Equity Group saves Sh431 million in dividend policy change

Equity Group will save Sh431.3 million after changing its dividend policy.

The bank has declared a final dividend of Sh3 per share or a total of Sh11.3 billion for the year ended December.

This is lower than the minimum of Sh11.75 billion it would have paid based on its new dividend policy.

The lender earlier said it had developed a dividend policy of paying out a minimum of 30% and a maximum of 50% of net income.

The policy came after the bank had suspended dividends for 2019 and 2020 amid the economic uncertainty brought by the Covid-19 pandemic.

“The group is confident of returning to payment of dividends in 2021, with its payout policy of 30% to 50% of profit after tax and because of the investment made in this growth, this percentage is expected to be a higher amount than it has been in the past,” Equity said when the policy was crafted.

The bank reported a net profit of Sh39.1 billion after minority interests, meaning that the dividend declared amounts to 28.8% of the earnings.

Despite falling out of the policy range, Equity’s dividend is the largest-ever for the company and the banking industry in absolute terms.

It is ahead of KCB’s Sh9.6 billion, Stanchart’s Sh7.1 billion, Co-op Bank’s Sh5.86 billion, Absa’s Sh5.9 billion and Stanbic Holdings Sh3.55 billion.

As a share of net profit, however, Stanchart’s dividend is the most generous at nearly 80%, followed by Absa (55%), Stanbic (49%), Co-op Bank (35%), and KCB at 28%.

Equity’s improved profitability in the review period was driven by higher interest income, non-interest income as well as lower operating expenses on reduced provisioning for bad debt.

The lender cut its loan loss provision to Sh5.8 billion from Sh26.6 billion in 2020, attributing the move to improved loan recovery that saw the stock of bad loans fall to Sh53.8 billion from Sh59.3 billion.

Equity projects higher returns from its customer loan book this year after the Central Bank of Kenya (CBK) approved its risk-based lending model that will see it increase rates up to 18.5% from current averages of about 13.5%.