Equity doubles profit on loan repayments

Increased loan repayments helped propel Equity Bank Group #ticker:EQTY to a Sh17.9 billion net profit for the first half of the year, signalling a rebound from the pandemic-induced downturn.

The lender almost doubled its profits from Sh9 billion during a similar period last year after cutting back loan loss provision from Sh8 billion to Sh2.9 billion.

Equip Bank Group chief executive James Mwangi said out of the Sh171 billion restructured due to the outbreak of the Covid-19 pandemic last year, Sh103 billion is being paid in time, Sh64 billion is under watch and Sh4 billion has become non-performing.

The lender said it had taken a defensive stance and set aside a huge chunk of its profits to guard against default but the unexpected recovery has allowed it to claw back provisions.

“Compared to last year there was a one-off event in terms of provisioning where we applied strictly prudent IFRS9 to project the lifetime risk that Covid-19 had introduced to our loan book and made a lifetime provision of Sh27 billion on our entire loan book,” Mr Mwangi said.

“The results confirm that the provisions we made were more than enough as coverage remained over 100 percent and we do not see any risk going into the future because out of the entire Sh171 billion that we isolated most of it has bounced back to performing.”

Equity has made more money in six months than it earned in three quarters of last year, setting the stage for better performance in 2021 and promising a huge payout to investors.

Mr Mwangi said the Equity board had recommended a dividend payment of between 30-50 percent of net profits in a lump sum at the end of the year in a return to dividend-paying policy.

Equity withheld dividends for two years in a row to retain cash to help weather the adverse effects of the coronavirus pandemic on loan performance and capital buffers.

Its last dividend payout was on the 2018 performance, with shareholders taking home Sh7.54 billion.

The lender is a big-ticket payer and had planned to increase shareholders’ return to Sh9.4 billion of 2019 dividends but recalled it citing the need to preserve cash in the Covid-19 business environment.

It said money ploughed back helped maintain capital buffers and fortified the balance sheet against cash flow lost on loan accommodation and repayment breaks, which have now eased as customers resume making payments.

Gradual recovery

Equity’s rebound in performance came on the back of easing Covid-19 control measures that has triggered a gradual recovery of the economy, prompting banks to boost lending amid repayment of defaulted loans.

The lender said it had seen the value of transactions rise higher than pre-Covid 19 period giving it confidence of economic recovery and its growth projections.

Its loans now stand at 504.8 billion up from Sh391.6 billion which helped drive interest income up by Sh10 billion.

The bank is very liquid, holding onto Sh219.5 billion in cash and Sh315.5 billion in government securities which Mr Mwangi said will be deployed to more loans to the private sector.

Non-funded income from fees, commissions, and transactions also shot up 45 percent to Sh20.4 billion despite caps on transactions between bank accounts and mobile wallets.

On the cost side, the growth in deposits from Sh543.8 billion to Sh819.6 billion came with a 42 percent jump in interest expense to Sh11.6 billion.

Non-performing loans were up marginally to Sh62.1 billion in the six months to June from Sh59.3 billion at the end of last year.

Equity, which has acquired Banque Commerciale du Congo (BCDC) in the DR Congo, has been rewarded with a huge customer base, a lucrative loan book, and Sh1.1 trillion assets, making it the biggest lender in the region.

However, Kenya remained the most significant market to the lender, bringing in 79 percent of the net profits even as revenues across the subsidiaries -- in Tanzania, Rwanda, Uganda, and the DRC -- increased except South Sudan.