CO-OPERATIVE BANK OF KENYA LTD FULL YEAR 2015 GROUP FINANCIAL - - PowerPoint PPT Presentation

CO-OPERATIVE BANK OF KENYA LTD

FULL YEAR 2015 GROUP FINANCIAL RESULTS INVESTOR BRIEFING

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Macro economic Environment

 Economic Growth

• The local economy is estimated to have expanded by 5.2% - 5.4% in 2015.
• Recovery

in tourism, agriculture, completion

• f

some infrastructure projects and domestic consumption are expected to drive economic growth in 2016.

• IMF projects a growth of 5.7 % in 2016

 Inflation

• Overall inflation rate was stable averaging 6.58% in 2015 down from 6.88% in 2014 supported mainly

by declining fuel and food costs.

• Food security assured with good rains in 2016.
• Based on the above, we do not foresee any major inflationary shocks and thus project a stable

inflation rate.

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 Liquidity & Interest Rates

• The money market was volatile in Quarter2,2015 which saw interbank rate record a high of 25.8% in

September 2015 before stabilizing at an average of 11.26% by end of year.

• The CBR was revised to 11.5% in July 2015 to manage liquidity and anchor inflationary expectations.
• Stable bank interest rates.

 Exchange Rate

• The KES depreciated against the dollar from KES 90.70 at the start 2015 to KES 102.31 at the close
• f the year.
• In the first 2 months of 2016, the KES has been stable averaging KES 101/2. Low volatility is

anticipated in the remainder of 2016 on account of;

• Increased diaspora remittances by 20% in January 2016 compared to January 2015. Co-op Bank is

a key player.

• Low global fuel prices reduced Kenyan import bill by 13% year on year. ( 5 year average)
• Upswing in tourism thus increase in foreign exchange.

 Kenya’s financial sector remains attractive

• A sound financial sector.
• Investments in infrastructure.
• Expanded regional markets / Nairobi is a regional hub
• Stable political environment / good elections in the region.
• Africa innovation hub;
• Kenya was ranked position 1 in the world in 2015 for leveraging technology to drive inclusion by

Brookings Financial and Digital Inclusion Project (FDIP).

• The capital market industry was voted the most innovative Capital Market industry in Africa in 2015

by Africa Investor.

• The 25% local ownership restriction for local players for listed companies on NSE was removed thus

placing our capital markets in line for a Global Financial Centre ranking.

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A Successful Universal Banking Model

Co-operatives Banking

• Large Saccos
• Housing Saccos
• Agri Business
• PSV/ Transport

Saccos

• Investment

Saccos

Retail Banking

• Micro Credit
• Small Medium

Enterprises (SME)

• Personal Banking

(mass & affluent)

• Diaspora Banking
• Banking the youth (

Yea & Jumbo Junior)

• Asset Finance

Corporate & Institutional Banking

• Corporate banking
• Government

Banking

• Institutional

Banking

• Structured, Trade &

Commodity Finance

• NGO’s
• Treasury

Subsidiaries:

• Co-op Consultancy

(Advisory services) & Insurance Agency( Banc assurance)

• Co-op-Trust

Investment services Ltd

• Kingdom Securities

Ltd

• Co-op Bank

Foundation Regional Expansion

• Co-op Bank of South

Sudan

• CIC Africa South

Sudan(31% by Co-

• pBank South Sudan)

Associates:

• CIC Insurance (26%
• wned)
• Regional expansion

to South Sudan, Uganda and Malawi

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E-Channe hannels; ls; Mcoop

• p Cash(Al

h(All l Telco,

• , all Product

duct with 2.74 74 Million

• n Cust

stome

• mers),

s), Inter ternet net Banking( king(Corpora Corporate& & Retail il) 144 branche ches, s, Ove ver 8700 0 Agency cy Banking king ATMs Ms, ove ver 570 , leading ng issuer uer of debit cards s 13 M Member r Coop

• p Movem

vement, nt, 5.9 9 M & growing ng direct t account unt holder ders 888, 8,487 487 Sacco

• Link

k Cust stom

• mers

s &

• ver

ver 555 5 FOSAs As Subsidi sidiar aries s business nesses

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Innovative Customer Delivery Platforms

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“Soaring Eagle” Transformation Project

A new exciting frontier for the Group!

