Equity banks on agency model to rake in billions

By JACKSON OKOTH

The move by Equity Bank Group to aggressively expand its agency banking model, shield customers from expensive credit and invest heavily in ICT appears to be bearing fruit after it made a 42 per cent increase in pre-tax profit.

The bank’s profits jumped from Sh9.04 billion the previous year to Sh12.83 billion for the year ending December 31, 2011.

"The uptake of agency banking is encouraging with daily transactions from this platform now at 70,000 compared to 100,000 transactions per day executed at the branch level," said Equity Bank Chief Executive Dr James Mwangi.

Eroded incomes

He made the statement yesterday while releasing the bank’s 2011 full year results, a period that was made up of costly credit, a weak shilling, volatile exchange rate and high cost of living. All these factors severely eroded incomes and customers’ ability to take up loans from banks.

"Our focus on innovative delivery channels such as mobile and agency banking helped reduce cost-income ratio to 50 per cent, boosting growth of earnings per share from Sh1.93 to Sh2.79," said Mwangi.

While other commercial banks begun increasing their lending rates as early as March last year, Equity was able to hold down its rates until November, last year when it eventually pushed up the rates to 25 per cent.

The tightening of credit in the market that saw the Central Bank Rate (CBR) hit 18 per cent, increased the bank’s interest expense, which grew faster than its interest income.

However, Equity Bank has been able to survive a severe credit environment through its agency model, which is cheaper and more convenient than the traditional banking model.

Cost structure

"We expect that over the next six months, our agency network will converge with that of branches — eventually transforming the entire cost structure of the bank," said Dr Mwangi.

Equity Bank has been able to use its agent network to outsource all fixed costs.

Directors have proposed a dividend of Sh1 per share compared to 80 cents the previous year, an increase to Sh3.7 billion from Sh2.9 billion the previous year.

While Equity Bank has been a dominant player at the bottom of the income pyramid, it plans to move into the SME and corporate segment to balance its portfolio.

The bank’s customer-base stood at 7.15 million accounts at a time when its loan book grew by 45 per cent from Sh78.3 billion to Sh113.8 billion. Customer deposits grew by 37 per cent from Sh104.9 billion to Sh144.16 billion during the period under review.