Equity Group #ticker:EQTY defied the much disliked interest rates cap to post an 8.1 percent jump in net profit to Sh15.8 billion for the first nine months of the year, the bank’s CEO, James Mwangi, said.
The performance, covering the period up to end of September 2018, is an improvement from the Sh14.6 billion posted in a similar period last year. Interest income remains a key driver of the bank’s profitability despite predictions that the capping of cost of loans would slow down banking sector profitability.
“It is a single digit growth rate but it has been achieved in a very turbulent micro-economic environment,” Mr Mwangi said, adding that there was a 200 basis points reduction in yields on government securities and 100 basis points shave on yields on loans besides a deterioration in the quality of the loan book during the period. Equity also picked some gains from proper management of operating costs.
The bank’s net interest income grew 7.2 percent to Sh29.5 billion as it capitalised on increased investment in government securities and expanded the loan book.
Net loans grew by nine per cent to Sh288.4 billion while government securities grew 24 percent to Sh159 billion.
Mr Mwangi maintained that with the interest rate cap remaining in place, the bank has continued to focus on parking excess liquidity in government paper.
“With a liquidity ratio of 58 percent in September, our balance sheet is agile for opportunities should there be changes in law,” he said.
Equity also managed to cut its operating expenses by 3.9 percent or Sh1.12 billion to Sh26.89 billion, despite a 6.7 percent drop in non-interest income to Sh19.8 billion.
The group’s profitability was particularly supported by a 54 per cent drop in loan loss provision to Sh1.32 billion from Sh2.89 billion in a similar period last year even as the non-performing loans (NPLs) ratio rose to 8.7 percent from 7.4 percent last year. The spike in NPLs was linked to four large enterprises that pushed large enterprises NPL ratio to 14.7 percent from zero percent in September 2017.
Director of credit Elizabeth Gathai said the cut in provisioning despite a spike in NPL is linked to a Sh9.8 billion provisioning made on Sh265.3 billion loan balances as at end of December 2017.
“International Financial Reporting Standards (IFRS) 9 gave us a one off opportunity to adjust expected credit losses through equity. That is why you are not able to see it going through income statement,” said Ms Gathai.
Equity's digital strategy continued to deliver as 79pc of transactions moved to Equitel and the mobile app, leaving branches with only 3 percent.
The rest of the transactions were undertaken by agents and at ATMs.
However, in terms of value of transactions, branches commanded 49 percent down from 51 percent in the third quarter of 2017.
"We are now 13 million customers and we believe the convenience of digital platform is bringing in a phenomenal difference. Fintech innovation and digitization is becoming a net deposit mobilizer," said Mr Mwangi at the investor briefing this morning as he predicted better results from the region.
"The region is depicting a strong economic outcome of about six per cent. This will support growth in the subsidiaries," he said.