The “Soaring Eagle” Transformation Project

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The bank in year 2014, embarked on an aggressive transformation agenda driven by the need to improve operational efficiency, reduce operating costs and reposition our customer delivery platforms; Key pillars;

• Branch transformation.
• Sales Force Effectiveness (SFE).
• Digitization and Automation.
• Enhanced Credit Management framework.
• Staff Productivity.
• Entrenched Transformation Function
• Cost Efficiency and Management.

The “Soaring Eagle” Transformation Project

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• Branch Transformation and channel migration

Key Strategies

• Re-organized the Branch to offer greater Service experience
• Drastic reduction of our queue and service wait times
• Introduction of Service zones including Queue management systems and Sit-in waiting

areas

• Introduction of Self Service zones; cheque / cash drop boxes, free call center lines at

the branch, ATM’s in branch for ease of access, Internet Booths.

• Introduction of customer service champions to assist customers.
• Increase usage of our convenient alternative channels by migrating customers from

branches.

The “Soaring Eagle” Transformation Project

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• Branch Transformation and Channel migration

Key Benefits / Gains  Queue & Service time

• The queue and Service time dropped with an average of 74% to 8 minutes and below which

has improved customer service satisfaction.

• Customers now seat and wait to be served

 Migration of Transactions

• The percentage of transactions happening in branch reduced by over 60%. This has made us

realize growth in our alternative channels utilization.

• MCo-op cash transactions increased by 60%
• Agent transactions grew by 31% in 2015
• A 287% increase in the Internet Banking transactions
• Our customers can now access up to Kes. 200,000 from our ATMs vide the mobile phones

The “Soaring Eagle” Transformation Project

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• Branch Transformation and Channel migration

Key Benefits / Gains  Self Service initiatives

• Customers can now enroll to our mobile and internet banking channels on the one-stop self

service platform

• Our enhanced 24 hour call center now enables our customers to do all essential enquiries

and other account support services  Free up time and process improvement initiatives

• Freed up 40% of our staff to focus on sales activities through migration to digital channels

and process improvements  Sales growth

• The number customers holding a single account has reduced from 75% to 70% having

adopted a customer centric model that has enabled us improve cross selling

• This is with only 80 branches having been transformed.
• The remaining branches 60 Branches to be transformed by 30th June 2016

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The “Soaring Eagle” Transformation Project

225. 25.0 519. 19.0 907. 07.0 1,331 331.0 1,644 644.0

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200. 0.0 4 400. 0.0 6 600. 0.0 8 800. 0.0 1 1,000 00.0 1 1,200 00.0 1 1,400 00.0 1 1,600 00.0 1 1,800 00.0

FY Y 2014 Q1-2015 Q2-2015 Q3-2015 Q4-2015 MCO-OP CASH L LOAN DISBURSEMENTS - IN MILLIONS

28.4 58.5 95.9 134.7 183.0

• 20.0

40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0 FY 2014 Q1 2015 Q2 2015 Q3 2015 FY 2015

• No. of MCoop Cash Loans Disbursed(000)

12,488 16,145 238 31,775 19,806 7,553 11,087 60 44,869 29,623

• 10,000

20,000 30,000 40,000 50,000 Mcoop cash Agency Banking Internet Banking ATM Branch Banking

CHANNEL TRANSACTIONS IN '000'

2014 2015

25% 32% 75% 68%

0% 20% 40% 60% 80% 100% 120% 2015 2014

Branch vs. Alternative Channels

BRANCH ALTERNATIVE CHANNELS

The “Soaring Eagle” Transformation Project

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• Sales force effectiveness and enhanced front line productivity
• Need to leverage on our 5.9 million customers
• 75% of the customers had only one account
• Product Centric model
• Limited view of the customer

Key Benefits / Gains

• Implemented a customer centric model
• Use of accounts Planning for identification of more business and product penetration to

as many as 13 products per customer.

• Relationship managers now sell full basket of products to one customer.
• Clear 360 degree view of the customer.
• Morning huddles give a daily focus on business development and enhanced collaboration
• Continued cross selling on the 5.9M account holders reducing those with one account to

70% so far. Still a significant opportunity.

