Equity Group has declared a dividend of Kes4 per share to its shareholders, despite a challenging fiscal year that saw net profit decrease by 5 percent to Kes43.7 billion for the year ending December 2023.

The dividend will translate to a 36 percent payout of the lender's Kes43.7 billion net earnings for the period.

This downturn in profit is primarily attributed to a significant rise in the bank's provisioning for bad loans, which surged by 139 percent to Kes32.8 billion.

Dr James Mwangi, CEO of Equity Group, explained in an investor briefing on Wednesday that the rise in provisioning was in response to the economic woes faced by borrowers during the year.

"As Equity, we do not avoid risk, we manage it and we always stand by our customers," Dr Mwangi said.

In particular, Equity increased its loan loss cover in the three months to December 2023, targeting sectors that showed heightened risk levels such as real estate, manufacturing, transport, and logistics. Overall, these sectors accounted for the bulk of the bank's non-performing loans (NPLs).

However, the bank said its defensive strategy has seen it register strong risk buffers of 53.4 percent liquidity, relatively strong asset quality, NPL coverage, and strong capital buffers. A notable trend observed in 2023 was the rise in the number of NPLs driven by borrowers affected by the growing volume of unpaid government bills.

To cushion its borrowers against the backdrop of economic headwinds and rising interest rates, Equity Group CEO said the bank maintained its base lending rate on personal loans issued before January 2023 at 13 percent, despite the Central Bank of Kenya's rate hikes reaching 12.5 percent by December 2023.

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Tightening financial conditions

Dr Mwangi explained that this move was aimed at supporting borrowers amid tightening financial conditions, even though it eroded the bank's interest income growth, which lagged behind the pace of interest expense increases.

Further, 2023 saw the bank's loan book grow by 26 percent to Kes887.4 billion, alongside a 29 percent increase in customer deposits to Kes1.36 trillion.

"We’re encouraged to see deposits growing at 29 percent a vote of confidence from our customers during difficult economic times," noted Dr Mwangi.

Additionally, the growth in net interest income by 21 percent to Kes104.2 billion and a 30 percent rise in non-funded income to Kes75.9 billion were bright spots in the lender's financial performance.

However, Equity's operational costs soared by 57 percent to Kes178.2 billion, largely due to the increased provisioning for bad loans with the Kenya unit accounting for the bulk of NPLs.

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