Equity group counts on regional growth despite 3% profit drop

Customer deposits in Kenya closed at Ksh289 billion, a paltry growth from Ksh271.3 billion recorded in quarter three of 2016.

Kenya, October 31st – Equity Holdings Plc is counting on its regional subsidiaries for profit maximization in the financial year 2017, in the wake of the interest cap law in Kenya which continues to deny banks profit.

The group has posted a three per cent decline in net profit to Ksh14.6 billion in the third quarter of 2017 (nine months to September 30, 2017), compared to Ksh15.1 billion in a similar period last year.

Group CEO James Mwangi has attributes the decline to a drop in net interest income that went down by 15 per cent to 27.5 billion, compared to 32.3 billion in the third quarter of 2016.

“We have been operating on a tough environment,” Mwangi told investors in Nairobi on Monday, singling out the capping of interest rates in Kenya as a major challenge in the banking sector.

The Kenyan-based lender posted low business on its loan book and asset growth at home compared to its subsidiaries mainly Rwanda, Uganda, DR Congo and Tanzania, with only South Sudan disappointing.

Equity’s interest income on loans declined by 36 per cent to Ksh18.3 billion compared to Sh28.5 billion last year with net loans recoding a two per cent drop to Sh265.4 billion.

Net loans in Kenya dropped by seven per cent to record a total Ksh206.2 billion, compared to Ksh221.1 billion same periods last year.

The group’s DR Congo subsidiary recorded a 16.9 per cent growth on its loan book to close at Ksh20.2 billion, up from Ksh16.9billion.

Tanzania closed at Ksh16.8 billion up from Ksh15billion, Rwanda Ksh10 billion up from Ksh9.5 billion while Uganda recorded a 43 per cent growth to close at Ksh12.3 billion, compared to Ksh 8.6 billion last year.

South Sudan however recoded a 59 per cent drop on its loan book from Ksh300 million to Ksh100 million.

The group recorded a 27 per cent growth in total customer deposit in the five East Africa countries it operates in, compared to seven per cent recorded in Kenya.

Customer deposits in Kenya closed at Ksh289 billion, a paltry growth from Ksh271.3 billion recorded in quarter three of 2016.

DRC recorded a 34 per cent growth on customer deposit to close at Ksh29.5 billion, up from Ksh22 billion. In Tanzania, Equity’s customer deposit stood at ksh18.3 billion as of September 30, 2017, up from Ksh14.6 billion last year, a 25 per cent growth.

Rwanda recorded the highest growth at 45 per cent with deposits closing at Ksh14.7 per cent, up from Ksh10.1 per cent. Uganda recorded a 42 per cent growth on customer deposit ending the nine months at Ksh17.8 billion, compared to Ksh12.5 billion last year.

Deposits at the banks’s South Sudan’s subsidiary however dropped by 35 per cent to Ksh5.3billion, compared to Ksh8.2 billion last year, affected by political instability in the country.

“We are very excited that the steps we took of delisting the country risk seems to be working. It is only a matter of time before we start seeing forty per cent contribution of the group coming out of Kenya,” Mwangi said.

“The future of the bank is its subsidiaries. They are performing much better than we had thought,” he added.

Mwangi said the bank is now focusing on non-funded income and treasury operations as it adjusts and adapts to the “new norm”, after the capping of rates.

Other areas the bank is focusing on are regional and business diversification, strengthening liquidity and balance sheet agility, asset quality, innovation and digitization, efficiencies and cost optimization.

Equity’s government security portfolio grew 37 per cent to Ksh127.7 billion from Ksh93.1 billion in quarter three 2016.

Interest income on government securities grew by 113 per cent in the period under review while non-funded income grew by 28 percent to Sh21.3billion.

Banks have remained keen on investing in government securities since September last year when the law on interests came in place, as they shun from lending high risk borrowers.

By Martin Mwita

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