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Why Co-op Bank CEO earned Sh260m bonus

Post by : Robert Kamau

Co-op bank ceo Gideon Muriuki

Co-operative Bank’s chief executive, Gideon Muriuki, earned Sh260.3 million in bonus last year, the largest in the banking industry, under the bank’s performance-based reward system for staff.

The lender says it rewarded the CEO for protecting shareholder returns while navigating the bank through the Covid-19 pandemic.

Why Co-op Bank CEO earned Sh260m bonus

Co-op bank ceo Gideon Muriuki
PHOTO : CO-OP bank CEO Gideon Muriuki

Mr Muriuki’s bonus dropped from Sh271 million in 2019 but dwarfed those paid to CEOs of rival big banks which were slashed by larger margins.

KCB, NCBA , Standard Chartered Bank Kenya  and Absa Bank Kenya reduced or froze bonuses for their CEOs in the year ended December, saving a combined Sh262.3 million.

Equity and I&M were the exception, raising their CEOs’ bonuses by Sh4.7 million and Sh4.6 million respectively.

Unlike other large banks, Co-op Bank stood out for maintaining dividend payouts, hiring more employees, paying them more and expanding in the midst of the pandemic through its acquisition of Jamii Bora, which it renamed Kingdom Bank. 

“A key pillar of this transformation has been the board of directors successfully implementing a performance-based bonus reward system applicable to all staff,” Co-op Bank says in its latest annual report discussing executive management compensation.

“In 2020, the group acquired 90 percent stake in Kingdom Bank … with over 444,000 customers in 17 branches. The acquisition offers Co-op Bank the opportunity to cross-sell and deepen product offering to the enhanced customer base.”

Mr Muriuki was part of the bank’s staff whose salary and bonuses rose to Sh13.4 billion in the review period from Sh12.4 billion a year earlier.

The Nairobi Securities Exchange-listed firm maintained its dividend payout of Sh1 per share in both 2019 and 2020, distributing a total of Sh11.7 billion in the two years.

KCB, Equity, I&M, NCBA , StanChart, Absa and DTB on the other hand cut their dividends by a total of Sh40.5 billion over the two years, citing the need to prepare their balance sheets for the economic fallout from the pandemic.

The banking sector posted a 20 percent net profit drop to Sh88 billion in the year ended December compared to Sh110.1 billion a year earlier, according to Central Bank of Kenya (CBK) data.

The weaker bank earnings were mainly caused by loan loss provision swelling to Sh110.2 billion from Sh39.2 billion as the lenders braced for increased defaults in the wake of increased job losses, lockdowns and business disruption in the pandemic era.

Co-op Bank’s net income declined 24.4 percent to Sh10.8 billion in the review period, also due to higher loan loss provision.

The lender, however, says it has maintained dividend payouts to take care of its unique, large retail shareholder base in the savings and credit co-operative (sacco) sector.

“We paid a Sh5.8 billion dividend which is a critical support/income to the 15-million-member co-operative movement that predominantly owns the bank,” the lender said of the payout made for the year ended December.

Saccos received a dividend of Sh3.7 billion in the review period through their investment vehicle Co-op Holdings Co-operative Society Limited, which holds a 64.5 percent stake in the bank.

The holding company then distributes the dividend to the individual sacco members, including Harambee, Kenya Police, Afya and Masaku Teachers.

The annual dividend the saccos now receive from Co-op Bank represents the entire investment of Sh3.7 billion they made in the lender decades ago, making it one of the most profitable ventures on the NSE.

Besides the cash returns, the saccos are holding shares with a current market value of Sh49 billion.

Co-op Bank pursued growth in the middle of the pandemic, acquiring Jamii Bora (now trading as Kingdom Bank) in August last year, a transaction whose success got a major boost from an unprecedented financial support from the CBK.

The regulator gave Kingdom Bank a Sh20.9 billion interest-free loan repayable in 10 years to aid its recovery from losses and weak capital position.

The deal is part of Co-op Bank’s strategy of expanding in the Kenyan market where it believes opportunities are yet to be exhausted. The bank also operates a subsidiary in South Sudan.

Most of the other big banks are present in four to six markets, seeking diversification and growth in the neighbouring countries which have smaller uptake of banking services compared to Kenya.

The buyout of Jamii Bora raised Co-op Bank’s workforce to 4,628 last year from 4,422 in 2019 at a time when most of its rivals laid off hundreds of employees to cut costs.

While Mr Muriuki’s bonus dropped slightly, some of his peers took major pay cuts in the review period.

KCB’s Joshua Oigara, for instance, was not paid a bonus last year after receiving Sh193.7 million in 2019.

The bank’s net income fell 22 percent to Sh19.6 billion in the year ended December when it slashed its dividend 71.4 percent to Sh1 per share or an aggregate of Sh3.2 billion.

NCBA’s John Gachora also missed a bonus in 2020, having earned Sh38.4 million the previous year. The lender’s net profit dropped 40.6 percent to Sh4.5 billion in 2020 when it resume dividend payouts at a rate of Sh1.5 per share for a total of Sh2.4 billion.

NCBA had skipped dividends in 2019, saving Sh2.2 billion in the process.

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