Equity Group's net profit for the year ended December 2023 fell by 6.48 percent to Sh41.98 billion after the lender doubled its provisioning for bad loans in the period.
The bank retained its dividend for the year at Sh4 per share –or a total payout of Sh15.1 billion– despite the fall in net profit.
Equity's provisions rose to Sh35.25 billion from Sh15.4 billion in 2022, reflecting a jump in its gross volume of bad loans to Sh114.6 billion in December 2023 from Sh63.13 billion in 2022.
The bank's chief executive officer James Mwangi said that the lender decided to raise its provisioning in the last quarter of the year, identifying the real estate, manufacturing, transport and logistics sectors as the key drivers of non-performing loans.
There was also a rise in NPLs from companies waiting for payment from the government, reflecting the knock-on effect of the State's pending bills on the wider economy.
Mr Mwangi added that the bank also refrained from adjusting the base interest charge on personal loans that were active as at January 2023 even as the Central Bank of Kenya raised its base rate progressively to 12.5 percent by the end of the year.
These loans accounted for 32 percent of its loan book, Mr Mwangi said, leading to interest income growing at half the pace of interest expenses.
“Despite the rise in the cost of funding, we did not adjust the base rate on personal loans equivalent to 32 percent of our loan book, effectively keeping them at 13 percent. This means that our interest income grew at nearly half the pace of interest expenses,” said Mr Mwangi.
Equity's loan book was up by 26 percent to Sh887.4 billion, while customer deposits were up 29 percent to Sh1.36 trillion.
Net interest income rose by 21 percent to Sh104.2 billion, while non-funded income was up 30 percent to Sh75.9 billion.
The bank's costs rose by 57 percent to Sh178.2 billion, mainly due to the higher provisioning for bad loans.
Subsidiary performance
The Kenyan operation accounted for the bulk of NPLs at 69.6 percent in 2023.
It also accounted for the lion's share of new provisions, where its local loss cover went up to Sh22.98 billion from Sh7.84 billion in 2022.
The unit's contribution to the Group's net profit stood at Sh26.7 billion, down from Sh33.4 billion in 2022.
The DRC operation, meanwhile, saw its contribution rise to Sh12.1 billion from Sh5.8 billion in 2022.
Equity Bank Rwanda saw its contribution rise to Sh4.2 billion from Sh2.8 billion, partially boosted by the integration of Cogebanque in December after the conclusion of Equity's acquisition of the Rwandan lender in November 2023.
