Saccos win big in Sh5.9bn Co-op Bank dividend pay

Cooperative Bank of Kenya shareholders

Cooperative Bank of Kenya shareholders approve a motion during an earlier annual general meeting

Photo credit: File | Nation Media Group

Savings and Credit Cooperative Societies (saccos) are set for a key liquidity boost in Cooperative Bank of Kenya’s Sh5.86 billion dividend payout amid Covid-19 disruptions.

The lender last week defied expected dividend freezes and cuts in the market to announce Sh1 per share payout—same as last year—offering the cooperative movement in Kenya the much -needed shot in the arm.

The bank’s strategic and majority shareholder, Co-op Holdings Co-operative Society, which represents Kenya’s co-operative movement is in line to receive a dividend of Sh3.79 billion.

Dividend payout in current Covid-19 economic disruptions will boost the liquidity of co-operatives at a time they need to strengthen their businesses and support members through loans and dividends.

The payout, set for mid-next month, is for its 64.5 percent stake in the Nairobi Securities Exchange-listed lender, which booked Sh10.81 billion net profit for the financial year ended December 2020.

Kenyan co-operatives will have earned Sh19.4 billion in dividend payments from Co-op Bank in the last six years.

22,000 societies

Co-op Holdings Co-operative Society chairman Macloud Malonza said the uniqueness of the co-operative financial system means over 22,000 societies and saccos will benefit.

Co-op’s bullish approach in retaining dividends was partly because of its outsized consumer lending that is heavily leaning on public sector payrolls that continue to enjoy full incomes despite the pandemic.

The bank also has significant lending exposure to its strategic market segment – the saccos—such as Harambee, Stima, Kenya Police, Sheria, Ushuru, Ukulima and Afya.

Co-op also has strong capital buffers, reinforced by Sh74.58 billion retained earnings on the back of a conservative dividend policy.

The consistent trend in dividend payout by Co-op Bank has enabled co-operatives to recoup and exceed their entire initial investment in the bank.

Co-op went public in 2008 at an offer price of Sh9.5, equivalent to an aggregate value of Sh33.2 billion. Co-operative movement’s stake in the tier I lender is currently worth about Sh50 billion amid the current depressed equities market prices.

The lender wants to make the payout and later on get shareholders’ nod at the next annual general meeting in line with Capital Markets Authority guidelines.

The dividend payout is expected to offer the most needed relief and offer a boost to ongoing efforts to mitigate the severe economic hardships caused by the Covid-19 pandemic.

The lender has maintained focus on deepening ties with the cooperatives movement and runs a dedicated business division to support co-operatives.

Co-op Bank chief executive Gideon Muriuki says the bank will continue deepening partnerships with the co-operative movement.

“We shall continue to nurture our bonds of partnership with the co-operative movement, and even as we go digital we shall walk that journey together,” said Mr Muriuki.

Co-operative clients

The bank also runs a wholly-owned subsidiary, Co-op Consultancy Services that has professionals dedicated to offering capacity-building and institutional development advice to co-operatives.

The subsidiary has executed over 900 mandates in the last five years, helping co-operative clients to become competitive in the marketplace.

Co-op Bank branches countrywide offer cash management and related support to front office service activities (Fosas) operated by saccos.

The bank also invested in the Saccolink platform that integrates sacco systems to the lender.

The platform has enabled saccos to issue over 1.5 million Visa-branded debit cards to sacco members, allowing them access funds in their Fosa accounts from any Visa-branded outlet.

Co-operative Bank full year net profit declined by 24.4 percent from Sh14.3 billion to Sh10.81 billion on increased provisions for loan defaults.

The tier I lender posted a growth in both interest and non-interest income but the bottom-line was slowed by the 3.2 times rise in loan loss provision in appreciation of the challenges that businesses and households are grappling with in Covid-19 environment.

Net interest income grew by 16.1 percent to Sh36.3 billion in line with a 7.5 percent growth in net loan book to Sh286.6 billion.

Total non-interest income, mainly from fees and commission, rose 1.9 percent to Sh17.5 billion.

However, operating expenses grew by 41.8 percent from Sh27.8 billion to Sh39.4 billion on account of higher loan loss provisions, slowing the bottom-line.