Kenya's Co-operative Bank, led by Gideon Muriuki, posts $139 million in half-year profit

Co-operative Bank of Kenya lifted net profit 28 percent to $139.3 million (18.02 billion shillings) in the six months to June, as higher lending income, stronger fee earnings and a cleaner loan book pushed the lender's earnings well past last year's level.

Net earnings rose from $108.9 million (14.08 billion shillings) a year earlier. Net interest income grew 13 percent to $256.6 million (33.19 billion shillings), while non-interest income, which covers transaction fees, foreign exchange and commissions, climbed 11.6 percent to $121.8 million (15.75 billion shillings). Conversions use the Aug. 12 rate of 129.33 shillings to the dollar, Billionaires.Africa calculations.

The loan book did much of the work. Provisions for defaults fell 17.5 percent to $28.8 million (3.73 billion shillings) as gross non-performing loans dropped to $561.1 million (72.56 billion shillings) from 76.28 billion a year earlier. The bad-loan ratio improved to 13.9 percent from 17.2 percent, a fall of 3.3 percentage points at a time when asset quality has weighed on Kenyan lenders across the sector.

Gideon Muriuki, the group's managing director, credited the improvement to work on collections and monitoring. "We continued to strengthen asset quality through proactive credit management, customer engagement and portfolio monitoring," he said on Wednesday.

Costs rose as the bank expanded. Operating expenses increased 9.2 percent to $203.0 million (26.26 billion shillings), with staff costs up 13.4 percent to $86.8 million (11.22 billion shillings). Co-op added 741 employees over the period, taking headcount to 6,591, and opened 11 branches to reach 223 nationwide.

Subsidiaries contributed more than in previous years. Kingdom Bank, in which Co-op holds 90 percent, lifted net profit 80.1 percent to $4.44 million (574.45 million shillings) on growth in retail and business banking. Co-op Bank of South Sudan, a 51 percent holding, nearly quadrupled pre-tax profit to $1.73 million (224 million shillings) as operating conditions in the country improved.

The asset management arm grew fastest in percentage terms. Co-optrust Investment Services increased gross profit 77.5 percent to $4.95 million (640.5 million shillings), with funds under management rising to $3.91 billion (505.2 billion shillings) from 461.7 billion. Kingdom Securities returned to a pre-tax profit of $602,000 (77.9 million shillings), up 23.3 percent on higher trading activity, and Co-op Bancassurance Intermediary posted pre-tax profit of $6.28 million (812.7 million shillings).

"The group's subsidiaries continued to make a positive contribution to performance, reinforcing the strength of the universal banking model," Muriuki said.

Group assets reached $6.72 billion (869.47 billion shillings) from 811.91 billion, and customer deposits rose 13.4 percent to $4.80 billion (621.27 billion shillings).

Muriuki has run the bank since 2001, when the board handed him a lender that had reported a 2.3 billion shilling loss the previous year. He joined in 1996 as a senior corporate manager and became director of corporate and institutional banking in 1999.

He is also the bank's largest individual shareholder. Regulatory filings show he held 135 million shares in December, a 2.3 percent stake and a record for him, after buying 5.5 million shares over the preceding seven months. That holding was worth $37.4 million (4.83 billion shillings) at the stock's Aug. 7 close of 35.80 shillings, a Billionaires.Africa calculation. The position puts him ahead of the investor Baloobhai Patel, who stopped accumulating at 100 million shares. Kenya's co-operative movement controls the lender through Co-op Holdings Co-operative Society Limited, which owns 64.56 percent.

The shares have more than doubled over the past year and touched an all-time high of 36.60 shillings on June 22.

The results land during the biggest structural change of Muriuki's tenure. The board approved a reorganisation in April converting the listed company into a non-operating holding company named Co-opbank Group PLC, with a new wholly owned subsidiary, Co-op Bank Kenya Limited, taking over the Kenyan banking business. Shareholders voted on the plan at an annual general meeting on May 15, and the structure requires clearance from the Central Bank of Kenya, the Capital Markets Authority and the Registrar of Companies.

They also follow a legal reprieve for the bank and its chief executive. Justice Gregory Mutai of the High Court issued interim conservatory orders on Aug. 7 restraining the Director of Public Prosecutions and the Directorate of Criminal Investigations from arresting, charging or prosecuting Co-operative Bank and Muriuki, four days before he was due to take plea on a charge of failing to report suspicious transactions under the Proceeds of Crime and Anti-Money Laundering Act. Prosecutors had said they would bring the same charge against the chief executives of KCB Group and NCBA. The orders hold until the application is heard with all parties present, and the matter comes up for mention on Oct. 12.