By Our Reporter

Sh18.02bn is a large number. It is also an incomplete one.

Co-operative Bank of Kenya increased net profit by 28% in the six months to June 2026, from Sh14.08bn a year earlier. Profit before tax rose 17.3% to Sh23.1bn. It was the bank’s strongest half-year performance on record.

The obvious engine was lending. Net loans and advances grew by 18.1%, to Sh462.2bn. Net interest income increased 13%, to Sh33.2bn, while operating income rose 12.5%, to Sh48.9bn. Deposits grew 11.2%, to Sh623.2bn.

More interesting is what happened to credit quality.

The group’s non-performing-loan ratio fell to 13.9%, from 17.2% a year earlier. Its cost of risk declined to 1.8%, from 2.4%. Provisions for loan defaults fell 17.5%, to Sh3.73bn.

For a bank expanding its loan book by nearly a fifth, that is useful news.

It is also where the result becomes less straightforward.

A 13.9% NPL ratio is an improvement, but hardly a clean bill of health. The bank still carries Sh72.56bn in gross non-performing loans. The question is whether the improvement represents a durable repair of the loan book or simply the first fruits of a better credit cycle.

Muriuki says the bank is not leaving the matter to chance.

“We continued to strengthen asset quality through proactive credit management, customer engagement and portfolio monitoring,” he said.

That is a rather more consequential statement than the usual corporate celebration of record earnings. Credit management is where the next chapter of the story will be written.

The balance sheet is expanding alongside the profits. Total assets reached Sh869.47bn, from Sh811.91bn. Government securities increased 7%, to Sh271.6bn, while shareholders’ funds rose 9.4%, to Sh171bn.

The bank’s subsidiaries are doing some of the heavy lifting too.

Kingdom Bank’s profit before tax rose 77.8%, to Sh873m. Co-optrust Investment Services increased its profit before tax by 77.5%, to Sh640.5m. Co-op Bank of South Sudan almost quadrupled its pre-tax profit, to Sh224m, while Kingdom Securities increased its pre-tax profit by 23.3%, to Sh77.9m.

Muriuki says the wider group is beginning to look more like the diversified financial-services business Co-op Bank has been trying to build.

“The group’s subsidiaries continued to make a positive contribution to performance, reinforcing the strength of the universal banking model,” Muriuki said.

The phrase universal banking model sounds suitably corporate. The numbers behind it are less abstract.

More than 90% of customer transactions were processed through alternative channels. Agency-generated deposits rose 8.7%, to Sh92.5bn, while digital E-Credit disbursements reached Sh40.4bn during the half-year.

This matters because digital distribution can allow a bank to grow without expanding its physical footprint at the same rate. Co-op Bank nevertheless added 11 branches during the period, taking the total to 223, while its workforce increased by 741 to 6,591.

So much for the simple story that Kenyan banking is becoming entirely digital.

The more accurate one is messier. Branches remain important; digital channels are absorbing transactions; agency banking is widening the deposit network. The old banking model is not disappearing so much as being layered with another.

Costs, meanwhile, rose 9.2%, slower than operating income. That left the cost-to-income ratio before provisions at 46%. Return on average equity stood at 22%, while return on average assets improved to 4.3%, from 3.7%.

That is the operational discipline investors will care about.

A bank can grow its loan book. It can also grow its expenses. The useful trick is doing the former faster than the latter while keeping defaults under control.

Co-op Bank appears, for now, to be managing all three.

Its capital and liquidity position also gives it room to lend further, invest and expand during the second half of the year, the bank says.

That is where the optimism meets the risk.

Credit expansion is profitable when borrowers repay. It becomes expensive when they do not. Kenya’s banks learnt this lesson rather painfully during the recent period of high interest rates and weak household and business balance sheets.

Co-op Bank’s improved NPL ratio suggests that some of that pressure is easing. But 13.9% remains high enough to keep the risk department awake.

The bank’s strategy is also becoming more dependent on small businesses and households. MSMEs accounted for 16.5% of its loan book and 23.1% of customer deposits, according to the bank’s results. More than 268,000 MSMEs had been enrolled in tailored packages.

That is commercially sensible. It is also where the credit risk becomes more granular.

Small businesses are often the first borrowers to feel a slowdown. Their cash flows are less predictable, collateral can be thin and a late payment by one customer can become a missed instalment to the bank.

Co-op Bank’s record profit therefore contains two stories.

One is about growth: more loans, more deposits, stronger subsidiaries and greater digital activity.

The other is about restraint.

Can the lender keep expanding at this pace without rebuilding the stock of bad loans it has just reduced?

For now, the numbers say yes.

But banks are judged rather harshly when yesterday’s good news becomes tomorrow’s provision charge. The Sh18bn profit is the reward.

The 13.9% NPL ratio is the warning.