Companies

Equity Bank first quarter profit drops 6pc to Sh4.8bn on rate cap

equity

Equity Bank chief executive James Mwangi. FILE PHOTO | NMG

Equity Bank #ticker:EQTY has recorded a 6.1 per cent drop in net profit for the three months to March 2017, joining lenders that are counting the cost of reduced interest income on customer loans following rate caps.

The bank’s net profit for the first quarter stood at Sh4.83 billion, compared with Sh5.13 billion in the first quarter of last year.

Equity Bank Group chief executive officer James Mwangi attributed the fall in profit to a tough operating environment, citing the rate caps on customer loans.
The top-tier lender recorded a 5 per cent or Sh13.1billion drop in its loan book to Sh261.8 billion during the quarter.
Equity’s net interest income from customer loans shrunk by 37.1per cent to Sh8.1 billion in the period.
“A cautious approach in credit underwriting because of inability to price risk saw the loan book decline by 5 per cent from Sh275 billion to Sh262 billion,” said Mr Mwangi on Thursday at an investor briefing.

Mr Mwangi said the lender will divert more funds to treasury bills going forward as it considers government debt less risky and more profitable in the wake of the rate capping law even as he exuded confidence the law would “soon” be amended.

During the quarter, Equity Bank ramped up its purchase of government debt which paid off as interest earnings from government securities rose by 56.7 per cent to Sh2.96 billion.

Non-interest income

Mr Mwangi added the lender will shift its focus to non-interest income to cushion itself from the reduced interest income as a result of the rate cap.

The lender’s non-interest income went up 17.6 per cent went up to Sh6.3 billion helping it mitigate a revenue decline.

The lender’s loan loss provisions however increased 11.5 per cent to Sh796.9 million in the quarter with its non-performing loan portfolio rising by 44 per cent to Sh19.5 billion in the period.
Its interest expenses went up 5 per cent to Sh2.57 billion.

Mr Mwangi said the lender would continue to focus on digital banking to drive growth and cut costs, adding that regional subsidiaries, with the exception of South Sudan, would anchor growth of its business in the long term.
“The group’s regional expansion has started paying off with regional banking subsidiaries increasing their contribution to group’s profits from 5 per cent to 10 per cent, with Uganda growing by 194 per cent, Dr Congo 182 per cent, Rwanda 117 per cent and Tanzania 45 per cent,” said Mr Mwangi.