Equity’s plan for HF starts to take shape

Equity Bank has set its sights on using Housing Finance to execute a mortgage revolution in Kenya and rev up earnings as the economy recovers from a two-year slump.

HF is among the lynchpins that Mr James Mwangi—the Equity Bank’s chief executive officer —wants to use in the pursuit of his ambition of running the region’s largest integrated financial services outfit.

After steering the bank back to double digit growth in the first quarter of the year and armed with a Sh22.9 billion war chest, Mr. Mwangi is seeking to sweat out Equity Bank’s vast cash pile into viable ventures that will fan growth.

Two years after investing in HF, Mr Mwangi and company have become impatient with the slow pace of growth the mortgage firm and have been pushing for a change of course in the company’s business outlook.“Let me say this, Equity did not invest into HF just to be getting a dividend cheque. “What Equity is saying is, can we realize what we were seeing when we invested in this company?” said Mr. Mwangi during last week’s announcement of first quarter earnings.

Pushing Equity Bank’s goal of riding HF’s mortgage lending experience to grow its earnings has not been a clear cut strategy.

Market players say that although possible, an entire take over of HF could be a powerful affair complicated by the prospect of dealing with minority shareholders.

And while HF is an associate company in view of Equity Bank’s 24.9 per cent stake in the mortgage lender, a merger of operations between both institutions would be at the behest of the much smaller HF.

Through this strategy, Equity Bank would be buying growth through mergers and acquisitions while still using its own distribution channels to sell mortgage products.

For HF, such a major change in direction and strategy can only be reached through a decision made at the boardroom that is now controlled by Equity Bank.

Equity’s chairman and HF director, Peter Munga, engineered a boardroom coup at Housing Finance in brazen disregard of the corporate governance ethos by booting out independent directors Kungu Gatabaki and Nancy Sabana, along with Naphtali Mogere.

The recent appointment of Shem Migot-Adhola and Babatunde Soyoye, both directors in Equity Bank — as board members of HF further cements assertions of Equity Bank’s growing influence within the mortgage financing company.

Mortgage writing is not easy business. Low property inventory, registration bottlenecks, duplicate deeds and preference to self-finance property cripples the Kenyan mortgage market.

With skills and expertise in mortgage lending and a huge concentration of mortgage specialists, places HF as first among equals in the segment.

Only KCB Bank’s mortgage division, S&L can boast of greater expertise in the mortgage business.

For Equity Bank, HF’s value proposition of four-decade experience of selling mortgages in Kenya and with a painful learning curve to show for it is priceless.