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PRESENTATION OF YEAR 2011 FINANCIAL RESULTS

Dr. Gideon Muriuki GROUP MANAGING DIRECTOR & CEO. PRESENTATION OF YEAR 2011 FINANCIAL RESULTS. Profit Before Tax.

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PRESENTATION OF YEAR 2011 FINANCIAL RESULTS

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  1. Dr. Gideon Muriuki GROUP MANAGING DIRECTOR & CEO PRESENTATION OF YEAR 2011 FINANCIAL RESULTS

  2. Profit Before Tax Co-op Bank is pleased to report a Profit Before Tax of Kshs.6.36 billionfor the year ended December 31, 2011 representing a commendable 10.2%growth compared to Kshs.5.77 billion recorded in the year 2010.

  3. A Growing Bank

  4. Balance Sheet Growth • Our growth was mainly underpinned by the growth in our balance sheet notably; • Our loan book which grew by Kshs.22.8 billion (26%) as supported by our deposits. • Our deposit book grew by 15% to kshs.142 Billion. • Our customers base grew by 44% from 1.6 million to 2.3 million account holders.

  5. Income Statement

  6. Key issues to highlight • Whereas the performance for the first six months to June 2011 stood at a PBT Kshs.4.2billion, second half of 2011 was challenging owing to high inflation, weakening of the shilling and eventual tightening of the monetary policy, CBR at 18%. Interest rates rose significantly discouraging lending and increasing the cost of funding. • Our Interest expenses stood at Kshs.4.5 Billion reflects the higher cost of funds. • Our fees and commissions grew by 32% thus doing well on the normal business of the bank • Our Forex income grew by 63%.

  7. Sustainable Growth

  8. Sustainable Growth

  9. Sustainable Growth • Co-op Bank remains focused on balance sheet growth and transaction based income as a key driver of our performance. • In 2011 the following were the key business drivers that led to our sustained good performance

  10. Transaction Based Income Our fees and commissions (notably ATM, personal and business banking commissions, M-Banking, Forex income and letters of credit) have grown to KSh.7.6 Billion in 2011out of the following key initiatives:-

  11. Transaction Based Income Customer Growth • During the year, we continued an aggressive customer growth campaign aimed at increasing our customer base. • The all inclusive bank staff initiative grew our customer base from 1.6 million customers to over 2.3 million customers registering over 44% growth. • Growth in customer base ensured increased transactions volumes and hence increased fees and commissions income as noted earlier with total fees, commissions and Forex income at over Kshs7.6 Billion.

  12. Transaction Based Income County Banking Structure In line with the new constitution, we performed a strategic positioning of our outlets and realised a need for additional 42 branches / outlets. 7 were opened in 2011 and the rest are on course to be opened in 2012. The expansions target strategic locations based on their profiles and business potential from our chosen market segments.

  13. Transaction Based Income Expanded ATMs network • We continued investments in ATM network and are now accessible in 426service points. • Also invested in over 30 Auto Banking Centre's with deposit taking capabilities, providing our customers a 24 hour banking service.

  14. Transaction Based Income Front Office Service Activity (FOSA) Project Co-operative movement continue to be core and are thus retailing banking services through Sacco’s / Fosa’s to the over 7 million members using this unique model. We continue to provide corporate finance capacity support through our subsidiary Co-operative Consultancy and Insurance Agency Limited aimed at increasing the number of Sacco FOSA’s. Currently over 418 FOSA's are operational with our key focus being to increase our products such as sacco link debit card and payments systems offering through them and maximise commissions and other revenues.

  15. SACCO Link This ICT switch enables members of Sacco’s cash at our ATM’s and goods/services at Visa branded outlets globally. The numbers continue to grow now with over 420,000 cards been issued up to 2011 and targeting over 600,000 users by end of 2012 This is well supported by the increased investment in ATMs and POS’s. Transaction Based Income

  16. Transaction Based Income Mobile Banking We have enhanced our mobile banking service the M-Banking platform now with a client base of 769,000 customers and growing. Our customers are able to access a wide range of services such as:- Air-time top ups Money transfer to and from Mpesa Balance enquiry Utility payments among others School Fees payments (Mkaro) Account to account transfers and alerts

  17. Liability Growth • Our good liability growth from Kshs.123.9 billion to Kshs.142.6 billion (15%) was underpinned by :- • Growth in number of accounts which increased to over 2.3 million customers; • A strong Institutional and Government Banking Sector strategy; • The strong growth was against high costs of funds as depositors demanded higher interest rates; • This has driven the growth of our balance sheet and non funded income streams. • This trend is expected to continue given our continued liability growth campaign.

