Equity Group regional units grow profit contribution to Sh15.3bn
Equity Group CEO James Mwangi during the announcement of the bank's 2023 financial results at the investor briefing at Equity Centre in Nairobi on March 27, 2024. PHOTO | WILFRED NYANGARESI | NMG
Equity Group's regional subsidiaries grew their contribution to the bank’s net profit by a third to Sh15.3 billion in the year to December 2023, cutting the dominance of the Kenyan unit whose contribution dipped last year as increased provisioning for non-performing loans hit profitability.
The lender’s net profit fell by 6.48 percent to Sh41.98 billion in 2023, largely on account of increasing the provision for bad loans to Sh35.25 billion from Sh15.4 billion in 2022.
This was after a jump in its gross volume of bad loans to Sh114.6 billion in December 2023 from Sh63.13 billion in 2022, majorly attributed to tough economic conditions in Kenya, including high inflation and currency depreciation.
As a result, the Kenyan banking unit saw its net profit decline to Sh26.7 billion in 2023 from Sh33.4 billion in 2022.
The slack was picked up by the bank’s regional subsidiaries, mainly the Equity BCDC in Congo DRC which doubled its net profit 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 Rwandese lender in November 2023.
Equity has been betting on the regional units to grow its business—particularly the DRC subsidiary—seeing them as having more headroom for growth due to their lower bank account penetration ratio compared to Kenya.
“The group is no longer challenged by a single sovereign risk. This is now well spread within the six countries within which we operate,” said Equity Group chief executive officer James Mwangi yesterday.
“The critical thing is how we are performing in DRC. We spoke in the past that the DRC operation would at some point challenge Kenya, and evidence is now on the table, based on how it has performed in terms of return on assets.”
The difference in the performance of the regional units compared to Kenya was also a factor of macroeconomic conditions, where Kenya fared worse in terms of food prices and currency depreciation compared to her neighbours.
Mr Mwangi said that the bank refrained from adjusting the base interest charge on personal loans in Kenya that were active as of January 2023 in recognition that borrowers were under strain from high inflation, 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.
Adjusting the base interest rate for the retail borrowers would have added up to Sh36 billion in non-performing loans, as per Equity estimates.
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 nonfunded 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.
The bank maintained its dividend for the year at Sh4 per share–or a total payout of Sh15.1 billion– despite the fall in net profit.