• Staff trained on use of sales force tools and efficiency in sales.
• Collaboration between product houses and customer owners.
• Growth in our loan book and commissions.

The “Soaring Eagle” Transformation Project

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• Digitization and Automation
• Creation of a shared service center
• Appointment of a Chief Operating Officer (COO)
• All support services grouped and centralized under COO
• Appointment of Chief Information Officer (CIO)
• Modeled ICT into Plan, Build and Run
• Identified 68 activities that were being done at the branch and should be digitized

including several customer delivery processes i.e. paperless deposits, E-Loans

• Creation of a data organization significantly improving data governance
• Identification of 25 use cases to significantly improve reporting and analytics
• New data architecture with superior capability i.e. Data Warehouse better insights
• Appointment of data architect / in house developers boasting data analytics
• Centralization of service released staff in branches to focus on sales
• Improved efficiency in operations
• Improved system uptime up to 98%

The “Soaring Eagle” Transformation Project

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• Digitization and Automation
• Development of dash boards to measure performance at all levels
• Improved management reporting through:

 In house development of reporting tools.

• Workflow Automation – Eg Loan Origination
• Focused review of road map for the next 3-5 years
• Strong and Robust ICT Infrastructure
• Modern and robust core banking system(BFUB) with a capacity to support over 15M customers &
• ver 10M transactions per day.
• Tier 3 data center with the latest IBM servers (7 series)
• Specialized systems: Bancasurrance systems, Treasury System and

Trade finance, custodial and fund management services

• High level security Mechanisms including systems certification,
• An innovative mobile banking platform

with a rich functionalities to support convenient banking anywhere anytime

• A state of the art Internet banking platform with a fully fledged end to end diaspora banking

capabilities

The “Soaring Eagle” Transformation Project

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• Enhanced Credit Management Processes
• Following theme of customer centricity:
• Enhanced

loan

• rigination

process through delayering, simplification, specialization and centralization.

• Semi-automation of loan origination process.
• Restructured and brought greater focus on functions of administration and portfolio management.
• Proactive management of Collection Process by creating:
• A dedicated collection team to focus on early collection to reduced flows into NPL by 57%
• Automation of the collection system for greater visibility of working solutions
• Increased collaboration between collections team and frontline staff for early remedy of issues
• Restructured remedial management for greater specialization and further outsourced elements of

debt collection

• Across Bank training of all involved in credit to enhance skills at identifying risks and
• pportunities
• The above initiatives have supported sustained growth of a diversified loan portfolio and

also improved NPL from 4.1% to 3.4%

The “Soaring Eagle” Transformation Project

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• Staff productivity
• High-performance culture underscored by KPI-focused performance management process

with clear linkages to rewards and better accountability mechanisms

• Effective Performance Improvement Program (PIP) that supports performance turnaround

(up to 97% turnaround rate in 2015) and staff exits on basis of unacceptable performance

• Focused performance dialogues and daily huddles – kept teams focused on performance

traction and team support to accelerate business performance

• Retention rate of 89%; 65% of leavers were low contributors; >70 experienced talent in

specialist/rare skill areas hired – rapid upscaling of internal capabilities to drive change and performance

• Staff productivity increased by 38% due to transformative initiatives in SFE, operational

efficiencies, proactive retention, re-skilling, upskilling, coaching and clarity of performance expectations

• Career progression, acceleration and growth opportunities for the young and energetic

team with 92% being under 40 years – enhanced internal mobility of talent

• Focused and enhanced learning interventions across teams at our Learning and Management
• Centre. Senior Executive Education at London Business School & Executive Leadership

Coaching to support strategy execution and leading through change

The “Soaring Eagle” Transformation Project

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• An Entrenched Transformation Function

A Full-time Director Transformation Role, In-charge of all transformation initiatives with embedded and dedicated ‘Transformation Champions’ across all other divisions to ensure visibility and support in

• Day to day co-ordination, monitoring and tracking of all deliverables across divisions.
• Accountability for the transformation initiatives across all functions.
• Follow through seamless implementation & Execution of all the transformation initiatives.
• Continuous Alignment of cross functional initiatives while supporting fast-tracks as need

arises.

