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Equity Bank 2011 pretax profit up 42 percent

BUSINESS
By | March 8th 2012

Equity Bank of Kenya posted a 42 percent rise in its pretax profit for 2011 to Sh12.83 billion, thanks to growth in its net interest income and a fall in bad debts provisions, its chief executive said on Thursday.

With operations in five countries and a knack for rolling out innovative banking services, mainly targeted at the low end of the market, ahead of rivals, Equity has risen to one of the most frequently traded firms at the bourse since listing in 2006.

It posted a 40 percent increase in total interest income for the year to Sh19.34 billion, outpacing a 19 percent rise in non-interest income to Sh12.45 billion.

"For the first time in our history, we have seen a shift where transaction income is not dominant," James Mwangi told an investor briefing.

Although operating expenses went up by 21 percent, the bank posted a 4 percentage point fall in its cost to income ratio to 56 percent, thanks to a 14 percent decline in loan loss provisions.

Equity, which is the largest bank by customers in the east African nation, raised its earnings per share by 45 percent to 2.79 shillings and the dividend per share by 25 percent to Sh1.0, Mwangi said.

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Co-operative Bank also released results on Thursday in which its full-year 2011 pretax profit rose 10 percent to Sh6.3 billion after its loan book expanded, and expects further growth from branch expansion, and the start of operations in South Sudan.

"Our performance was underpinned by growth in our balance sheet," Gideon Muriuki, the bank's chief executive, told an investor briefing.

"The bank continued to enforce strict credit risk management especially with high interest rates."

He is optimistic the bank can sustain its performance in 2012 despite high inflation and uncertainty from a forthcoming presidential election.

Muriuki said the bank's loan book grew 26 percent to Sh109.4 billion, and that it planned to open 30 new branches this year, and had also gained approval to start operating in neighbouring South Sudan.

"The establishment of Co-operative Bank South Sudan as a joint-venture has been approved by the government of South Sudan. We expect to play big in South Sudan," he said. Muriuki said the first branch would open in the next six months.

The bank's earnings per share rose to Sh1.53 from Sh1.31 previously.

"It is a fair reflection of the banking sector especially in the second half with high interest, high inflation," said Renaldo D'souza, an analyst at Genghis Capital, "I think it was a fairly disappointing second half for them ... it was below expectation since in the first half they had said they expected 8 billion (pretax) profit at the end of the year."

The bank declared a dividend to Sh0.40 a share, unchanged from 2010. Muriuki said this was done to build the bank's capital base. It also said it planned a bonus share issue of one for every five ordinary shares held.

Kenyan commercial banks are reporting healthy growth in profits, despite a rough year in 2011 in which interest rates ate into bond holdings, and high inflation took its toll on general economic performance.

Aggressive monetary tightening to curb inflation and prop up the east African country's currency has seen commercial banks raise lending rates to about 25 percent from 15 percent since October, and lawmakers are pushing a new law to cap the rates.

"It's not the way to go. Economies that want to grow do not control interest rates. They should let market fundamentals (set) ... the level of interest rates," said Muriuki.

The bank's share price was up 3 percent at 13.95 shillings at 0640 GMT.

¡ªReuters

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