Equity Bank has sent home 400 employees despite reporting an 18 per cent rise in after-tax profit for the nine months to September.
James Mwangi, the bank’s chief executive, said the lender’s profit after tax rose to Sh15 billion from Sh12.8 billion in a similar period last year.
Mr Mwangi said the bank’s workforce declined by 400 in the nine months owing to natural attrition — continuing a trend that started last year when it shed 660 jobs through voluntary exits.
“Last year, natural attrition took about 600 staff but this year it’s 400 and that is why despite the 20 per cent salary increment our staff costs are still flat,” Mr Mwangi said.
Equity has officially announced a freeze in staff recruitment as it shifts its operations to technology-driven platforms such as Equitel and agency banking.
Information released on Thursday shows that the bank’s payroll costs rose four per cent to Sh8.7 billion, mainly driven by the pay rise for staff.
The banking sector has in the past 15 years been one of the major employment creators in the Kenyan economy, and the recent announcements of job cuts signal a troubled labour market.
Two other lenders, Sidian and Family Bank, have announced job cuts as the banking industry joined manufacturers in the race to the bottom that is mainly underlined by redundancies.
Interest income was the key driver of Equity’s profit growth even as its Kenyan loan book shrunk for the second quarter in a row, underlining low appetite for credit in the private sector.
The Kenyan loan book shrunk by Sh1.3 billion to Sh221 billion, following a trend that began with the Sh7 billion drop in June.
“The debate on capping of interest rates started late last year and the public took a wait-and-see approach,” said Mr Mwangi.
The slowdown in private borrowing forced Equity to increase its stock of government securities, which rose to Sh62.7 billion from Sh34.9 billion a year ago and Sh63.7 billion in June.
Equity’s customer savings in Kenya, however, increased to Sh271 billion from Sh259 billion three months earlier — a development the management attributed to public flight to safety following the collapse of three banks in the last 15 months.
Slow credit expansion since the beginning of the year has been a major concern for policy makers as it points to a slowdown in economic activity.
Capping of interest rates at 14 per cent, which took effect mid-September, was expected to spark credit appetite and revamp the economy.
Analysts at Standard Investment Bank and Standard Chartered Bank have reported that banks have recently tightened the loans appraisal procedure, stifling credit expansion.
Equity’s interest income shot up 26 per cent to Sh39.8 billion despite the stunted loan book growth, signalling high returns from government paper.
Non-interest income, however, contracted by 1.2 per cent to Sh16.6 billion on lower income from loan fees and commissions, which dropped from Sh4 billion to Sh2.9 billion between September 2015 and September 2016.
Equity doubled its loan loss provision during the period, from Sh1.69 billion to Sh3.3 billion.
The gross non-performing loans at the bank rose by 40 per cent to Sh16.5 billion, which is equivalent to six per cent of the loan book.
“The increase in provisions has been informed by strategic decisions to recognise that loans underwritten at a higher yield have had their interest adjusted downward,” Mr Mwangi said.
The bank’s foreign subsidiaries reported a 27 per cent drop in profit before tax following South Sudan’s slump into loss-making.
South Sudan reported a loss of Sh100 million following prolonged instability in the country while Rwanda reported a 16 per cent drop to Sh300 million.
Uganda reported a 130 per cent jump in profits to Sh500 million, which is equal to the contribution by the bank’s latest subsidiary, the Democratic Republic Congo. Tanzania returned a profit of Sh300 million.