Subsidiaries boost Equity Bank nine-month profit to Sh12.8bn

Equity Bank has announced a 14 per cent jump in after-tax profit for the nine months to September, driven mainly by sharp growth of its regional subsidiaries.

The bank reported Sh12.8 billion net profit for the third quarter, up from Sh11.2 billion in a similar period last year.

“Profit for all regional banking subsidiaries and non-banking subsidiaries grew by 92 per cent. The Kenyan banking outfit contributed 86 per cent of profits down from 94 per cent last year,” said the Equity Group chief executive James Mwangi on Monday.

The bank’s latest acquisition, ProCredit of the Democratic Republic of Congo, contributed Sh440 million to the banks bottom-line. Mr Mwangi disclosed that Equity Bank paid Sh3.4 billion for its 79 per cent stake in ProCredit.

The banking group plans to inject an additional Sh1.6 billion next year into the DR Congo subsidiary to increase its branch network.

South Sudan remained the best performing regional unit for the bank, earning Sh700 million profit before tax. South Sudan’s performance was, however, weighed down by a rising bad loan book. A third of the loans issued in the fragile young nation were classified as non-performing, with the loan book shrinking by 20 per cent.

Equity Bank has operations in Uganda, Rwanda, Tanzania, South Sudan and the Democratic Republic of Congo. The Kenyan unit recorded the slowest growth of nine per cent to post an after-tax profit of Sh11.1 billion.

Equity’s loan book stood at Sh263 billion from Sh206 billion in September last year while customer savings rose to Sh316 billion from Sh243 billion over the same period.

In the three months to September, Equity Kenya increased its provisions for bad loans by 89 per cent (Sh800 million) to Sh1.1 billion, reflecting the sharp increase in interest rates which makes it harder for borrowers to service their debts.

Loan provisions are deducted as an expense in the profit and loss account, underlining the impact that the recent rise in interest rates could have on banks’ performance.

Mr Mwangi noted that the increase in interest rates allows for higher interest spreads for the banks. Equity’s interest spread widened to 11.1 percentage points from 10.9 percentage points in June.

Its non-interest income rose by 29 per cent to 16.8 billion riding on doubling of forex income to Sh1.5 billion and increase in commissions from diaspora remittance business.

READ: Equity Bank plans Sh200 billion ten country expansion

Its non-interest income went up by 19 per cent to Sh25.6 billion resulting in a 23 per cent growth in total income. Its costs, however, rose faster at 28 per cent, which the management attributed to investments in IT.

The lender hopes to pull down its cost-to-income ratio to 42 per cent through reliance on mobile money technology and agency banking supported by its IT system.

Its staff costs in Kenya shrunk by Sh218 million (3.4 per cent) to Sh6.1 billion following a freeze on employment in 2013.

Contracted agents conducted 51 per cent of the bank’s transactions in the nine months to September exceeding the total deals conducted in branches and ATMs.

Equity has also deployed the agency model in Rwanda and the Democratic Republic of Congo.

Equity is the first large bank to release its third quarter financials. The bank’s share price has shed 17.5 per cent of its value at the Nairobi Securities Exchange since the beginning of the year to trade at an average of Sh41 per unit.