Companies

Equity beefs up credit unit in bid to reduce rising bad debt

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Equity Group chief executive officer James Mwangi. FILE PHOTO | NMG

Equity Group #ticker:EQTY has created the position of group credit officer to reinforce its loan appraisal, monitoring and collection processes as it targets to cut at least Sh30 billion of the current non-performing book in under three years.

The changes happened in the quarter ended March when the group closed with Sh63.48 billion gross non-performing loans and advances, up from Sh44.64 billion in March last year.

Equity Group chief executive James Mwangi said the changes were in appreciation of the Covid-19 economic fallout that has brought forth credit default as one of the major risks in the banking sector.

“We have decided to strengthen our credit management by putting up the group credit function and creating a chief credit officer position,” said Mr Mwangi.

“(The chief credit officer role is) to lead credit underwriting and credit administration within the group, to intensify credit monitoring and where necessary credit collection.”

Equity Group restructured Sh171 billion or 31 percent of its loan book to accommodate customers through means such as repayment extensions on the back of Covid-19 disruptions.

The group last year made Sh26.63 billon provisioning for loan default in appreciation of the difficulties that were facing borrowers.

“We decided to create a dedicated team for this. Even if staff costs are Sh500 million or even Sh1 billon in three years and we collect just half (of gross NPLs) in this period, shareholders will have a windfall,” said Mr Mwangi.

Provisioning for loan defaults was partly the reason the lender posted 11.6 per cent decline in full year profit to Sh20 billion.

However, the first quarter net profit for 2021 showed a rebound, closing at Sh8.7 billion — a 64 percent rise from Sh5.3 billion posted in a similar quarter last year.

Loan loss provisions for the quarter ended March fell to Sh1.26 billion from Sh3.11 billion in a similar quarter last year, with the lender saying it had already made enough provisions last year.