CO-OPERATIVE BANK OF KENYA LTD 2013 GROUP FINANCIAL

CO-OPERATIVE BANK OF KENYA LTD 2013 GROUP FINANCIAL PERFORMANCE

Contents Macro Economic Overview The Co-operative Bank of Kenya Story Pillars of our Strategic Growth Financial Performance Update

Macro Economic Overview

Macro Economic Overview Kenya is now a frontier economy in similar ranks with Nigeria. This is mainly due to improved performance due to changes in political, economic and social landscape. It offers great banking and business opportunities with now 67% of kenyan’s having formal financial access from any provider (Fin access 2013 Survey). With heavy investment in roads network and standard gauge railways and telecommunications is expected to propel economic growth.

Macro Economic Overview Kenya’s minerals, oil and gas offers good deals in the medium and long term - Commercial production of titanium at the Coast region has already started - Commercial reserves have been confirmed for crude oil in Northern Kenya - coal in Mui Basin in Kitui has also been confirmed. Production expected in 2016/2017. Geothermal power by GDC and Kengen expected to lower cost of power to the business community.

Macroeconomic Overview Kenya’s FDI flow is projected above Sub-Saharan average in 2014 The country’s Foreign Direct Investment is forecast at 3. 2% of GDP in 2014. This compares favorably to Sub-Saharan average of 2. 9% and Middle-income countries average of 2. 2% of GDP (IMF , October 2013)

Macroeconomic Overview The private sector remains vibrant and very attractive to FDI The private sector provides better linkages between formal and informal segments of the economy. This provides growing markets and good banking business opportunities.

Macroeconomic Overview Kenya’s Debt level is still sustainable The country’s Public Debt to GDP ratio stood at 51. 8% in December 2013 and is projected to touch 53. 3% in June 2014. The IMF has been carrying out Kenya’s debt sustainability analysis since 2010 and indicates that our country’s debt is sustainable (IMF Debt Sustainability Analysis, April 2013 review).

Macroeconomic Overview Kenya’s economy is now stronger to withstand external vulnerability The country’s gross foreign exchange reserves averaged 4. 3 months worth of import cover. This compares favorably with 3. 1 months for COMESA and 3. 9 months import cover for EAC. The 2011 -2013 IMF’s Extended Credit Facility has resulted in a stable money and forex market.

Macro Economic Overview Gross Domestic Product (GDP) • Kenya’s external position has strengthened substantially in the recent years. – The current account deficit, which averaged over 10% of GDP in 2011 and 2012, narrowed to 7. 5% of GDP in September 2013. – With the successful completion of the IMF’s Extended Credit Facility (ECF), Kenya now stands stronger to withstand external shocks. • Kenya’s economic growth rate has recovered steadily from 1. 5% in 2008 to 4. 4% in Q 3 2013 and an estimated 5. 0% for the whole of 2013. • This growth in 2013 is commendable given Kenya’s history of very low economic growth in an election year.

Macro Economic Overview Source: Kenya National Bureau of Statistics

Macro Economic Overview Inflation Kenya’s inflation rate is stable and within single digit level. Inflation rate averaged 5. 72% in 2013 and was within targeted upper band of 7. 5% by the National Treasury. For January and February 2014, inflation has averaged 7. 04% which is within the National Treasury targets and is expected to remain relatively at that range. Interest Rates Interest rates have been stable in 2013 resulting from a stable inflation environment. CBK have managed to keep the macroeconomic environment stable resulting in a stable money market.

Macro Economic Overview Foreign Exchange KES has been stable against major trading currencies in 2013 KES exchanged at an average of KES 86. 125 to the USD in 2013 and KES 86. 275 in January and February 2014 which indicates high currency stability. No significant volatility is expected on the KES against other major currencies.

Macro Economic Environment South Sudan • Banking business opportunities remain attractive; Less than 3% of the population has access to formal financial services (Bank of South Sudan). Forex business and trade finance is vibrant Untapped agribusiness providing great potential Number of formal SMEs has grown by over 1700% since 2006 according to the World Bank.

The Co-operative Bank of Kenya A rich heritage, a confident future

A rich heritage, a confident future • Predominantly owned by the Co-operative Movement through Co-op Holdings Co-operative Society with a 65% stake. • Kenya has the largest co-operative movement in Africa and the 7 th in the world with over 12, 000 co-operative societies, 7, 000 of which are Sacco's. • There are over 10 million members in the co-operative movement with a strong track record. • Unique wholesale/ retail bread banking model. • Growing network now with 134 branches in Kenya • Regional expansion now with a presence in South Sudan.

