Equity Bank profit rises by 5% to Sh19.8bn

Equity Bank has maintained its position as Kenya’s second-most-profitable lender as a strong growth in its income from government securities has lifted its net profit by five percent to Sh19.8 billion for the year ending.

The bank’s interest income from Treasury bonds rose by 21.7 percent to Sh16.3 billion, with the lender continuing its policy of shifting lending to government since the introduction of controls on cost of loans.

Equity’s holdings of government securities shot up 26 percent from Sh128 billion in 2017 to Sh161 billion at the close of 2018, while its loan book grew by six percent from Sh279.1 billion to Sh297.2 billion.

In a recent briefing, the bank’s chief executive officer, James Mwangi, said the growth of government securities to an equivalent of 54 percent of the loan book may call for a rethink of strategy back towards customer lending, with yields on the treasuries also coming down in the past year.

Mwangi said, “The government has now taken a significant part of the balance sheet of the bank, about 50 percent, compared to the loan book.”

According to him, “As a strategy, we now want to push lending to the private sector using innovative methods, which is why we have projected, whether interest rate capping is there or not, to grow the loan book by between 10 and 15 percent in 2019.”

KCB remains Kenya’s most profitable lender having raised its net earnings by 21.8 percent to Sh24 billion last year, while Co-operative Bank was third in the profit race with an 11.6 percent jump in earnings to rSh12.7 billion.

The growth in Equity’s interest income from customer loans stood at 7.1 percent last year, to Sh36.4 billion.

The lender kept its dividend layout to shareholders flat at Sh2 per share, equivalent to a total payout of Sh7.55 billion.

In contrast to most top tier lenders, non-funded income contracted by 5.8 percent or Sh1.73 billion to Sh25.9 billion, largely due to lower fees and commissions earnings.

Foreign exchange trading commissions also fell from Sh4.1 billion in 2017 to Sh3.3 billion last year.

Mr Mwangi accredited the drop in fees and commissions to waivers offered by the bank on its digital and mobile platform aiming to grow the number of transactions and customers.

“We waived potentially Sh3.6 billion in fees in order to encourage transactions and grow deposits, which affected non-interest income. We are bringing them back this year, which informs our projection to grow the contribution of non-funded income to total income from 38 percent this year to 42 percent in 2019,” he explained.

Banks have also turned to cuts in loan loss provisions on the profit and loss account to boost their bottom lines.

They have taken advantage of the permission to move some of their provisions to capital reserves during the transition to the IFRS 9 accounting standards in a one off measure.

Equity, however, raised its provision for bad loans on its income statement from Sh3.4 billion to Sh3.7 billion, with Mr Mwangi saying they opted to increase the cover to match their long term non-performing loan portfolio of 3.3 percent.

The bank’s subsidiaries meanwhile outpaced the Kenyan unit in profit growth for the year, even though they contributed 15 percent of the total profit for the group.

Regional subsidiaries in Tanzania, Rwanda, Uganda, South Sudan and Congo DRC together with Local subsidiaries Finserve, Equity Investment Bank (EIB) and Equitel together reported net earnings of Sh2.9 billion, which however included a Sh300 million loss in the Tanzania unit and a Sh10 million loss for EIB.