 9,139.
  • Co-op Bank says that 86 percent of the e-credit or Sh78.38 billion relates to salary advances with the remaining share tapped by businesses for working capital.

Co-operative Bank of Kenya’s #ticker:COOP short-term loans issued via mobile phone have grown 2.6 times to Sh91.14 billion on increased demand for salary advances due to Covid-19 economic hardships.

The lender discloses that its mobile platform M-Co-op Cash loan book surged from Sh34.58 billion at the end of June last year to Sh91.14 billion at the end of last June.

The number of customers taking the e-credit, mostly for short term goals such as buying food and paying rent, has also tripled from 2,982 to 9,139.

Co-op Bank says that 86 percent of the e-credit or Sh78.38 billion relates to salary advances with the remaining share tapped by businesses for working capital.

The increased uptake of salary advances coincides with the period in which the discovery of first Covid-19 case in Kenya on March 13 triggered job losses and salary cuts, disrupting financial plans of salaried people.

Industries and other businesses have since cut down on their activities in response to the pandemic, leading to job cuts and unpaid leave for retained staff as profitable firms move into losses.

This has triggered a jump in workers seeking short-term credit through digital applications to plug gaps in their expenditure.

“We are actively engaging our customers to support them through this period by re-aligning the servicing of facilities, funding and transactional needs as the situation unfolds,” said managing director Gideon Muriuki.

Salary advances, which are usually repayable by between one and three months, were at Sh28 billion in June last year.

They are usually attractive because they do not come with conditions such as guarantors or security. Banks mostly require one to maintain a salary account.

Co-op Bank charges a processing fees of eight percent on the amount of salary advance.

In addition, the customer pays 20 percent excise duty of the processing fee and an insurance fees of 0.034 percent of the loan value.

This means that a customer applying for Sh100, 000 salary advance is given Sh90,366 after paying Sh8,000 processing fee, Sh1,600 excise duty and Sh34 as insurance fees.

The bank says that the short-term loans have complemented the efforts to support customers navigate through the Covid-19 economic hardship.

Kenyan lenders have been turning to technology in response to competition from mobile phone-based financial services such as Safaricom’s #ticker:SCOM M-Pesa platform.

This include Absa’s #ticker:ABSA Timiza, KCB Group’s #ticker:KCB KCB M-Pesa and NCBA Group’s #ticker:NCBA M-Shwari, the latter two operated in partnership with Safaricom.

Pressure to use mobile channels to cut costs increased when the government capped lending rates in September 2016, crimping profit margins. It removed the caps in November last year.

M-Co-op transactions have grown from 23.5 million in June last year to 38.9 million in the review period, highlighting the increased use by customers for other transactions such as deposits and withdrawals.

Co-op Bank half year net profit dropped 3.6 percent to Sh7.2 billion, majorly on increased bad debt provisioning even as interesting income grew.

Net interest income grew by 12 percent to Sh15.9 billion while non-interest income dropped by five percent to Sh8.3 billion.

The lender raised loan loss provision by 57.9 percent to Sh1.87 billion from Sh1.18 billion in appreciation of the tougher environment facing borrowers since Covid-19 pandemic struck.