Pillars of our strategic growth

Pillars Of Our Strategic Growth 1. Successful financial deepening and business diversification 2. Strong transaction income base 3. Strong risk management framework 4. Robust technology and service delivery channels 5. Strong investment in human capital 6. A powerful brand 7. Strong capital base 8. Strong & sustainable partnerships with Development Partners 9. Social investment that inspires self reliance 10. Heavy investments for future growth

Successful financial deepening and business diversification Retail Banking Co-operatives Banking Corporate & Institutional Banking Regional Expansion - Co-op Bank of South Sudan Subsidiaries: Associates: CIC Insurance - Co-op. Trust - Kingdom Securities Ltd - Co-op Consultancy & Ins. Agency - Co-op Bank Foundation

Successful Financial Deepening and Business Diversification We deliver a diversified product offering To cover SME, Retail, Co-operatives, Corporate, Agribusiness, Mortgage, Asset Finance & Micro Credit Has linkages with all sectors of the economy - Financial, Agriculture, Energy, Transport, Housing , Manufacturing A diversified product offering increases the bank’s coverage and fulfillment of customer needs, boosting wallet size growth. • Successfully build an account base of over 4. 1 Million accounts • Excellent cross selling opportunities with a customer base of over 4. 1 million accounts ; 76% with only 1 account • Linkages with Saccos expands this mass retail base, boosting sales retail offerings; Sacco link. • 26% stake in CIC Insurance Group

Remarkable growth in account numbers Account numbers, thousands

Growing borrowing customer base Number of borrowers, thousands 400 Strong growth in borrowing customer numbers continues to boost asset growth and the bottom line 349 350 300 248 250 200 150 112 125 259 2011 2012 150 100 50 0 2008 2009 2010 2013

2. Strong Transaction Income Base 1. Built a vast capability to drive non-funded commissions 2. Strong growth in commissions as customers enjoy convenient access via the service outlets of their choice. 3. ATMs, over 535 4. Agency Banking, 7, 099 live sites, 15, 000 by close of 2014 5. Branch network, 134 and growing 6. M-banking, 1. 32 Million customers 7. Sacco Link Customers – 631, 487 8. Forex income of Kes. 1. 47 B in 2013 9. Subsidiaries businesses 10. Associates

3. STRONG RISK MANAGEMENT FRAMEWORK • • Proactively managed our NPL High level of Governance; Risk & Finance Committee of the Board. A robust credit management framework o Enforcement of prudent credit risk management policy o Well diversified portfolio o Adequate provisioning policy • A sound risk & compliance framework

A well-diversified asset portfolio

4. Robust Technology & Service Delivery Channels • Sustained investment in world-class technologies and service channels to optimize operational efficiency while providing unrivalled service • Banking on the latest Bank Fusion Universal Banking (BFUB) core banking platform from Misys with a world-class support structure with the following: o Latest 6 IBM P 7 series servers o Tier 3 Data centre o Fiber connection o MPLS technology on data movement between head office and branches. • Investment in specialized systems: Opics (Treasury System) and Trade Innovation for Trade Finance

Robust technology and service delivery channels Branch and ATM network 600 Strong focus on county banking strategy Continued focus on customer delivery channels 535 492 500 426 377 400 300 200 100 Branches 260 ATMs 182 51 79 85 92 114 134 0 2008 2009 2010 2011 2012 2013

5. Strong Investment In Human Capital The Bank is undoubtedly an employer of choice in the industry We have a clear and functional organization and leadership structure We have enshrined a performance-based culture and the Balanced Score Card system We have a vibrant workforce with a good mix of age and skill sets. Runs own Leadership & Management Centre; center of excellence in banking training. Includes training for Sacco's management.

6. A Powerful Brand Co-op Bank is the face of Kenya. We embody the legacy of a successful enterprise by indigenous Kenyans, represented by the Cooperative movement. Our brand speaks to the character of the Kenyan people, as engrained in our tagline ‘we are you’ and Bo. D Declaration of the ‘Kingdom Bank’ We are a successful African story, being the number one Co-operative Bank in Africa A reputable Board of Directors; A track record of a most successful business and operational restructuring from a huge loss of Kes 2. 3 Bn in Year 2001

Co-op Bank wins the ‘Most Green Bank’ Award 2013 Energy Management Awards CITATION Willingness to take risk in new area of financing (clean energy banking) Actively promotes ‘green energy’ among our clients Fastest turnaround time for Renewable Energy (RE) & Energy Efficiency (EE) financing for SME and large enterprises. Currently have the highest achievement in AFD Clean Energy credit line. Bank with the largest pipeline of projects seeking clean energy financing.

