3 Things Co-op Bank investors need to know this week

Co-operative Bank of Kenya (COOP), also called Co-op Bank, is one of Kenya’s largest banks. The bank is profitable and has been paying dividends regularly from its profits. Co-op Bank paid a dividend of one shilling per share, amounting to Ksh5.9 billion, from the Ksh14.3 billion profit it made in 2019.

Here are three things those buying Co-op Bank shares this week need to know.

1. Co-op Bank posts Ksh3.6 billion profit as costs soar

Co-op Bank reported its financial results for the first quarter of 2020 on May 21. The lender posted a profit of Ksh3.6 billion, flat from a similar period last year.

Soaring costs weighed on the bank’s profit in the latest quarter. For example, its staff costs jumped to Ksh3.4 billion from Ksh2.7 billion last year. The bank also raised its loan loss provision to Ksh900 million from Ksh510 million, eating into profit.

The move to boost loan loss provision comes as banks brace for increase in loan defaults as borrowers grapple with the coronavirus fallout.

In addition to boosting loan default provisions, banks are also renegotiation loan repayment terms with their customers in response to the virus outbreak, which has disrupted economic activity across the country. For example, banks are allowing borrowers to apply for extension of loan repayment period and temporary halt in interest payment.

2. Co-op Bank in talks to purchase Jamii Bora Bank

Co-op Bank is discussing the acquisition of Jamii Bora Bank, a smaller rival serving a strategic market segment. Jamii Bora serves the small business lending and microfinance segment. It has 350,000 customers and operates 17 branches mostly in Nairobi. Jamii Bora has Ksh12.5 billion in assets.

The acquisition of Jamii Bora is expected to boost Co-op Bank’s small business lending operation. An acquisition deal between Co-op Bank and Jamii Bora would require the approval of the central bank, capital markets watchdog and the competition regulator.

3. Pandemic weighs on Co-op Bank stock

Co-op Bank shares closed at Ksh12.55 on Friday. At this point, the shares are down 23% since the beginning of the year. Stocks have generally seen a selloff in recent months as businesses and households move to unlock cash in their investments to cope with the virus pandemic. KCB Group (KCB) shares are down 32.8% and Equity Group (EQTY) shares are down 32.4% for the year. Safaricom (SCOM) shares are down 6.8% for the year.

Finally, Co-op Bank stock has been added to the prestigious MSCI Kenyan Index in changes taking effect from May 29. Co-op Bank and BAT Kenya (BAT) will join Safaricom, Equity Group and East African Breweries (EABL) in the prestigious index. Listing on the index boosts a stock’s exposure to large international investors.