Equity group follows peers with 7.4 percent drop in profit to Sh9.3 billion

 

Equity Bank CEO, Dr. James Mwangi

Equity Group has posted a 7.4 per cent drop in net profit to Sh9.3 billion in the half-year ended June 2017, reflecting the trend that has seen many banks’ bottom lines dip.

The drop from last year’s Sh10.1 billion was largely caused by a 15.5 per cent decline in net interest income to Sh17.9 billion as the cap on interest rates bites.

Its peers - KCB, Co-operative, and Barclays banks have already declared their six-month performance and have all registered a drop in profitability.

However, announcing the results yesterday, Equity Group Chief Executive James Mwangi said he was encouraged that the bank’s non-interest income had grown by 20 per cent to Sh13 billion to mitigate the reduction.

“We remain optimistic of growing non-interest income to 50 per cent. About 26 per cent of our loans are also in foreign currency and, therefore, not affected by the interest rate cap,” he told investors at the bank’s headquarters.

During the period, Equity earned Sh649.7 million from mobile banking commission, more than three times the earning in a similar period last year. Salary remittance leads non-funded income with Sh652.6 million, a growth of 10 per cent from 2016.

Operating expenses dropped by Sh223 million to Sh17.6 billion supported by a saving on staff costs. The group’s expenditure on staff dropped by 15.7 per cent to Sh5.16 billion.

Maintenance mode

Equity Group Director of Credit Elizabeth Gathai said the group has scaled down operations in the turbulent South Sudan from 13 branches to five, while at the same time cutting staff size to 100 from 300.

“We are just in maintenance mode. We survive on non-funded income. Forex income is at an all-time low but we are not on our way out,” she said.

Alternative channels such as agency and mobile banking have seen branch and ATM activities slow down and now about 90 per cent of transactions happen outside branches.

This, Mr Mwangi said, will help improve the bank’s efficiency. Currently, the cost to income (CTI) ratio, which measures ability to turn resources into revenue, is at 51 per cent.

“The beauty is that we have moved the bank to variable costs. We may hit the CTI ratio target of 43 per cent in less than five years,” he said.

Equity Bank posted Sh1 billion loss before tax in South Sudan, being a drop of 125 per cent from the previous half year. Customer deposits from the world’s youngest nation dropped by 44 per cent to just Sh5.8 billion.

The Kenyan subsidiary recorded a 12 per cent dip in gross profit while the other four subsidiaries recorded growth, with Uganda more than doubling its returns.

Kenya’s net loan book shrunk by seven per cent to Sh207.5 billion as Mr Mwangi continued with his shift from ‘volume lending to quality lending’ in the wake of the cap on cost of credit.