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Equity Bank bets on technology to rally profits

FINANCIAL STANDARD
By | Mar 2nd 2010 | 3 min read
By | March 2nd 2010
FINANCIAL STANDARD

By James Anyanzwa

Equity Bank is hoping to turn around loss-making branches this year.

The bank, whose full-year pre-tax profits grew by five per cent last year, is hoping that its investment banking division, and all of its newly opened branches in Kenya, Uganda and Southern Sudan will break-even before June this year.

The new entities, which informed the bank’s growth and expansion strategy, pulled a combined loss of Sh1 billion last year, eroding the bank’s bottom-line and eating into the shareholders earnings.

A weak economy, characterised by high inflation rates, trailing impact of post-election violence, continued global economic recession, drought, famine, power cuts and water rationing conspired to mete out a gloomy outlook for many banks.

Equity Bank CEO James Mwangi receives an award in a past function. Mwangi is optimistic that the bank’s loss-making branches will recover this year. Photo: File/Standard

This saw banks such as Equity Bank adopt a cautious approach in lending while scaling up provisions for bad debts.

Unexpectedly, Equity Bank emerged from the economic doldrums with minimal financial bruising due to what it termed as "consistent" strategy execution focused on growth, efficiency and risk management through enhanced internal systems.

Although efforts by the bank to achieve optimal profitability were upset by slowed economic activities, and negative earnings from new investments, the Group pocketed Sh300 million more revenues, as profit before tax climbed to Sh5.3 billion, from Sh5 billion in the previous year.

The total Non-Performing Loans (NPLs), however, increased by 91.1 per cent to Sh4.8 billion on a year-on-year basis.

The level of net NPLs as a proportion of gross loans and advances jumped to 4.7 per cent from 3.9 per cent.

"This is due to economic challenges, and the bank decided to respond appropriately by adopting a conservative approach and making provisions," said Dr James Mwangi, the bank’s chief executive.

cutting-edge technology

Mwangi, the AfricaInvestor 100 CEO of the Year, promised to continue investing in cutting-edge technology to enable the bank deliver services to customers at lower cost.

"We hope that by June, all of the new investments will be contributing positively to the banks bottom-line. This year, we will see significant contribution from these branches," he said.

Equity Bank, the fastest growing bank in Kenya made a grand acquisition of a 100 per cent take-over of Uganda’s biggest microfinance bank in June 2008 and converted it into a fully-fledged bank— Equity Bank Uganda Limited— in December 2008.

In the same year, the bank acquired an investment banking licence from Juanco Investment Bank Ltd.

The newly established investment outfit — Equity Investment Bank Limited — is yet to break-even partly due to an eroded investor confidence in the stock market.

According to the bank’s audited financial statements released last week, the group’s total operating income increased by 24 per cent to Sh15.7 billion from 12.6 billion in the previous year.

Network expansion

Operating expenses rose by 37 per cent to Sh10.5 billion from Sh7.6 billion mainly due to massive investments in technology and network expansion.

The bank’s branch network in the region increased by 21 per cent to 155 branches last year from 128 branches in 2008 supported by 512 automated teller machines (ATMs) and over 4,000 point of sales.

Customer deposits grew by 39 per cent to Sh69.8 billion from Sh50.3 billion, with the number of customer accounts hitting 4.3 million

The group’s total asset base grew by 29 per cent to over Sh100 billion while the net loans and advances closed the year at Sh63.4 billion up 43 per cent from Sh44.2 billion the previous year.

Equity Bank’s Earnings Per Share (EPS) grew to Sh1.14 in from Sh1.06 while return on assets rose to 5.9 per cent from 4 per cent.

The bank’s capital adequacy and liquidity ratios remained strong at 31.0 per cent and 32.0 per cent against the statutory minimum of 12 per cent and 20 per cent respectively.

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