Equity’s revenue up despite harsh economic scene

Equity Bank reported a Sh4.2 billion before tax profit compared to Sh4.1 billion in the same period last year on the back of a difficult economic environment which has hit small businesses and low-income people — its forte.

Small business and low-income individuals have been hard hit by inflation and famine, lowering their ability even to repay loans.

The first nine months of this year saw the bank make a marginal Sh100 million profit.

When considered as Equity Bank Group, which included the investment bank and other financial divisions and affiliates, the bank actually experienced a pre-tax profit drop of about Sh7 million.

Profit before tax was at Sh4.254 billion in September 2009 compared to Sh4.261 billion in June 2008.

This came against the backdrop of gross non-performing loans (NPLs) rising by 51 per cent to Sh4.46 billion compared to Sh2.75 billion in December 2008 — a pointer that its customers have found it difficult to repay their loans on time.

“We have invested heavily in new branches and the total loss from them is Sh500 million,” said CEO James Mwangi, adding that the country’s soft economy was also slowing the bank’s business. He said the new branches were still cost centres but they are to be turned into profit centres from next year.

The bank’s share was yesterday priced at Sh14.35 down from Sh14.50 at the close of trading on Friday.

While 2008 was an extraordinary year for the institution due to the income relating to the Safaricom IPO, 2009 has seen its profits grow at a slower pace.

The economy grew by 2.1 per cent in the second quarter, compared with a 2.2 per cent growth during a similar period in 2008, making it the slowest quarter two growth since 2003 when output expanded by a margin of 0.4 per cent.

This has delivered layoffs and a freeze in hiring leading to a drop in earning power, which has made it difficult for salaried individuals to re-pay their loans, while the resulting cutbacks in spending by families means lower demand for businesses — which has also affected the ability of businesses to pay loans in time.

For Equity, the weak cash generation of small businesses and the under performing agricultural sector, which account for huge portions of its loan portfolio, has continued to slow down its growth.

Top dogs

It remains to be seen how the rest of the industry, especially the top dogs including KCB, Barclays Bank and Standard Chartered Bank, have preformed since Equity is the first bank to announce its quarter three results.

The industry results are expected to reflect the challenge of loaning to small and medium enterprises, low net worth individuals, and households.