Co-operative Bank of Kenya has gone quiet on its planned regional expansion drive after taking a hit in South Sudan as it focuses on reducing costs to survive in an environment where interest rates are controlled by the state.

This comes as speculation intensified in the market that the bank, which is listed on the Nairobi Securities Exchange (NSE), has abandoned its regional expansion plan to manage cross-border risks.

This year, the bank steered clear of its quarterly briefing to the media and investors about its regional expansion to Rwanda, Uganda, Tanzania and Ethiopia and instead concentrated on the losses suffered in South Sudan.

The EastAfrican has learnt that the bank is no longer keen on its original plan to enter regional markets.

Industry sources said that the bank has taken the hard decision to ward off risks associated with cross-border operations owing to economic and political turbulence in regional markets.
According to the sources, the bank has opted to concentrate on local operations by cutting administrative and operational costs to remain afloat as revenues come under pressure amid interest rate caps in Kenya.

“The decision has to do with risk management because regional economies are not doing well and companies are not making good returns,” said a source.
Currently, the bank has presence in South Sudan through a joint venture with the government on a 51:49 basis, having started operations in the world’s newest nation in September 2013.
Coop Bank’s management declined to comment on the matter.

“We wish not to comment on anything outside the financials,” said Francis Ngambi, the bank’s press secretary.

Managing director Gideon Muriuki also declined to comment on the issue, but acknowledged that the business environment in the region is tough.

“The reality we are all hurting and it could have been much better; we not need the interest rate caps,” said Mr Muriuki.

Coop Bank resorted to cost-cutting measures on recommendations by the global consultancy firm McKinsey & Company in 2014, which saw the sacking of 160 managers to containing rising operational costs.

Last year, the Bank’s cost-to-income ratio declined to 52.1 per cent, from a high of 59 per cent in 2014, pushing its net profit up by 8 per cent as performance of its peers such as KCB Group and Equity Group faltered.

Coop Bank, Kenya’s third largest lender by capital  base, had initially put aside Ksh2.3 billion($23 million)  to facilitate its entry into Uganda and Ethiopia  in September 2015 followed by Rwanda in 2016 through joint ventures with the co-operative movements.

The expansion was part of its five-year plan (2015-2019)   hinged on regional expansion.

Market analysts and economists polled by The EastAfrican said the Bank had changed its mind to avoid financial bleeding in regional markets due to difficult business environment across the region.

“There has been a slowdown in business across the region and in returns for companies that have invested across the borders and Co-operative Bank may have decided that the investment returns will not be lucrative. The bank has been streamlining its operations to cut costs,” said Scholastica Odhiambo, an economist.