Co-op wealth management assets hit Sh218bn

Co-operative Bank of Kenya’s wealth management subsidiary grew its assets under management by 11.15 percent to a new record of Sh218.38 billion in the year ended December, a move that resulted in a substantial increase in fee income.

The subsidiary, Co-op Trust Investment Services Limited, had managed assets of Sh196.47 billion in the prior year.

Part of the assets represent the wealth of Co-op Bank’s employees, with the Nairobi Securities Exchange-listed firm contributing hundreds of millions of shillings each year in its defined contribution staff retirement plan.

“The group, through Co-op Trust Investment Services Limited manages securities with a value of Sh218.38 billion (2022: Sh196.47 billion) on behalf of customers,” the bank’s major shareholder, Co-op Holdings Co-operative Society Limited, says in its latest annual report covering the performance of the lender and its subsidiaries.

“The total income for the period from fund management was Sh392.05 million (2022: Sh343.08 million), with total expenses amounting to Sh209.06 million (Sh2022: Sh182.51 million).”

The growth of the assets represents the increase in returns as well as new capital inflows, including pension contributions received from Co-op Bank for its employees.

These pension contributions rose to Sh970.7 million last year from Sh910.6 million in 2022, according to the Co-op Holdings report.

“Under the terms of their appointment, Co-op Trust Investment Services Limited, a subsidiary of the bank, is responsible for the investment of funds,” Co-op Bank said of the pension fund management in its 2022 annual report.

Wealth management has high profit margins compared to other financial services though it still contributes a relatively smaller portion of profits for banks in this space.

Standard Chartered Bank Kenya is the other institution that has been offering wealth management services for decades, earning fees and contributing to the growth of non-interest income.

StanChart reported that the assets of its wealth management division rose 25 percent to Sh185.5 billion in the year ended December, overtaking retail deposits.

Other banks that have recently entered the wealth management business include I&M Group.

Fund managers with large and growing assets are best placed to grow their profits as they benefit from economies of scale characterised by fees growing faster than fixed expenses.

Most asset managers take their fees in the form of a percentage of assets, benefiting from the expansion of the business.

Co-op Trust more than quadrupled its assets from Sh52.5 billion in 2014, representing a compounded annual growth rate of 15.34 percent over the 10 years.

The annual income earned from managing the assets has more than doubled from Sh140.6 million in 2014, amounting to a compounded growth rate of 10.79 percent over the same period.

Besides generating fees, banks see their wealth management units as part of their strategy to offer comprehensive financial services to customers in need of several solutions including loans, insurance and retirement planning.

“Diversification into other financial services such as advisory, bancassurance, cross-border payments solutions, wealth management solutions, fintech partnerships among others gained momentum as banks broadened their value propositions,” Co-op Bank said in the 2022 report.

“Thus, bank solidification of value for existing clients while offering excellent customer experience will be a key pillar to retain and attract new customers.”