Equity’s profit down 11 per cent to Sh20bn on loan-loss reserves

Equity Bank Group has posted 11 per cent decline in profit to KES20.1 billion for the year ended December 2020 from KES22.6 billion in 2019 attributable to sharp rise in loan loss provisioning and operating expenses.

The Group’s total operating costs surged by 67 per cent to KES71 billion up from KES42.5 billion largely riding on a 496 per cent growth in gross loan provision of KES26.6 billion up from KES5.3 billion in the prior year.

This effectively increased the cost of risk to 6.1 per cent up from 1.3 per cent the previous year. The higher loan loss provisions enhanced the non-performing loans coverage to 89 per cent.

In a year that was marked by slow business activity and uncertainty across the industry due to the pandemic, Equity Bank’s net interest income surged 23 per cent to KES55.1 billion from KES59.7 billion riding on 30 per cent growth in customer loan book and 26 per cent uptick in gains realized from government securities.

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“The impact of Covid-19 pandemic made 2020 an exceedingly difficult year characterized by lost jobs, unemployment, lost investments and human misery,” said Equity Group CEO, Dr James Mwangi, adding that the regional lender’s biggest growth was in non-funded income, which surged by 27 per cent to KES38 billion from KES30 billion previously.

As part of efforts to cushion our borrowers, Dr Mwangi said the bank waived loan restructuring fees amounting to KES1.3 billion: “we identified borrowers impacted by Covid-19, who represent 32 per cent of our loan portfolio.”

In the trading period, the Group restructured loans amounting to KES171 billion out of which KES40 billion of the affected loan portfolio had been normalized by December 2020.

In an effort to support small scale businesses weather the vagaries of the pandemic, Equity Group made partnerships with various financial institutions managing to get about $350 million in credit guarantees which is a critical plank in cushioning borrowers from economic uncertainties in the event of difficulties in loan repayments.

“SMEs have shown resilience in this environment, they have shown that they can repurpose themselves and can change their business models to adapt to the environment,” said Head of Financial and Regulatory Reporting, Mary Nteere.

The group’s total assets grew 50.7 per cent to KES1 trillion with the acquisition of Banque Commercial Du Congo bank in Congo (BCDC) for KES 10.3 billion. The merger of BCDC and Equity Bank Congo (EBC) saw Equity become the second largest bank in Congo with an asset base of $2.1 billion.

The bank saw customer deposit jump by 53 per cent to KES741 billion up from KES483 billion in the prior year.  

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“The profit after tax contribution from business outside Kenya grew to 28 per cent from 18 per cent,” said Dr Mwangi on the performance of the Group’s regional subsidiaries in Uganda, South Sudan, Rwanda, DRC and Tanzania.

“We are very excited about our prospects in DRC. We have a huge opportunity to optimize the synergies the merger has given us in terms of cost optimization and also improving the cost to income ratio,” said Group Executive Director Mary Wamae.

Equity Bank also tapped into the diaspora market, seeing commission from overseas’ remittances increase by 76 per cent to KES1.5 billion up from KES900 million while the forex trading went up by 51 per cent to KES863 billion.

“Customers choose us repeatedly for their remittances, for their forex trading and that says a lot about their confidence and trust in us,” said Group Chief Commercial Officer Polycarp Igathe.

The Group’s digitization drive continues to bear fruits as 98 per cent of all transactions occur outside the branches with 85 per cent of the deals being on self-service mobile and Internet banking leaving about 3 per cent of transactions to occur on traditional brick and mortar branch and ATM infrastructure.

Equity’s Board of directors has, however, not recommended dividend payout to shareholders for the year ended December 2020, saying instead it will direct the funds to buffers its capital base at a time the balance sheet has grown to KES1.015 billion (one trillion and fifteen billion shillings) up from KES674 billion the previous year.

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