Co-operative Bank of Kenya posted a 7.5 percent profit growth to Sh18.4 billion in the nine months ended September, driven by higher interest income from loans.

The net earnings grew from Sh17 billion a year earlier. Co-op Bank’s total interest income increased 12.8 percent to Sh49.3 billion as the lender increased its lending to ordinary customers and the government via purchase of treasuries.

“The strong performance by the bank is in line with the group’s strategic focus on sustainable growth, resilience, and agility,” said Gideon Muriuki, Co-op Bank managing director.

The Nairobi Securities Exchange-listed firm expanded its loan book by Sh42.9 billion to Sh378 billion while its investments in government debt securities increased by Sh2.7 billion to Sh185.1 billion.

Rising interest rates are expected to lift lending margins for banks, especially those that can avoid a substantial increase in their cost of funds as well as non-performing loans.

Co-op Bank’s deposit base increased by Sh835.7 million to Sh432.8 billion while interest paid to depositors grew by Sh4.8 billion to Sh16.5 billion, reflecting the impact of rising rates.

The average rate on fixed deposit accounts across the banking sector rose steadily to peak at 8.39 percent in August, according to the Central Bank of Kenya. Lending margins have meanwhile remained stable at about 5.4 percent as lending rates also rose to hit an average of 13.24 percent in August.

Besides higher income from lending, Co-op Bank also benefitted from lower operating costs. The bank’s total operating expenses shrunk by Sh629.1 million to Sh29 billion, partly due to loan loss provision falling by Sh1.5 billion to Sh4.2 billion.

The bank’s gross non-performing loans meanwhile increased by Sh10.1 billion to Sh61.9 billion. Other operating costs also fell to Sh8.8 billion from Sh9.8 billion.

Co-op Bank’s subsidiaries made positive contributions to the group’s overall results in the review period. Kingdom Bank posted a net profit of Sh784 million —a 28.7 percent growth from Sh609 million.

Co-op Consultancy & Bancassurance Intermediary Limited posted a pre-tax profit of Sh762.9 million while Co-operative Bank of South Sudan returned a pre-tax profit of Sh43.5 million after factoring in hyperinflation.

Co-op Trust Investment Services Limited contributed Sh154.5 million pre-tax profit as the subsidiary’s funds under management closed the period at Sh196 billion.

Co-op Bank has continued with its local expansion strategy, growing its branch network to 193, with eight being opened this year and five having been opened last year.