• Support in problem solving and unlocking any potential hindrances on the initiatives
• Communicate initiative status to all stakeholders on a regular basis.
• Transformation KPI’s is to ensure achievement of value based results.
• Monthly update to the Board of Management and quarterly to the Board of Directors.

The “Soaring Eagle” Transformation Project

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• Cost Efficiency and Management
• Procurement is functional.
• Expenditure Management Committee (EMC).
• Evaluation Committee (EC) for all procurements.
• Reviewed procurement processes and procedures, to enhance controls.
• Market price comparison every 3 months.
• Re - tendering for specific items – high consumables after every 6 months.
• Electronic prequalification of suppliers every 12 months.
• Renegotiated contracts with vendors especially systems.
• Focused on electronic delivery channels thus reducing brick and mortar costs.
• Continuous review of our cost lines for optimization.
• Digitization of various processes for cost efficiency.
• Dedicated Finance Business Partners to guide business performance /cost management in

respective divisions.

• Cost to income ratio has reduced to 53%. ( 2014 – 59%).

Sustainable Financing from our Development Partners

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Key Benefits  Senior debt has enhanced asset-liability match  Mitigated our shilling exposure  Diversified our asset portfolio  Expanded our client base to export-led FX rich sectors  Boosted our competitive position on account of affordable lending rates Leveraged on strong balance sheet to secure single digit long-term debt of over US$ 337.39 M from developmental partners as hereunder:

 IFC US$ 60 million (Kshs.5.1 billion) in USD fully drawn to fund SME’s and agribusiness  IFC US$105 (Kes10.7 Billion) > 7 year to finance SME’s, construction and mortgage segments.  EIB Euro 70 million (Kshs.8 billion) in Kshs (locked in Kshs at the exchange rate on disbursement) to fund SMEs  IFAD, (Principal Loan of Kes 30 Million)-To finance the Eastern Province Horticultural and Traditional Food crops project  AFD US$ 36 million (Kshs.3.14 billion) in USD to fund energy efficient and renewable energy projects  DEG US$ 52.6 million (Kshs.4.68 billion) in USD to finance SME and Corporate customers

Championing Social Economic Empowerment

Co-op Consultancy & Ins. Agency Ltd

 Dedicated 13 consultants to support Cooperative Societies and related community benefit institutions:  Capacity building for Cooperative Societies.  Over 1983 consultancy and advisory mandates carried out from inception  555 FOSA’s to serve Sacco customers.  FOSAs have further entrenched our financial deepening model.  Continues to support Kenya Co-operative Coffee Exporters Ltd (KCCE) in helping coffee farmers maximize returns on their business and take greater control of the coffee value chain.

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Co-operative Bank Foundation

 Our social investment program vehicle providing Education Scholarships for bright but needy students from all regions

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Kenya. The sponsorship includes: Full fees Schools fees for both secondary and University education Internships and career

• penings

for beneficiaries  The foundation is fully funded by the bank.  Since inception of program in 2007 to date 4,243 students sponsored for Secondary (4,086), university (140) and colleges (17) levels of education.  The bank awards scholarships per county and the rest are determined by the bank’s regional Sacco delegates.

Socio-Economic Value

Other Initiatives

• Financing the SME and MCU sector
• Sustainable financing towards

Vision 2030 and MDGs

• Corporate Social responsibility

 First Lady’s Beyond Zero Campaign  Kenyatta National Hospital- Children Cancer Ward  Kenya Defense Forces games sponsorship  Kenya Diabetes Management and Information Centre  Kenya Psychological Association  National Police Service Athletics Bible Translation and Literacy Marathon  Wildlife Direct - Hands off our elephants

• Staff CSR Involvement

Championing Social Economic Empowerment

• DIVERSITY AND INCLUSION
• Parity in the workforce in terms of gender and

culture

• Equal opportunity employer to all qualified persons
• Good work environment
• Ensuring skilling is at par especially through the

Leadership & Management Centre

• MARKET PLACE-RESPONSIBLE BUSINESS
• Innovative products & channels(Key channels being

