Equity Group net profit rises by a quarter in Q1 to Sh15bn

Equity Group chief executive James Mwangi. 

Equity Group chief executive James Mwangi. 

Photo credit: File | Nation Media Group

Equity Group posted a 25 percent growth in net profit in the first quarter ended March to Sh15.3 billion from Sh12.3 billion in similar period a year earlier.

The growth is attributable to higher income which helped to offset rising costs.

Total operating income for the bank hit Sh50 billion in the period from Sh40 billion previously as net interest income rose the fastest to reach Sh27.8 billion from Sh21.6 billion.

The growth in interest income was largely supported by higher revenues from loans and advances to customers as the bank expanded its implementation of risk-based pricing that lifted lending margins.

Its non-funded income has grown by 21.3 percent to Sh22.2 billion from Sh18.3 billion.

The growth in non-interest income was supported largely by increased fees and commissions on loans and advances alongside higher other fees and commissions, helping offset a 25.5 percent drop in foreign exchange traded income to Sh3.8 billion.

Equity’s balance sheet expanded by 9.6 percent in the three months to reach Sh1.685 trillion despite a shallow three percent loan book growth to Sh779.2 billion from Sh756.3 billion in similar period last year.

The lender has credited the rise in profitability to business diversification and expansion that has allowed the bank to build a stellar balance sheet, navigating macroeconomic headwinds including high interest rates, deteriorating asset quality and geopolitical risks.

“We have a balance sheet that continues to expand, but I would like to point to the agility— where cash and government securities form almost half the balance sheet which gives us the ability to take advantage of any opportunities in the region,” noted Equity Group CEO James Mwangi.

Higher-income for the bank helped offset a 28.1 percent rise in total operating expenses, including a 76.4 percent increase in the lender’s loan loss provision costs to Sh6 billion from Sh3.4 billion.

The growth in the cover for bad loans is attributable to an acceleration in the bank’s gross non-performing loans that surged by 50 percent in the quarter, hitting Sh120.4 billion from Sh80.2 billion in March 2023.

The bank has partly tied the buildup in NPLs to local currency gains that have reduced the value of its foreign currency loan book, lifting the non-performing loans ratio in tandem.

“The stock of NPLs has remained the same, but because 30 percent of our loan book is in dollars, the denominator in the loan-loss ratio has significantly declined and that has been reflected by the growth in the non-performing loans ratio from 11 to 13 percent,” Mr Mwangi added.

Equity expects the NPLs to significantly come down by the end of the year as macroeconomic factors such as inflation and interest rates drop.

The bank’s earnings per share improved to Sh4.08 from an equivalent Sh3.26 in March 2023, a reflection of its improved performance and operation metrics.

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