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Equity’s profit grows 98 per cent to hit Sh18 billion in six months

BUSINESS
By Dominic Omondi | August 18th 2021

 

Equity Group Holdings CEO James Mwangi (centre) with Group Director Strategy, Strategic Partnerships and Investor Relations Brent Malahay (left) and Equity Group Head of Financial and Regulatory Reporting Mary Nteere during an investor briefing and release of half year financial results for 2021 in Nairobi. [Wilberforce Okwiri, Standard]

Equity Group’s net profit in the first half of this year nearly doubled to Sh17.9 billion after the lender significantly cut its bad loans.                           

This was an increase of 98 per cent compared to the same period last year when the listed lender made an after tax profit of Sh9.1 billion, and setting aside billions of shillings as insurance against possible defaults by borrowers impacted by Covid-19.

Speaking in Nairobi yesterday during the investor briefing, Equity Bank chief executive James Mwangi noted that the lender’s cost of risk had normalised, with a lot of the bad loans now starting to perform.

This saw the fraction of money set aside as insurance against possible defaults — loan loss provisions — decline by 63.7 per cent to Sh2.9 billion from Sh8 billion in June last year.

Conservative approach

Mwangi noted that the loan-loss provision is markedly down when compared to a one-off event in terms of loan provision that saw the lender take a more conservative approach for the entire book of Sh500 billion in the first six months of 2020.

Thus, in the first half of last year, the bank made a one-off provision of Sh27 billion against possible defaults.

The strict and prudent application of the forward-looking International Financial Reporting Standard (IFRS-9) accounting standards, Mwangi said, was due to the lifetime risk that the Covid-19 pandemic had introduced to the bank’s loan book.

“These results confirm that the provisions we made were more than adequate. And that is why coverage has remained above 100 per cent despite the continued performance of the bank seven months later,” he added.

As the non-performing loans or loans that have not been paid for more than three months began to perform, they added to the company’s top-line with net-interest on loans increasing by 26.8 per cent to Sh31.5 billion from Sh26.4 billion.

Non-funded income or income that does not come from lending increased by 44.4 per cent to Sh20.8 billion from Sh14.4 billion.

However, the company’s operating expenses were flat at Sh28.1 billion compared to Sh27.05 billion in the same period last year.

Aggressive provisioning

The bank, which has not given dividends to its shareholders for two consecutive years, has now promised a payout of between 30 and 50 per cent of its net profit starting this year.

The aggressive provisioning in the previous year, said the bank, saw net non-performing loans decline by Sh5.4 billion to Sh22.9 billion.

Although the lender has warehoused much of its cash in government securities, Mwangi noted that it plans to release much of it to the private sector as the economy improves.

Equity, which has since overtaken KCB as the most profitable bank, saw its balance sheet increase to Sh1.12 trillion, aided by its recent acquisition of a bank in Congo.

The bank’s customer deposits defied Covid-19 blues to increase by more than half to Sh819.7 billion, partly aided by the new subsidiary in its stable Equity Banque Commerciale du Congo (Equity BCDC).

Much of the growth came from the parent company in Kenya, although Equity is confident that Congo, Uganda and Tanzania will play a significant role in its balance sheet due to some of the sweeping political and economic changes taking shape in these countries.

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