Equity grows half-year profit to Sh24.4b on increased lending

Equity Group CEO James Mwangi (left) with directors Mary Wamae and Gerald Warui.  [Wilberforce Okwiri, Standard]

Equity Bank recorded a net profit of Sh24.4 billion in the first half of this year on the back of increased income on lending as well as fees and commissions.

This was a growth of 36 per cent compared to a profit-after-tax of Sh17.9 billion that the lender recorded in the first six months of last year.

At an investor briefing in Nairobi on August 23, Equity also announced that it had not started implementing the new higher prices on loans, citing a high cost of living and the risk of out-pricing itself.

With the Covid-19 pandemic becoming “normalised,” Group Chief Executive James Mwangi noted that the bank shifted its lending from the government to the private sector from where it raked in most of its interest income.

Loan repayments

Net interest income grew by 27.6 per cent to Sh55 billion from Sh42.7 billion, with a big chunk of the earnings coming from loan repayments by firms and households.

Interest income from loans and advances grew from Sh20.9 billion per cent to Sh35.3 billion over the six months.

 “This realignment is very powerful on the P&L (profit and loss),” said Mwangi. 

“These loans have high yields compared to the government lending.”

Non-funded income - which includes fees and commissions - grew by 24.2 per cent to Sh25.84 billion in the review period from Sh20.8 billion in 2021, buoyed by trade finance.

The Equity boss noted that non-funded income contributed 39 per cent of the total income.

“Trade finance is more affordable and more efficient,” said Mwangi, with the lender recently making a foray into the Democratic Republic of Congo.  

Forex trading, one of the non-funded income, was one of the fastest growing revenue streams largely due to increased cross-border trade.

Eurobond yields

However, unrealised Eurobond yields rose to Sh60 billion due to negative global sentiments owing to the war in Ukraine.

But as the global economy recovered, Mwangi noted, the lender gained Sh15 billion from the unrealised Eurobond gains.

He explained that the listed lender is still getting returns of eight per cent from the Eurobond as the rise in yields does not affect the regulatory capital, with the bond being held under the available-for-sale portfolio.

“It has no impact on the P&L as long as it remains unrealised. It goes straight through the accounting equity,” said Brent Malahay, who is in charge of strategy, strategic partnerships and investor relations.

Mwangi also announced that Equity is yet to implement the 18 per cent interest rate based on risk-based lending, with the CEO attributing the delay to the need to spare borrowers grappling with the high cost of living of expensive loans.

“Customers are coming under a lot of pressure in terms of being able to survive. A reprice may not be in the best interest,” he said.

Moreover, with Equity being the only tier-one bank that has been allowed to reprice loans by the Central Bank of Kenya, the lender is afraid that it might outprice itself if it pushes up its interest charges.

Out of the Sh171.4 billion that the lender restructured at the height of the pandemic, Sh46.6 billion has been fully repaid and a further Sh114 billion resumed repayment. 

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