Bank’s change of strategy pays dividends

A restructuring plan by Co-op Bank has started paying off with the lender now beating its competitors, Equity Bank and KCB, in profitability growth and share price performance.

By close of trading last week, Co-op Bank share at the Nairobi Securities Exchange traded at Sh22 apiece, recording a 13 per cent gain since January, when it opened the year at Sh19.50.

Comparatively, KCB has gained two per cent to Sh58 a share while Equity Bank recorded a 2.5 per cent drop to Sh49.25.

‘Soaring Eagle’

Foreign institution investors are said to be driving Coop’s price rally with a notable acquisition by a single buyer of 14 million shares on Thursday, last week.

“We take the surge in demand for the Co-op Bank share, mainly by foreign investors, as vindication of our ‘Soaring Eagle’ transformation agenda whose execution is underway,” Co-op Bank Group CEO Gideon Muriuki told Smart Company.

FRESH CHANGES

In August last year, the lender engaged McKinsey & Co to carry out a “Growth and Efficiency Review”, which is now being implemented.

The head of research at Standard Investment Bank, Mr Francis Mwangi, said fresh changes in the institution’s management alongside new strategies have attracted investors and analysts who are now flocking the bank’s counter at the bourse.

On earnings, Co-op Bank’s first quarter profit after tax jumped by 29 per cent to Sh3.17 billion, while KCB registered a 12 per cent rise to Sh4.4 billion with Equity Bank recording a 11 per cent increase to Sh4.3 billion.

Following McKinsey’s advice, the bank has formulated a strategy to be effected between this year and 2019.

The  implementation of the plan began with freezing of recruitment after 160 managers  were sent home. The bank expects to save an estimated Sh1.7 billion in the plan.

Mr Muriuki said the changes in staff were necessary to help the bank remain focused and to maximise its Universal Banking Model.

This has seen the bank cut cost with quarter one operating expense growing by three per cent to Sh4.3 billion while that of  KCB grew by 10 per cent to Sh7.1 billion and Equity’s rose by 24 per cent to Sh7.1 billion.

A new position for a ‘director transformation’ was also created to champion the new agenda and drive the lender’s growth.

Under the new business scheme, the bank is targeting to increase the number of products that each customer use.

“Over 70 per cent of their customers use one product, so if they are able to reduce that by increasing product uptake it will have a good impact on both interest and transactional income,” said Mr Mwangi.

EXPENSIVE DEPOSITS

Already the bank’s mobile banking platform has been upgraded to improve customer transactions.

The bank has also increased its agent numbers by more than 8,000 in the recent past. The agents are expected to increase penetration of its banking services such as cash deposits, withdrawals and balance inquiry.

The lender also plans to increase participation in the foreign exchange market. Foreign currency operations currently contribute 13 per cent of the non-funded income.

Plans are also underway to cut interest expenses by 30 per cent, a move that will help it cut off expensive deposits and aggressively compete with its peers in the Kenyan market.

“We are confident that the rigorous execution of this project will be sustained to completion, and deliver on the defined objectives as is already being reflected in our results of this quarter,” Mr Muriuki noted.