Equity Bank made Sh9.3 billion in after-tax profit in the six months to June 2017 compared to Sh10.07 billion posted in a similar period a year earlier.
CEO James Mwangi on Tuesday attributed the performance to a “challenging banking environment” punctuated by the interest rate caps, which had limited banks’ headroom to price for risk.
Equity Group’s #ticker:EQTY half-year net earnings dipped 7.4 per cent weighed down by lower interest income as the rate cap regime narrowed the lender’s revenue from loans.
Kenya’s biggest bank by customer numbers made Sh9.3 billion in after-tax profit in the six months to June 2017 compared to Sh10.07 billion posted in a similar period a year earlier.
Equity said it currently has 11.7 million customers. Net interest earnings dropped by Sh3.2 billion to Sh17.9 billion from Sh21.2 billion in June 2016 — highlighting the impact of the rate controls, which were not in place in the first half of last year.
Chief executive James Mwangi on Tuesday attributed the performance to a “challenging banking environment” punctuated by the interest rate caps, which had limited banks’ headroom to price for risk.
“The banking industry is facing a perfect storm,” Mr Mwangi said at an investor briefing in Nairobi. Of the seven listed lenders that have so far released their half-year results, none has recorded a growth in net earnings.
Equity’s loan book contracted by Sh3.9 billion in the six-month period to close at Sh265 billion compared to Sh269 billion last June. Non-interest income from fees and commissions grew by a fifth to Sh12.9 billion in the period under review.
Mr Mwangi said the bank’s foreign subsidiaries contribution to earnings doubled to 10 per cent, leaving the Kenyan unit to generate nine out of every 10 shillings the lender makes.
Equity has units in Uganda, Tanzania, Rwanda, South Sudan and the Democratic Republic of Congo.
The bank’s wage bill dropped 15.6 per cent to Sh5.1 billion in the half-year period, attributed to its move to freeze hiring and reduce use of human labour in place of digital channels such as mobile and agency banking.
“We now have 90 per cent of all transactions being made outside the bank, 87 per cent of loans were processed and disbursed via Equitel,” Mr Mwangi said.
Cash set aside to cover for bad loans dropped 3.5 per cent to Sh1.8 billion from Sh1.9 billion in June last year, despite a steep rise in non-performing loans.
Equity Group’s gross volume of toxic loans was recorded at Sh17.4 billion in June 2017 compared to Sh10.7 billion last year, a growth of 62 per cent.
Customer deposits grew by 13.6 per cent to Sh362.7 billion in the period.
The bank’s investment in government securities rose to Sh115.5 billion from Sh73 billion in June 2016, as it chased higher returns from Treasury bonds.
“Yields on loans are now lower due to the interest rate caps,” said Mr Mwangi. “You have to place a bet where the probability of winning is highest.”
