By JAMES ANYANZWA

Equity Bank is warming up for a major assault in the debt market with plans of raising Sh3.59 billion in the next two months through a subordinated loan.

The borrowing is meant to grow the bank’s long-term debt portfolio to Sh15 billion. It is also expected to help fund mortgage business, which the bank has cherished for the last four years.

The loan, whose tenure ranges between seven and ten years, is expected to significantly increase the bank’s total funding levels and further solidify the microfinance business that has propelled the bank to continental heights

Equity’s total funding position stood at Sh195.38 billion by the end of the third quarter on September 30, representing a 43 per cent growth from Sh136.58 billion in a similar period last year.

Equity, the largest bank in Sub-Saharan Africa by customer base — 6.7 million customers—announced its entry into the mortgage market after acquiring 24.9 per cent stake in mortgage firm Housing Finance in 2007.

The bank, through its partnership with Housing Finance — Kenya’s premier mortgage finance company — is seeking to deliver the goal of affordable housing to millions of customers, most of them low income farmers and entrepreneurs.

The bank is certainly shifting its focus to mortgage financing hoping to replicate its micro-lending success in the market that millions of aspiring homeowners have found difficult to penetrate.

Equity Bank’s entry into mortgage lending is also expected to help lengthen the maturity profile of its loan book.

"Our subordinated debt grew by 61 per cent in quarter three of the year to Sh11.41 billion from Sh7.09 billion in a similar period last year.

This is expected to move to Sh15 billion before the end of the year as Equity moves aggressively into mortgage financing and SME section," James Mwangi, the Group’s chief executive officer, told an investor briefing in Nairobi recently.

Housing Finance is among the channels that Dr Mwangi intends to use in the pursuit of his ambition of running the region’s largest integrated financial services outfit.

MARKET FOCUS

Equity Bank’s business model of extending financial services to the low-income segment and the unbanked population has attracted both local and international recognition.

The bank, which started its operation in 1984 as Equity Building Society is also expecting to replicate its business model in Rwanda and Tanzania.

"Tanzania and Rwanda has a large number of unbanked and underserved population than Kenya.

We are confident we should be able to focus on this market and be successful," said Dr Mwangi

"Our focus is on the niche market which is underserved and to continue with our strategy of affordability."

Equity Bank’s unique business model is also considered as a sustainable approach in empowering the majority of low-income earners through inclusive financial intermediation that gives them opportunities to unlock their economic potential.

The bank makes its money from household incomes meaning that growth or optimism in the economy is important to its customers.

Dr Mwangi has also promised to continue investing in cutting-edge technology to enable the bank deliver services to customers at lower cost.

"Equity bank has performed extremely well despite the challenges," he said.

Equity Bank transformed itself from a microfinance institution to a fully-fledged commercial bank in 2003 and has largely remained a mass-market micro lender positioned in the bottom end of the market.

Its rapid growth both in terms of branch set up, customer numbers and bottom line has forced other players to rethink their business strategy forcing rivals who had shunned the low end market to engage the reverse gear. It has launched a blend of financial services in a bid to diversify its income sources.

These include among others insurance services, investment banking, regional expansion and entry into mortgage business through acquiring a stake in Housing Finance.

The Group weathered the volatile economic environment to return a 39 per cent growth in pre-tax profit for the nine-month period ended September 30.

Its profit before tax rose to Sh9.09 billion compared to Sh6.53 billion recorded in a similar period last year.

It was driven by burgeoning interest income on loans, resilient and robustness of the bank’s business model and significant reduction in transaction costs, which the bank managed to realise through the introduction of mobile and recently launched agency banking.

"Our performance this year has been achieved through conservative management policy."