Co-operative Bank of Kenya (Co-op) earnings growth shows a structural deceleration

The Co-op’s earnings compound average growth rate (CAGR) decelerated from 34.6% over FY07-13 to 10.0% during FY13-22. It was due to: i) Net interest margin (NIM) contraction from an average of 8.4% over FY07-16 (before the introduction of rate caps) to 8.1% over FY17-22; ii) an increase in the cost of risk from 0.5% over FY07-17 to 1.8% in FY18-22. iii) slower gross loan CAGR, down from 21.8% in FY07-15 to 8.2% in FY15-22, which we attribute to the introduction of rate caps, deterioration in asset quality, and declining deposits market share from 10.4% in FY15 to 8.9% in FY22. We are also concerned about the lack of management clarity on the bank’s strategic direction.