Co-op Bank profit drops 10pc as interest rate cap cuts income

Thursday August 17 2017

Co-op Bank chief executive Gideon Muriuki. FILE PHOTO | NMG

Co-op Bank chief executive Gideon Muriuki. FILE PHOTO | NMG 

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Co-op Bank recorded a 10.4 per cent net profit drop in the half year ended June as interest rate caps shaved off its income from loans.

The lender’s net earnings in the period stood at Sh6.6 billion compared to Sh7.4 billion the year before, with interest income falling by a similar margin to Sh19.2 billion.

The lower interest income came despite the loan book expanding 14.1 per cent to Sh252.6 billion, underlining the impact of the narrowed spreads brought by interest rate controls.

A report prepared by Standard Investment Bank (SIB) in the wake of the rate cap projected Co-op Bank’s weighted average lending rate to drop from 15.46 per cent in 2015 to 13.4 per cent this year.

Its average deposit rate was forecast to rise marginally to 5.37 per cent from 5.1 per cent over the same period, cutting its interest margin to 8.03 per cent from 10.36 per cent.

SIB also reckoned that the bank would need to increase lending by more than 50 per cent to match the interest income it would have earned if interest rates were not regulated.

Chief executive Gideon Muriuki said the lender is diversifying its revenues including through a joint venture it has formed with South Africa’s Super Group to offer leasing in the local and regional market.