Markets & Finance

Equity subsidiaries contribute Sh750m to its net earnings

OWTBANK-1405

Equity Bank CEO, James Mwangi. According to the company’s annual report, the subsidiaries’ net earnings stood at Sh750 million, contributing 7.1 per cent of the group’s total profit after tax of Sh10.4 billion. Photo/FILE

Equity Bank subsidiaries for the first time contributed to its profit indicating maturity of the lenders’ diversification strategy to both regional markets and other financial services.

According to the company’s annual report, the subsidiaries’ net earnings stood at Sh750 million, contributing 7.1 per cent of the group’s total profit after tax of Sh10.4 billion.

The bank has subsidiaries in Uganda, South Sudan, Rwanda and recently Tanzania, with its share listed in Nairobi and Uganda securities exchanges.

It also operates an insurance agency, custodial services, investment banking and has majority stake in Housing Finance.

Outside Kenya, where the bank made a net profit of Sh9.7 billion, South Sudan was the leading market returning Sh518 million up from Sh296 million in 2010.

The improved performance followed the injection of Sh444 million as additional capital in the subsidiary and increase of its branches to seven from three in 2010.

“Though the economic conditions were similar in the region, regulators reacted in different ways which gave us the opportunity to push in some markets while being strategic in others,” said chief executive James Mwangi during an investor briefing.

The Uganda business, having opened in 2008, broke even during the year to return a net profit of Sh13 million from a loss position of Sh769 million in 2010. The bank’s management has admitted before that its buying of Uganda Microfinance Limited was ill-advised as it had to struggle with the burden of non-performing loans before making profit.

“The Kenyan banks are gaining traction in the regional market between a balance of improved lending and cost management,” said Francis Mwangi, an analyst with Standard Investment Bank.

Total expenses for the Equity Bank Uganda declined 22.5 per cent to Sh1.3 billion while operating income rose 42.1 per cent to Sh1.3 billion.

Late last year, the bank invested Sh1 billion to enter Rwanda.

The subsidiary reported a loss of Sh59 million. Following its entry into the Tanzania market early this year, Equity has now declared a halt to its regional expansion in order to consolidate its market.

“Now that we are big it is important to protect and build what we have, so we have made a conscious decision,” said Mr Mwangi.

The bank’s insurance brokerage grew its earnings threefold to Sh157 million from the previous year’s Sh52 million. Equity Nominees Ltd, charged with conducting the bank’s custodial services, posted a net of Sh55 million.

From its 24.85 per cent shareholding in Housing Finance the bank will earn Sh155 million in dividend income, up from Sh95 million in 2010 following a 63.9 per cent growth in the mortgage company profit to Sh622.2 million.

The inactive Equity Investment Bank made a net loss of Sh89 million. The bank, however, injected an extra Sh100 million into the venture in line with statutory requirements as it arms itself to relaunch it at the end of this month.

“We have brought in Jumaane Tafawa to head investment banking. The employees are already there and we expect to roll out by end of March,” said Mr Mwangi without giving details.

The bank aims at reopening the business with a new model, which targets to offer services to its existing clientele.

Regional and business diversification has caught the eye of banks as competition in industry intensifies.

Regional expansion is becoming important as the East African Community (EAC) common market takes shape, opening way for free trade in a region with 126 million people.

Kenyan companies are racing to open subsidiaries in the regional countries with banks following suit in an effort to offer seamless banking services in EAC. CFC Stanbic and Co-operative bank are the latest to announce plans of regional expansion, both targeting South Sudan.

NIC is expanding further to Uganda, with KCB opening in Burundi by end of April.

Other banks that are playing in the regional space include Fina Bank, DTB, I& M and Imperial Bank.

The regional subsidiaries contributed 10.4 per cent of KCB group profit of Sh10.9 billion and 15.4 per cent of DTB’s profits of Sh2.6 billion.

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