  18. Asset Growth The Bank continued to grow quality assets with increased investments in a strong credit risk management framework. Our portfolio stood at KShs.114.6 billion gross on a well diversified loan portfolio as hereunder:

  19. Asset Growth Corporate and Trade Finance • Our Corporate and Trade Finance book has continued to grow owing to the strengthened capacity. • The result has been growth in our Forex income to over Kshs.1.013 Billion • Corporate segment has contributed to significant portfolio’s in corporate lending, Letters of Credit and Guarantees leading to tremendous increase in commissions. • Our commodity finance business is operational and set to increase our income lines tremendously

  20. Asset Growth Co-operative Sector Lending • The bank has strengthened its focus in this key market segment as a means of financial deepening to the unbanked. • We continue to focus on wholesale banking and financial intermediation. Current programmes in place include; KFW small holder irrigation, AFD funding on renewable energy, East Africa Diary Development Project, Stabex, Financial empowerment by Swedish Co-operative Centre among others all totalling over Kshs5billion.

  21. Credit Risk Management Prudent Lending The bank continued to enforce strict credit risk management especially with high interest rates. The bank made adequate provisions for bad and doubtful debts amounting to Kshs.710 million in 2011.

  22. New Business Co-operative Insurance Company of Kenya Limited (CIC) The Banks shareholding in CIC (K) Ltd of 26.57% makes it the substantial/ single largest shareholder. The investment contributed over Kshs. 153.9 million in 2011. The bank thus continues to strengthen its financial supermarket model by providing insurance services in addition to fund management and stock brokerage services. The new venture has resulted in increased commision incomes, thus offering a diversified investment portfolio to shareholders.

  23. Agency Banking To expand our outreach, and take banking services closer to the people, the bank has launched the most aggressive Agency Banking Platform “Co-op KwaJirani” We successfully recruited and obtained approval from CBK for over 2,400 agents and over 1,800 are already operational. We took time on designing the product features and the POS platform which has been superbly received in the market place with already over 60,000 transactions per day. The impact has been increased transaction incomes We endeavour to operationalize over 4,000 agents by end of 2012. New Business

  24. Our branch expansion strategy particularly with county structure of Government remained on course with the acquisition and establishment of most of the 42 outlets completed in 2011. These are expected to contribute positively to the bottom line in 2012 / 2013 All cost lines continue to be monitored to eliminate waste and avoid budget overruns. Cost Rationalisation

  25. Human Resources • The key competitive edge for Co-operative Bank group is continued investment in our people. • The bank has heavily invested in performance management systems that are tied to compensation. • Both local and overseas training remains key with minimum training hours a target for every staff every year. • Talent Management is being rolled in all our SBU’s and support areas. • We remain an employer of choice in the industry.

  26. The implementation of the core-banking software (Bank Fusion Universal Banking-BFUB) from Misys is progressing well and is aimed at positioning the Bank for future growth. Our estimated go live date is third quarter 2012 which will come with immense efficiency and optimisation benefits. Core Banking Software

  27. Regional Expansion • The establishment of Co-operative Bank of Southern Sudan as a joint venture has already been approved by the Government of South Sudan. • Final touches on the shareholding structure and roll out are being discussed.

  28. Co-op Bank Foundation The bank has continued to play its co-operate social responsibility role by assisting the needy with the key focus on Education as hereunder; • Paying full secondary school fees to over 1,400students from all over the country • The foundation targets bright but needy students • Paying university fees to the top 28 students per year with an intake of 112 students in 4 years out of those sponsored in the secondary schools.

  29. Dividend Policy • In view of the good performance, the Board of Directors has recommended a retention of the same dividend paid in 2010 at 40 cents per share in line with our balance sheet growth strategy. • The Board of Directors have also approved a bonus share of one (1) for every five (5) ordinary shares held subject to approval by the Regulators and the Shareholders. • With the Bank AGM scheduled for 25th May 2012; the dividend will be paid to shareholders registered as at close of business on 28th May 2012. The bonus issue will be credited to the shareholders in the register on 15th June 2012 subject to Capital Markets Authority approval.

  30. Conclusion • The bank has done well scooping the “Bank of the Year in Kenya Award” by Financial Times of Londonfor two consecutive years, 2010 and 2011. • We are optimistic that the challenging economic environment will ease with inflation and interest rates coming down. • This being an election year, and with an impending bill on control of interest rates we will approach the business with abundant caution. • We sincerely thank all our stakeholders for the continued support over the years that has seen the success of the Kingdom Bank.

  31. Thank you and may God richly bless you all.

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