Equity profits up 16.7pc, subsidiaries earnings plummet

Equity Bank posted a 16.7 per cent rise in half year net profit on cheap deposits and lending income as revenue from subsidies dropped by more than half in the period.

The bank’s net profit stood at Sh6.3 billion in the six months to June compared to Sh5.37 billion in a similar period a year earlier as income from lending to homes and businesses rose 4.5 per cent to Sh13.7 billion.

The bank benefited from low deposit regime that has also lifted the earnings of Housing Finance (HF), the first listed banker to announce half year results.

Equity’s costs of deposits dropped by Sh880 million in the half year to Sh1.7 billion despite the lender having gathered an additional Sh33 billion in new savings over the past year.

But profits from the subsidiaries including Uganda, Tanzania, South Sudan and Rwanda other business lines dropped to Sh144 million compared to Sh348 million in the period under review.

Chief executive officer James Mwangi blamed the suspension of donor funding in Rwanda and Uganda as well as the hostility between Sudan and South Sudan for poor performance of the region units.

“While the group grew by 17 per cent the Kenyan business grew by 21 per cent which shows the others slowed it down,” said Mr Mwangi on Monday.

“This is because of the strain on South Sudan following disruption of oil flow in the last 18 months while Uganda and Rwanda had suspension of donor support.”

(Read: Equity Bank H1 profit up 17pc)

The 11 banks with foreign subsidiaries had a combined profit of Sh5.1 billion last year, up from Sh2.3 billion the previous year-- underlining the importance of the units to the lenders’ bottom lines.

The central bank noted that the growth was driven by earnings from South Sudan, which mainly are forex dealings and transition incomes since the market accounted for nine per cent of the loans held by the subsidiaries and 47 per cent of the profits.

Mr Mwangi said the bank was on course to hit its profit growth target of 30 per cent this year, as a slowdown in its regional markets of South Sudan, Uganda, Tanzania and Rwanda subsides.

Equity’s loan book grew by Sh15 billion to Sh150.4 billion in the six months to March.

But the bank was hit by defaults, which saw non-performing loans grow to Sh3.4 billion in the period to June compared to Sh1 billion in the same period a year earlier.

The share of Equity’s revenue from its loans business fell to 64 per cent in the first half from 66 per cent while its cost to income ratio dropped a percentage point to 49 per cent.

“We have managed to reduce our fixed costs by shifting to what one would call low-cost delivery channels,” Mr Mwangi said in relation to agency and mobile banking.

Equity’s share at the Nairobi bourse remained unchanged yesterday at Sh33.50 and has gained 48.8 per cent over the past year.