Mcoop Cash, Agency banking and Internet banking)

• World class customer care to all the customers
• Timely and accurate reporting to all stakeholders
• Corporate governance that ensures the interests of

all our stakeholders are safeguarded

• Investor relations- regular information to all

stakeholders

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• ENVIRONMENTAL STEWARDSHIP
• Recycle, re-use, reduce is the winning slogan of environmental
• responsibility. Co-op Bank has shown great environmental

stewardship through;

• Managing company resources to reduce the environmental

impact

• Financing green initiatives at the Co-operatives, Corporate and

Retail level

• Protecting Kenya’s forest cover through tree planting initiatives
• Supporting employee CSR activities that positively impact the

environment

Diversity & Inclusion Responsible Business Environmental Stewardship

Unique Strategy for Regional Expansion

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South Sudan

• Unique partnership with Government of S. Sudan (Co-op Bank 51% and GOSS

49%); the unique model offers ‘inclusive growth’

• Currently operating 4 branches in Juba and 4 Non-oil collection centers. The

subsidiary has made a profit before tax of Kes.849.72 Million in 2015.

• Owns 31% of CIC Africa Ltd- South Sudan
• The unique joint venture offers great opportunity for long-term sustainability of

the business.

Africa Market

• Exceptional model to be applied in our new frontiers i.e. Rwanda, Uganda,

Ethiopia & Tanzania to be implemented over the next 5 years.

The Award winning Brand!

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2015 Financial Times of London Awards

• Global best bank in Financial Inclusion 2015

2015 Financial Times –World Top 1,000 Banks

• With good Tier 1 Capital strength

Ranked highly in Africa in terms of; Return on Assets Return on Capital

2015 World Finance Awards

• Best Commercial Bank in Kenya 2015

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Key Financial Highlights

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A Soaring Bank

• Kes. Billions

FY-2015 FY 2014 % Change (YoY) Total Assets 342.5 285.4 20.0% Loan book (NET) 208.6 179.5 16.2% Government Securities 60.1 40.7 47.7% Total Deposits 268.8 220.9 21.7% Borrowed Funds 19.3 18.3 5.5% Shareholders Funds 50.2 43.3 15.9%

Group Financial Position

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A Soaring Bank

• Kes. Billions

FY-2015 FY 2014 % Change (YoY) Total Assets 339.5 282.7 20.1% Loan book (NET) 208.1 179.0 16.3% Government Securities 59.8 40.5 47.7% Total Deposits 266.6 219.4 21.5% Borrowed Funds 19.3 18.3 5.5% Shareholders Funds 49.3 42.4 16.3%

Bank Financial Position

A Soaring Bank - Loan Distribution

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29% 14% 6% 9%

3%

27% 3% 9%

FY 2015

Corporate Mortgage Asset Finance & IPF SME MCU Personal Agri-Buss Sacco

27% 11% 4% 5%

3%

32% 3% 14%

FY 2014

Corporate Mortgage Asset Finance & IPF SME MCU Personal Agri-Buss Sacco

A Well-diversified Liability Portfolio

30 2% 27% 29% 8% 33% Savings Accounts Transactions Accounts Current Accounts Call Deposits Fixed Deposits

31-Dec-15

6% 19% 10% 13% 21% 24% 7%

FY 2015

Sacco Retail MCU SME Government Banking Institutional Banking Corporate banking 9% 23% 12% 4% 21% 24% 7%

FY 2014

Sacco Retail MCU SME Government Banking Institutional Banking Corporate banking

Lending nding & Fundin nding g balance ances s by Cu Curren ency cy

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14% 13% 86% 87%

0% 20% 40% 60% 80% 100% 120% 31-Dec-15 31-Dec-14

Loan Book ( Local Vs. Foreign Currency)

FOREIGN CURRENCY LOCAL CURRENCY

10% 12% 90% 88%

0% 20% 40% 60% 80% 100% 120% 31-Dec-15 31-Dec-14

Funding (Local Vs. Foreign Currency)

