Equity Bank plans to aggressively grow its loan books outside Kenya and increase the subsidiaries share of profits to 40 per cent of the group earnings from the current 10 per cent.
Besides growing its transaction incomes, Equity is now turning to Uganda, Tanzania, South Sudan, Rwanda and Democratic Republic of Congo for growth to cut reliance on the Kenyan market.
Equity Bank #ticker:EQTY expects the share of profit from its regional subsidiaries to grow four-fold in five years as it counts on the foreign units to ease effects of interest rate cap imposed on commercial banks last year.
The bank plans to aggressively grow its loan books outside Kenya and increase the subsidiaries share of profits to 40 per cent of the group earnings from the current 10 per cent.
Lenders in Kenya have seen their profits fall since the government capped commercial lending rates last September, arguing banks were not passing on the benefits of growth in the industry to their customers in the form of affordable credit.
Besides growing its transaction incomes, Equity is now turning to Uganda, Tanzania, South Sudan, Rwanda and Democratic Republic of Congo for growth to cut reliance on the Kenyan market.
These subsidiaries contributed 22 per cent of its loan book in the first half to June and 10 per cent of the group’s profits in the six months, up from five per cent in a similar period last year.
Uganda profits grew 139 per cent in the first half, Rwanda (75 per cent) and Tanzania (55 per cent) in a period that saw group earnings fall 6.6 per cent—a pointer that it’s Kenyan unit dragged down Equity.
“Compare that with Kenya, then you can see how our diversification strategy is likely to play out because the subsidiaries have huge headroom for growth because they are young and the markets have great opportunity than Kenya,” Equity Group Chief Executive Officer James Mwangi told analysts last week.
“We can sustain their growth rate and project the next five years the subsidiaries will be able contribute 40 per cent of the group profits that will then mitigate the challenge of interest capping if it is sustained in Kenya,” he added.
A year ago, the government capped commercial lending rates at four percentage points above the central bank rate, which stands at 10 per cent, and also imposed a minimum deposit rate of 70 per cent of the central bank rate.
The Central Bank of Kenya last week faced opposition from MPs and a consumer lobby after signalling its to push for a repeal of the law capping interest rates.
Equity in the first half also increased income from its non-lending business, such as mobile banking commissions and trade finance.
Income from that segment rose 20 per cent from the same period last year, to Sh13 billion.
“The group continued to evolve its business model to weather the interest capping effects by focusing on growing the non-funded income,” Mr Mwangi said.
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