Weak subsidiaries weigh down Equity Bank’s performance

Mr James Mwangi, Equity Bank CEO. [PHOTO: FILE/STANDARD]

By Jackson Okoth

A volatile political environment in South Sudan has slowed down business for Equity Bank Group, forcing the institution to make a Sh700 million provision to cover possible losses from the subsidiary.

The bank has been forced to evacuate staff in some three states but is still operating in East, West and Central Equatorial where things are relatively calm. “It has been a huge strain for us to manage the South Sudan subsidiary. But things are looking up since the crisis broke out in December last year,” said Equity Group Chief Executive Officer James Mwangi.

He made these remarks yesterday while responding to questions from shareholders during the bank’s 10th Annual General Meeting (AGM), held at the Kenyatta International Conference Centre (KICC).

The Group’s profit after tax increased in 2013 by modest 10 per cent to Sh13.28 billion up from Sh12.08 billion the previous year.

During the AGM, shareholders ratified acquisition by the bank of Francis Thuo and Partners as required by Capital Markets Authority (CMA) listing and disclosure rules.      It declared a dividend of Sh 1.50 per ordinary share compared to Sh 1.25 per share paid out in 2012.

A weak performance from subsidiaries in South Sudan and Uganda as well as flat profit levels in Tanzania and Burundi is seen as factors that made Equity lose its top position to rival Kenya Commercial Bank (KCB).

After breaking even

“These subsidiaries are maturing and have stabilised and we are confident after breaking even in Tanzania after only two years,” said Dr Mwangi. South Sudan operations have a balance sheet worth Sh17 billion with Sh5 billion in loans already lent out to customers.

 Equity bank shareholders also expressed concern over the bank’s widening portfolio of non-performing loans (NPLs), which moved up from 3 per cent to 5 per cent of the overall loan book.

 This is compared to an industry average of 9 per cent. “We were forced to lend above inflation when it was around 19.8 per cent with interbank rates hovering around 28 per cent. But the Central Bank Rate is down to 8 per cent and we have also lowered our rates. This was a spike and individuals and businesses are adjusting,” said Mwangi.

 During this period, Treasury Bill rates rose to 24 per cent, pushing out the private sector out of the credit market. Early indications in the first quarter show that Equity could push down its NPLs to 3 per cent by September 2014.

“We have increased provisions and keenly watching on quality of the loan book,” said Mwangi.

In 2014, banks are expected to compete for a share of the pie in the nascent oil and gas sector, infrastructure funding as well as power generation among others.

Cash back home

Already, competition has opened up between Barclays Bank of Kenya and Equity, for a share of the Diaspora business. While Barclays is running adverts urging customers to open forex accounts, Equity has been signing up partnerships with banks in the UK and Europe. This is to enable Kenyans in the diaspora send cash back home through the Equity Bank network.

At present, it costs one 13 per cent of any amount of cash transferred from the Diaspora to Kenya. Equity direct is targeting this business to boost its forex earnings by launching into the money transfer business.