World Recognition

7. Strong capital base

7. Strong capital base • Steady and consistent growth in shareholders equity • Ability to double our deposit base within statutory requirements • Ability to lend up to Kshs 9. 2 B to a single customer • Capital retention strategy to grow business. –Progressive dividend payout as our earnings grow –Long term plan of deepening shareholder value –Affordable means of funding growth

Strong return on investment 2. 5 • Critical focus of deepening shareholders value 2 1. 84 1. 5 1. 31 EPS Ksh • Progressive dividend payout as our earnings grow 2. 18 1 0. 5 DPS 0. 85 0. 4 2010 2011 0. 5 2012 2013 0. 2 0 2009

8. Strong and Sustainable Partnerships With Development Partners Leveraged on our strong balance sheet to secure longterm debt from developmental partners for over 18 billion as hereunder: – IFC US$ 60 million (Kshs. 5. 1 billion) – EIB Euro 70 million (Kshs. 8 billion) – AFD Euro 10 million (Kshs. 1. 2 billion) – DEG US$ 52. 5 million (Kshs. 4. 51 billion)

Strong and Sustainable Partnerships With Development Partners Senior debt has enhanced asset-liability match Mitigated our shilling exposure Diversified our asset portfolio Expanded our client base to export-led sectors Boosted our competitive position on account of affordable lending rates

9. Social Investment that Inspires Self Reliance Social investment philosophy: empower institutions and individuals so that in future they don’t need to be helped again. Board of Directors went out of its way to incorporate a full consultancy company - Coop Consultancy Services - with 20 consultants to support Sacco’s and related community benefit institutions. Capacity building for Sacco’s making them more competitive. Carried out over 500 mandates in 3 years. Supports Sacco’s to establish FOSA’s

Social Initiatives Co-op Bank Foundation: • one of the main pillars of the Co-op Bank Social Responsibility program • The bank will have sponsored in 4 years, over 2, 800 needy but bright students to pursue Secondary, University & College education.

9. Social Investment That Inspires Self Reliance • Supported the establishment of Kenya Co-operative Coffee Exporters Ltd to help coffee farmers maximize return on their business and take greater control of the coffee value chain. • Our social investment has greatly boosted our corporate image and brand visibility.

10. Heavy Investments for future revenue growth In line with the County Governance Structure, we have opened over 60 branches in the last 3 years; – Leveraging on these branches to be key banker to most of the county governments. – Around 20 of these branches will contribute positively to our profits from this year (Kshs 226 million loss in year 2013) South Sudan operations: we opened our doors for customers from September. 2013. This strategic joint venture (Co-op bank 51% / GOSS 49%), is expected to contribute positively to our profits from this year. (Us$3. 2 million loss in 2013). The unique joint venture guarantees quick turnaround of our business.

Financial Performance Update

A Growing Bank 2013 2012 Total Assets 231. 2 200. 8 % Change (Year on Year) 15% Loan book (NET) 137. 1 119. 1 15% Government securities 39. 3 33. 4 18% Total Deposits 181. 2 163. 3 11% Borrowed Funds 10. 3 4. 6 124% Number of Accounts ( Millions) 4. 1 3. 2 28% Branch Network 134 114 18% KES Billions

Optimal Investment in earning assets Property & equipment; 11. 4 B ; 5% Cash & shortterm funds; 31. 1 B; 13% Securities & investments; 41 B; Net 18%loans & Advances Balance sheet : Asset distribution Property & equipment Others; 10. 7 B; 5% Net loans & Advances; 137 B; 59% Securities & investments Others Cash & short-term funds

Strong Balance Sheet ratios 2013 2012 Core Capital / Total Deposits 18. 2% 18% NPL / Total Loans 4. 3% 5% Total Capital / Total Risk Weighted Asset 21. 1% 23. 8% Liquidity 32. 6% 35. 5% 73% Loans to Deposits

Strong Balance Sheet Growth

Strong Profitability Growth KES Billions (except for Earnings per share) Interest Income Interest Expense Net Interest Income Fees & Commissions Forex Income Total Income Loan Loss Provision Operating Expenses PROFIT BEFORE TAX PROFIT AFTER TAX Earnings per Share 2013 2012 24. 54 24. 36 5. 92 8. 68 18. 63 15. 68 7. 14 6. 05 1. 3 % Change (Year on Year) 1% -32% 19% 18% 15% 27. 89 0. 78 17. 4 23. 85 1 14. 2 17% -22% 10. 87 9. 11 9. 98 7. 72 9% 18% 2. 19 1. 84 19%

Sustainable Profitability

Key Profit & Loss Ratios Cost to Income 2013 59% 2012 55% Non - Funded to Total Income 33. 3% 34% FX to Non Funded income 16% 15. 9% Average Return on assets 4. 2% Average Return on Equity 27. 4% 31%

Conclusion • We are pleased with the strong balance sheet and P&L growth with the Profit before tax of Ksh. 10. 87 B for the year ended 31 st December 2013 representing a 9 % growth over the 2012 PBT of Kes. 9. 98 B • With the major investment in the branch network, ICT infrastructure and new operations in South Sudan, we expect the growth momentum to be sustained and better profitability in 2014

Conclusion • The Board of Directors has recommended subject to AGM and Capital Market Authority approval the following; – A dividend payment of Ksh. 0. 50 per every ordinary share held in order to retain more funds for expansion. – A bonus share issue of one (1) new ordinary share for each six (6) ordinary shares held.

Thank you for your continued support. God bless you. Dr. Gideon Muriuki, MBS Group Managing Director & CEO