Why the CEO of Co-op Bank won a $ 260 million bonus

Why the CEO of Co-op Bank won a $ 260 million bonus

Why the CEO of Co-op Bank won a $ 260 million bonus

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Why the CEO of Co-op Bank won a $ 260 million bonus

Thursday, July 22, 2021

Co-operative Bank CEO Gideon Muriuki. FILE PHOTO | NMG

Why the CEO of Co-op Bank won a $ 260 million bonus

By VICTOR JUMA
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Summary

  • The lender says it rewarded the CEO for protecting shareholder returns as he navigated the bank through the Covid-19 pandemic.
  • Muriuki’s bonus fell from 271 million shillings in 2019, but dwarfed those paid to CEOs of large rival banks that were cut by larger margins.

The Co-operative Bank #ticker: COOP CEO Gideon Muriuki earned Sh260.3 million in bonuses last year, the largest in the banking industry, under the bank’s performance-based reward system for the personal.

The lender says it rewarded the CEO for protecting shareholder returns as he navigated the bank through the Covid-19 pandemic.

Muriuki’s bonus fell from 271 million shillings in 2019, but dwarfed those paid to CEOs of large rival banks that were cut by larger margins.

KCB #ticker: KCB, NCBA #ticker: NCBA, Standard Chartered Bank Kenya #ticker: SCBK and Absa Bank Kenya #ticker: ABSA reduced or froze bonuses for its CEOs in the year ending December, saving a total of 262 , 3 million shillings.

Equity and I&M were the exception, increasing the bonuses of their executive directors by Sh4.7 million and Sh4.6 million respectively.

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

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

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

Muriuki was part of the bank’s staff whose salary and bonuses increased to 13.4 billion shillings in the review period from 12.4 billion the previous year.

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

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

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

The weaker bank earnings were primarily caused by loan loss provisions that rose to Sh110.2 billion from Sh39.2 billion as lenders braced for a surge in defaults in the wake of rising job losses , lockdowns and business interruption in the era of the pandemic.

Co-op Bank’s net income decreased 24.4 percent to Sh10.8 billion in the review period, also due to a higher provision for bad loans.

However, the lender says it has maintained dividend payments to take care of its large retail shareholder base unique to the credit union (sacco) sector.

“We paid a dividend of 5.8 billion shillings which is critical income / support for the cooperative movement of 15 million members predominantly owned by the bank,” the lender said of the payment made for the year ending December.

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

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

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

In addition to the cash returns, the saccos have shares with a current market value of 49 billion shillings.

Co-op Bank sought growth amid the pandemic, acquiring Jamii Bora (now listed as Kingdom Bank) in August last year, a transaction whose success was boosted by unprecedented financial support from the CBK.

The regulator provided Kingdom Bank with an interest-free loan of 20.9 billion shillings repayable over 10 years to help it recover from losses and a weak capital position.

The deal is part of Co-op Bank’s strategy to expand into the Kenyan market, where it believes opportunities have not yet been exhausted. The bank also operates a subsidiary in South Sudan.

Most of the other large banks are present in four to six markets, seeking diversification and growth in neighboring countries that have less acceptance of banking services compared to Kenya.

The Jamii Bora purchase brought 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 Muriuki’s bonus was reduced slightly, some of his peers suffered significant pay cuts in the review period.

KCB’s Joshua Oigara, for example, did not receive 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 cut its dividend 71.4 percent to Sh1 per share or an aggregate of Sh3.2 billion.

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

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

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