FOREIGN CURRENCY LOCAL CURRENCY

Portfolio Trends Kes. Millions

FY -2015 2015 % FY - 2014 2014 Normal 192,513 87.5% 166,821 89.4% Watch 19,352 8.8% 11,818 6.3% Substandard 3,305 1.5% 3,382 1.8% Doubtful 4,188 1.9% 3,837 2.1% Loss 696 0.3% 763 0.4% TOTAL 220,055 100% 186,622 100%  Improvement in NPL Book

CAPITAL ADEQUACY

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FY - 2015 FY 2014 Core Capital / Total Deposits (10.5%) 17.50% 18.10% Core Capital / Total Risk weighted Assets (10.5%) 15.70% 15.50% Total Capital / Total Risk Weighted Asset (14.5%) 22.40% 22.90% Coverage (Loan loss prov+int in sus /Gross NPL) -IFRS 56.6% 30% Coverage(Loss loan+int in sus+gen prov)/Gross NPL- CBK 87.5% 55% Liquidity (20%) 37.10% 35.30% NPL / Total Loans 3.4% 4.3% Loans to Deposits 77.6% 81.3%

15.7% 13.5% 15.7% 20.3% 16.00% 10.5%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

Core Capital to Total Risk Weighted Assets

Core capital(Tier 1) to Total risk weighted assets Minimum Statutory Ratio

22.4% 20.5% 21.1% 23.8% 16.40% 14.5%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

Total Capital to Total Risk Weighted Assets

Total capital ((Tier 1 + 2)) to Total risk weighted assets Minimum Statutory Ratio

Strong Profitability Growth

• Kes. Billions

FY - 2015 (audited) FY 2014 (audited) % Change (Y/Y) Interest Income 36.79 29.35 25.3% Interest Expense 13.59 8.08 68.2% Net Interest Income 23.20 21.28 9.0% Fees & Commissions 9.50 8.71 9.1% Forex Income 3.19 1.42 124.6% Total Income 36.39 32.09 13.4% Loan Loss Provision 2.02 1.17 72.6% Staff Costs 8.92 8.44 5.7% Total Operating Expenses 21.39 20.10 6.4% Exceptional Items – Early retirement costs 0.00 1.34 100% Share of profits of associate 0.38 0.27 40.7% Profit Before Tax 15.38 10.92 40.8% Profit After Tax 11.71 8.01 46.2% Basic EPS 2.31 1.69 36.7%

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Key Ratios

FY- 2015 FY - 2014 Cost to Income(Excluding Provisions) 53.2% 59.0% Cost to Income (Including Provisions) 58.8% 62.6% Cost of funds 5.2% 3.8% Staff Cost to Total Income 24.5% 26.3% Debt to Equity 38.4% 42.2% Return on Average Equity(ROAE) 25% 20% Return on Average Assets (ROAA) 3.7% 3.1% FX to Non Funded income 24.2% 13.1% Non - Funded to Total Income 36.2% 33.7% Net Interest Margin(NIM) (Earning Assets) 8.8% 10.1% Net Interest Margin (NIM)(Loans only) 10.3% 11.9%

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• Cost to Income : The ratio is improving in line with the ongoing transformation strategy
• Return on Average Equity : Improved as a result of the improved operations efficiency
• NIM : Stable and in line with the bank’s projections

2016 Financial Outlook

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Projections FY 2016 Profit Before Tax Growth 20% Loans & Advances Growth 19% Deposits Growth 25% Cost to Income Ratio 50% Non Funded to Total Income 36% ROE 25% ROA 4% NPL 4% Cost of funds 4.5% Net interest margin (NIM) 10.5% Cost of risk 1%

Conclusion

We are pleased with the strong balance sheet and P&L growth of 20% and 41% respectively, with FY - 2015 Profit Before Tax of Kshs 15.38B compared to Kshs 10.92B in 2014. With the continued implementation of the “Soaring Eagle” Transformation Initiatives, revamped ICT infrastructure, profitable operations in South Sudan, and ongoing investment in other new frontiers, the group will continue scaling new heights. The board of directors has recommended subject to the AGM and Capital Market Authority approval a dividend payment of Kes. 0.80 per every ordinary share held. We look to the future with great excitement and optimism! Thank you for your continued partnership and we invite you to invest more in the great future.

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