Equity Bank’s mobile phone loans hit Sh14bn

Equity Bank on Tuesday reported a more than doubling of loans disbursed through its mobile money platform, Equitel, to Sh14.1 billion and a 20 per cent increase in its first quarter profits to Sh5.1 billion.

The bank said 81 per cent of its loans are now being disbursed through the mobile platform, allowing it to cut stationery and staff costs.

“We have issued two million Equitel sim cards of which 90 per cent are activated,” the bank’s chief executive, James Mwangi, said.

The steep increase in the volume of loans disbursed through the phone also benefited from the fact that the average size of loan disbursed through Equitel grew to Sh42,000 from Sh7,000 in December.

Equity’s loan book grew to Sh275 billion in the first quarter compared to Sh224 billion in March last year while customer savings rose to Sh299 billion from Sh276 billion a year earlier.

Mr Mwangi, however, disclosed that Equity cut back on take up of fixed deposits after it tapped into cheap funding from the international market during the Global Entrepreneurship Summit last year.

The bank received Sh20 billion at an average four per cent per annum compared to average fixed deposit rate of 7.5 per cent.

Cheaper funding saw the bank’s net interest income grow 37 per cent to Sh10.4 billion while interest from government security rose to Sh1.2 billion, reflecting the change in strategy that has seen the bank increase its lending to the Treasury.

Equity held Sh62 billion in government securities as at end of March up from Sh42.7 billion in December and Mr Mwangi said the bank invested an additional Sh20 billion in April.

Lending to government, which offers a lower return than loans to private borrowers, is usually an indication of reduced appetite for risk in the productive sectors of the economy.

Mr Mwangi argued that the lending to government did not mean lack of opportunity in the private sector, but a conservative approach that is meant to avoid defaults while utilising idle cash in its books.

READ: Equity Bank raises by 15 times the amount customers can borrow through phone

Equity’s cash holdings dropped to Sh48.3 billion from Sh62 billion last year, a development Mr Mwangi attributed to growth of agency banking that enables agents to use own balances to serve the bank’s customers.

Increased lending to government, however, hit the bank’s balance sheet as it was forced to book revaluation losses of Sh8.4 billion associated with change in prices of Treasury bills and bonds available for sale to the bank.

The results also show that Equity relied on improved performance of its Kenyan operation to wipe off a 45 per cent drop in earnings from its regional subsidiaries.

South Sudan, which devalued its currency by 84 per cent last year, recorded the sharpest profit drop of 95 per cent to Sh20 million.

Rwanda’s earnings dropped by 50 per cent to Sh60 million, Democratic Republic of Congo was down 41 per cent to Sh70 million while Tanzania fell 12 per cent to Sh80 million. Uganda was the only subsidiary to post a growth of two per cent to Sh90 million.

Mr Mwangi attributed the drop in profits at Equity’s subsidiaries to increased investment in branch expansion and a change in loan provisioning guidelines in Rwanda.

“In Tanzania, we doubled our branches from six to 13 while in DRC we opened additional 19 branches. Kenya can afford us a luxury to show an increase in profits even as we grow the subsidiaries,” he said.

Management said it was not considering acquiring a lender in the Kenyan market, noting that the process consumed a lot of resources and time to integrate merged operations.

There has been speculation of mergers and consolidation in the Kenyan banking sector following turbulence that has mostly affected small lenders.

KCB is in the process of conducting a due diligence on Chase Bank, which is under statutory management, while I & M is wrapping up the acquisition of Giro Bank.

Data from Central Bank of Kenya shows the banking sector did not grow in the first quarter of the year, a rare happening for an industry that has consistently posted double digit growth in the past five years.

The CBK data shows that bad loans rose to eight per cent of the total loan book including at Equity Bank which has a non-performing loans ratio of 3.8 per cent.

The turbulence in the banking industry has been associated with the recent collapse of Dubai Bank, Imperial and most recently Chase Bank under the weight of massive fraud and reckless insider lending.

Equity Bank has Sh2.3 billion in insider loans, which management said has been taken by executive directors. The bank said it has a policy against lending to non-executive directors nor doing any business with them.

Executive directors can access car loans and mortgage. Mr Mwangi said he does not have a loan with the bank.

CBK has called for an audit of all insider loans in the industry.