Lending drives Coop’s profit up 5.8% to Sh12.1 billion

The Cooperative Bank posted Kes12.1 billion in after tax profits for the first half of this year up 5.8 percent from Kes11.4 billion on increased loan and keeping costs down. The lender made Kes21 billion up from Kes18.5 billion after it increased loans 10.6 percent to Kes365.3 billion in the half.

Kenya’s private business has endured years of low credit owing to a high interest rate regime, but businesses were recovering, recording double digit loan growth since last year.

Banks sought to take advantage of higher interest rates as the Central Bank of Kenya approved their risk-based lending model while also diversifying from the huge exposure to government paper.

Coop Bank loan to the government yielded a slight increase in interest income from Kes9.8 billion to Kes10.8 billion. The increase underlines the rise in interest rates at the first half of the year as regulators tried to keep apace global rise in interest rates and to tame inflation.

As a result of the higher interest rates, the bank also found itself incurring higher costs to retain deposits from investors seeing comparable options lending to government. The cost of Coop Banks Kes463.8 billion deposits went up from Kes6.8 billion to Kes8.3 billion, underlining the rising cost of funding.

Read also: Bank loan interest rates in Kenya 2023

Coop Bank provision for NPLs

Coop Bank tried to keep other costs low, bringing down the cost of providing bad loans from Kes3.3 billion to Kes2.8 billion bucking the trend where lenders are taking a defensive outlook on non-performing loans (NPL).

The lender’s bad loans jumped from Kes51.1 billion to Kes58.4 billion, indicating the impact of the tough macro-economic environment prevailing in Kenya.

Deterioration of the Kenyan currency, high energy prices, and a higher taxes pushed cost of living out of the reach of many Kenyans leading to decline in consumption and waves of political unrests.

Dampened demand and political unrests are now causing second hand impact on companies as sales remain low and costs elevate. The latest Stanbic Bank PMI index dipped to 45.5 in July from 47.8 reported in June, further departure from the neutral 50 points.

This shows that lenders will need to be selective in backing private sector that is resilient through the current multiple crisis cutting on costs, reducing leverage and passing on higher prices within consumer elastic limits.

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