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Equity’s profit jumps by 79pc to Sh27b on reduced bad loans

By Dominic Omondi | Nov 9th 2021 | 3 min read
By Dominic Omondi | November 9th 2021

Brent Malahay, Group Director of Strategy, Strategic Partnerships & Investor Relations Equity Group,  Group Managing Director & CEO Dr James Mwangi and Director Of Strategy Legal Services Mary Wangare Wamae during Equity Group investor briefing. [Wilberforce Okwiri, Standard]

Equity Bank’s net profit in the first nine months of this year grew by 79 per cent to Sh26.9 billion as the lender substantially cut its stock of bad loans.

The nine-month profit has raced past the Sh20.1 billion profit that the lender posted in the full year ended December 2020.

By end of September last year, the listed lender made a profit after tax of Sh15.04 billion in a tumultuous period in which banks put up a wall of insurance against possible defaults by borrowers devastated by the pandemic.

Equity Bank’s profitability was also boosted by a 25 per cent uptick in its revenues to Sh80.5 billion, reflecting improved business activities and aggressive debt collection efforts by the most profitable bank in the region.

In the first nine months last year, the lender’s income was Sh64.1 billion, a big chunk was eaten away by the loan-loss provision.

“We are emerging from Covid-19. We feel that the country has almost bounced back,” said Equity Bank Chief Executive James Mwangi during an investor briefing yesterday.

Equity Group boss was confident that following the easing of the Covid-19 containment measures, the revenues will surge.

He talked of Equity Bank’s twin strategy of offensive and defensive through which the lender has sought to grow its revenue while managing its costs, particularly bad loans.

Interest income from loans grew by 23.4 per cent to Sh48.5 billion, with a good chunk of the earnings coming from government securities.

Income from fees and commissions or the non-funded income grew faster at 29 per cent to Sh32 billion. Much of the income came from forex income, bond trading, trade finance, with Mwangi noting that Equity was increasingly transforming into “a service bank.”

With a lot of customers beginning to service their loans as the moratorium period in which borrowers had been given a debt repayment holiday of between six and 12 months ended, Equity Bank released money that had been set aside as a provision against defaults.

Loan-loss provision dropped by 68 per cent to Sh5.1 billion compared to Sh14.8 billion in September 2021. This saw the lender’s total operating costs drop to Sh43.8 billion from Sh45.3 billion. This was despite increased interest expense and staff costs due to the lender’s decision to chalk up more long-term loans from development partners.

The bank’s stock of bad loans, as a percentage of the total, has reduced from 10.4 per cent in September last year to 8.9 per cent in the period under review. In the first quarter, non-performing loans (NPLs) were at 11.3 per cent. “We are very confident that our loan book will continue to improve,” said Mwangi.

He said customers who had been given a moratorium, with loans amounting Sh171 billion, started to pay as soon as they were in a position to do so. The NPLs were covered up to 91 per cent. When you include the credit risk guarantees that Equity Bank received, the coverage rises to 104 per cent.

Equity Group is leveraging on its Sh1.184 trillion balance sheet to make incursions in new territories including the Democratic Republic of Congo. Equity Group, which besides Kenya is in five other countries, saw its deposits grow by 27 per cent to Sh875.7 billion.

Its loan-book expanded by 23 per cent to Sh559 billion.

President Uhuru Kenyatta recently ended the dusk-to-dawn curfew, which set to increase business hours, especially in the hospitality and transport sectors which were among the hardest hit by the Covid-19 pandemic.

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