Equity’s half-year profit up by 18pc to Sh10bn amid cuts in lending

Equity Group on Monday reported an 18 per cent growth in after-tax profit in the half-year ended June as it cut ordinary lending in favour of buying government securities.

The Nairobi Securities Exchange-listed firm’s net profit in the period stood at Sh10.1 billion compared to Sh8.6 billion the year before.

The lender’s loan book shrunk by Sh6 billion in the three months to June as its investments in government bonds and Treasury bills rose by Sh22 billion in the same period, indicating increased conservativeness.

“Interest earning assets grew by 19 per cent to Sh342 billion driven by a 44 per cent growth in government securities which rose to Sh73 billion,” said the bank’s chief executive, James Mwangi.

Equity becomes the second large lender to report it was cutting back on the risky ordinary lending as non-performing loans pile up in the sector, following Standard Chartered’s reporting last week.

The bank’s non-performing loans rose to Sh12.9 billion in the half year to June, representing 4.6 per cent of its total loan book, from Sh10.8 billion. Its loan loss provision increased 272 per cent to Sh1.2 billion.

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Non-performing loans have been a major headache in the banking sector rising to a decade high Sh172 billion, or 8.2 per cent of the industry loan book. The rise in bad loans has been attributed to high interest rates and delayed payments to contractors by the government.

Equity’s loan book stood at Sh269 billion in the review period, earning it Sh19.1 billion in interest income.

Customer savings rose 9.7 per cent to Sh259 billion. It paid out Sh2.9 billion in interest to customers for the deposits up from Sh2.5 billion in June last year.

The bank’s net interest margin rose to 12.5 per cent from 10.9 per cent. Equity earned Sh2.8 billion for its investment in the government securities.

Its regional subsidiaries reported a 19 per cent drop in profit before tax following a dip in the South Sudan operation to loss territory.

The subsidiaries reported a total of Sh750 million in profit which constituted five per cent of the group profitability down from eight per cent last year.

South Sudan reported a loss of Sh50 million down from a profit of Sh460 million a year ago.

ProCredit Bank of DRC, acquired by Equity last year, posted a five per cent drop in profit to Sh240 million. Tanzania was down 14 per cent to Sh170 million while Rwanda declined 25 per cent to Sh160 million.

Mr Mwangi attributed the drop in profitability to expansion costs. He said the lender had opened six new branches in Tanzania and DRC and two in Rwanda.