Equity Bank hits new milestone with Sh1 trillion client deposits

Equity Group Managing Director and CEO James Mwangi with Group Executive Director Mary Wamae discuss the 2022 Half Year performance during the Group Investor briefing. [Wilberforce Okwiri,Standard]

Equity Bank’s depositors have now saved over Sh1 trillion with the lender, making the financial institution the first one in the East Africa region to cross this mark.

Reliable sources told Weekend in Business that Equity, which is set to release its results for the third quarter on Tuesday, hit this milestone in the first nine months of this year as it continued to mobilise more deposits from its customers spread in five countries.

This is yet another milestone by the bank which in August 2020 became the first lender to cross the Sh1 trillion mark in asset value, beating its closest rival KCB Bank to the accolade.

By end of June 2022, Equity’s customer deposits were valued at Sh970.9 billion, just Sh29.1 billion shy of the Sh1 trillion mark. This means that the bank mobilised on average Sh323.3 million every day from its depositors between July and September.

Weekend Business sought to confirm the new milestone from Group Chief Executive James Mwangi but had not received a response.  

However, in a previous investor briefing, the CEO attributed the bank’s growth to “trust capital”.

He said the bank had seen its growth in deposits and profitability as a result of standing with its customers to survive and recover from the economic effects of Covid-19. KCB Bank, which released its results last week, had deposits of Sh922.3 billion by end of September 2022.

The two lenders, both listed at the Nairobi Securities Exchange, have engaged in intense competition for the tag of the most valuable bank in the region. They have been spreading their wings in the region, with KCB recently joining Equity in the Democratic Republic of Congo.

For long, it is KCB that was the most valuable and profitable bank, but this ended in 2020.

Equity’s story is one of humble beginnings, starting from a village bank to one of the most profitable financial service providers in eastern Africa.

The bank, just as telecommunications service provider Safaricom, has been able to tap into the low-end economy by being a trailblazer in micro-lending.

Provide services

This was championed by Mwangi, who was tapped to turn around the fortunes of an insolvent Equity Building Society, which was set up in 1984 to provide financial services to the common mwananchi.

At the time, many Kenyans might have earned peanuts - like Mwangi’s mother back in Rwathia, a sleepy village in Murang’a County - but they too wanted financial services.

“The test was: was my late mother Grace able to bank? She had not gone to any formal school, and she was a small-scale farmer just selling her milk from two cows and selling her tea from her small-scale farm,” Mwangi told The Standard in an earlier interview.

“And if it was good for my mother, then it was good for everybody.”

Since his mother had no formal schooling, he needed to strip jargon from banking. “It must be layman’s language.”  The need to be closer to its customers would inform the building society’s decision to come up with agency banking.

“My mother, before finding Equity, used to bank with the shopkeeper, Gakungu wa Muna. She could go and take goods on credit. At the end of the month when her tea was paid, then she could pay the shopkeeper.”

That gave Mwangi another idea of digitising agency banking. “We allowed them to lend on our behalf because Gakungu knew my mother, and essentially we became the pioneers of agency banking in the world.”

Market share

The growth was phenomenal. By 2004, when Equity transformed into a commercial bank from a microfinance institution, there were only a million deposit accounts.

Its market share of one per cent was 14 rungs lower than that of Barclays Bank of Kenya’s at 19.4 per cent.

Its deposits were Sh5 billion, just six per cent of Barclays’, a British lender that had been around way before Kenya got its independence.

But eight years later, Equity would become the largest bank in market size behind KCB Bank and later the most profitable.

In the 1990s, banks were snobbish, they did not think regard the low-income segment highly because their income was erratic.

Banks slammed their doors on Wanjiku, and she clammed up with her money. “It is Mwangi who realised that the old coffee farmer kept all his money in his house,” said Euclid Capital’s Wahoro Ndoho, referring to Equity’s start as a bank for coffee farmers.

“This old man needed to put his money in a safe environment, and if possible, multiply it by borrowing and increasing his yields.”

majority stake

However, for every five individuals, three of them reported using family, friends, neighbours or some secret hiding place for their financial service.

In August 2020, Equity announced it had reached a deal to acquire a majority stake in Banque Commercial du Congo, a Congolese bank, at a cost of Sh10.3 billion, which helped it cross the Sh1 trillion mark in assets.

This made it the most valuable bank in East and Central Africa.

Ronak Gadhia, a director at investment bank EFG Hermes noted that being ranked the most valuable company has a number of benefits including signaling to the management that they have the right strategy in place.

Being named the most valuable company also increases brand awareness, which in turn helps to raise more capital, especially from the international markets.

The bank has been able to raise its liquidity buffers through securing Development Finance Institute (DFI) funding amounting to $380 million (Sh46.2 billion) in 2020 and $10 million (Sh1.2 billion) in 2021.

In the first six months of this year, Equity made a net profit of Sh24.4 billion, an increase of 36.3 per cent from Sh17.9 billion in June 2021.

KCB, on the other hand, saw its net profit rise by 21.4 per cent to Sh30.6 billion during this period on the back of sustained growth from net interest and non-funded income. This was a jump from Sh25.2 billion reported for the same period last year.