As financial institutions in Kenya scout for new growth frontiers in the region, Equity Group has once again positioned itself at the forefront of the East African banking sector.

The year ended December 2023 saw the group's customer deposits surge by 29.1 percent year-on-year to close at Kes1.36 trillion. This growth was attributable to heightened deposit mobilization strategies in its subsidiaries across Rwanda, the Democratic Republic of Congo (DRC), and Tanzania. These subsidiaries reported deposit growth rates of 96 percent, 37 percent, and 36 percent respectively.

Subsidiaries account for over half of deposits

As a result, these subsidiaries now account for 50.5 percent of the total deposits within Equity Group Holdings, underscoring their strengthening role in the group's financial health and strategic expansion in the East African region.

The growth in deposits has been mirrored by an equally formidable increase in customer loans for the banking giant which went up by 25.6 percent to Kes887.4 billion in 2023.

"This growth was mainly driven by a 67 percent YoY growth in the DRC subsidiary and a 92 percent YoY growth in the Rwanda subsidiary. At the close of the year, Kenya accounted for 50.6 percent of total customer loans," analysts at Genghis Capital noted.

Interestingly, the lion's share of this credit expansion stemmed from short-term lending business, particularly in Equity BCDC, a pointer towards the lender's diversified lending strategy that seeks to back various sectors on the regional economy.

In terms net earnings, Equity bank Kenya recorded a 20 percent annual decline in to Kes26.7 billion as Equity BCDC posted a 110 percent jump to Kes12.1 billion. The lender's Rwanda subsidiary, buoyed by the recent buyout of Cogebank reported a 50 percent year-on-year uptick net profit to Kes4.2 billion.

"With the subsidiaries expected to continue generating higher revenues the overall contribution to the group’s overall performance is expected to be skewed from Equity Kenya to its subsidiaries in the medium term, however, the performance of Equity Kenya is also expected to rebound as the macroeconomic environment improves," notes Genghis Capital in their analysis.

With Kenya leading at 31 percent penetration rate of domestic credit to the private sector, followed by Rwanda (23 percent), Tanzania (15 percent), Uganda (13 percent) the DRC (17 percent), and South Sudan at 3 percent, Equity Group CEO Dr. James Mwangi exudes confidence that there's ample room for expansion in the region's banking industry.

Analysis shows that Equity Group's distribution has become increasingly diversified, with regional subsidiaries now accounting for 49.4 percent of the bank's loan book.

Dr. Mwangi, highlighted the evolving role of each subsidiary, noting that, "Each of the Equity Group Holdings subsidiaries is in a market at a different level of transformation, and we believe it gives us a unique opportunity to benefit from the transformation happening."

Equity's approach not only leverages the varying economic climates across the region but also tailors financial services and products to meet the diverse needs of its customer base.

Despite these significant strides in regional outfits, Equity Group suffered a 5.1 percent dip in net earnings, totaling Kes43.74 billion in 2023. This drop was largely attributed to faster increase in pre-provision operating expenses relative to operating incomes.

Additionally, the group grappled with rising dud loans, with gross NPLs rising by 81.5 percent to Kes114.6 billion, effectively driving the group's gross NPL ratio to 12.3 percent.

Despite these hurdles, Equity emerges as a regional leader in financial services, with its subsidiaries now accounting for 50 per cent of its assets, and 56 percent of its profit before tax. This contribution highlight's the strengthening role of Equity's subsidiaries and the lender's resilience in the face of economic headwinds.

Read also: Equity to pay Sh15.7Bn dividends amid profit dip

Insurance business the next frontier

Looking ahead, Dr. Mwangi sees insurance as the next frontier for growth, an opportunity that could open fresh income streams for the group.

Equity plans to enter general and health insurance in June this year two years after launching the life business in 2022.

“We are projecting by the end of June to have life and general insurance, which will also have health, completing the entire offering so that we can protect lives and the wealth that we have helped to build,” said Dr Mwangi, adding “The supply side of the health insurance has been provided already by Equity Afya, so it is now a question of having to underwrite the policy.”

The CEO noted that Equity aims to leverage its economic engine to offer not only banking but also insurance and technology services, further driving financial inclusion in the region.

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